Antitrust Law Daily Wrap Up, RICO—D.N.J.: Company could amend RICO complaint against union for alleged extortionate acts in seeking neutrality agreement, (Oct 15, 2013)

By Joy P. Waltemath, J.D.

Granting a healthcare management company leave to amend its complaint, a federal district court in Newark, New Jersey declined to dismiss company claims that Service Employees International Union’s corporate campaign, seeking a neutrality agreement and involving what the union characterized as “economic pressure tactics,” stated a viable RICO action (Care One Management, LLC v United Healthcare Workers East, SEIU 1199, October 10, 2013, Wigenton, S).

RICO claims. The plaintiffs alleged a pattern of racketeering activity under RICO, 18 U.S.C. Secs. 1961 (1) and (5), claiming the unions had engaged in this racketeering scheme with the specific intent to defraud—specifically, to deceive the community, patients, prospective patients, and their family members into thinking that the facilities managed by the healthcare management company were unsafe and improperly managed, so that the company would lose money and “be forced to accede to” the unions’ demands. RICO civil claims require predicate acts, and RICO lists crimes that constitute racketeering activities, including extortion under the Hobbs Act, extortion under state law, and extortion under the Travel Act.

Alleged union activities. Arguing that their tactics were “peaceful economic pressure tactics” that cannot be considered attempted extortion under RICO, the unions additionally claimed that their non-economic tactics include websites, media, and flyers that could not be the basis for the company’s RICO claims. The company alleged that the unions had utilized four main tactics: (1) “vandalism and other criminal acts” to endanger patients and disrupt the company’s ability to provide quality services and bring about negative outcomes before state regulatory authorities; (2) disseminating false and misleading information about the company to dissuade patients from doing business with it; (3) “publicly smearing” one of the company’s “indirect owners” (a trustee of NYU School of law)through using the school’s Student Labor Action Movement to pressure its president to remove the trustee unless the company agreed to the union’s demands; and (4) “abusing the legal process” with the sole objective of driving up the company’s costs. Further, the company alleged “criminal and dangerous actions” including mishandling equipment and patient identification.

“Attempted extortion.” If adequately pled, the acts alleged in the complaint could form the basis for RICO claims; however, the company’s pleadings were flawed, the district court ruled. In essence, the company claimed the unions were using “extortionate tactics” to get it to agree to recognize the unions “without the NLRA-sanctioned secret ballot process,” while the unions pointed out they were merely seeking a legal neutrality agreement. The unions argued that the company first failed to plead a “property” that the union sought to obtain, and that the right to enter a neutrality agreement should not be considered a property right for the purpose of the statute. They also claimed the complaint’s allegations did not meet the definition for “generic” extortion, suggesting that the complaint referred to “attempted extortion” and failed to meet the requirements for a predicate act under RICO because “obtaining” property or something of value from the company was not clearly articulated. However, by forcing the company to give up rights under the NLRA to require a secret-ballot election to select its collective bargaining representative, the company claimed the unions were seeking “effective control over Plaintiffs’ business operations,” which they argued was the company’s property interest.

“Obtaining property.” Citing the Third Circuit, the court pointed out that a party that seeks to induce another to enter into a “legitimate” business transaction, not through force or violence but through “economic fear in business negotiations between private parties,” does not commit extortion or render it guilty of “attempted extortion.” The court noted that the company did need to demonstrate some action beyond an interference with its property right for RICO. As pled, the company had articulated a “property” right and “something of value” for the purposes of the statute. The company was not required by law to enter into a neutrality agreement or turn over control or funds. But the company did need to clarify the “obtaining property” component of “extortion” in their pleadings to proceed under the Hobbs Act or a related statute. For property to be the basis of an extortion claim, it must be transferable or “capable of passing from one person to another.” While the complaint suggested some transferrable property the union allegedly sought to control or acquire, much of it focused on nontransferable property interests.

State law. In addition, the company argued that it had pled potential violations of state statutes including subsections of the extortion statutes for Connecticut, New Jersey, and Massachusetts. The extortion claims under these state statutes were permissible, said the court, to the extent that they did not require “obtaining property,” noting that it would allow the company leave to amend its complaint.

Travel Act. According to the company, approximately 100 Connecticut union members were bused to the George Washington Bridge to protest at its New Jersey headquarters, where some members allegedly forced their way into the facility to confront senior officials with demands. The complaint also alleged the unions hired billboard trucks to drive throughout Connecticut and New Jersey displaying false and misleading statements about company facilities in front of those facilities, and the trucks trespassed and obstructed traffic and access to the facilities. Although noting the unions disagreed with how these facts were presented in the complaint, viewed in the light most favorable to the company, the complaint met the basic requirements to plead a claim under the Travel Act.

Norris LaGuardia Act. Under the Norris-LaGuardia Act, no union officer or member, and no association or organization participating or interested in a labor dispute, “can be held responsible or liable in any court of the United States for the unlawful acts of individual officers, members, or agents, except upon clear proof of actual participation in, or actual authorization of, such acts, or of ratification of such acts after actual knowledge.” Unwilling to see this as a complete shield, the court pointed out that the prohibition of Norris-LaGuardia must give way when necessary to enforce a duty imposed by another statute, so that here, the Norris-LaGuardia Act would not bar the company’s claims of violence and extortion under RICO. But the court did find that the company must specifically plead a basis for which the unions could be held accountable for many of the alleged acts of unidentified individuals in furtherance of a conspiracy or enterprise, and for wire and mail fraud.

Wire and mail fraud. Finally, the unions argued that the company was really pleading defamation, not predicate acts of mail and wire fraud. Here, the court found that the company did not just assert defamation but rather that defamatory statements and misrepresentations were part of a multifaceted scheme to defraud. But a plaintiff alleging fraud must state the circumstances of the alleged fraud with sufficient particularity to place the defendant on notice of the precise misconduct with which it is charged. Thus, while together with other examples of alleged sabotage and tampering, there was a potential basis for RICO claims, the complaint needed to clearly inform the unions of the misrepresentations alleged to support a specific scheme for fraud—beyond general allegations of defamatory statements—by clearly articulating a pattern of those activities and how the communications contributed to the alleged fraudulent scheme. The underlying defect in the company’s complaint was in clearly identifying predicate acts by the unions to support a pattern of racketeering activities for RICO claims, concluded the court.

The case number is 12-6371(SDW)(MCA).

Attorneys: Rosemary Alito (K&L Gates) for Care One Management, LLC. David Mark Slutsky (Levy Ratner, PC) for United Healthcare Workers East, SEIU 1199.

Companies: Care One Management, LLC; United Healthcare Workers East, SEIU 1199; New England Health Care Employees Union, District 1199

Cases: RICO NewJerseyNews