MD District Court Dismisses RICO Claims Against HR Professionals

Background Facts

In March 2010, five current and former employees of Purdue filed a lawsuit in the District Court in Alabama, alleging violations under RICO. Thereafter, the lawsuit was transferred to the U.S. District Court in Maryland, which ultimately ruled on this novel issue.

According to the employees, the defendants are all employees of Purdue, the third largest poultry processing company in the United States. The disgruntled employees alleged that the corporate co-conspirators, including various HR professionals working for Purdue, implemented a scheme to hire illegal immigrants.

According to the lawsuit, by doing so, Purdue would save millions of dollars in labor costs because the illegal immigrants would work longer hours for lower wages than American citizens. This practice would have the effect of depressing wages of Purdue”s legally authorized workers. The employees claimed that corporate management at Purdue directed the HR managers and their staff to accept false documents from illegal immigrants and to attest falsely to the authenticity of such documents in the hiring process.

The employees further claimed that the HR professionals engaged in a host of illegal practices, including, but not limited to, hiring workers who were previously employed at Purdue using different identifications, hiring workers known to be present in the U.S. illegally or using facially false documents, and hiring workers who use multiple sets of documents in order to work extra shifts. The employees claimed that these schemes were carried out at each of Purdue”s processing facilities throughout the U.S., and that in doing so, the HR professionals violated RICO.

Court Decision

In ruling on a motion to dismiss, the court recognized that under RICO, it is unlawful for any person employed by or associated with an enterprise to conduct such enterprise”s affairs in a pattern of racketeering activity or collection of unlawful debt. In order to plead a violation of RICO successfully, the disgruntled employees must allege specific facts that, if true, could constitute a violation of RICO. In short, the employees need to describe in detail the conspiracy, including the identity of the co-conspirators, the object of the conspiracy and the date and substance of the conspiratorial agreement.

In this case, the court found that the employees failed to provide any facts demonstrating such an agreement, including when or where the agreement took place, or the specific substance of any communications between Purdue management and its HR staff regarding hiring policies. The trial court also found that the employees failed to plead adequately any agreement to the conspiracy on the part of each HR professional, as required.

According to the court, even if the claims were sufficiently plausible and were pled with the necessary precision, the employees” claims were nevertheless barred by the intracorporate conspiracy doctrine. That doctrine, developed in antitrust cases, holds that because the acts of corporate agents are attributable to the corporation itself, the corporation lacks the multiplicity of actors required to form a conspiracy. Thus, a corporation cannot conspire with its employees, and employees, when acting within the scope of their employment, cannot conspire amongst themselves.

There are two limited exceptions to this doctrine: when a corporate officer has an independent personal stake in achieving the illegal objectives of the corporation or when the agent”s acts are unauthorized. The court found that neither exception applied in this case. As the trial court noted, all of the HR professionals are current or former employees of Purdue, acting within the scope of their employment and, as such, cannot conspire amongst themselves.

Indeed, in the complaint, the employees alleged that the HR professionals were directed by management to pursue the particular hiring policies about which they complained so that their action could not be outside the scope of their authority. Likewise, the court found no basis for the second exception to the intracorporate conspiracy doctrine, as the accused HR professionals did not have any personal interest independent and wholly separable from the interests of Purdue.

The court rejected the claim that the HR professionals engaged in the scheme to increase Purdue”s overall profitability, which, in turn, would benefit them individually in a form of higher wages and bonuses for “keeping labor costs low.”

As the court noted, there was no evidence to support the conclusion that the HR professionals would, in fact, receive greater compensation as a result of their alleged improper activities. (Bizzie Walters, et al., v. Todd McMahen, et al., MD DC, Civil Action No. RDB-11-0751, July 6, 2011.)

Bottom Line

As this case demonstrates, there is almost no limit to the types of claims that employers and their HR personnel face in today”s modern workplace. Undoubtedly, unhappy over their own personal work situation, a handful of disgruntled employees concocted a novel legal claim that the reason their wages were low was due to the fact that Purdue”s human resources professionals somehow conspired to hire illegal workers intentionally to keep the wages low.

Of course, as the trial court revealed, the disgruntled employees had no evidence to support their legal claims other than their own subjective opinions. Fortunately, the trial court put a stop to this litigation early in its tracks. Nonetheless, for a time, many of Purdue”s hard-working HR professionals, who were sued individually under RICO, faced the prospect of significant liability in the event the employees prevailed in the litigation. This decision has been appealed ” the briefs have been filed and no date has been set for oral argument. The argument will probably be held in late spring; however, it is unlikely that the Fourth Circuit would look more favorably upon the employees” claims

Kevin McCormick, a member of this newsletter”s Board of Editors, is a Partner in the Baltimore office of Whiteford Taylor Preston, LLP. He provides advice and counsel to public and private employers on all phases of the employment relationship.

”

On July 6, 2011, the Maryland U.S. District Court dismissed a RICO claim filed by a number of employees of Purdue Farms, Inc., against a number of human resource (HR) professionals employed by Purdue.

The disgruntled employees alleged that the HR professionals conspired to depress the wages of legal, hourly paid employees of Purdue in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) through a scheme of hiring and falsely attesting to the work authorization of large numbers of illegal immigrants.

