Eleventh Circuit Joins Sister Circuits in Holding that Knowingly Hiring Illegal Aliens to Lower Labor Costs Satisfies RICO Class Action Claims at Pleading Stage But Agrees with Defense that State Law Unjust Enrichment Claims Must be Dismissed
A class action alleging federal and state RICO (Racketeer Influenced and Corrupt Organizations Act) violations was filed in Georgia federal court by current and former hourly employees against Mohawk Industries – “the second largest carpet and rug manufacturer in the United States . . . [with] over 30,000 employees” – alleging that it knowingly hired and harbored illegal aliens in order to lower labor costs and to discourage workers’ compensation claims. Williams v. Mohawk Industries, Inc., 465 F.3d 1277, 1280, 1282 (11th Cir. 2006). The defense filed a 12(b)(6) motion to dismiss, which the federal court granted in part. Id., at 1280-81. Specifically, the district court denied the defense motion to dismiss the federal and state RICO class action claims, as well as the state law unjust enrichment claim based on the payment of lower wages to legal workers because of the availability of illegal workers willing to work for less money. Id., at 1282. But the court granted the defense motion to dismiss the unjust enrichment class action claim that was based on the alleged discouragement of workers’ compensation filings. Id. The Eleventh Circuit granted plaintiffs’ request for interlocutory review and, after a circuitous route, affirmed in part and reversed in part.
The class action complaint alleged that Mohawk intentionally hired illegal aliens in violation of federal law, transported them to Mohawk’s facilities and provided them with living accommodations “in an effort to keep labor costs as low as possible.” Williams, at 1281-82. The complaint further alleged that Mohawk engaged in affirmative steps to conceal the illegal workers from law enforcement. Id., at 1282. This practice permitted Mohawk to reduce wages paid to legal workers thereby “sav[ing] substantial sums of money,” id. The complaint alleged further, “Mohawk knows that illegal workers are less likely to file worker’s-compensation claims, and, therefore, Mohawk is able to save additional monies.” Id. Defense attorneys filed a motion to dismiss; as noted above, the district court denied the motion as to the RICO claims, and as to the lower wages-unjust enrichment claim, but granted the motion to dismiss as to the workers’ compensation unjust enrichment claim on the grounds that the plaintiffs lacked standing to assert the claim.
The Eleventh Circuit began by analyzing federal RICO claims under 18 U.S.C. § 1962(c), Williams, at 1282 et seq. After an extensive analysis, the Circuit Court affirmed the district court order, holding at pages 1285and 1286 that the required elements had been adequately pleaded in the class action complaint, and noting that this holding was consistent with decisions reached in the Second, Sixth, and Ninth Circuits, though inconsistent with a decision out of the Seventh Circuit. The Court of Appeals also held that plaintiffs had adequately pleaded injury to a business or property interest, id., at 1286, and that the injury was caused by the RICO violation, id., at 1286-89. Defense attorneys argued that the hiring of illegal workers is just one factor in the setting of wages, and so the proximate cause element was absent, id., at 1289. The Circuit Court rejected this argument, and agreed that the sheer size of Mohawk’s labor force means that its conduct “grossly distorts” wages in the normal market, “especially given the recognition of a direct correlation between illegal hiring and lower wages.” Id. The Court rejected also defense arguments that the payment of lower wages was “entirely distinct” from the act of hiring illegal aliens, as “it has long been recognized that hiring illegal workers on substandard wage terms depresses the wage scales of legal workers.” Id., at 1290. Finally, the Circuit Court held that the plaintiffs had standing to assert the federal RICO claim, id., at 1291-92, citing with approval a Ninth Circuit opinion that held that “‘we are unable to discern a more direct victim of the illegal conduct.'” Id., at 1292 (citation omitted).
As for the state law RICO claim, the Eleventh Circuit readily found that the statute applied in the abstract, and that only two issues necessitated discussion – whether under state law a corporation may be sued under the Georgia RICO statute, and whether under state law plaintiffs adequately alleged proximate cause to establish standing. Williams, at 1293. Relying upon decisions of the Georgia Supreme Court, the Circuit Court held that corporations may be sued under Georgia’s RICO statute, id., at 1293-94. The Court next concluded that plaintiffs did possess standing to assert the RICO claim because the statute has been held to be “closely analogous to the federal RICO statute,” thereby rendering its conclusions of standing under the federal statute directly applicable. Id., a 1294.
Finally, the Circuit Court addressed the state law unjust enrichment claims in the class action complaint. Williams, at 1294. In essence, plaintiffs’ alleged that Mohawk realized substantial savings through its illegal conduct because it paid lower wages than it would have otherwise, resulting in “unjust enrichment” under state law. Id. Additionally, Mohawk’s savings from allegedly reduced workers’ compensation claims also allegedly constituted unjust enrichment. Id. The Eleventh Circuit held that both claims failed. It rejected the “lower wages” claim because under Georgia law unjust enrichment can only exist in the absence of a legal contract; here, however, each of the plaintiffs had a contract with Mohawk and each received the agreed upon wage. Id., at 1294-95. Accordingly, “the plaintiffs’ unjust-enrichment claim as it related to Mohawk’s purported savings from lower wages should have been dismissed.” Id., at 1295. Similarly, the “workers’ compensation” claim failed because “there is no reasonable allegation that this fact, even if true, is connected to the plaintiffs receiving lower wages.” Id. In other words, at best the cause of action alleged that Mohawk’s profits were higher because it paid fewer workers’ compensation claims, but this did not mean that the plaintiffs received lower wages; accordingly, the district court properly dismissed this claim for lack of standing. Id.