Mohawk Industries, Inc. v. Williams (05-465)

 

Appealed from: 11th Circuit Court of Appeals

Oral argument: Apr. 26, 2006

Mohawk Industries has been accused of harboring and hiring illegal immigrants in violation of the RICO Act. To establish a RICO violation, Mohawk’s employees must show that Mohawk and its third-party recruiting agencies constituted an “enterprise” within the scope of RICO. The district court held that Mohawk’s collaboration with the third-party recruiters sufficiently established an enterprise. The Eleventh Circuit affirmed, and the Supreme Court granted certiorari to determine whether a defendant corporation and its agents can constitute an enterprise under RICO, in light of the rule that a defendant must “conduct” or “participate in” the affairs of some larger enterprise and not just its own affairs. If the Court affirms, the scope of the enterprise element would be vastly widened, exposing more corporations to RICO liability. But if the Court reverses, the government may find it more difficult to use RICO to control corporations and other similar entities where immigration violations are alleged.

[Question(s) presented] | [Issue(s)] | [Facts] | [Discussion] | [Analysis]

Questions Presented

Whether a defendant corporation and its agents can constitute an “enterprise” under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961–1968 (RICO), in light of the settled rule that a RICO defendant must “conduct” or “participate in” the affairs of some larger enterprise and not just its own affairs.

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Issues

Whether Mohawk Industries and its third-party recruiting agencies constitute an “enterprise” with a “common purpose” within the meaning of the RICO statutes.

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Facts

Mohawk Industries (“Mohawk”) is among the many employers in the United States accused of harboring and hiring illegal immigrants. See Brief of the Immigration Political Action Committee, U.S., Inc., et al. as Amici Curiae Supporting Affirmance at 16, 20. In 2004, several of Mohawk’s employees filed a complaint in the United States District Court for the Northern District of Georgia, alleging that Mohawk had conspired with recruiting agencies to hire and transport illegal immigrants to Georgia, where they would work for Mohawk at low wages. Williams v. Mohawk Industries, Inc., 411 F.3d 1252, 1255–56 (11th Cir. 2005). The employees first alleged that Mohawk was unjustly enriched because it was able to leverage this cheap labor supply to pay depressed wages to the legal employees. Id. The employees also alleged that Mohawk was unjustly enriched by the decrease in worker’s compensation claims it had to pay, given that the illegal workers—fearful of being deported—were less likely to file worker’s compensation claims. Id. Finally, the employees alleged that Mohawk and the third-party recruiters violated federal and state Racketeer Influenced and Corrupt Organizations Act (RICO) statutes when they hired illegal immigrants, destroyed documents related to the illegal immigrants, and helped the illegal immigrants evade detection by law enforcement. Id. at 1255–57. In response to these allegations, Mohawk filed a motion to dismiss the employees’ complaint for failure to state a claim. Id. at 1256.

Unjust Enrichment Claims

In ruling on Mohawk’s motion to dismiss, the district court allowed the employees’ first unjust enrichment claim but dismissed the second claim on the basis that any profit Mohawk may have realized by paying fewer worker’s compensation claims is not necessarily related to the employees receiving lower wages. Id. On appeal, the Eleventh Circuit held that the district court should have dismissed the employees’ first unjust enrichment claim as well because (1) the employees had a contract to work for Mohawk and were paid the agreed-upon wage, and (2) unjust enrichment claims only apply when no contract exists. Id. at 1266.

RICO Claims

The Eleventh Circuit affirmed the district court’s ruling on the employees’ RICO claim, holding that the employees had sufficiently alleged the requirements of a civil RICO violation: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity that (5) injured persons (6) who have a business interest in the alleged RICO violation. Id. at 1256. In particular, the court found that the employees sufficiently alleged “conduct of an enterprise” by claiming that Mohawk and the third-party recruiters are distinct entities engaged in a conspiracy to bring illegal workers into this country for Mohawk’s benefit. Id. at 1258. The court also held that the employees sufficiently alleged the underlying requirement of “a common purpose” by claiming that both Mohawk and the third-party recruiters would gain financial benefits from Mohawk’s employment of illegal workers. Id.

