clifton e. jackson; christopher m. scharnitzke …

Case No. 10-1453

United States Court of Appeals for the Sixth Circuit

CLIFTON E. JACKSON; CHRISTOPHERM. SCHARNITZKE,Plaintiffs – Appellants

v.

SEDGWICK CLAIMS MANAGEMENT SERVICES, INC.;COCA-COLA ENTERPRISES, INC., DR. PAUL DROUILLARD,

Defendants – Appellees

On Appeal from the United States District Courtfor the Eastern District of Michigan,

Southern Division

—————————————————————————————————

BRIEF OF APPELLEE COCA-COLA ENTERPRISES, INC.

—————————————————————————————————

MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.Matthew F. LeitmanThomas W. CranmerPaul D. Hudson

840 West Long Lake RoadTroy, Michigan 48098-6358Telephone: (248) 267-3294

Attorneys for Defendant-Appellee Coca-Cola Enterprises, Inc.

Case: 10-1453 Document: 006110730939 Filed: 09/13/2010 Page: 1

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TABLE OF CONTENTS

Index of Authorities ................................................................................................ iv

Statement in Support of Oral Argument ............................................................... viii

Statement of the Issues..............................................................................................1

Statement of the Case................................................................................................2

Statement of the Operative Factual Allegations .......................................................5

A. Plaintiff Clifton Jackson’s Allegations ................................................5

B. Plaintiff Christopher Scharnitzke’s Allegations ..................................7

C. Plaintiffs’ Broader Scheme Allegations...............................................7

Summary of the Argument......................................................................................10

Argument.................................................................................................................14

I. Allowing Plaintiffs’ Rico Claims to Proceed Would Upset theHistorical Federal-State Balance of Power With Respect to Workers’Compensation Systems and Would Frustrate the MichiganLegislature’s Intent to Strictly Limit Employer Liability ............................14

A. Workers’ Compensation Is a Traditional Area of StateRegulation and One That Congress Has Attempted to ExcludeFrom Federal Court Jurisdiction ........................................................14

B. In the Exercise of Its Traditional Authority to Establish andRegulate a Workers’ Compensation System, the MichiganLegislature Precluded the Imposition of Liability Upon anEmployer for Even the Bad Faith Denial of a Claim for Benefits.....16

II. The District Court Correctly Held That Plaintiffs’ Rico Claims Fail asa Matter of Law Because Plaintiffs Fail to Plead Predicate Acts ofMail and Wire Fraud.....................................................................................20

A. Plaintiffs Do Not Allege That Defendants Engaged in the Typeof Deception That Is an Essential Element of Their AllegedPredicate Acts.....................................................................................20


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B. The Clear Statement Rule Precludes Application of the Mailand Wire Fraud Statutes to Defendants’ Alleged Bad FaithDenial of Plaintiffs’ Claims................................................................24

III. The District Court Correctly Dismissed Plaintiffs’ Rico Claims on theGround That Rico May Not Be Used as an “End Run” Around theWDCA’S Administrative System for Adjudicating Entitlement toBenefits .........................................................................................................27

IV. The District Court Correctly Held That Plaintiffs Failed to PleadViable Rico Claims Against Coke................................................................36

V. Coke Adopts by Reference All Other Arguments in Support ofAffirmance by Appellees Paul Drouillard, M.D., and SedgwickClaims Management Services, Inc ...............................................................42

Conclusion and Relief Requested ...........................................................................43

Certificate of Compliance .......................................................................................44

Certificate of Service ..............................................................................................45

Designation of Relevant District Court Documents ..................................................i

Addendum................................................................................................................ ii


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INDEX OF AUTHORITIES

Page(s)CASES

Advocacy Org. for Patients and Providers v. Auto Club Ins. Ass’n,176 F.3d 315 (6th Cir. 1999) ...............................................................................40

Armistead v. C & M Transp.,49 F.3d 43 (1st Cir. 1995)...................................................................................16

Ayres v. General Motors Corp.,234 F.3d 514 (11th Cir. 2000) .....................................................................passim

Beauchamp v. Dow Chemical Co.,318 N.W.2d 882 (Mich. 1986)............................................................................16

