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Third Circuit Permits Companies to Proceed on RICO Claims Against Labor Unions

 

 

On July 28, 2022, the United States Court of Appeals for the Third Circuit, in Care One Management LLC, et al. v. United Healthcare Workers East, et al., No. 19-3693, determined that healthcare companies could proceed on RICO claims against service-sector unions.

Care One Management LLC, HealthBridge Management LLC, and their related facilities (“Companies”) brought suit against United Healthcare Workers East SEIU 1199, New England Health Care Employees Union (“NEHCEU”), and the Service Employees International Union (collectively “Unions”) under the Racketeer Influenced and Corrupt Organizations Act (“RICO”).

RICO allows private parties to file civil suits, alleging private civil causes of actions (as opposed to criminal charges brought by the government) for defendants acting as “an enterprise and conducting a pattern of racketeering activity through certain criminal predicate acts.” Decision at p. 3. (citing 18 U.S.C. § 1961, §§ 1962(c), 1964(c)). The Companies alleged that the Unions had violated federal laws against mail and wire fraud and state laws against extortion. Id. The trial court, determining that the record could not determine that the Unions had authorized or ratified any fraudulent or extortionate conduct, granted summary judgment in favor of the Unions. Id. The Companies appealed to the United States Court of Appeals for the Third Circuit.

Background

The conflict between the parties began in 2010, when the Unions filed charges against the Companies before the National Labor Relations Board in 2010 and 2011, alleging unfair labor practices in Connecticut and New Jersey facilities. Id at pg. 6. While these complaints were pending, NEHCEU, one of the Unions, and the Companies entered negotiations on collective bargaining agreements in Connecticut, which proved to be unfruitful, leading NEHCEU to call a strike. Id.

On the night before the strike was scheduled to begin, three of the Companies’ Connecticut facilities were simultaneously vandalized and sabotaged. Id. Patient identifying information was mixed up, medical records were altered, medical equipment was damaged or hidden, and laundry equipment was vandalized. Id. The Connecticut Attorney General’s office investigated, but no suspects were identified, and no person was charged. Id.

Union documents later obtained indicated that the Unions planned to “inspire workers to become angry about their working conditions and to resort to more militant levels of activity.” Id at p. 7 (internal quotations omitted). Statements from the president of NEHCEU were also mentioned, which reportedly appeared to advocate for “militant” behavior. Id. Nevertheless, other Union communications indicated disagreement by the Union with the vandalism and destruction of the Connecticut facility. Id.

RICO Claims

The Companies sued under RICO, alleging that the Unions were responsible for (1) mail and wire fraud in violation of federal law, (2) state law extortion through sabotage, and (3) state law extortion through fear of economic loss. Id at p. 11. The Court of Appeals affirmed the district court’s dismissal of the Companies’ claims of mail and wire fraud and extortion through fear of economic loss. Id. at pp. 15-16, 32.

Extortion Through Sabotage

However, the Court of Appeals allowed the Companies to proceed on their RICO claims regarding the alleged extortion through sabotage. Id. at p. 25. The Companies alleged that due to the “timing of the aforementioned acts of sabotage” and the “fact that CEHCEU members had access to both the facilities and patients involved,” a “reasonable jury could infer that union members committed sabotage and that the Unions either authorized these actions or ratified them.” Id. at p. 16. The Court agreed. Id.

The Court noted, however, that its determination that Section 6 of the Norris-LaGuardia Act applied, meaning that the Companies would need to show by “clear, unequivocal, and convincing proof” that the Unions authorized or ratified the conduct of Union members. Id. at pp. 17-18. This standard is much higher than the “preponderance of the evidence” standard typically applied in civil cases. Id. at p. 17. Despite this high burden, the Court of Appeals determined that the facts were enough that the evidence should be weighed by a jury rather than dismissed pre-trial.

Authorization

The Court acknowledged that the investigation did not indicate that the perpetrators of the Connecticut facilities were union members, yet it still held that a reasonable jury could infer from a “totality of the circumstances” that the Unions authorized the conduct. Id. at 21. Specifically, the Court noted that the timing of the acts of sabotage the night before the planned strike, acts of sabotage occurring simultaneously at three of the Companies’ facilities on the same night, and the statements and communications of Union leaders, provided that a jury could infer that the acts were authorized by the Unions. Id. at pp. 21-22.

Ratification

In its analysis of ratification, the Court determined that it was a “close call” but that a reasonable jury could infer that the Unions had ratified the conduct. Id at 22. Specifically, the Court found that a reasonable jury could examine the communications of Unions which advised against participating in the police investigation and the allegations that the Unions made “no concrete effort” to disassociate themselves from the conduct. Id. at p. 23. As such, these allegations were allowed to proceed.

The Court of Appeals upheld the dismissal of the RICO claims on mail and wire fraud and extortion based on fear of economic loss but remanded the RICO claims on sabotage back to the district court.

The decision of the Court of Appeals is procedural. The Court simply found that a reasonable jury could reasonably determine, given the evidence, that the Unions were liable. The Court did not determine that the Unions were, in fact, liable. The decision in Care One Management LLC, et al., serves as an example of the ways that labor unions can be sued under RICO while reiterating the high burden that a party bears in maintaining those claims against a union. It is also an important reminder for labor union, or any group or association more generally, to condemn and disassociate themselves with the bad conduct of its members to avoid the potential of being seen as “ratifying” the conduct.

 

 

August 02, 2022

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