Complaints to an employer about possible illegal behavior or threats to report illegal behavior are not enough.  The employee must report it.  And the report must concern the violation of a federal law and be made to a federal official, such as the F.B.I., I.R.S., U.S. Attorney’s office, the Department of Homeland Security (overseeing immigration law), the Department of Labor (overseeing Sarbanes-Oxley Act violations), or some other federal agency.  Reporting a state law crime to a state or local official such as the police do not count.  (Although some state RICO laws have corresponding provisions which cover reports to state and local law enforcement officials.)

Mr. DeGuelle reported his employer’s alleged violations of the Sarbanes-Oxley Act to the Department of Labor.  He was subsequently fired.  He claims the firing was retaliatory.  His employer claims he was fired for violating company rules prohibiting the disclosure of confidential information to third parties. (This raises a catch-22.  How can an employee report a federal crime if his employer prohibits doing so?  And is the employer with such a rule then within its rights to terminate the employee without being subjected to a charge of retaliation?   I will not sort this out here.)  A jury in Wisconsin will ultimately decide who to believe.  Ironically, after receiving DeGuelle’s report, the Department of Labor responded by telling him his employer was not subject to Sarbanes-Oxley Act and took no action.  But this did not undermine his retaliation claim.  1513(e) does not require that the law enforcement officer do anything after receiving the employee’s report. In fact, the employer could be vindicated and the employee would still have a valid retaliation claim if he was punished for making the report.  1513(e) was enacted to encourage whistleblowers to come forward.  It does not require they be right.

Potential RICO plaintiffs must also keep in mind that a single RICO violation is never enough for a civil RICO case.  The statute requires at least two violations, but even two is usually insufficient.  A “pattern of racketeering activity” is needed.  As I stated last month, Mr. DeGuelle cleverly combined his employer’s alleged racketeering activity about which he blew the whistle, tax frauds made to the I.R.S., with his own retaliatory firing, to create a pattern.  The district judge rejected that construction, believing they were unrelated “schemes.”  But the Seventh Circuit agreed with Mr. DeGuelle’s description of all of the acts as a single scheme in which all of the violations, the tax frauds, were related to his firing.  He categorized the firing as a “cover up” of the crimes, thereby tying them together, at least for pleading purposes.

Potential whistle-blowers should document their acts carefully.  If they complain to a federal law enforcement officer, they need to know who they spoke to, and which agency that person works for.  Then if they are subsequently retaliated against, they must have some basis for alleging the retaliation was indeed retaliation for the whistle-blowing and not for a legitimate cause.  Sometimes employers will tell an employee why they are being terminated.  Sometimes they will not.  Generally, under the employment at will doctrine, an employer can fire an employee for any reason or no reason.  But an employee whose employment contract requires cause for termination or demotion should demand to know why they are being let go.  In such cases, there is often a pretextual reason given.  A whistleblower with good RICO lawyer should be able to do what Mr. DeGuelle did, craft a complaint which highlights the real (in his view) reason for his termination.

Recently, the Seventh Circuit Court of Appeals in Chicago issued its decision in DeGuelle v. Camilli,  _F.3d_, 2011 WL 6287913 (7th Cir. December 15, 2011), which reversed the dismissal of an employee’s retaliatory firing case against his former human resources (“HR”) director and executives of S.C. Johnson & Son, Inc. (“SC”), a large manufacturer of consumer goods with 12,000 employees.  Mr. DeGuille was employed in SC’s tax department and was allegedly told to fabricate tax information and file false returns to the I.R.S.  When he complained to the company’s HR Director, he was given a negative performance review.  Again, according to his complaint, DeGuelle’s superiors told him the negative review was retaliation for his repeated complaints about the tax fraud scheme.  DeGuelle then threatened to file a federal retaliation complaint against the company under the Sarbanes-Oxley Act’s whistle-blower protection provisions.  DeGuelle’s superiors then offered to  rescind the negative review and give him a raise if he would sign a confidentiality agreement, essentially hush money not to go to the feds.  He refused and filed the complaint as well as documents which supposedly exposed the tax fraud SC had been perpetrating for years.  SC fired DeGuelle for disclosing confidential company documents and sued him for damages.  DeGuelle counter-sued with a RICO suit predicated upon SC’s pattern of mail fraud (perpetrated against the IRS), tampering with a witness (18 U.S.C. 1512(c)(1), namely him by offering him a raise in exchange for confidentiality), destruction of tax records, and his termination as retaliation for blowing the whistle, a violation of 18 U.S.C. 1513(e)(the paragraph added in 2002).

So, DeGuelle’s RICO complaint  alleged one long scheme of racketeering activity commencing in 2000 with the underlying tax fraud and culminating in his retaliatory firing.  The district court interpreted this as two separate schemes:  the tax fraud and the retaliation.  Not only were the schemes separate, but the predicate acts comprising them were not related because they were committed by different SC officers (the tax department and the HR department).  So the upshot was that the complaint did not allege a pattern of related predicate acts, which is necessary.  The district court dismissed the case.

