Appellate Court Dismisses Rico Claim Against Employer For Allegedly Hiring Undocumented Workers

IMMIGRANTS & EMPLOYMENT

Immigrants' Employment
Rights and Remedies

APPELLATE COURT DISMISSES RICO CLAIM AGAINST EMPLOYER FOR ALLEGEDLY HIRING UNDOCUMENTED WORKERS
Immigrants' Rights Update, Vol. 18, No. 2, April 2, 2004

The U.S. Court of Appeals for the Seventh Circuit has dismissed a case brought by two former workers at IBP, Inc.'s meat-processing plant in Joslin, Illinois, who contended that their wages were being depressed because IBP allegedly recruited and hired undocumented workers. The plaintiffs brought their suit as a class action under the Racketeer Influenced and Corrupt Organizations Act (RICO) on behalf of all persons authorized to work in the U.S. who have been or are now employed at IBP. The appellate court dismissed the plaintiffs' suit for failure to state a claim on which relief may be granted.

The plaintiffs, Deborah Baker and Richard Enyeart, alleged that IBP knowingly employed undocumented workers and that this resulted in the plaintiffs' wages being depressed. Specifically, the plaintiffs contended that IBP not only knows "in a statistical sense" that many of its non–U.S. citizen employees lack work authorization, but it also can identify which workers are not authorized, and it "winks at obviously fake green cards and other spurious credentials." The plaintiffs also claimed that IBP alerts its undocumented workers to stay at home on the days when immigration officials conduct inspections, and that when immigration officials detect and remove IBP's employees from the U.S., the company pays "recruiters" to smuggle them back into the country and immediately re-employs them under new aliases and fake identification. Moreover, the plaintiffs alleged that IBP has arrangements with immigrant organizations under which these groups refer known undocumented workers to IBP for employment. The plaintiffs claimed that as a result of these alleged practices, their wages had been depressed by about $4 per hour.

In bringing their lawsuit under the RICO statute, the plaintiffs argued that the statute establishes a private cause of action for losses caused by a pattern of racketeering activity, including violations of the Immigration and Nationality Act, if such activity was for financial gain. According to the plaintiffs, the defendants' racketeering activity consisted of IBP’s alleged hiring, protecting, and recruiting of undocumented workers, all of which violate INA sec. 274. They argued that IBP has gained financially from this activity because it has expanded the pool of available labor and thus depressed the price that labor can command.

The federal district court judge had dismissed the plaintiffs' claim for lack of jurisdiction. Specifically, the district court held that the claim should have been submitted to the National Labor Relations Board (NLRB), given that the workers at IBP have a union certified by the NLRB. The plaintiffs appealed this decision, and the court of appeals modified the district court’s judgment to a dismissal for failure to state a claim for which relief may be granted. The appellate court based its decision on two findings: (1) the rule of primary jurisdiction applies because the workers are unionized and the complaint at its core is about the adequacy of wages IBP pays—an issue of mandatory negotiations between IBP and the union; and (2) the plaintiffs' RICO claim fails because IBP is not an "enterprise" as required by the statute.

In making its first finding, the appellate court re-examined the question of jurisdiction. The court determined that this case did not present a preemption or subject-matter jurisdiction issue. It did not present a preemption issue because the questions all relate to federal statutes, and federal statutes cannot preempt other federal statutes. The court found that it does have subject-matter jurisdiction because RICO is a federal statute, and therefore a claim brought under it arises under federal law. The court also found subject-matter jurisdiction under 29 USC sec. 185, which authorizes federal courts to hear many labor-relations disputes.

The court found that the case at hand instead implicated the rule of primary jurisdiction. This rule gives the appropriate administrative agency the first crack at certain claims. In this case, the court found that there are federal-question issues that include issues within the NLRB's charge. In particular, the court cited the defendant IBP's claim that the action that is "arguably prohibited" is the plaintiffs' failure to bargain with the union, a violation of National Labor Relations Act (NLRA) sec. 8(a)(5).

Given that the case involved an alleged violation of a statute that the NLRB is charged with implementing (i.e., the NLRA), the appellate court found that the NLRB has primary jurisdiction over the case. However, the court stated that since the doctrine of primary jurisdiction is implemented by abstention, the court must stay rather than dismiss the litigation. Once the agency (in this case, the NLRB) has heard the case and made its decision, the parties may return to federal court for the resolution of any remaining issues. As a result, the appellate court found that the district court's dismissal for lack of subject-matter jurisdiction was inappropriate.

The appellate court went further, however, and determined that the suit brought by the plaintiffs at its core is about the adequacy of the wages IBP pays. The inquiry the court then turned to is whether the NLRB has jurisdiction to hear such a case. To answer this question, the court found dispositive the fact that the IBP workers not only had an exclusive bargaining representative (the union), but also are employed under a collective bargaining agreement. In short, the court stated that even if the NLRB is out of the picture, it still does not follow that the plaintiffs are entitled to represent all of IBP's other employment-authorized workers. The plaintiffs have a representative, one that under the NLRA is supposed to be "exclusive" with respect to wages: their union. Individual workers may step into the union's shoes only if it has violated its duty of fair representation.

This last point led the appellate court into its second finding, namely that the plaintiffs’ RICO suit fails because IBP is not an “enterprise” as specified by the statute. Sec. 1962(c) makes it “unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity.” The court, however, rejected the plaintiffs’ claim that the “enterprise” is IBP plus the persons and organizations that help it find undocumented workers to hire—i.e., that the enterprise is comprised of an aggregation, or a “congeries.”

The court first stated that if a congeries were to fall within the RICO statute's definition of an enterprise, it would do so as "a group of individuals associated in fact although not a legal entity." 8 U.S.C. § 1961(4). However, the court found that IBP is not part of such an "association in fact," because it is not clear how IBP plus the persons and organizations that help it find undocumented workers to hire have a common purpose or an essential ingredient. The court found, instead, that the parties making up this alleged congeries have divergent goals. Finally, the court found that even if the congeries were an enterprise, the plaintiffs' claim would still fail because they do not claim that IBP operates or manages that enterprise through a pattern of racketeering activity. Specifically, if the defendant and the enterprise are one and the same, there can be no violation of RICO, and the plaintiffs in this case merely contend that the defendant operates itself unlawfully.

The court's decision concludes by stating that the court's two findings enable it to bypass still another potential problem with the plaintiffs' claim: the difficulty of establishing that unlawful hiring of undocumented workers causes a diminution in the plaintiffs' wages. The decision points out that RICO provides treble damages for direct injuries but not for remote ones. While the Ninth Circuit concluded in Mendoza v. Zirkle Fruit Co., 301 F.3d 1163 (9th Cir. 2001), that the injury workers suffer when wages are depressed by undue competition from undocumented workers is similar to those injuries that can be redressed under the anti-trust laws, this decision states that the showing "may not be so straightforward." (See "9th Circuit Allows Work-Authorized Employees to Proceed with RICO Lawsuit against Agricultural Employers, Immigrants' Rights Update, Oct. 21, 2002, p. 12.) The Seventh Circuit's decision concludes that the court need not reach the decision of whether it would follow the Ninth Circuit's reasoning in Mendoza at this time.

Baker v. IBP, Inc., 357 F.3d 685 (Feb. 4, 2004).