Boyle v. United States,__ U.S. __, 129 S.Ct. 2237 (2009)......................................................................37

Bridge v. Phoenix Bond & Indem. Co.,553 U.S. 639 (2008)............................................................................................21

Brown v. Cassens Transport, Inc.,546 F.3d 347 (6th Cir. 2008) .......................................................................passim

Butchers’ Union Local No. 498 v. SDC Inv., Inc.,631 F.Supp. 1001 (E.D. Cal. 1986) ....................................................................33

Cleveland v. United States,531 U.S. 12 (2000)..............................................................................................25

Couture v. General Motors,335 N.W.2d 668 (Mich. App. 1983)............................................................passim

Danielsen v. Burnside-Ott Aviation,746 F.Supp. 170, aff’d 941 F.2d 1220 (D.C. Cir. 1991) .............................passim

DeCanas v. Bica,424 U.S. 351 (1976)............................................................................................15

Gray v. Morley,460 Mich. 738, 596 N.W.2d 922 (1999).............................................................31


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Hinchman v. Moore,312 F.3d 198 (6th Cir. 2003) ..............................................................................19

In Re Mansfield Tire and Rubber Co.,660 F.2d 1108 (6th Cir. 1981) ............................................................................15

Jones v. Ry. Express, Inc.,936 F.2d 789 (5th Cir. 1991) ..............................................................................15

Jones v. United States,529 U.S. 848 (2000)............................................................................................25

Judy v. Tri-State Motor Transit Co.,844 F.2d 1496 (11th Cir. 1988) ..........................................................................16

Livingston v. Shore Slurry Seal, Inc.,98 F. Supp. 2d 594 (D.N.J. 2000)................................................................passim

McCulloch v. PNC Bank, Inc.,298 F.3d 1217 (11th Cir. 2002) ..........................................................................30

Miller v. Norfolk Southern Ry.,183 F. Supp. 2d 996 (N.D. Ohio 2002) ..............................................................31

Moon v. Harrison Pipin Supply,465 F.3d 719 (6th Cir. 2006) ..............................................................................39

Reves v. Ernst & Young,507 U.S. 170 (1993)............................................................................................37

Riverview Health Institute, LLC v. Medical Mutual of Ohio,601 F.3d 505 (6th Cir. 2010) ........................................................................11, 21

Saylor v. Parker Seal Co.,975 F.2d 252 (6th Cir. 1992) ..............................................................................14

Sedima, S.P.R.L. v. Imrex Co., Inc.,473 U.S. 479 (1985)......................................................................................36, 38

Sorich v. United States,__ U.S. __, 129 S.Ct. 1308 (2009)......................................................................20


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South Ridge Baptist Church v. Industrial Comm. of Ohio,911 F.2d 1203 (6th Cir. 1990) ............................................................................15

Trollinger v. Tyson Foods, Inc.,370 F.3d 602 (6th Cir. 2004) ..............................................................................32

United States v. Booker,543 U.S. 220 (2005)............................................................................................23

United States v. Chandler,376 F.3d 1303 (11th Cir. 2004) ..........................................................................20

United States v. Driver,535 F.3d 424 (6th Cir. 2008) ........................................................................40, 41

United States v. Jamieson,427 F.3d 394 (6th Cir. 2006) ..............................................................................21

United States v. Summit Fideltiy & Surety Co.,408 F.3d 46 (6th Cir. 1969) .................................................................................35

United States v. Turner,465 F.3d 667 (6th Cir. 2006) ........................................................................24, 25

VanDenBroeck v. CommonPoint Mortage Co.,210 F.3d 696 (6th Cir. 2000) ..............................................................................39

Warner v. Collavino Bros.,347 N.W.2d 787 (Mich. App. 1984).................................................13, 17, 18, 19

Yuhasz v. Brush Wellman, Inc.,341 F.3d 559 (6th Cir. 2003) ...............................................................................41

STATUTES

18 U.S.C. 1962(a) ..................................................................................................2, 3

18 U.S.C. 1962(b) ..................................................................................................2, 3

18 U.S.C. 1962(c) ......................................................................................................2

18 U.S.C. 1962(d) ......................................................................................................4