The Seventh Circuit agreed with DeGuelle’s interpretation of the RICO violations: one long pattern of tax fraud followed by efforts to cover it up by tampering with him and the retaliatory firing.  Reading it this way, the complaint stated a RICO pattern.  The opinion also held that the complaint adequately alleged a conspiracy among the tax department and HR employees to damage DeGuelle.  So his RICO conspiracy claim against all of them was allowed to proceed even though he alleged no direct evidence that they all formed an agreement to fire him.  The agreement to do so was adequately described by the circumstantial evidence of what each conspirator did.

Overall, the Seventh Circuit was generous in interpreting DeGuelle’s complaint so as to allow his RICO claim to proceed.  It has not usually been so.  Most RICO cases are disposed of in the district courts, and the Seventh Circuit typically affirms the dismissals.  But 2011 saw the Court revive two civil RICO cases.  The earlier one, BSC Services, Inc. v. Heartwood 88, LLC, 637 F.3d 750 (7th Cir. 2011) significantly lightened the plaintiff’s burden in establishing causation.  So 2011 was the best year for RICO cases from this Court since the heyday of the early 1980’s.

This case could lead to many more RICO actions predicated upon retaliation against whistle-blowers.  And keep in mind the retaliation need not be a firing or even employment related..  The statute, which I’ve quoted above, prohibits actions “harmful to a person, including interference with the lawful employment.”  So a threat which causes some sort of damage to one’s “business or property” could suffice.  (RICO does not allow recovery for personal injuries because they are not to “business or property.”)  On the other hand, the retaliation must be in response to the whistle-blower’s actions to expose wrongdoing in a federal proceeding, i.e., a federal agency or court.   But I expect to see quite a few more RICO whistle-blower cases.  The Plaintiff’s bar is creative, and ultimately, needs to be reined in when it goes too far.

IRCA made the use of a document pertaining to someone else or a forged document on an I-9 form a felony.  18 U.S.C. sec. 1546.  So someone who has entered the U.S. illegally cannot be authorized for employment.  Perhaps if such a person were independently wealthy and had never been employed, it might be in our national interest to give that person amnesty and allow him or her to remain here for life.  But how many illegal immigrants are independently wealthy and have never held a job?  After all, IRCA makes it clear that  employment opportunities are the magnet that draws the illegal immigrants here in the first place.  So a long-term illegal immigrant is likely to be a serial felon, a person who has used false social security cards to get employment many times and coupled the document fraud with perjury by signing the form, i.e., swearing to the authenticity of the documents, under oath.  In a jurisdiction that really enforced IRCA, such people would be in federal prison. As one federal court aptly put it, “Illegal aliens are not ‘law-abiding citizens’ or members of the political community, and aliens who remain  in this country illegally and without authorization are not Americans as that words is commonly understood.”  United States v. Portillo-Munoz,  _ F.3d _ (5th Cir. 2011).

Even apart from employment, it is very difficult to ”play by the rules” in this country without a social security number.    They are required on all tax returns.  (Legally admitted aliens are given social security numbers.)  So it is also quite likely that our long-term illegal immigrants are not filing tax returns, which is another felony.  In short, it is not possible for illegal immigrants to live in this country without systematic, serial law breaking of a serious nature.  For a former Speaker of the U.S. House of Representatives not to know this (or President Obama, for that matter, who makes the same absurd comments about illegal immigrants “playing by the rules”), is unforgivable.  More likely he knows these people are serial felons and is simply pandering for the approval of the editorial pages of the New York Times and other mainstream media.   

At the very least, we should demand that any illegal immigrant seeking amnesty make a full confession of all their crimes, as with any plea bargain.  They should be required to list every employer who hired them so that those employers can be investigated for IRCA violations, identify every person who provided them with false social security cards so those felons can be apprehended, and pay their back taxes with the same penalties and interest that would apply to an American citizen who failed to file returns for years.  And I predict that if this deal were offered to the long-term illegals, they would rather self-deport than “play by the rules.”

There are two major problems.  First, DHS is headed by Janet Napolitano, who would be in charge of enforcement of the new law.  She and her boss, President Obama, do not support it.  And enacting any law without the full commitment of the executive branch is likely to be a huge waste of time.  We already have the Immigration Reform and Control Act on the books, which requires employers to examine the social security cards and other employment verification documents presented by employees.  It is not well enforced.  The Obama Administration has announced its IRCA enforcement will be limited to selective audits of egregious violators.  Those have been rare, and the illegal workers are merely fired, not fined or deported.  As for the employers, I have seen no high profile indictments for hiring illegal workers.  Violations of IRCA are legion, and many small employers do not comply at all.  The administration could care less as it tries to appease the Hispanic lobby in advance of the 2012 election.

