Antitrust Law Daily Wrap Up, RICO—D.C. Cir: Government contractor employees’ class-wide RICO claims properly dismissed, (Jun 3, 2015)

By Michael Menzhuber, J.D., LL.M.

Dismissal of injured government contractor employees’ class-wide RICO claims was affirmed by the U.S. Court of Appeals in Washington, D.C. However, the dismissal of claims brought under the Americans with Disabilities Act (ADA), brought by three members of the class, was reversed and remanded by the appeals court (Brink v. Continental Insurance Co., June 2, 2015, Sentelle, D.).

Background. Daniel Brink and 31 other individuals suffered injuries while working for United States government contractors in Iraq and Afghanistan. They subsequently brought a class action lawsuit stemming from the workers’ compensation benefits owed to them under the Defense Base Act (Base Act), 42 U.S.C. § 1651 et seq. The class asserted claims for: (1) RICO violations; (2) discrimination and retaliatory discharge under the Longshore and Harbor Workers’ Compensation Act; (3) bad faith and tortious breach of the covenant of good faith; (4) unconscionable, fraudulent, and deceptive trade practices; (5) civil conspiracy; (6) outrage; and (7) wrongful death. Three members of the class also alleged violations of the ADA.

The district court determined that the state law causes of action brought by the class all arose out of their underlying claims to Base Act benefits and, thus, were barred by the exclusive scheme set forth in the Base Act and the Longshore Act. It determined that RICO claims brought by the class, as well as their discrimination and retaliatory discharge claims, were also barred by the comprehensive statutory scheme. Finally, the district court concluded that the individuals who asserted ADA claims failed to demonstrate that they qualified as disabled under the ADA and denied them leave to amend their complaints.

On appeal, the class raised three issues: (1) whether the statutory scheme bars the class’ tort claims; (2) whether the district court erred in dismissing their federal claims, including the RICO claims; and (3) whether the district court abused its discretion when it denied a motion for leave to allow the individual ADA claims to be amended.

Tort Claims. The class contended that neither the Base Act nor the Longshore Act barred their tort claim because: (1) the Base Act does not extend tort immunity to intentional torts of the employer, the insurance carrier, or third parties and (2) their injuries, caused by the contractors’ intentional post-employment acts, were not “accidental” and, therefore, not covered by the Longshore Act. The court of appeals disagreed.

The Base Act and the Longshore Act each contain exclusivity provisions stating that employer liability under the statutes “shall be exclusive and in place of all other liability.” This statutory scheme represents a “legislated compromise between the interests of employees and the concerns of employers.”

The class’ complaint alleged that all of its class members were covered by the Base Act and that their class-wide tort claims directly related to their claims for Base Act benefits. According to the court of appeals, the district court rightly decided that the claims brought by the class were, therefore, barred by the exclusivity statutory scheme set forth in the Base Act and the Longshore Act.

The class argued that the statutory scheme did not provide remedies for the tortious injuries caused by the contractors’ intentional actions. However, the court of appeals noted that the Base Act does provide for a penalty for employers for intentional acts and any issue as to the adequacy of the penalty or the speed in the penalty process requires a political solution.

The court of appeals determined that, although the class was precluded from pursuing its claims, individual claims, arising independently of an entitlement to benefits under the Longshore Act, could be pursued in separate proceedings.

Federal Claims. The court of appeals agreed with the district court’s judgment dismissing the class’ RICO claims because the statutory scheme of the Base Act and the Longshore Act contains exclusive remedies. It also agreed with the district court that, even if the statutory scheme left room for the RICO claims, the claims should be dismissed because they did not state a cause of action under RICO. Specifically, the class did not allege any facts establishing: (1) a common purpose among the participants; (2) organization; and (3) continuity. Finally, the court of appeals found that the RICO predicate acts were not plead with particularity, as required by Federal Rule of Civil Procedure 9(b), because neither their mail nor wire fraud claims contained: (1) any reference to specific fraudulent statements; (2) who made the statements; (3) what was said; (4) when or where the statements were made; and (5) how or why the alleged statements were fraudulent.

The district court dismissed the class’s claims under the Longshore Act because they failed to exhaust their administrative remedies. The court of appeals affirmed the decision after noting that there was no evidence that: (1) any members of the class filed a complaint with a district director of the applicable compensation district; (2) a district director conducted an investigation of the complaints; or (3) the district director determined that discrimination occurred or recommended reinstatement, restitution for compensation for lost wages.

The court of appeals did agree that the district court abused its discretion when it did not provide the individual class members leave to amend their ADA claims and gave no reason for the denial. It determined that an outright refusal to grant leave to amend, without any justifying reason appearing for the denial, was inconsistent with the spirit of the Federal Rules.

The case number is No. 13-7165.

Attorneys: Scott J. Bloch (Law Offices of Scott J. Bloch, PA) for Daniel Brink. Joshua Thomas Gillelan, II (Longshore Claimants' National Law Center) for Continental Insurance Co. Christopher E. Appel (Shook, Hardy & Bacon LLP) for ACE American Insurance Co. Charles C. Platt (Wilmer Cutler Pickering Hale and Dorr LLP) for Zurich American Insurance Co. Robert Bruce Wallace (Wilson Elser Moskowitz Edelman & Dicker, LLP) for DynCorp International, LLC. Raymond Brian Biagini (Covington & Burling LLP) for Halliburton Corp. Richard Joseph Doren (Gibson, Dunn & Crutcher LLP) for American International Group, Inc.

Companies: Continental Insurance Co.; ACE American Insurance Co.; Zurich American Insurance Co.; DynCorp International, LLC; Halliburton Corp.; American International Group, Inc.

Cases: RICO DistrictofColumbiaNews