Antitrust Law Daily Wrap Up, RICO—S.D. Cal.: Union's efforts to organize hospital management company employees were not extortion under RICO, (Nov 24, 2015)

By Edward L. Puzzo, J.D.

The efforts made by the Service Employees International Union to persuade Prime Healthcare to accept a labor agreement were not RICO extortion under either the "obtaining property" or "economic pressure" theories, the federal district court in San Diego has ruled (Prime Healthcare Services, Inc. v. Service Employees International Union, November 23, 2015, Curiel, G.).

Prime Healthcare, a hospital management company operating 34 hospitals in 11 states, brought claims against the Service Employees International Union (SEIU) and affiliated groups and individuals alleging that their campaign to unionize Prime Healthcare employees, among other claims, violated the Racketeering Influenced and Corrupt Organizations Act (RICO).

To allege a civil RICO claim, the court explained, a plaintiff must allege: (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. In addition, the Hobbs Act defines extortion as “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.”

Here, Prime Healthcare alleged that the defendants' racketeering activities were its "extortionate activities" in its use of economic pressure to back its demand that Prime Healthcare sign onto a May 2014 agreement between the California Hospital Association (CHA) and member hospitals, and the SEIU local affiliate United Healthcare Workers West (UHW).

Obtaining property as extortion. To meet the “obtaining of property from another” element of extortion for purposes of RICO, the court explained, the plaintiff must allege that the defendant acquired, or sought to acquire, property from the plaintiff. Obtaining a property right is the defining characteristic of extortion, without which a defendant is only alleged to have committed coercion, the court stated. Mere coercion, interference, or deprivation without acquisition is not sufficient to constitute extortion for a RICO claim, the court stated. Because coercion is not a predicate offense under RICO, the distinction between coercion and extortion is critical. Scheidler v. Nat’l Org. for Women, Inc., 537 U.S. 393 (2003).

Prime Healthcare alleged that the property defendants sought to obtain was Prime Healthcare's business reputation and goodwill, its current and potential customers and revenue, its autonomy and control over its business operations and communications with its own employees, its right to hire subcontractors, and union dues and pension and health plan payments to the UHW under the above-referenced agreement.

The court held that Prime Healthcare's allegations with respect to intangible property fell short of the "obtaining" prong of the extortion statute because the allegations were not that the defendants obtained any of Prime Healthcare's property rights, but rather than defendants attempted to coerce Prime Healthcare to do something it was otherwise not inclined to do.

The court further held that Prime Healthcare's allegations with respect to tangible property were insufficient to show that defendants sought to "obtain" the tangible property. Money paid under the labor agreement would not be paid to the UHW directly; it would be paid to a joint labor organization. The amounts of pension and health care payments made by Prime Healthcare on behalf of its employees were outside UHW's control.

Even if the allegations were sufficient to show that the defendants were guilty of coercion, interference, or deprivation in an effort to obtain Prime Healthcare's property, they were insufficient to show that defendants actually acquired Prime Healthcare's property. Thus, these acts were not sufficient to constitute extortion for a RICO claim, the court ruled.

Wrongful use of economic pressure as extortion. To meet the “wrongful use of actual or threatened force, violence, or fear” element of extortion for purposes of RICO, the court explained, the plaintiff must allege that obtaining the property itself would be wrongful because the alleged extortionist had no lawful claim to the property.

Here, Prime Healthcare alleged that, in the attempt to coerce it into signing the labor agreement, defendants used economic pressure in forms such as a campaign urging elected officials to not accept political contributions from Prime Healthcare, a threat to publish legislation designed to hamstring Prime Healthcare's business, and a threat to work to ensure that Prime Healthcare would not get California Attorney General approval for the sale of California Department of Health Care Service (DCHS) hospitals to Prime Healthcare. However, the court stated, the fear of economic loss plays an important role in many legitimate business transactions, so courts must differentiate hard bargaining—the legitimate use of economic fear—from extortion—the illegitimate use of economic fear.

Contrary to Prime's allegations, the court ruled that the labor agreement that the defendants sought Prime Healthcare to sign was neither wrongful nor unlawful. Therefore, the ends of defendants' actions were not wrongful. As to the means of defendants' actions, they were means defendants were entitled to take, such as attempting to block the sale of hospitals. Thus, the court concluded that, with neither the means nor the ends of defendants' actions being plausibly "wrongful," Prime Healthcare had failed to plausibly allege a RICO predicate act of extortion.

The case is Civil Action No. 3:14-cv-02553-GPC-RBB.

Attorneys: Amanda Catherine Fitzsimmons (DLA Piper LLP) for Prime Healthcare Services, Inc. Glenn Rothner (Rothner Segall And Greenstone) for Service Employees International Union. Andrew Dean Roth (Bredhoff & Kaiser PLLC) for Change To Win and CtW Investment Group.

Companies: Prime Healthcare Services, Inc.; Service Employees International Union; CtW Investment Group; Change To Win.

Cases: RICO CaliforniaNews