Antitrust Law Daily Wrap Up, RICO—9th Cir.: Economic pressure to force Carpenters to reaffiliate with Building Trades didn’t violate RICO, (Oct 29, 2014)

By Ronald Miller, J.D.

The AFL-CIO’s Building and Construction Trades Department (BCTD) did not engage in extortion under the Racketeer Influenced and Corrupt Organizations Act (RICO) when it used economic pressure on the Carpenters union in an effort to force it to reaffiliate with the BCTD, ruled the Ninth Circuit. Here, the appeals court determined that the Carpenters’ contention—that the BCTD campaign was extortionate because it was directed toward coercing the Carpenters into accepting outdated and anticompetitive services and used wrongful means—failed to state a plausible claim under RICO. Similarly, the complaint did not plausibly allege any defendant used threats of violence to obtain the Carpenters’ property (United Brotherhood of Carpenters and Joiners of America v Building and Construction Trades Department, AFL-CIO, October 28, 2014, O’Scannlain, D).

Economic pressure. The BCTD is an umbrella labor organization representing unions and individuals in the construction industry. Subordinate labor unions pay the BCTD per capita monthly fees and must comply with the BCTD rules. The Carpenters union is no longer affiliated with the BCTD because it believed its services were unnecessary and its rules outdated and anticompetitive. The BCTD engaged in a “Push-Back-Carpenters Campaign,” a campaign of intense economic pressure to force the Carpenters into reaffiliating with the BTCD and paying dues. Allegations of “economic pressure” included authorizing the AFL-CIO to charter a union to compete with the Carpenters; repeated public criticism of the Carpenters on websites and in other publications; filing frivolous regulatory claims; stealing confidential information; forcing the Carpenters’ Seattle legal counsel to terminate its relationship with the union; and orchestrating the termination of an affiliation agreement between the Carpenters and the AFL-CIO’s Metal Trades Department.

Specifically, the Carpenters’ complaint alleged acts of vandalism of Carpenter job sites and property; death threats against Carpenters’ officials and representatives; threats of violence at Pier 66 in Seattle; and the public dissemination of video footage of a violent attack on Carpenters’ members. The Carpenters have not acceded to the BCTD’s demands, but alleged significant harm including lost members and dues; lost job opportunities, positions, and work assignments; loss of confidential information; increased costs due to the termination of contractual relations with its attorneys; and loss of goodwill, among other claims. As a result, the Carpenters sued the BCTD for claims under RICO and the Labor Management Reporting and Disclosure Act (LMRDA), as well as state law claims.

Concluding that the Carpenters failed to allege proximate causation or any predicate acts and also failed to join a necessary defendant to obtain injunctive relief under the LMRDA, the district court dismissed all of the Carpenters’ federal claims. This appeal ensued.

RICO claims. RICO provides a private cause of action for “[a]ny person injured in his business or property by reason of a violation of [18 U.S.C. Sec. 1962].” Subsections 1962(a) through (c) prohibit certain “pattern[s] of racketeering activity” in relation to an “enterprise.” The elements of a civil RICO claim are: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as ‘predicate acts’) (5) causing injury to plaintiff’s business or property. The primary issue on appeal was whether the Carpenters plausibly alleged any predicate acts, under either the Hobbs Act or state extortion law.

“Extortion” under the Hobbs Act means “the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.” The Carpenters’ complaint alleged that the BCTD applied intense economic pressure in an effort to force it to surrender their money and submit to BCTD’s control. The Ninth Circuit observed that fear, in the context of the Hobbs Act, can include fear of economic loss. However, it also noted that “there is nothing inherently wrongful about the use of economic fear to obtain property.”

In United States v. Enmons, the Supreme Court held that a defendant violates the Hobbs Act only “where the obtaining of the property would itself be ‘wrongful’ because the alleged extortionist has no lawful claim to that property.” Defending against an accusation of extortion “based on a lawful claim to the property obtained has been dubbed the ‘claim of right’ defense to extortion.” Where violence or violent threats are concerned, the claim of right defense is strictly limited to employer-union labor disputes.