Enacting a new law with a mandate to crack down on illegal immigration will go unenforced.  The second problem is the law will also pre-empt states from enacting their own E-Verify laws, similar to Arizona’s, which was upheld by the Supreme Court.  At least some states, particularly Arizona, Alabama, Georgia and South Carolina, are stepping into the void.  We should encourage more of them to enact mandatory E-Verify laws which they can  and will enforce.  (Recently a federal judge in Alabama upheld this part of that state’s new immigration law.  The Obama Justice Department is appealing the decision to the Eleventh Circuit, which will almost certainly affirm that part of the decision and likely all of the others.)  Preemption is the bane of state-level imigration enforcement.  IRCA provides that states cannot pass their own laws prohibiting the employment of illegal aliens.  So the state laws do not do so.  Rather, they can do other things which are not pre-empted, such as requiring employers to use E-Verify, arresting illegal immigrants for driving violations, prohibiting the enforcement of contracts made by illegal immigrants in court, etc.

Congressman Lamar Smith has been a great supporter of immigration enforcement.  He probably has good intentions, and perhaps anticipates a new president will be enforcing the laws in 2013.  But the downside of preemption is too great, and the risk that the new law will go unenforced, even by a new administration is significant enough that the matter should be left to the states.  Rep. Smith’s bill also would enact a new guest worker program for agriculture.  He realizes the vast majority of farm workers cannot pass E-Verify and needs to appease that industry.  We should not do so.  We already have the H-2A guest worker program which allows growers to use foreign workers when they are unable to find local workers.  Growers are never able to find legal local Americans to take their hard jobs at the minimum wage.  The solution is to let the market work.  We have 9% unemployment.  Many Americans need jobs and will take them for market wages.  Yes, this means the growers will have to pay more, but no more than other industries pay for American labor.   Some of them will choose to automate, like farmers in the Midwest, which rely on combines to pick their corn and soybeans rather than people.  This should have occurred decades ago in the West.  It hasn’t because the federal government has propped up the inefficient cheap-labor model by not enforcing the immigration laws.  Forcing growers to pay market wages may cause some of them to close down if their average cost of production exceeds the competition.  Let them go out of business.  Their business model is both criminal and inefficient.  Our economy is better off without them.

“Proximate causation” has been required under RICO since 1992.  That means a plaintiff must be able to prove that the alleged RICO violation was close enough to his (or its) injury to be deemed the “legal cause” of that injury.  There is no simple definition of “proximate causation.”  This is one area of the law where judges have tremendous discretion to apply their own opinions as to what is just.  The Supreme Court’s decision did not do so convincingly, in my opinion.  We should judge Ideal’s theory of causation from the standpoint of economics.  In a competitive market a firm cannot choose its prices.  Prices are set by the forces of supply and demand.  A firm that lowers its prices because it cheats on its taxes, or any other reason, will lose money because its price is below its marginal cost of production.  It will quickly go bankrupt.  The Supreme Court’s opinion did not mention this quite fundamental rule of economics.  Rather, it held that the “direct” victim of National’s alleged tax cheating was New York State, which lost sales tax revenue.  Thus, if anyone had the right to sue for being injured by this scheme to violate RICO, it was the State.  Ideal was two steps removed, and therefore only “indirectly” injured by the RICO violations.

This raises the question as to whether courts should decide RICO cases based  upon principles of economics or ill-defined rules (really no more than presumptions), like “direct injury.”  A court applying law and economics principles would have dismissed Ideal Steel’s complaint and required it to replead its theory of damages with more specificity.  Does it believe National Steel had sufficient market power to lower its prices below marginal cost?  And if not, then how could National Steel stay in business while charging less than its marginal cost for its products?    But that did not happen, and we ended up with what seemed to be an unjust and unsatisfying  result to the case.  Why couldn’t there be two different victims to the same “scheme?”  If Ideal Steel was damaged by National’s tax cheating scheme, why shouldn’t it be allowed to prove this damage theory in court? 

Now, more than five years later, the Second Circuit, which had ruled in favor of Ideal Steel only to be reversed by the Supreme Court, has revived Ideal Steel’s RICO case after prolonged litigation on the remainder of the case in the district court in New York City.  (Remember that the Supreme Court’s opinion only dismissed Ideal Steel’s claim brough pursuant to section 1962(c) of RICO.  It remanded (sent back to the lower court) the Company’s claim brought pursuant to section 1962(a).  That section forbids the investment of money derived from racketeering activity into an enterprise.)  Ideal Steel argues that National Steel violated section 1962(a) by investing the money it saved in its tax cheating scheme into building a new retail store in the Bronx which competes with Ideal Steel’s Bronx store and caused Ideal to lose a third of its sales.  The Second Circuit was persuaded by the fact that Ideal Steel learned through pretrial discovery that National Steel filed amended tax returns after the case began showing significantly higher income than it had reported earlier, confirming Ideal’s theory of the case.  This impressed the Second Circuit.  The Court stated, “if [National Steel's] investment of the proceeds of [its] alleged pattern of mail and wire frauds has not sufficiently harmed Ideal to meet the standard of proximate cause, we find it difficult to envision annyone who could show injury proximately caused by that investment or to fathom to whom Congress meant to grant a private right of action under subsection (a).”

