In an April 2012 decision that is only starting to reverberate in workers’ compensation circles, the United States Court of Appeals for the Sixth Circuit has held that a state workers’ compensation system does not preempt the civil provisions of the federal Racketeer Influenced and Corrupt Organizations Act (RICO). Workers’ entitlements to benefits, and/or the benefits themselves, under a state workers’ compensation scheme qualify as “property” that can be injured, creating a RICO right of action for treble damages in certain circumstances.

The plaintiffs in Brown v. Cassens Transport Co., 675 F.3d 946 (6th Cir. 2012)claimed that the self-insured employer, through its third party administrator (TPA), conspired to secure fraudulent medical reports from various doctors to deprive workers of their benefits. This conspiracy was accomplished by “mail or wire,” rendering RICO and its treble damages potentially applicable. Plaintiffs alleged that the fraud harmed them by forcing them to settle their cases under the Michigan Worker’s Disability Compensation Act for less than if the medical evidence had been honestly evaluated.

Brown will not immediatelyopen the floodgates of RICO litigation in the workers’ compensation arena. The plaintiffs originally filed in June 2004. They ultimately reached the U.S. Supreme Court on the issue of whether they had to rely upon, rather than just be damaged by, fraudulent representations. On remand, the district court dismissed the suit, holding that the Michigan Act was an exclusive state remedy that preempted RICO. It was the plaintiffs’ appeal from that dismissal that the Sixth Circuit decided. The current decision only means that the plaintiffs may proceed with their case, not that they have prevailed. Further appeals have already been filed.

Opinion's effect may vary from state to state

RICO applies where conduct illegal under specified state or federal laws, including mail or wire fraud, has an impact on interstate commerce. The Sixth Circuit extensively analyzed whether workers’ compensation benefits and/or entitlement to them constituted the kind of property interest amenable to RICO. The defendants and the court below focused on the personal injury underlying a workers’ compensation claim as not being the kind of property to which RICO was applicable. The Sixth Circuit rejected this analysis, finding that RICO did not exclude property interests based upon how they originated. The property interest is the statutory entitlement and/or the benefits to which a claimant is entitled. The wording of the Michigan Worker’s Disability Compensation Act reinforced this interpretation because it removed discretion about whether to award benefits. A different state’s law allowing an employer initially to contest benefits, like Ohio’s, might not create the same kind of property interest.

The Sixth Circuit noted that the definition of “property” usually is a matter of state law and therefore explored whether workers’ claims and/or the expectancy of workers’ compensation benefits would be property in Michigan. It concluded both would constitute property there. A further complication was whether the plaintiffs’ damages were quantifiable given that their claims already had been settled or adjudicated. The Sixth Circuit reasoned that the plaintiffs’ damages would be based on what they would have received but for the allegedly fraudulent medical testimony.

Ohio may prove fertile ground for RICO arguments

Although a final outcome of Cassens may be years away, it has been imitated in other workers’ compensation litigation. Several lawsuits have been filed in Northeast Ohio jurisdictions against particular medical practices in specific claims alleging violation of Ohio Revised Code 2923.32, the Ohio Civil RICO Statute. The complaints focus upon the medical practices’ use of boilerplate language to deny increases in permanent partial disability in already allowed claims. Ohio may prove a more fertile ground for this kind of suit given its historic recognition of a tort for “bad faith claims handling” by a self-insurer in Balyint v. Arkansas Best Freight Sys., 18 Ohio St.3d 126 (1985).

The majority opinion in Cassens was authored by Clevelander Karen Nelson Moore, who before having been appointed to the federal appellate bench was a professor at Case Western Reserve University School of Law.