18 U.S.C. §§1341, 1343...........................................................................................20


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18 U.S.C. § 1962(c) ........................................................................ 36, 38, 39, 40, 42

28 U.S.C. § 1445(c) .....................................................................................16, 26, 34

Mich. Comp. Laws § 418.131..................................................................................31

Mich. Comp. Laws § 418.631..................................................................................35

Mich. Comp. Laws § 418.631(1) & (2) ...................................................................30

Mich. Comp. Laws § 418.847..................................................................................30

Mich. Comp. Laws § 418.859(a) .............................................................................30

Mich. Comp. Laws § 418.861(a) .............................................................................30

COURT RULES

Federal Rule of Appellate Procedure 28(i) ..............................................................42

OTHERAUTHORITIES

Boaz Siegel, “Enactment of the Workmen’s Compensation Law inMichigan,”Workmen’s Compensation in Michigan (1962)...............................16

Christopher Howard,Workers Compensation, Federalism, and the HeavyHand of History Studies in American Political Development 28, 29(Spring 2002) ......................................................................................................15


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STATEMENT IN SUPPORT OF ORAL ARGUMENT

This appeal involves complex issues of law, and Defendant-Appellee Coca-

Cola Enterprises, Inc. (“Coke”) therefore believes the Court’s decisional process

would be aided by oral argument. Coke requests oral argument.


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STATEMENT OFTHE ISSUES

I. Plaintiffs assert RICO claims against Defendants and allege that Defendantscommitted predicate acts of mail and wire fraud. An essential element ofmail and wire fraud is that the defendant engaged in intentional deception inorder to induce the alleged victim to part with property or surrender somelegal right. Plaintiffs do not allege that Defendants engaged in suchdeceptive conduct. Should this Court affirm the dismissal of Plaintiffs’RICO claims on the ground that the claims are unsupported by anycognizable predicate acts?

Defendant-Appellee Coca-Cola Enterprises, Inc. (“Coke”) says: Yes.

II. A plaintiff may not assert a RICO claim based upon the denial of statutorybenefit where the statute creating the benefits establishes an administrativescheme to remedy wrongful denials of benefits. Here, Plaintiffs assert aRICO claim based upon the denial of their claim for benefits underMichigan’s Workers’ Disability Compensation Act (“WDCA”). TheWDCA establishes an extensive administrative system to address andremedy allegedly wrongful denials of benefits. Should this Court affirm thedismissal of Plaintiffs’ RICO claims on the additional/alternative ground thatPlaintiffs may not use RICO as an “end run” around the WDCA?

Coke says: Yes.

III. In order to plead a viable RICO claim, a plaintiff must allege facts sufficientto prove, among other things, that the defendant exercised some control overthe RICO enterprise, committed predicate acts, and engaged in a pattern ofracketeering activity. Plaintiffs did not make such allegations against Coke.Should this Court affirm the dismissal of Plaintiff’s RICO claims againstCoke for this additional/alternative basis?

Coke says: Yes.


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STATEMENT OFTHE CASE

On April 23, 2009, Plaintiffs Clifton E. Jackson and Christopher M.

Scharnitzke filed their Complaint in this action against Defendants Sedgwick

Claims Management Services, Inc. (“Sedgwick”), Coca-Cola Enterprises, Inc.

(“Coke”), and Dr. Paul Drouillard. (R. 1, Complaint.) Plaintiffs filed an Amended

Complaint on April 29, 2009, correcting the spelling of Jackson’s first name. (R. 2,

Amended Complaint.) The gist of Plaintiffs’ claims was that the Defendants

operated a scheme to fraudulently deny Plaintiffs’ meritorious claims for workers’

compensation benefits. Plaintiffs alleged that Defendants violated three separate

provisions of the Racketeer Influenced and Corrupt Organizations Act.

Specifically, they alleged that Defendants invested income derived from a pattern

of racketeering activity in violation of 18 U.S.C. 1962(a); that Defendants acquired

or maintained an interest in an enterprise through a pattern of racketeering activity

in violation of 18 U.S.C. 1962(b); and that Defendants participated in the affairs of

an enterprise through a pattern of racketeering activity in violation of 18 U.S.C.

1962(c).

