Every once in a while – okay maybe more frequently than that – I realize that I have missed a court decision on an issue I have been following. Most recently, I had been intrigued by the Sixth Circuit panel decisions in Brown v. Cassens Transport Co. (Brown II) and Jackson v. Sedgwick Claims Management Services, Inc. that had upheld Michigan workers’ compensation claimants’ rights to file federal RICO claims against their employers, their employers’ third party administrators and physicians who had conducted independent medical examinations on the theory that the defendants had conspired to unlawfully deny or terminate their workers’ compensation benefits. I had also noted that at least one other such case had been filed in federal court in Arizona.

My initial reaction was that these were terrible decisions that would enable any workers’ compensation claimant who was dissatisfied with a decision relating to his claim to challenge that decision in federal court. That reaction was further intensified when it occurred to me that the shoe could just as easily go on the other foot – that employers could file similar actions against an employee, his doctor and his representative, based on theories claiming that they conspired with each other to create or perpetuate a fraudulent claim. I wondered whether such a lawsuit could be viable in Ohio, which also is situated in the Sixth Circuit. What a horrible intrusion into a state’s workers’ compensation system this would create….

Fortunately, the Sixth Circuit’s September 24, 2013, en banc decision in the Jackson case relieves my concerns for the time being. In Jackson, two Coca-Cola Enterprises, Inc., employees sued their employer, Sedgwick (its workers’ compensation third-party administrator), and a physician who had examined them both, claiming that they had “engaged in a fraudulent scheme involving the mail . . . to avoid paying benefits to injured employees” in violation of the Racketeer Influenced and Corrupt Organization Act (“RICO”). In short, both plaintiffs claimed that Sedgwick, on behalf of Coca-Cola, scheduled them for examinations with a physician who they claimed was a “a doctor ‘who could be relied upon to lie for defendants and write a report stating a claimant did not have a work related disability regardless of the true facts.’” Then, the plaintiffs’ complaint alleges that Coca-Cola and Sedgwick relied on the physician’s reports to either deny or terminate benefits in their claims.

Many of you will recall RICO primarily as a criminal statute designed by Congress to permit the prosecution of organized crime bosses for the crimes committed by their underlings. But RICO also has a civil component to it as well that permits plaintiffs who have been “injured in [their] business or property” by reason of a pattern of racketeering activity that violates RICO to file a civil action and obtain treble damages. In addition, the U.S. Supreme Court has held that RICO is “to be read broadly . . . [and] liberally construed to effectuate its remedial purposes,” which has resulted in RICO having been found applicable to prohibit conduct that Congress may not have intended it to reach.

In Jackson, the federal district court granted a motion to dismiss filed by the defendants, but a panel of the Sixth Circuit held that the plaintiffs’ complaint stated a viable claim under RICO. The defendants then sought en banc review by the entire Sixth Circuit.

In its en banc decision in Jackson, the Sixth Circuit focused primary was whether the plaintiffs could establish injury or damage to “business or property” in light of the fact that any alleged losses they sustained arose out of their personal injury that occurred in the workplace. In the majority’s opinion, “the concept is clear: both personal injuries and pecuniary losses flowing from those personal injuries fail to confer relief under [the civil remedy provision of RICO.]” The majority rejected the view of the Brown II court panel, which suggested that “[w]hen a plaintiff’s personal injury is filtered through the [Michigan workers’ compensation statute], it is converted into a property right. Instead, the Jackson en banc majority opinion states:

By holding that the plaintiffs’ asserted damages do not flow from a personal injury, the Brown II majority ignored the underlying reality that an award of benefits under a workers’ compensation system and any dispute over those benefits are inextricably intertwined with a personal injury giving rise to the benefits…Michigan’s decision to create a workers’ compensation system does not transform a disappointing outcome in personal injury litigation into damages that can support a RICO civil action, even if Michigan law characterizes the benefits awarded under this system as a legal entitlement.

The Jackson en banc majority was also troubled by the fact that workers’ compensation laws are uniquely a creature of state law, noting that:

If Congress intended to recalibrate state and federal power in an area that has traditionally been the province of state government by placing federal courts in the position of reviewing a state agency’s handling of charges of impropriety by parties appearing in front of it, we would expect a clear statement of Congress’s intent to achieve such a result.” Although the courts have long recognized that the civil RICO statute is to be liberally construed, there is nothing in the statute to suggest that it is supposed to supplement or supplant any workers’ compensation structure.

The court then moved on to discuss the parade of horrors that I had envisioned could arise if the RICO cause of action were permitted in this context:

The RICO theory advanced by the plaintiffs in this case throws the viability of these schemes into doubt by allowing any employee who believes an employer denied his workers’ compensation claim through fraud to recast his dispute as a RICO claim. Moreover, there is nothing preventing an employer from turning this theory on its ear and accusing employees of a pattern of mail or wire fraud designed to support benefits claims…..

The mechanism by which this redistribution of power is brought about is equally troubling. If an employee believe that an employer has taken a meritless position about his entitlement to benefits or procured fraudulent evidence in order to support such a position, the workers’ compensation scheme Michigan has established provides ample mechanisms by which the employee can contest these actions.

The majority opinion rejecting the plaintiffs’ RICO claim garnered ten votes; the dissenting opinion garnered the support of five of the circuit judges. Judge Clay issued a separate concurrence that rejects the majority view on whether the plaintiffs had sufficiently pleaded an injury to business or property but nevertheless concluded that there was no clear statement from Congress that it intended RICO to provide relief for their claimed injury.

Although nothing is guaranteed, there appears to be is nothing in Ohio’s workers’ compensation scheme that would cause a different result in the federal courts. Nevertheless, there is at least one other case pending in Arizona, which could create a circuit court conflict and an opportunity for Supreme Court review. As a result, self-insured employers and their representatives in Ohio and elsewhere should consider the following practices to ensure fair claim defense handling and to avoid any potential RICO liability:

  • Utilize multiple physicians for independent examinations and reviews;
  • Utilize multiple vendors to schedule examinations and obtain reviews;
  • Do not enter into an agreement, contract and/or arrangement promising to use a physician for all matters or for a certain number of matters per year;
  • If possible, retain physicians for independent examinations and reviews who maintain a practice treating their own patients;
  • Avoid language to physicians, experts and/or investigators directing them to a specific opinion or stating what opinion the employer is seeking;
  • Avoid communications with TPAs and/or insurance adjusters, physicians and vendors directing a particular opinion or result;
  • Avoid communications to a TPA and/or insurance adjusters, physicians and vendors implying or stating a goal of cutting off an employee’s benefits rather than evaluating his/her benefit entitlement;
  • Evaluate claims on a case by case basis rather than denying all claims or a category of claims immediately; and,
  • Avoid pressuring employees to seek treatment under their personal health insurance plans rather than through the workers’ compensation system.