The Racketeer Influenced and Corrupt Organizations Act, commonly referred to as the RICO Act or simply RICO, is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization.In order to prevail in a RICO action, a plaintiff must prove a “predicate offense” one of which is fraud. In addition to the predicate offense, a plaintiff must also prove a “pattern of racketeering activity” which requires a showing of at least two acts of racketeering activity. This second requirement opens the doors to fairly broad discovery rights covering practically any history of a target defendant that might prove a pattern of racketeering, an open ended discovery process. Federal RICO allows a successful plaintiff to recover treble damages, plus attorney fees.

The plaintiffs bar has sought to apply RICO laws as a penalty in workers’ compensation claims for at least a decade with mixed results. Conceptually they allege that an employer, carrier or third party administrator concocts a fraudulent scheme that is used over and over to prevent workers from obtaining just benefits.

Plaintiff efforts to succeed at RICO in the federal 6th Circuit (Kentucky, Michigan, Ohio, and Tennessee) ultimately ended in failure. In one the the last tries, a Michigan claimant alleged that employer/carrier defrauded him with “false” medical testimony, and filed federal Racketeer Influenced and Corrupt Organizations Act RICO case, In that case, Brown v. Ajax Paving Industries, 752 F.3d 656 (2014), the United States Court of Appeals for the Sixth Circuit followed the prior ruling in Jackson v. Sedgwick Claims Management Services, a carbon copy of this case, 731 F.3d 556, 558 (6th Cir.2013) (en banc). Essentially in the 6th Circuit, RICO cannot be based on an underlying workers’ compensation claim because the court held that “loss or diminution of benefits the plaintiff expects to receive under a workers’ compensation scheme does not constitute an injury to ‘business or property’ under RICO.”

The effort to win comp related RICO cases then moved to the 9th Circuit (nine western states including California and Arizona) arguably the most liberal Circuit in the federal system. In Laurie Miller et al. v. York Risk Services Group, nine plaintiffs worked as firefighters or engineers for the Phoenix fire department, and York adjusted the department’s workers comp claims. The plaintiffs alleged, in part, that York worked with the City of Phoenix to wrongfully deny or delay their workers comp benefits in violation of the federal RICO Act. York moved to dismiss based partly on the en banc decision from the 6th U.S. Circuit Court of Appeals, which dismissed similar RICO claims against Sedgwick Claims Management Services Inc. That defense did not work in Arizona. Judge Sedwick ruled in 2013 that the employees “possess a property right in their workers compensation benefits under Arizona law,” which allows them to have a property interest under RICO law and the case was allowed to proceed. Before the case went to trial, it was settled at the end of 2015. Thus the ruling was not tested in the 9th Circuit Court of Appeals.

Now they have lost another 9th Circuit RICO case this time filed in California.

John Black, and a group of police officers and fire fighters assert a RICO claim in their fourth amended complaint involving the City of Rialto and the City of Stockton, CorVel Enterprises, York Risk Services Group and others. These plaintiffs allege “York, CorVel, and Rialto engaged in a pattern of fraudulently denying and delaying legitimate claims in order to lower the liability of the city, while at the same time maximizing the TPA’s revenues (and allowing the TPA to maintain and obtain contracts with other public entities based on their ‘outstanding’ financial performance at the expense of public servants)”

At the end of April, the Federal Judge granted the defendant’s motion to dismiss the third amended complaint, but gave the plaintiffs leave to amend for the fourth time.  And on August 25, the federal judge reviewed the 4th amended complaint and dismissed the case without leave to amend. The decision was based in part upon a determination that a workers’ compensation benefit is not a property right subject to RICO, a ruling consistent with the 6th Circuit.

Plaintiffs now have an opportunity to appeal the decision in the 9th Circuit Court of Appeals. Assuming a defense result in that tribunal, this would likely end the effort in the 6th and 9th Circuits, and these plaintiffs will have to go elsewhere.

It will be important to monitor the City of Rialto case until it reaches its ultimate conclusion.