“The fog of war” is a military phrase used to describe the uncertainty which overcomes combatants on the battlefield in the midst of a conflict. After 17 years of litigating RICO cases I’ve come to the conclusion that the entire concept of “causation” is roughly the same thing in the minds of judges. RICO is what is known as a “statutory tort,” one created by Congress like the antitrust laws and the 1964 Civil Rights Act. It is a law that makes certain acts a civil wrong and creates a remedy for persons who are “damaged” by them. One problem in understanding what is meant by “damaged” is that Congress did not define it. So judges had to struggle with cases in which plaintiffs sought damages under RICO for wrongs which seemed far fetched, like car purchasers complaining about defective air conditioning systems. Is that what Congress intended RICO to address, asked the federal judiciary in the 1980s after the Supreme Court held RICO did not require a connection to organized crime. In enacting the statute in 1970, Congress did not intend such cases to be brought. But Congress is to blame for not defining “damage” and other vague terms in the statute, like “pattern of racketeering activity” and “associated in fact though not a legal entity.”
If you believe in a modest role for the courts, that envisioned by the Federalist Papers, judges should have let Congress fix RICO and allowed the car buyers to proceed with their silly RICO cases. But modern federal judges do not feel constrained by the Federalist Papers or the original intent of the founders when it comes to exercising power. Whole swaths of the country, from public schools, to jails, to major corporations, to the City of Chicago, operate in part under “consent decrees” (orders issued by federal judges to resolve lawsuits over discrimination, illegal hiring practices, etc.). So judges dove into the RICO cases and formulated rules where Congress had not done so.
One of the major judicially created rules is that the “damage” to a RICO plaintiff must be “proximately caused” by the RICO violation. This is how the Supreme Court described the concept: “Here we use proximate cause to label generically the judicial tools used to limit a person’s responsibility for the consequences of that person’s own acts… directness of relationship is not the sole requirement… [but] it has been one of its central elements.” Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268 (1992). So judges were instructed to open the judicial toolbox and use various concepts to limit liability, one of which was, “directness of relationship.” And what does that mean? The Court did not define “directness.” All it did was to hold the injury complained of in that case was “indirect” because it was “derivative” of an injury first inflicted on someone else.
When an employer violates RICO by hiring large numbers of illegal immigrants at cheap wages, below the market price, and legal workers are also paid those cheap rates, are they “directly” injured by the illegal hiring? I spent a decade litigating this question in RICO class actions brought across the country. One went to the Supreme Court, but the Court punted and the case was sent back to the Eleventh Circuit where we won and the case (Williams v. Mohawk Industries, Inc.) settled for $18 million in back pay for the legal workers. To date, three appellate courts have held that wage depression by hiring illegal workers is a “direct” injury caused by the illegal hiring RICO predicate offense. But this is still unsettled in other circuits. I recently argued an appeal of the dismissal of our wage depression class action before the Fourth Circuit where one judge on the panel asked me to lay out the theory of causation for him. I told him that massive hiring of illegal workers by a large firm can depress the wage paid to all of the firm’s workers, legal and illegal, and that this would be established by an economist later in the litigation. The judge remained skeptical. Another member of the panel asked how a high unemployment rate in a community where illegal hiring was occurring would affect the analysis.
These comments have no place in a motion to dismiss a RICO complaint for the type of injury alleged here. What these judges are asking me to do is tell them that the RICO violations, hiring illegal workers, caused the depressed wages with certainty and that no other factor had any bearing on Perdue’s decision to pay low wage rates. Neither I nor any other lawyer can do this in a Complaint. All we can do is make allegations that Perdue hiring personnel knowingly hire hundreds of illegal workers in order to lower labor costs, and that our clients, the legal Perdue workers, are paid those depressed wages. Courts and commentators have long acknowledged that to require more proof of causation than that in an antitrust price fixing case complaint would effectively deprive the plaintiff a remedy. Causation can and must be proven by economists who have relevant market data, much of which is non-public and can only be obtained by discovery.
