Antitrust Law Daily Wrap Up, RICO—C.D. Cal.: Union local members lacked standing to bring RICO claims against union and others, (Oct 10, 2013)

By Edward L. Puzzo, J.D.

Members and officers of a union local did not have standing to bring RICO claims against union officials and others for an alleged conspiracy to divert assets belonging to the union and its benefit funds, the federal district court in Los Angeles has ruled (Pette v. International Union of Operating Engineers, October 9, 2013, Pregerson, D.).

Individuals who are or were members or officers of Local 501 of the International Union of Operating Engineers (IUOE) brought claims against that union, certain employers that have collective bargaining agreements with IUOE, and various associated individuals alleging, among other claims, violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). It was alleged that the defendants conspired to embezzle funds and divert assets belonging to Local 501, its employees, and its benefit funds. The defendants moved to dismiss, alleging that the plaintiffs did not have standing to bring a RICO claim.

RICO standing. To establish standing to bring a private cause of action under RICO, the court explained, a plaintiff must show that the RICO violation proximately caused a concrete financial loss to his business or property. The plaintiffs contended that they met this requirement because Local 501 and their benefit funds suffered monetary losses when the defendants’ actions deprived the benefit funds of mandatory contributions

These allegations were not sufficient to provide the plaintiffs standing, the court ruled. First, the plaintiffs are required to suffer damages to their business or property. Shareholders, for instance, lack standing to bring RICO charges on behalf of their corporation, the court continued, and union members lack standing to bring RICO charges on behalf of their union where financial improprieties occur with union funds and directly injure only the union itself. Here the injuries alleged were to Local 501 and its benefit funds, none of which was a named plaintiff in this case.

Second, the court continued, there must be a direct relationship between the injury and the alleged racketeering activities. Plaintiffs here alleged only the indirect injury of possible underpayment of future benefits due to the alleged underfunding of benefit plans caused by defendants’ alleged conspiracy. The various alleged racketeering acts harmed Local 501 and its benefit funds, not plaintiffs, the court stated. Even if plaintiffs had been able to identify injury to themselves, any such harm would be the indirect result of direct injuries to the nonparty union and benefit plans. If so, Ninth Circuit precedent requires that “plaintiffs who have suffered ‘passed on’ injury—that is, injury derived from a third party’s direct injury—lack statutory standing.” Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1169 (9th Cir. 2002). Consequently, the court ruled, plaintiffs here lacked statutory standing to bring RICO claims. The court dismissed the claims with prejudice.

The case is No. CV 12-09324 DDP (PJWx).

Attorneys: Howard Scott Leviant (Moore & Leviant LLP) for Finn Pette. Jonathan David Weissglass (Altshuler Berzon LLP) for International Union of Operating Engineers.

Companies: International Union of Operating Engineers

Cases: RICO CaliforniaNews