Dissenting Judge Cabranes predicted the Supreme Court would now have to take the case a second time to resolve the question of whether Ideal Steel’s “investment injury” theory states a valid RICO claim.  Does Ideal’s theory of unfair competition satisfy the “proximate cause” standard?  As I stated above, this is not an easy question to answer because we have never been told what “proximate causation” is.  The concept is vague, and the fact that Ideal Steel confirmed through pretrial discovery that National Steel understated its taxable income, apparently corroborating its sales tax evasion allegations, does not mean these that the section 1962(a) claim has more teeth than the prior one.  The court assumed the truth of the tax avoidance allegations the first time around, as it was required to do on a motion to dismiss under Federal Rule of Civil Procedure 12.  Its analysis that New York State was the only party  having standing to sue under RICO should not be affected by the apparent truth of the tax scheme. 

But analyzing the Complaint from the economic standpoint, it does make a difference.  If National Steel was able to undercut Ideal Steel in prices by cheating on its taxes, or for any other reason, then it suggests the two firms are not operating in a competitive market.  This may be because they are in two separate geographic markets (Queens, where the two firms competed, and  the Bronx, where National opened a new retail store in 2002, after allegedly cheating on its sales taxes for years, enabling it to expand), or that National has sufficient market power in the Bronx (likely more than 70% of the sale of steel products) to raise prices or lower them contrary to the usual forces of supply and demand.  But Ideal pleaded that it, not National, had a “dominant” position in the Bronx market before National moved in.  Ideal Steel Supply Corp. v. Anza, _F.3d _, 2011 WL 2557618  at *12.  (2d Cir. 2011).  If  National moved in to the market and was able to take away a third of Ideal’s sales, then it may mean that Ideal was reaping monopoly profits by keeping its prices artifically high.  If so, then Ideal’s lost sales were not caused byNational.  Rather, Ideal was earning profits that were too high in the first place by  limiting production in order to drive its prices up to supra-competetive levels.

Unfortunately, after years of litigation, we till don’t know how National was able to sell steel products profitably but at lower prices than Ideal.  If it lowered its prices because of its non-payment of sales taxes, then it should be able to proceed with its RICO case.  If it lowered them because it has a more efficient business model, and this has nothing to do with the payment of state sales taxes, then it should lose its RICO case.  And given the new opinion, the chances of this type of analysis ever being undertaken are slim.

But for the moment the Second Circuit has revived the use of civil RICO as a remedy against unfair competition.  This is all to the good, as that was one of the express purposes of enacting the law 40 years ago.  The proponents of RICO knew that organized crime was able to invest the proceeds of its activities into legitimate appearing businesses (think of Tony Soprano’s waste management business) and with this added boost, compete unfairly against law-abiding firms.  Essentially this is what Ideal Steel has accused National Steel of doing.  But proving competition is unfair requires, or should require, the services of an economist, and so far the courts have not said so in this incredibly long case.

The federal ban created a loophole for states wanting to spend their resources on aid to immigrants.  They can do so if they pass a law after the enactment of the ban which “expressly” so states.  This was done to give the citizens of any state fair warning that it was passing such a law.  Illinois cheated by simply reenacting certain welfare programs without any express language in the bill that it would provide benefits to immigrants, much less illegal immigrants.  At least two such programs have been spending Illinois’ taxpayer funds on any “resident” of the state regardless of citizenship for years.  One program, “moms and babies” provides prenatal and post-natal care to pregnant women.  So this means immigrants can come to the Illinois and give birth to to baby who, under the current interpretation of of the 14th Amendment to the Constitution prevalent in our courts (though I disagree as detailed in my August 2010 post) is considered a U.S. “citizen.”  And once such a baby is born, the chances of its mother being deported are virtually nil under the Obama administration’s deportation policies (unless the mother is a violent felon).   Hence, the derogatory term “anchor baby” seems apt.  

So any state or local government entity providing taxpayer benefits to pregnant women is effectively inviting them and their children to reside in the jurisdiction permanently.  There is no reason to leave, and doing so will in all likelihood, result in a loss of benefits.  I think if the citizens of Illinois knew the legislature had surreptitiously defied the federal ban and was disbursing their money to pregnant immigrants and anchor babies citizens, they would demand it be stopped,  particularly in tough economic times.  And to add insult to injury these immigrants need employment and compete for low-paying jobs with American citizens, thereby increasing unemployment and depressing wages. 