All three Defendants filed motions to dismiss. (R. 15, 21, 39.) Plaintiffs

responded to the motions to dismiss and, in addition, filed five motions to amend


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in which they proposed to file several different versions of their Complaint.1 (R. 26,

31, 35, 38, and 44.) In the motions to amend, Plaintiffs agreed to voluntarily

withdraw their claims alleging violations of 18 U.S.C. 1962(a) and 1962(b). (See

Appellants’ Br. at 10.)

In Plaintiffs’ motions to amend, they proposed adding Paul Lulek as an

additional Plaintiff. (See, e.g., R. 44, Am. Mot. to Amend.) Plaintiffs now say that

Lulek accused Coke of committing “multiple acts of mail and wire fraud to deny

him benefits.” (Plaintiffs’ Br. at 21.) In fact, Lulek’s proposed claim specifically

stated that “Paul Lulek sues Sedgwick Claims Management Services and Dr.

Drouillard, not Coca Cola Enterprises.” (R. 44, Am. Mot. to Amend, Attachment 1,

Proposed Sec. Am. Compl. (Sec. Rev.) at ¶31(C); emphasis added.) Lulek made

no allegations against Coke; instead, his allegations focused on “the fraudulent

conspiracy by Sedgwick and Dr. Drouillard[.]” (Id.)

The district court ultimately granted Defendants’ motions to dismiss and

denied all of Plaintiffs’ motions to amend. (R. 59, Opinion and Order). The district

court ruled that Plaintiffs’ claims failed as a matter of law and that the proposed

amendments were futile because (1) Plaintiffs could not use RICO as an “end run”

around the exclusive administrative procedures under the Michigan Worker’s

1 Two of the motions were dismissed based upon Plaintiffs’ failure to comply withthe Local Rules. (See R. 59, Opinion and Order at 13 n. 13.)


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Disability Compensation Act (the “WDCA”) for adjudicating a disputed claim for

benefits; (2) Defendants’ alleged misconduct did not amount to a violation of the

mail fraud or wire fraud statutes, and thus Plaintiffs could not establish that

Defendants committed any predicate acts to support their RICO claims; (3)

Plaintiffs’ claims were not ripe because Plaintiffs’ eligibility for workers

compensation benefits had not yet been determined; (4) Plaintiffs had failed to

properly allege the participation and pattern elements of their RICO claim; and (5)

since Plaintiffs had failed to allege conduct that, if committed, would have

amounted to a RICO violation, Plaintiffs’ proposed RICO conspiracy claim under

18 U.S.C. 1962(d) failed. (Id.)

Plaintiffs timely filed this appeal.


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STATEMENT OFTHE OPERATIVE FACTUALALLEGATIONS

A. Plaintiff Clifton Jackson’s Allegations

Jackson is a current or former employee of Coke (R. 44, Am. Mot. to

Amend, Attachment 1, Proposed Sec. Am. Compl. (Sec. Rev.) at ¶4.) As required

by law, Coke provided workers’ compensation insurance to Jackson and other

employees. (Id. at ¶6.) Coke hired Sedgwick, a claims adjusting service, to adjust

the workers’ compensation claims of Coke’s employees. (Id. at ¶7.)

In 2007, Jackson injured his back and filed a claim for workers’

compensation benefits. (Id. at ¶31(A).) Sedgwick determined, based upon reports

from physicians who had examined Jackson, that Jackson was then unable to work

and thus eligible to receive benefits. (Id.)

In January 2009, roughly fifteen months after Jackson’s injury, Sedgwick

mailed Jackson a letter telling him that it had scheduled an “Independent Medical

Evaluation for [him] with Dr. Drouillard[.]” (Id.) Dr. Drouillard examined Jackson

and determined that he could return to work. (Id.) Dr. Drouillard wrote a report

explaining his conclusion and mailed the report to Sedgwick and to Jackson. (Id.)

When Sedgwick received Dr. Drouillard’s report, it cut off his benefit payments

and cited Dr. Drouillard’s report in support of its decision to do so. (Id.)

Jackson now alleges that Sedgwick’s statement that Dr. Drouillard was

“independent” was “fraudulent” because Dr. Drouillard was “hired and paid by


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Sedgwick” and was part of a “scheme to fraudulently and dishonestly deprive”

Jackson and other claimants of benefits. (Id.) Jackson further alleges that Dr.