Certiorari

The Supreme Court granted certiorari to determine whether the Eleventh Circuit was correct in holding that Mohawk and its third-party recruiters constituted an “enterprise” with a “common purpose” within the meaning of the RICO statutes.

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Discussion

The RICO Act

In 1970, Congress passed the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961–1968, (RICO) which provides extended penalties for criminal acts performed by criminal organizations. In particular, § 1964(c) provides that any person whose business or property is injured as the result of a RICO violation can recover three times the damages sustained. Congress amended the statute in 1996 to make employment of illegal immigrants a RICO violation. 18 U.S.C. § 1961(1)(F). This case accordingly addresses the important question of the liability that corporations may face under RICO for hiring undocumented workers and for engaging in particular kinds of business activities. In light of current congressional proposals aimed at addressing the illegal immigration problem—with one proposal making it a felony for undocumented workers to reside in the United States, and others requiring employers to scrutinize the immigration status of its workers—employers could find themselves facing a new world of potential liability. See A Body Blow to Illegal Labor?, Bus. Week Online, Mar. 27, 2006.

Implications if the Court Affirms

If the Supreme Court affirms the Eleventh Circuit, then the scope of RICO’s “enterprise” requirement would be vastly widened, thus expanding the sweep of the statute. See Brief of Petitioner at 3. According to the Eleventh Circuit, the “existence of an association of individual entities, however loose or informal” could constitute an enterprise. See id.  But because most alleged corporate conspiracies involve at least a loose or informal association with another entity, this standard would allow virtually every alleged corporate conspiracy to be pled as a civil RICO claim. See id.

Furthermore, if the association between a corporation and an employment agency constitutes an enterprise, then RICO liability could be unfairly and oppressively applied to all corporations that use third-party service providers to conduct their affairs. See Brief of the National Association of Manufacturers et al. as Amici Curiae in Support of Petitioner at 3. Because almost all corporations use third-party contractors to carry out some business, most of corporate America will be burdened with the costs of preventing and defending against RICO suits. See id. This burdensome rule may then have two major effects on corporations. First, the rule may encourage corporations to avoid RICO liability by foregoing economically advantageous relationships with third-party contractors. See id. Second, the rule may be used to induce settlements from legitimate corporations that cannot risk entering into lawsuits. See Brief for the Chamber of Commerce of the United States of America et al. as Amici Curiae in Support of Petitioner at 22.         

Implications if the Court Reverses

On the other hand, a reversal of the Eleventh Circuit’s expansive reading of the enterprise requirement would reduce RICO’s effectiveness in combating illegal immigration. First, a limited reading would exclude cases where corporations had used independent agents or contractors to carry out illegal hiring of undocumented workers, rendering corporations immune to RICO liability in those contexts.  See Brief of Amicus Curiae National Association of Shareholders and Consumer Attorneys (NASCAT) in Support of Respondents at 2. Such a result would be in tension with Congress’s recent addition of illegal hiring to the list of predicate crimes subject to RICO. See Brief of Respondents at 2.

Second, a decision for Mohawk may limit RICO’s effectiveness by restricting the definition of enterprise to cover only associations-in-fact of individuals—i.e. non-legal associations between individuals—and not associations between a corporation “engaging in routine business activity” and some other entity. See Brief of Respondents at 26. As a result, a corporate defendant could simply re-characterize the alleged conduct as its regular business activities to avoid liability under RICO. See id.

Finally, the government’s criminal and civil enforcement efforts under RICO would be significantly impaired if only associations composed exclusively of individuals could be treated as RICO enterprises. See Brief for the United States as Amicus Curiae Supporting Respondents at 5. For instance, problems of union corruption typically involve a labor union, corrupt union officials, and organized crime figures. If RICO only applied to associations-in-fact of individuals, the government would be precluded from naming as a defendant the union itself. Although the government could proceed against the corrupt individuals, the relief available against individual defendants would not adequately address systemic problems of union corruption. See id. at 20.