We sued the State of Illinois to enjoin the further expenditure of taxpayer money by way of these two programs.  But Judge Leroy Martin of the Circuit Court of Cook County accepted Attorney General Lisa Madigan’s argument that Illinois complied with the federal ban in its re-enactment of the programs, and summarily dismissed our challenge.  We are appealing (see the home page, detailing Kaider v. Hamos).

Illinois is also violating another part of the federal ban which prohibits states  from providing “any post secondary education benefit” to illegal immigrants based on their “residence within a state” unless the same discounted rate is offered to nonresidents of the state.  8 U.S.C. 1623.  This means Illinois cannot provide illegal immigrants (even if they were brought into the country by their parents ) with discounted in-state tuition rates at its public universities unless those same rates are offered to everyone in the country, which defeats the entire concept of “in-state” discounted rates.   Illinois has circumvented this law by offering in-state tuition rates to graduates of  an Illinois high school without regard to their residency.  

And last week Illinois enacted yet another law to give benefits to immigrants, including those here illegally.  The legislature enacted, and Governor Quinn signed the “Illinois Dream Act” (modeled on the federal “Dream Act,” which was defeated last year and would have given legal status to college age illegal immigrants).  This law provides privately-funded scholarships to illegal immigrants who have graduated from an Illinois high school.   Although the State is not using taxpayer funds for the scholarships themselves, it created a nine-member commission to manage the program (receiving applications and disbursing the money to successful applicants).  Why did the state enact a scholarship program to  which only immigrants can benefit?  Quinn cited no empirical data which indicates llinois has too few residents and needs to entice immigrants to fill jobs here.  Our unemployment rate is over the national average, which refutes any such view.  Moreover, the Governor offered no solace to the unemployed of the state, those in fear of losing their jobs, or those that believe we are already overtaxed.  I get the distinct impression this law has one goal: to bolster the Governor’s standing with Hispanics. 

The Illinois Dream Act violates the equal protection clause of the 14th amendment, which prohibits classifications based upon alienage unless such a law is necessary for a compelling governmental interest.  What interest does Illinois have in creating a program to give scholarships to illegal immigrants?   Or to put it another way, why is the state discriminating against U.S. citizens?  We will soon find out.  We intend to challenge this unconstitutional program in court.  Maybe then Governor Quinn and Attorney General Madigan will come up with a coherent explanation for this offensive program.

I am reading a lot these days about the “shortage” of agriculture workers in Georgia, which recently passed a law requiring all employers to use the E-Verify online system to check the legal status of job applicants.  (Last month I wrote about the recent Supreme Court decision upholding a similar law in Arizona.  So I expect to be hearing about a shortage of workers in that state too.)  There is no doubt that picking fruit and vegetables in very hot weather is unappealing work.  But it is a myth propagated by the cheap labor lobby and organizations  like National Council of La Raza, an Hispanic pressure group seeking unlimited immigration,, that Americans will not do unappealing work.  The sewer example proves they will. 

The question we should ask farmers who complain about labor shortages is why they pay extremely low wages (usually pegged to the minimum wage and typically not including health insurance)?  The answer is simple.  Because illegal immigrants will take those jobs at those wages.  As one farmer in Collinsville, Illinois told me, “the Mexicans like to sweat out there in the fields and don’t complain.  They laugh and have fun.  You can’t get a white person to do that.”  And the farmer feels no pressure to pay higher wages as long as his Mexican workers keep showing up each spring for the season.  I asked him what he would do without the Mexican immigrants (whom he insists are in the country legally, which I doubt).  He said he’d go out of business. 

Would the entire American agriculture industry go bankrupt if it could not hire illegal immigrants at the minimum wage?  Basic economics teaches that  farmers will try to automate labor.  This has long been done in the Midwest, where corn and soybeans, the largest crops, are harvested by machines called combines.  The farmer I mentioned above in southern Illinois maintains a smaller, family-owned farm and apparently can’t afford a combine for his corn or chooses not to use one.  If his average total cost of production exceeds his competitors, then he should be unable to compete.  He should not be propped up by illegal labor.  It’s both inefficient and criminal.  Yet he sees himself as a sort of heroic Jeffersonian yeoman farmer stoutly resisiting automation, as if corn picked by a sweaty Mexican is more authentic than corn harvested by a combine. 

In Europe and Australia many vintners have been using grape picking machines since the 1960’s. A single harvester running 24 hours can pick 80-200 tons of grapes.  A person can only pick 1-2 tons in the same period.   Large American fruit growers on the West Coast have not mechanized their harvesting.  The reason is our government is subsiding their inefficiency by the non-enforcement of the immigration laws.  There may not currently be a harvesting machine capable of picking apples and oranges, but necessity is the mother of invention.  Grape harvesters work by shaking the vines until the grapes fall off.  I’m no engineer, but I don’t see why a comparable device can’t be developed to shake the branches of fruit trees. 