Six years ago when the Supreme Court refused to decide Mohawk it ordered that our allegations of causation be reevaluated in light of its decsion that term in Anza v. Ideal Steel, a RICO case in which the plaintiff, a steel retailer, sued the defendant, a competing steel retailer, for unfairly competing against it by not paying its New York State sales taxes. The Court rejected this claim on the ground that tax cheating is too far removed from the prices a firm charges for its steel products to be the “proximate cause” of the plaintiff’s lost sales. The Court did not elaborate enough in its reasoning. But I sense the justices knew a lot of businesses cheat on their taxes, and to make that the basis for a RICO violation would bring on a new flood of such cases. Also, the basic rules of supply and demand teach that a single firm without market power cannot, in a competetive market, lower its prices. If it does so, then it will be selling at below cost and will soon go bankrupt.
The Eleventh Circuit held that this decsison did not apply to Mohawk, because it made economic sense that a big employer in North Georgia could hire enough illegal workers there to depress wages. This was a more “direct” claim of injury than lost sales caused by non-payment of sales taxes. And the fact that Congress specifically made the employment of illegal immigrants a RICO predicate offense plainly indicated it wanted such cases to be brought. (Congress did not make cheating on taxes a RICO violation. the Plaintiff in Anza alleged the mailing of false tax returns to New York State violated the federal mail fraud statute.) Then last year the Seventh Circuit reinstated a civil RICO case brought by one business against a competitor for cheating in bidding for tax liens sold by Cook County. It held, in an opinion by Judge Richard Posner, strongly influenced by economic theory, “Once a plaintiff presents evidence that he sustained the sort of injury that would be the expected consequence of the defendant’s wrongful conduct, he has done enough to withstand summary judgment on the ground of absence of causation.” BCS Services, Inc. v. Heartwood 88, LLC, 637 F.3d 750, 758 (7th Cir. 2011). This is the majority rule in common law tort cases throughout the country, and Judge Posner applied it to RICO. Such a rule would allow wage depression cases to go to the jury on the issue of causation, because it is established that the laws against employing illegal immigrants are designed in large part to protect American workers from wage depression.
This rule depends upon thhe notion that certain harms are the “foreseeable” consequences of certain acts. If a driver texts it is foreseeable he will cause an accident. If the driver texts while drunk it is more foreseeable that he will do so. If an employer hires large numbers of illegal workers at depressed wage rates, it is foreseeable the legal workers will be paid those depressed wage rates as well. On the other hand, if a firm cheats on its sales taxes, it is not really foreseeable that it will be enabled to lower its prices and take business from a competitor.
The Supreme Court has exacerabeted the confusion about proximate causation by hedging on the forseeability concept. In 2009 it held a business could sue a competitor under RICO because its theory of causation was “a forseseeable and natural consequence of the scheme” and therre were no “independent factors” which broke the causal chain. Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 658 (2008). Two years later it held, in another tax cheating RICO case, that the chain of causation was too attenuated regardless of the foreseeability of the harm. Hemi Group, LLC v. City of New York, 130 S.Ct. 983, 991 (2010). Last year the Court held in a non-RICO case that the whole concept of proximate causation was a mess and cited a study indicating 85% of potential jurors could not understand a jury instruction which purported to explain it. CSX Transp., Inc. v. McBride, 131 S.Ct. 2630, 2642 (2011). And lawyers are not much smarter. It seems to me that 100% of RICO defense lawyers understand it only enough to argue that whatever injury is asserted in any case was not caused by the defendant. And a large number of federal judges are at least open to persuasion as to what it means. There was a vigorous dissent written by Chief Justice John Roberts in CSX joined by three other justices defending the concept of proximate causation. But if a majority of the Court believes proximate causation is an unknowable fog, then why is anyone using it?
I think Judge Posner, who has otherwise been a devoted foe of civil RICO, has done us a great favor in clarifying the concept of causation in RICO. I intend to argue for the use of the Seventh Circuit’s analysis elsewhere in the country. I think it is correct both economically and legally. If the Fourth Circuit imposes its own differing test on causation in RICO in the Perdue case, it will create a split which I will likely ask the Supreme Court to decide.