RICO — Criminally False Attestations of HR Personnel Disguising Hiring of Illegal Aliens Not Proximate Cause of Depressed Wages for Other Employees

Walters v. McMahen, 2012 U.S. App. LEXIS 13682 (4th Cir. July 5, 2012):

In this case, a group of hourly-wage employees of Perdue Farms, Inc. (Perdue), a major poultry processing company, filed a civil conspiracy action under 18 U.S.C. § 1962(d) of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. These hourly-wage employees (the plaintiffs) alleged that certain corporate managers of Perdue, human resources staff, and plant managers conspired to hire aliens not authorized to work in the United States in an effort to reduce labor costs. The plaintiffs asserted that this illegal hiring practice has caused the depression of wages paid to all hourly-wage employees at certain Perdue facilities.***

The plaintiffs are five hourly-wage employees of Perdue who are authorized to work in the United States. They filed the action on behalf of themselves and similarly-situated employees, alleging that there is a conspiracy being conducted within Perdue's human resources department involving various levels of Perdue managers and human resources clerks responsible for hiring hourly-wage employees. The alleged object of this conspiracy is the receipt of increased compensation from Perdue flowing to the employee conspirators.

The plaintiffs asserted that the increased compensation received by the employee conspirators results from a hiring scheme designed to employ aliens brought into this country illegally using fraudulent means (the hiring scheme). According to the plaintiffs, the hiring scheme operates in the following fashion. At the lowest level of the conspiracy, the human resources clerks responsible for hiring hourly-wage employees (the hiring clerks) knowingly process the employment applications of unauthorized aliens who have been brought into this country illegally. The hiring clerks knowingly accept false identification documents and attest to their veracity on Employment Eligibility Verification forms (I-9 forms) required by the United States Department of Homeland Security.

The plaintiffs further alleged that the managers of fourteen Perdue facilities across the United States (the facility managers) have instructed the hiring clerks to commit these acts. The facility managers, in turn, allegedly received their instructions from certain Perdue corporate managers (corporate managers).

Additionally, the plaintiffs asserted that the conspirators' acts have resulted in the depression of wages of every hourly-wage employee working for Perdue. According to the plaintiffs, this wage depression is both an effect of the hiring scheme and the cause of the plaintiffs' damages. As alleged in the amended complaint, the conspirators benefit from the hiring scheme by reducing labor costs, which in turn increases Perdue's profitability and results in higher compensation for the conspirators. ***

According to the amended complaint, this conspiracy includes the violation of two different statutes that qualify under RICO as "predicate acts" identified in 18 U.S.C. § 1961(1).

First, the plaintiffs alleged that the hiring clerks individually violated 8 U.S.C. § 1324, which provides criminal penalties for certain acts "relating to bringing in and harboring certain aliens." 18 U.S.C. § 1961(1)(F). The particular subsection at issue, 8 U.S.C. § 1324(a)(3), establishes as a criminal offense the act of knowingly hiring, during a 12-month period, ten or more unauthorized aliens who have been brought into the United States (the illegal hiring predicate). ***

Second, the amended complaint alleged that the hiring clerks individually violated 18 U.S.C. § 1546, which establishes as a criminal offense certain acts "relating to fraud and misuse of visas, permits, and other documents." 18 U.S.C. § 1961(1)(B). In particular, the plaintiffs asserted that the hiring clerks violated 18 U.S.C. § 1546(b)(1)-(3), which prohibits the use of false identification documents, and fraudulent attestations regarding the validity of such documents, in the completion of government forms (the false attestation predicate). ***

In examining the plaintiffs' allegations concerning the two RICO predicate acts, we first observe that the plaintiffs have alleged that the defendants violated 18 U.S.C. § 1962(d) by conspiring to violate 18 U.S.C. § 1962(c).***

An act of racketeering under RICO commonly is referred to as a "predicate act." Maiz v. Virani, 253 F.3d 641, 671 (11th Cir. 2001). A "pattern" of racketeering activity is shown when a racketeer commits at least two distinct but related predicate acts. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n.14, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985). While private litigants may recover for racketeering injuries under 18 U.S.C. § 1964(c), their injuries must "flow from the commission of the predicate acts." 473 U.S. at 497. And, in the present case, because the plaintiffs allege only two predicate acts in support of their civil conspiracy claim, their failure to plead sufficient facts to establish the elements of either predicate act would require that the amended complaint be dismissed. See Crest Constr. II, Inc. v. Doe, 660 F.3d 346, 358 (8th Cir. 2011). ***