But if no such device can be invented by American engineers, then our farmers should have to pay market wages so legal American workers will do the harvesting.  If that means something approaching what sewer workrs earn in these rural areas, then so be it.  And if that means the farmers’ average total cost of production rises to beyond what Japanese and Chinese farmers pay to harvest apples, then we should consume Japanese and Chinese apples.  The loss of these jobs will not hurt our economy or raise the unemployment rate because the fired workers are not Americans.  It may send a lot of illegal Mexicans back home.  But we have enough unemployment to worry about here.

But plaintiffs’ counsel (the case is run by the lawyers not the women employes who are their pawns) chose to broaden it to encompass the entire company.  This is not plausible without a great deal of factual corroboration.  Ideally, one would expect to see an admission from a top executive of the company to that effect, a red hot e-mail, even a disgruntled former executive to say it for attribution.  But the plaintiffs had nothing like that.  They relied on skimpy anecdotal evidence concerning a small number of Wal-Mart stores and a sociologist who believes the company’s policy of allowing each store to conduct its own hiring (decentralization) encouraged discriminatory hiring. 

I contrast this complaint with one of my civil RICO class actions alleging hiring of illegal immigrants, often at multiple locations.  We specfy hiring policies designed to ignore evidence that applicants are illegal.  Human Resource (HR) personnel are trained not to ask why a job applicant speaks no English while claiming to be a U.S. citizen, or why the applicant claims to live in state A but produces an ID issued by state B and, was born in state C but attended high school in Mexico.    Or, even more often, why an applicant was previously employed at the company under a different name and social security number or why their alien registration card does not have the requisite number of letters and numbers indicated on the Department of Homeland SEcurity’s website.  These are red flags which make the accusation of an unwritten policy of hiring illegal immigrants plausible.  (And there is often more, like our allegations that an HR worker at Perdue Farms was selling fake identity documents from her office, and was prosecuted for doing so, that HR workers “recruit” Hispanics and bring them to work at the company from distant places only to pay them submarket wages for doing unappealing jobs.)  A federal judge reading such allegations can easily find that they plausibly suggest the employer has a policy of hiring illegal immigrants.

So it’s easy to see why the Supreme Court found it necessary to hear the Wal-Mart case.  The certification of a “nationwide” class of all female Wal-Mart employees means the company’s future is on the line.  Wal-Mart would likely have to spend a great deal in attorney’s fees to defend the case and possibly to settle it for a vast sum generating weeks of  bad publicity.  This  would hurt the price of the company’s stock.   Yet, it seems fundamentally wrong to subject Wal-Mart to this fate without direct evidence of pervasive discrimination in the Company.  So the defense would amount to proving a negative.  Justice Ginsburg’s dissent stated that “subjective decision making can result in disparate impact” hiring  violating Title VII of the Civil Rights Act.  Translation: allowing each store to conduct its own hiring might mean some stores are applying hiring criteria which are neutral (not intended to discriminate) but have the effect of doing so.  It’s easy to see how this could happen at a big retail store where most workers are required to move heavy boxes  Requiring workers to exert physical strength on the job might deter women from applying for such positions.  So the fact the workforce in a particular retail store is 70% male would not evidence a policy of discrimination.  Rather, it reflects the applicant pool.  So Justice Ginsburg’s point doesn’t help resolve the question of whether this case should be certified as a class action.  We just don’t know enough to make the leap she has made.   I agree with the majority that to subject a company to a massive nationwide class action, the plaintiffs need to show more evidence of pervasive discrimination, preferably from the top of the company.  It’s theoretically possible that the Wal-Mart plaintiffs were right in their allegations, but that should not be enough to get a class certified.

What more is needed?  A few years ago the Supreme Court held that any complaint in federal court must allege enough “facts” which would make the allegations of misconduct alleged to be “plausible.”  So a plaintiff cannot say, “the defendant fired me because of my gender.”  The plaintiff needs to allege some facts to make that conclusion plausible, such as “I heard my supervisor say we’ll hire a man next time” or “all the other workers on my shift are men” or “my wages were below the male employees for the same work and I have been working there longer.”   Then the claim of discrimination can cross the line from possible to plausible.  (It need not be probable.)  The Supreme Court’s plausibility requirement was made for complaints not motions for class certification under Rule 23 of the Federal Rules of Civil Procedure.  All the Supreme Court actually did in the Wal-Mart case was to impose that requirement to a class certification motion.  This seems to make good sense to me.  If you have to state a plausible claim to get into the courthouse, then why shouldn’t you have to do so to get a class certified, which is a much more consequential decision.