Unwanted services. In this instance, the appeals court observed that the Carpenters’ complaint did not plausibly allege the BCTD demanded any sort of personal payoffs, but contended that its services were unwanted and would provide nothing of value to the Carpenters. A claim of right defense cannot be defeated by a contention that a particular transaction has no “subjective” or “idiosyncratic” value. Thus, the Carpenter’s contention that the BCTD campaign was extortionate because it was directed toward coercing the Carpenters into accepting outdated and anticompetitive services that were unwanted and unnecessary failed.

Next, the appeals court examined whether the BCTD campaign was extortionate because it used wrongful means, such as filing frivolous regulatory claims, or misusing confidential membership information. However, the BCTD correctly contended that use of economic pressure is wrongful if the victim “had a pre-existing right to the purported consideration being offered by the defendant as an inducement to enter into the transaction,” noted the court. Here, the Carpenters did not have a statutory or contractual right to the services that the BCTD offered. As a result, the Carpenters’ complaint did not allege a violation of the Hobbs Act through the use of economic fear merely because the BCTD might have committed some tort or breached some contract as part of its campaign.

Threatened force or violence. On the other hand, the use of “actual or threatened force or violence to obtain property” is “inherently wrongful” and not subject to a claim of right defense. Therefore, the question was whether the Carpenters adequately alleged that the BCTD used violence or force against the union. It asserted that BCTD publicly disseminated video footage of a violent attack on Carpenters’ members, accompanied by a written warning that similar violence would ensue, pointed to materials on a BCTD website to “direct and encourage violence,” and described “speeches containing anti-Carpenters threats and incitements . . . to take violent actions.”

In the context of this case, the appeals court could not find that such statements constituted threats of violence actionable under civil RICO. The complaint alleged exactly one act of vandalism by unnamed agents of BCTD, and two emailed “veiled death threats” against a Carpenters’ officer without specifying how the individual named was connected to BCTD. Thus the complaint did not plausibly allege that any defendant used threats of violence to obtain the Carpenters’ property.

Violence by nonparties. Similarly, the Carpenters’ complaint failed to tie the BCTD to threats and violence by nonparties. The complaint recited several “actions” undertaken in furtherance of the unlawful conspiracy,” but identified the actors, if at all, merely as “Defendants’ agents.” Such rote recitations did not render plausible that the nonparties conspired with the BCTD or agreed with the BCTD to commit or threaten violence. As a result, the Carpenters’ formulaic and conclusory allegations of conspiracy and agency did not suggest plausibly that the BCTD or any named defendant attempted to acquire the Carpenters’ property through violence or threats.

State law claims. The Carpenters also failed to allege RICO predicate offenses under 12 states’ extortion statutes. The union suggested that any conduct criminalized under any state’s “extortion” statute was a proper RICO predicate offense. The Carpenters would expand that definition of extortion under Sec. 1961(1)(a) to include any conduct labeled “extortion” under any state statute. However, the appeals court held the district court correctly rejected that argument. Even if a state labels particular conduct extortion, “it cannot qualify as a predicate offense for a RICO suit unless it is capable of being generically classified as extortionate.” Thus, even if a state criminalized the use of economic fear to achieve a legitimate end, the state offense would not equal generic extortion. Thus, the Carpenters failed to state a claim under civil RICO.

The case number is 12-36049.

Attorneys: Craig D. Singer (Williams & Connolly), Daniel M. Shanley (DeCarlo & Shanley) for United Brotherhood of Carpenters and Joiners of America. Leon Dayan (Bredhoff & Kaiser) for Building and Construction Trades Department, AFL-CIO

Companies: United Brotherhood of Carpenters and Joiners of America; Building and Construction Trades Department, AFL-CIO

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