We turn to consider the first predicate act alleged by the plaintiffs, namely, the knowing act of hiring multiple unauthorized aliens brought into this country illegally. The plaintiffs allege that each of the hiring clerks personally violated the illegal hiring predicate, which provides in relevant part:

(A) Any person who, during any 12-month period, knowingly hires for employment at least 10 individuals with actual knowledge that the individuals are aliens described in subparagraph (B) shall be fined under title 18, United States Code, or imprisoned for not more than 5 years, or both.

(B) An alien described in this subparagraph is an alien who—

(i) is an unauthorized alien (as defined in section [1324a(h)(3) of this title]), and

(ii) has been brought into the United States in violation of this subsection.

8 U.S.C. § 1324(a)(3).

This particular predicate act has been analyzed in similar contexts by two of our sister circuits. See Edwards v. Prime, Inc., 602 F.3d 1276 (11th Cir. 2010); Commercial Cleaning Servs., L.L.C. v. Colin Serv. Sys., Inc., 271 F.3d 374 (2d Cir. 2001). As our sister circuits have explained, the illegal hiring predicate has two distinct mens rea elements, both of which must be present in order for a violation to occur. First, a defendant must hire ten or more aliens within a 12-month period with actual knowledge that those aliens are not authorized to work in the United States.... Second, the defendant must have actual knowledge that the unauthorized aliens hired were brought into the country in violation of 8 U.S.C. § 1324(a). ***

This second element is a crucial component of any violation of the illegal hiring predicate. It is this element, requiring actual knowledge that the aliens were "brought into" this country illegally, that distinguishes 8 U.S.C. § 1324(a)(3), which contains the element and qualifies as a RICO predicate act, from 8 U.S.C. § 1324a(a)(1), which does not contain the element and is not a RICO predicate act but otherwise is substantially similar. See Nichols v. Mahoney, 608 F. Supp. 2d 526, 534-35 (S.D.N.Y. 2009) (comparing the two provisions). Under 8 U.S.C. § 1324(a)(3), the RICO predicate act, the hiring of ten or more unauthorized aliens with knowledge that they were brought into this country illegally, exposes the employer to the imposition of fines or to a term of imprisonment of up to five years, or both. Edwards, 602 F.3d at 1293. In contrast, under 8 U.S.C. § 1324a(a)(1), the act of hiring unauthorized aliens without knowledge that they were brought into this country illegally limits the employer's exposure to the imposition of civil penalties. Id.***

[T]he fatal deficiency of the illegal hiring predicate allegations is the failure to provide sufficient factual support concerning the unauthorized aliens' entry into the United States. As stated above, the illegal hiring predicate requires that the violator employ at least ten aliens within a 12-month period "with actual knowledge" that each employee is "an unauthorized alien" and that each "has been brought into the United States." 8 U.S.C. § 1324(a)(3). ***

We note that, prior to Twombly and Iqbal, the Ninth Circuit made a contrary holding with respect to similar language in a complaint involving the illegal hiring predicate. In Mendoza v. Zirkle Fruit Co., 301 F.3d 1163 (9th Cir. 2002), the court held that an allegation the defendant company knew that unauthorized aliens hired were smuggled into the United States sufficiently supported the illegal hiring predicate for purposes of surviving a motion under Rule 12(b)(6). Id. at 1168. However, at the time Mendoza was decided, the dismissal of a complaint was appropriate only if it was "clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Mendoza, 301 F.3d at 1167 (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514, 122 S. Ct. 992, 152 L. Ed. 2d 1 (2002)). As the decisions in Twombly and Iqbal have made clear, the standard employed in Mendoza no longer is applicable. ***

The second RICO predicate act identified in the plaintiffs' amended complaint involves the fraudulent use and false attestation of documents. The particular provision that the plaintiffs assert was violated by the hiring clerks, 18 U.S.C. § 1546(b), states:

Whoever uses—

(1) an identification document, knowing (or having reason to know) that the document was not issued lawfully for the use of the possessor,

(2) an identification document knowing (or having reason to know) that the document is false, or

(3) a false attestation,

for the purpose of satisfying a requirement of section 274A(b) of the Immigration and Nationality Act, shall be fined under this title, imprisoned not more than 5 years, or both.