Many commentators have been overstating the effect of the Supreme Court’s decision.  It does not signal the death knell for big class actions, or even nationwide ones.  It definitely makes it harder to get a class certified.  But for years it was too easy to do so, especially in alleging civil rights violations under section (b)(2) of Rule 23 (for non-monetary relief, i.e., an injunction to stop discriminating).  Lazy plaintiffs’ lawyers were using (b)(2) to get big money damages by calling it “back pay,” and the Supreme Court ended that practice in a 9-0 portion of the decision. 

The Supreme Court is not “hostile” to class actions.  In another case this term, Smith v. Bayer, it unanimously ruled that a decision by a federal judge not to certify a class will not preclude another member of the purported class from filing a new suit and trying to get it certified.  This has broad implications for the future of class actions, broader in my view than the Wal-Mart decision.  Plaintiffs’ lawyers will have to investigate their cases more thoroughly before making class allegations, thereby talking to a lot more members of the “class” they hope to represent.  This is all to the good.  We’ve come along way from the days when some lawyers filed motions to certify class actions with the complaint, and in many states, had a certified class action within a few weeks.  As a lawyer who brings class actions, I find this a welcome trend.

Arizona’s law is very carefully written so as not to impose stricter requirements on hiring than IRCA provides, such as making its own determination as to who is in the country illegally or punishing the illegal workers rather than the employers.  Rather, the law tracks IRCA’s definitions of “unauthorized” and requires the State to ask the federal government (the Department of Homeland Security, “DHS”) to confirm whether potential employees are allowed to work. IRCA provides for such inquiries, and that is some support for the the view that in enacting IRCA, Congress envisioned some role for state and local governments in the area of dealing with illegal immigrants.

Arizona’s law also requires that all employers enroll in the federal government’s E-Verify program, an on-line verification that employee’s social security and/or alien registration number (issued to legal immigrants), match the names of the persons to whom the U.S. government has issued those numbers. Theoretically, this would make it extremely difficult for an illegal immigrant who does not have a valid government-issued social security number to be verified for employment. Fake social security numbers would be rejected. And social security numbers issued to another person would not be approved unless the illegal worker was using that other person’s name as well. (Unfortunately, E-Verify does not have electronic photos to enable employers to compare against the person in front of them seeking the job.) Employers of illegal immigrants are justifiably afraid of E-Verify, for it might be successful in identifying illegal immigrants. The Chamber of Commerce seems to be a tool of these employers, quick to challenge all state laws which try combating the employment of illegal workers. (It would be nice to see some members of the Chamber oppose its incessant litigation against these laws.) Significantly, the Supreme Court rejected the Chamber’s argument that E-Verify is an imperfect system, and for that reason should not be made mandatory. It noted the irony of DHS’s efforts to promote use of E-Verify, even through radio and print ads. If the system was that flawed, Chief Justice Roberts reasoned, then the government would not be encouraging its use for the last decade and Congress would not have reauthorized it several times.

The Arizona law allows anyone to file a complaint against an employer who he or she believes has employed an illegal immigrant. The State is required to investigate all such complaints which will require the employer to produce its E-Verifications for each employee. The State can also ask DHS to tell it whether particular employees are authorized for employment if there is any doubt or if the employer has failed to use E-Verify, in violation of the State’s law. A first offense results in the suspension of the employer’s business license for a few weeks. But a second offense is punished by termination of the license, meaning the employer must close that place of business. (So a fast-food chain, for example, would not have to close other locations if one lost its license.) The Chamber of Commerce called this a death penalty, and given the ferocity of its challenge of the law all the way up to the Supreme Court, it must realize that some employers are going to be shut down. This will, of course, require the State to enthusiastically enforce the law, which as we know, is not the case with IRCA.

The Supreme Court’s conclusion that Arizona’s program of suspending the business licenses of firms that hire illegal immigrants is allowed under IRCA is contrary to how the Third Circuit Court of Appeals ruled on a smilar law enacted by the City of Hazelton, Pennsylvania.  The Third Circuit concluded, “We therefore cannot fathom that Congress intended to tolerate the ’supplementing’ of its carefully crafted system [IRCA]with independent state and local systems, which by their mere existence drastically increase burdens on employers.”  Lozano v. City of Hazelton,620 F.3d 170, 213 (3d Cir. 2010).  The Court was particularly troubled that Hazelton’s ordinance did not give an employer a “hearing” before suspension of its business license.  The Arizona law does not provide much of a hearing either.  The law requires Arizona courts  to accept DHS’’s conclusions as to whether a worker is authorized for employment.  So an employer will not be able to argue that it believed the person was legally authorized for employment under IRCA if DHS says otherwise.  In legalese this is called a strict liability offense.  The accused cannot present a defense based on misunderstanding facts or innocent motive.

