The Fourth Circuit Court of Appeals in Richmond, Virginia recently held that the legal workers at Perdue Farms could not sue under RICO to recover for wage depression they suffered due to the company’s widespread use of illegal immigrants.  Walters v. McMahen, 684 F.3d 435 (4th Cir. July 5, 2012).  It reasoned, without citing any applicable authority, that the workers’ injuries were “indirect.”  Thus, in its view, someone else suffered the consequences of the RICO violations (hiring illegal immigrants is a form of racketeering activity) more directly.  The Supreme Court and every circuit (including the 4th) has analyzed causation by limiting the standing to sue for damages in RICO to the “directly injured” victim of the racketeering activity.  And that person is always identified in the opinions.  For example, in the seminal case of Holmes v. Securities Investor Protection Corp., which established the direct injury requirement in RICO, the Supreme Court held the Securities Investor Protection Corporation (SIPC), a federal agency, could not bring a RICO case against an alleged stock manipulator because the stock purchasers were the directly injured victims of his securities fraud.  They relied upon Mr. Holmes’ false statements about his company and suffered damages when the stock price fell.  The SIPC was only damaged when certain brokerage firms were wiped out as a result of the fraud costing their customers millions of dollars in lost brokerage accounts.  The SIPC was required by law to insure those losses.  But the losses were not directly caused by the stock fraud.  In the lingo of causation jurisprudence, they were “derivative” or “indirect” injuries, that is caused by the bankruptcy of the brokerage firms which was in turn caused by the stock fraud.

One can easily see that in coming to the conclusion that the SIPC is indirectly injured requires a detailed analysis of the chain of causation beginning with the stock fraud, the RICO violation.  The analysis would be unconvincing if the Court had merely held that SIPC could not sue because its injuries were indirect.  Indirect to whom?  The reader needs to know who was the directly injured party and why does that prevents SIPC from also having the right to sue.  The Supreme Court held, correctly in my view, that “a plaintiff who complain[s] of harm flowing merely from the misfortunes visited upon a third person by the defendants acts [is] generally said to stand at too remote a distance to recover.” This rule had centuries of tort jurisprudence to recommend it and since RICO is a statutory tort, it makes sense to apply it in RICO cases.   The big problem the Court identified with recovery by indirect victims is that it would either bankrupt the defendant, making recovery by the directly injured victim impossible, or require juries to grapple with how to divide up a limited amount of money.  The Court was satisfied with the prospect of one party suing for a RICO violation, the party that was closest to the injury.

The Fourth Circuit has abandoned this reasoning.  It held the legal workers were not directly injured by the illegal hiring, disagreeing with three other circuits which have upheld these claims, following the Holmes reasoning.  Those courts could not find a party that was more directly injured by the illegal immigrant hiring.  They specifically rejected the defense arguments that the U.S. government was such a victim, noting that the government was not saddled with a monetary harm.  They also noted that acceptance of this argument would effectively kill civil RICO because most  RICO violations involve violating some federal statute.  In passing civil RICO, Congress wanted to give these victims a chance to sue.

If the Fourth Circuit wanted to reject these decsions, one would expect it to have done so openly, by citing and disagreeing with them.  It did not cite any of them.  It simply held that the workers were not directly injured and stated, almost in passing, that hiring illegal immigrants “are crimes against the United States.”   This is a discredited argument in civil RICO.  Moreover, the Fourth Circuit did not identify any money damages caused the U.S. government by Perdue’s employment of illegal immigrants.  And if the U.S. was not damaged in the monetary sense, then how could it be damaged at all under the Holmes reasoning?

What are we to make of this decision?  Surely the Fourth Circuit is not unaware of these other cases which have upheld these types of RICO claims for wage depression.  (They are published in the law books.)  A well-reasoned opinion of a federal appellate court should grapple with similar decisions from its sister circuits from which it parts company.  Thus, legal rules can progress over time and the Supreme Court can determine if a circuit split exists which it needs to decide so we can move on and stop fighting about it.   Our legal system is governed by a principle called stare decisis (Latin for “to stand by things decided”).  Is the Fourth Circuit suggesting those other decisions in factually similar cases do not apply to this case?  And if not, why not?  Its decision not to cite or discuss them muddies the waters.  Is it trying to evade Supreme Court scrutiny?

The Fourth Circuit will not have its way.  We are seeking a writ of certiorari (permission to appeal the decision to the Supreme Court).  The chances of any civil case being accepted by the Court are not particularly good.  But illegal immigration is a hot issue as evidenced in last term’s decision in Arizona v. United States.  Plus, the Court has heard four RICO causation cases.  Perhaps it’s time for another one.  Arguably, the consequences here are cataclysmic for civil RICO.  I don’t believe the Supreme Court would tolerate a rule saying RICO violators are immune from civil suit.   It has generally interpreted RICO liberally to enable more cases to proceed, which is what Congress stated was its intent.

I will blog about this case when the certiorari briefs are submitted.