18 U.S.C. § 1546(b).***

[B]ecause the plaintiffs have not alleged facts establishing that they suffered an injury proximately caused by the hiring clerks' violation of the false attestation predicate, their claim also fails with regard to this predicate act.

As the Supreme Court noted in Beck v. Prupis, we are guided by the "well-established common law of civil conspiracy" when determining whether a plaintiff has been "injured" for purposes of 18 U.S.C. § 1962(c), based on a conspiracy alleged under 18 U.S.C. § 1962(d). Beck, 529 U.S. 494, 500, 120 S. Ct. 1608, 146 L. Ed. 2d 561 (2000). While a "mere violation" of 18 U.S.C. § 1962(d) is all that is required to establish criminal liability, a plaintiff may recover in an action for civil conspiracy only upon establishing injury caused by an act that is itself tortious. Id. at 501-02 & 501 n.6. Thus, in the present case, the plaintiffs were required to allege facts establishing that a violation of the false attestation predicate proximately caused the plaintiffs' injury. See Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 453, 126 S. Ct. 1991, 164 L. Ed. 2d 720 (2006) (citing Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992) for proposition that plaintiff in action invoking 18 U.S.C. § 1962(c) must sufficiently allege that the RICO violation was the proximate cause of plaintiff's injury).

The "central question" therefore is whether the plaintiffs' injuries were the direct result of the alleged predicate act. Id. at 461. The Supreme Court has identified three reasons supporting this requirement of a direct link between an alleged predicate act and a plaintiff's injury. These reasons are: (1) the factual difficulty of measuring indirect damages and distinguishing among distinct independent causal factors; (2) the complexity of apportioning damages among plaintiffs to remove the risk of multiple recoveries; and (3) the vindication of the law through compensation of directly-injured victims. See Holmes, 503 U.S. at 269-70 (1992). Applying the proximate causation standard used in Anza and Holmes, we conclude that the hiring clerks' acts did not cause the injury alleged by the plaintiffs. The injury alleged in the amended complaint is the depression of wages suffered by the plaintiffs as the result of Perdue's employment of unauthorized aliens. Notably, however, the wage depression alleged by the plaintiffs is not directly linked to any violation of the false attestation predicate.

The first rationale identified in Holmes supporting the requirement of proximate causation illustrates the central deficiency of the plaintiffs' claim. Here, the factual challenges involved in attempting to measure indirect damages and to distinguish among distinct independent causal factors would be insurmountable.

The compensable injury resulting from a violation of 18 U.S.C. § 1962(c) necessarily is the harm caused by the predicate acts, which must be related sufficiently to each other that they constitute a pattern. Anza, 547 U.S. at 457. Thus, the RICO predicate acts must not only be a 'but for' cause of a plaintiff's injury, but the proximate cause of that injury as well. Hemi Group, LLC v. City of New York, U.S. , , 130 S. Ct. 983, 989, 175 L. Ed. 2d 943 (2010).

In the present case, however, it is not the violation of the false attestation predicate that has caused the harm suffered by the plaintiffs. Rather, the fraudulent use of identification documents and the false attestations placed on the I-9 forms are fundamentally crimes against the government of the United States, and such actions do not directly impact the plaintiffs' wage levels. Although false attestations made by the hiring clerks are one step in a chain of events that ultimately may have resulted in the employment of unauthorized aliens by Perdue, the plaintiffs have not demonstrated that the false attestations themselves have had a direct negative impact on the plaintiffs' wages, or on any other aspect of their compensation.

This deficiency in the plaintiffs' claim becomes obvious by removing the false attestation acts from the plaintiffs' narrative. If Perdue engaged in the hiring of unauthorized aliens without the hiring clerks' fraudulent completion of the I-9 forms, such as by paying the unauthorized employees in cash and not reporting their employment to the United States government, the alleged injury suffered by the plaintiffs would be the same as that stated in the amended complaint. Therefore, as this exercise plainly illustrates, the false attestation violation cannot be a proximate cause of the plaintiffs' injury, because there is no direct relationship between the injury asserted and the predicate act alleged.10 Hemi Group, U.S. at , 130 S. Ct. at 989. For this reason, we hold that the plaintiffs' allegations regarding the false attestation predicate are legally insufficient.