The Hazelton law went further than the Arizona law by prohibiting landlords from renting housing to illegal immigrants.  The Supreme Court’s decision did not address such a licensing law.  Yesterday the Court vacated the Third Circuit’s City of Hazelton opinion and ordered it to rehear the case in light of the Whiting opinion.  I predict that Hazelton’s law as to the employment of illegal immigrants will now be upheld.  It is almost indistinguishable from the Arizona law.  But the bar on landlords is harder to predict.  Yes, it’s a licensing law (Hazelton requires landlords to be licensed by the City.)  But IRCA preempts state and local govertnments from encting laws regulating the employment of  illegal immigrants except through “licensing and similar laws.”  Does this mean state and local governments can enact laws punishing landlords because renting housing has nothing to do with employment, the focus of IRCA?  Or does IRCA’s express preemption clause bar state and local governments from enacting any law dealing with illegal immigrants except as to employment?  There is no clear answer.  Good lawyers can take either side in the debate, and judges will have much discretion in interpreting the various rules of interpreting preemption provisions which have evolved over the last several decades.  Kris Kobach, a law professor at the University of Missouri, is an expert in his area of the law, and represented Hazelton.  The Chamber of Commerce will undoubtedly bring in its strongest legal talent to argue for preemption of the landlord ordinance. 

In the interim other federal courts will soon be weighing in, as Alabama has just enacted the toughest anti-illegal immigrant law in the country, going well beyond the Arizona law just upheld.  This is uncharted legal territory, and I will keep updating as new decisions are issued.

Typically, when a cheating spouse gets caught in an asset concealment scheme, it might be years later, and the divorce court may be unreceptive to a motion to reopen an old case. However, in such a situation the defrauded spouse could assert a RICO case against the cheating spouse for the fraud if- and this is a big if- the cheating spouse has also committed other RICO violations so that a pattern can be alleged. I have such a case. My client was married to Steven A. Cohen, now principal of SAC Capital Management, one of the world’s largest hedge fund managers, but at the time of their divorce in 1990, just moderately rich. Nevertheless, Mr. Cohen had very big plans for his future, so as the marriage deteriorated, he moved the couple’s liquid assets into a corporation, which he controlled, and invested most of it the money in a risky real estate deal operated by a close friend. When the deal had problems a year before they separated, he told Patricia that the investment was worthless. This was untrue. He had only lost half the investment and concealed the other half, worth over $5 million from her during the divorce.

Schemes like this are called “self-concealing” in the law because they are undertaken to make it extremely hard to uncover. In my client’s case, Patricia did not suspect Steven had concealed assets from her for 16 years, until reading an expose on the internet which made her start digging. And then it was two more years until she found the proof of the secret repayment from his ex-partner. At that point Patricia’s discovery of the scheme to defraud her, coupled with her knowledge of Mr. Cohen’s other nefarious schemes (insider trading, defrauding innocent co-op purchasers in the real estate deal), turned her claim into a RICO case. The problem is that RICO’s 4 year statute of limitations accrues (begins to run) when the plaintiff knew “or with reasonable diligence should have known” of her injury. Steven successfully persuaded U.S. District Court Judge Richard Holwell that Patricia should have been hot on her ex-husband’s trail way back in 1991, when she brought a motion to increase child support and alleged that Steven had not been truthful about his 1989 income (the year of the divorce) because of the large discrepancy between his reported income that year and the previous year. Cohen v. Cohen, 2011 WL 1157283 (S.D.N.Y. 2011). Yet, her allegation about his 1989 income had nothing to do with the scheme to hide $5 million from her under the guise of a “worthless” real estate investment. And Judge Holwell refused to cut her any slack in discovering the fraud based upon the fiduciary duty divorcing spouses have to each other to accurately disclose their assets. We are now appealing the dismissal of the case to the Second Circuit Court of Appeals.

However, Judge Holwell did not buy Steven Cohen’s arguments that RICO should not be a tool for a defrauded spouse in a matrimonial dispute. And another federal court has ruled in favor of a victimized wife in such a RICO case. Perlberger v. Perlberger,1998 WL 76310 (E.D. Pa. 1998), even though the wife did not learn of the scheme to hide assets from her for nine years, well after the statute of limitations had run. If the plaintiff in a RICO case can convince the court that he or she did not discover the injury until after the deadline, and this cannot be conclusively rebutted in a motion to dismiss, i.e., it is disputed, then the case should proceed. The plaintiff’s date of discovery is a “question of fact” for the jury to decide along with the merits of the case. In order to knock out the plaintiff’s claim at the motion to dismiss stage, the defendant needs to come up with an “irrefutable” piece of evidence demonstrating the plaintiff knew of the fraud before the deadline, like a prior lawsuit alleging the same fraud which was previously filed somewhere else.

I’m not advocating the routine use of RICO in divorce cases. RICO is never appropriate to remedy a single episode of fraud, and RICO allegations are serious business- alleging the defendant is a recidivist criminal. But if the facts to make such charges really exist, then a good RICO lawyer can put the pieces together. I will revisit this case after our appeal.