The Supreme Court’s Recent Decision in Scheidler

This term, a unanimous Supreme Court read RICO narrowly in Scheidler et al. v. National Organization for Women, Inc., et al, 125 S.Ct. 1264 (2006), preventing abortion rights advocates from using RICO in their fight against abortion protesters. Here, the Court may also read the statute narrowly to prevent the employees from using RICO to combat the problem of illegal immigration, though the obvious distinction between the issues of abortion and illegal immigration is that Congress had explicitly provided that immigration violations may be actionable under RICO. See § 1961(1)(F).

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Analysis

When the Supreme Court accepted an appeal from Mohawk, it agreed to review the question of whether a corporation conducts or participates in the affairs of an “enterprise” within the meaning of RICO, where the only members of the alleged enterprise are the corporation itself and third parties paid by the corporation to conduct business on its behalf. The appeals court held that the employees sufficiently alleged an enterprise under RICO. Mohawk, in contrast, argues that a corporation and its agent cannot constitute an enterprise.

A Limited Reading of “Enterprise”

The Supreme Court could reverse the Eleventh Circuit and hold that the employees did not sufficiently allege an enterprise under RICO. First, the Court may simply find that corporations cannot constitute an enterprise because the definition of “enterprise” only covers associations-in-fact of individuals. See Brief of Petitioner at 10–12. Limiting the definition of enterprise to groups of individuals seems to conform to RICO’s legislative history, which reflects congressional concern over the actions of individuals engaged in criminal activities. See id. at 20–22. Indeed, RICO has two aims: (1) to make it unlawful for individuals to function as members of organized criminal groups and (2) to stop organized crime’s infiltration of legitimate businesses. See id. at 25. Further, Congress had considered—but decided against—a definition of enterprise that would have clearly implicated corporations. See id. at 24.

Second, the Court may find that, even if Mohawk could be a member of an association-in-fact enterprise, it nevertheless did not (1) conduct or participate in the affairs (2) of an enterprise. See id. at 27. First, the employees have not claimed that the enterprise alleged has any existence separate from the contractual relationship between Mohawk and its contractors—an association that has been universally rejected as constituting an enterprise. See id. at 11. Second, Mohawk is not conducting the affairs of a separate enterprise when it seeks to obtain employees for its manufacturing business; rather, it is simply conducting its own routine affairs. See id. at 11–12.

An Expansive Reading of “Enterprise”

A more expansive reading of the enterprise requirement would bring Mohawk and similarly situated corporations within the scope of RICO. While Mohawk restrictively reads RICO so that corporations are not included, courts have recognized that RICO is to be read broadly in light of Congress’s “self-consciously expansive language.” See Brief of Respondents at 14. RICO contains two types of definitions. First are definitions that begin with the close-ended word “means.” See id. at 20. Courts have interpreted this word as providing for a comprehensive definition. In contrast, there are definitions that begin with the open-ended word “includes.” See id. Courts have interpreted these definitions to embrace additional meanings that may not be stated explicitly. See id. Because the definition for “enterprise” begins with the word “includes,” the Supreme Court may reject Mohawk’s suggestion that the statute provides a comprehensive list of enterprises, and instead read the provision broadly to also include corporations. See id. at 15, 22; 18 U.S.C. §1961(4)

The Court may also read the enterprise requirement more expansively in light of Congress’s decision in 1996 to make the employment of illegal immigrants a RICO violation. See 18 U.S.C. § 1961(1)(F). The Court might find that, in passing the 1996 amendment, Congress affirmatively expanded the scope of RICO beyond its original bounds of fighting organized crime so that it could serve as an additional means to help enforce immigration laws. See id. at 7–9. Indeed, Congress must have anticipated that such an amendment would open employers and corporations to liability under RICO. See id. at 10. As a result, an expansive reading of the enterprise requirement may be more faithful to Congress’s intent. See id. at 8–10.

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Conclusion

In ruling on the scope of RICO’s “enterprise” requirement, the Supreme Court will consider that expanding the scope of RICO may implicate legitimate businesses, whereas narrowing the statute’s scope may maker it more difficult for the government to combat illegal immigration. How the Court decides the case will depend on its balancing of these factors as well as its interpretation of Congressional intent.

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Authors

Prepared by: Thomas F. Lavery IV and Vi T. Vu

Additional Sources

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