Essentially, the employees” claim was that mid-level human resources employees engaged in a conspiracy to enrich themselves indirectly by causing Purdue to violate U.S. immigration laws, thereby increasing its net profits and increasing the potential of higher salaries for its employees, including the HR professionals. Fortunately for the latter, the district court disagreed and dismissed this lawsuit.

Background Facts

In March 2010, five current and former employees of Purdue filed a lawsuit in the District Court in Alabama, alleging violations under RICO. Thereafter, the lawsuit was transferred to the U.S. District Court in Maryland, which ultimately ruled on this novel issue.

According to the employees, the defendants are all employees of Purdue, the third largest poultry processing company in the United States. The disgruntled employees alleged that the corporate co-conspirators, including various HR professionals working for Purdue, implemented a scheme to hire illegal immigrants.

According to the lawsuit, by doing so, Purdue would save millions of dollars in labor costs because the illegal immigrants would work longer hours for lower wages than American citizens. This practice would have the effect of depressing wages of Purdue”s legally authorized workers. The employees claimed that corporate management at Purdue directed the HR managers and their staff to accept false documents from illegal immigrants and to attest falsely to the authenticity of such documents in the hiring process.

The employees further claimed that the HR professionals engaged in a host of illegal practices, including, but not limited to, hiring workers who were previously employed at Purdue using different identifications, hiring workers known to be present in the U.S. illegally or using facially false documents, and hiring workers who use multiple sets of documents in order to work extra shifts. The employees claimed that these schemes were carried out at each of Purdue”s processing facilities throughout the U.S., and that in doing so, the HR professionals violated RICO.

Court Decision

In ruling on a motion to dismiss, the court recognized that under RICO, it is unlawful for any person employed by or associated with an enterprise to conduct such enterprise”s affairs in a pattern of racketeering activity or collection of unlawful debt. In order to plead a violation of RICO successfully, the disgruntled employees must allege specific facts that, if true, could constitute a violation of RICO. In short, the employees need to describe in detail the conspiracy, including the identity of the co-conspirators, the object of the conspiracy and the date and substance of the conspiratorial agreement.

In this case, the court found that the employees failed to provide any facts demonstrating such an agreement, including when or where the agreement took place, or the specific substance of any communications between Purdue management and its HR staff regarding hiring policies. The trial court also found that the employees failed to plead adequately any agreement to the conspiracy on the part of each HR professional, as required.

According to the court, even if the claims were sufficiently plausible and were pled with the necessary precision, the employees” claims were nevertheless barred by the intracorporate conspiracy doctrine. That doctrine, developed in antitrust cases, holds that because the acts of corporate agents are attributable to the corporation itself, the corporation lacks the multiplicity of actors required to form a conspiracy. Thus, a corporation cannot conspire with its employees, and employees, when acting within the scope of their employment, cannot conspire amongst themselves.

There are two limited exceptions to this doctrine: when a corporate officer has an independent personal stake in achieving the illegal objectives of the corporation or when the agent”s acts are unauthorized. The court found that neither exception applied in this case. As the trial court noted, all of the HR professionals are current or former employees of Purdue, acting within the scope of their employment and, as such, cannot conspire amongst themselves.

Indeed, in the complaint, the employees alleged that the HR professionals were directed by management to pursue the particular hiring policies about which they complained so that their action could not be outside the scope of their authority. Likewise, the court found no basis for the second exception to the intracorporate conspiracy doctrine, as the accused HR professionals did not have any personal interest independent and wholly separable from the interests of Purdue.

The court rejected the claim that the HR professionals engaged in the scheme to increase Purdue”s overall profitability, which, in turn, would benefit them individually in a form of higher wages and bonuses for “keeping labor costs low.”

As the court noted, there was no evidence to support the conclusion that the HR professionals would, in fact, receive greater compensation as a result of their alleged improper activities. (Bizzie Walters, et al., v. Todd McMahen, et al., MD DC, Civil Action No. RDB-11-0751, July 6, 2011.)

Bottom Line

As this case demonstrates, there is almost no limit to the types of claims that employers and their HR personnel face in today”s modern workplace. Undoubtedly, unhappy over their own personal work situation, a handful of disgruntled employees concocted a novel legal claim that the reason their wages were low was due to the fact that Purdue”s human resources professionals somehow conspired to hire illegal workers intentionally to keep the wages low.

Of course, as the trial court revealed, the disgruntled employees had no evidence to support their legal claims other than their own subjective opinions. Fortunately, the trial court put a stop to this litigation early in its tracks. Nonetheless, for a time, many of Purdue”s hard-working HR professionals, who were sued individually under RICO, faced the prospect of significant liability in the event the employees prevailed in the litigation. This decision has been appealed ” the briefs have been filed and no date has been set for oral argument. The argument will probably be held in late spring; however, it is unlikely that the Fourth Circuit would look more favorably upon the employees” claims

Kevin McCormick, a member of this newsletter”s Board of Editors, is a Partner in the Baltimore office of Whiteford Taylor Preston, LLP. He provides advice and counsel to public and private employers on all phases of the employment relationship.

”