Drouillard’s statement in his report that Jackson could return to work was a “lie.”

(Id.) Finally, Jackson claims that Sedgwick violated its duty under the WDCA “to

be honest in the administration of a workers compensation claim.” (Id. at ¶16.)

The specific factual allegations relating to Jackson and his claim for benefits

all appear in paragraph 31A of the various versions (and proposed amended

versions) of Jackson’s Complaint. No version of paragraph 31A specifically

identified any involvement by Coke in (a) the decision to send Jackson to Dr.

Drouillard, (b) Dr. Drouillard’s conclusions or transmission of his report, or (c) the

decision to terminate Jackson’s benefits. Indeed, the only allegation specifically

connecting Coke to Jackson’s claim for benefits was Jackson’s assertion that after

he filed a claim with the Workers’ Compensation Agency, an attorney for Coke

mailed the Agency (with a copy to Jackson’s lawyer) “a Carrier’s Response and

Defendant’s Answer” to his claim. (Id.)2

2 Paragraph 30 of the proposed Second Amended Complaint (Sec. Rev.) lists anumber of alleged predicate acts of mail and wire fraud committed by “Coke andSedgwick or their agents,” but the listed mailings and uses of the wires were notdone by Coke. (R. 44, Am. Mot. to Amend, Attachment 1, Proposed Sec. Am.Compl. (Sec. Rev.) at ¶30.)


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B. Plaintiff Christopher Scharnitzke’s Allegations

Scharnitzke is a current or former employee of Coke who experienced pain

in his shoulder in March 2008. (Id. at ¶31B.) An initial medical examination found

Scharnitzke “to be disabled from work due to the condition of his left shoulder,”

and the results of that examination were sent to Sedgwick. (Id.) Sedgwick

ultimately denied Scharnitzke’s claim for workers’ compensation benefits,

however, on the ground that Scharnitzke’s shoulder problem was caused by

arthritis rather than by a work-related injury. (Id.)

Scharnitzke alleges that Sedgwick had no basis for that conclusion. (Id.)

According to Scharnitzke, he provided Sedgwick and Coke “sufficient proof” after

March 2008 that he was disabled due to a work-related injury, but Sedgwick and

Coke continued to dispute his claim for benefits. (Id.) Scharnitzke alleges that the

denial of his claim was “fraudulent” because Sedgwick and Coke knew that he was,

in fact, entitled to benefits yet nonetheless denied his claim. (Id.)

Like Jackson, Scharnitzke alleges that the Defendants violated their duty

under the WDCA to handle his claim honestly. (Id. at ¶16.)

C. Plaintiffs’ Broader Scheme Allegations

According to Plaintiffs, the decisions to deny or terminate their benefits

were part of a larger fraudulent scheme involving Coke, Sedgwick, and Drouillard.

The goal of the scheme, Plaintiffs claim, was to deny meritorious claims for


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workers’ compensation benefits. (Id. at ¶¶12-16.) The scheme allegedly involved

sending claimants to purportedly “independent” physicians who had, in fact,

agreed in advance to opine that the claimants were not disabled. (Id.) Once the

physicians found the claimants to be not disabled, benefits would be denied or

terminated, and the physicians’ opinions would be offered as justification for the

denial or termination. (Id.)

Plaintiffs’ Complaint contains several general references to “Coke and

Sedgwick” committing fraud (see, e.g., id. at ¶31), but Plaintiffs do not

affirmatively plead facts specifically linking Coke to the conduct underlying the

alleged fraud. Plaintiffs instead allege that “[d]ecisions regarding paying or

denying Michigan workers compensation claims, and selecting doctors to do

medical examinations of claimants, were made by Sedgwick and/or [sic] Coke, or

by Sedgwick after consulting with Coke and with workers compensation defense

attorneys, or were ratified by Coke after being made by Sedgwick in consultation

with its workers compensation defense attorneys.” (Id. at ¶8; emphasis added.)

Plaintiffs also do not plead any facts specifically linking Coke to a RICO

enterprise that actually caused them harm. Plaintiffs allege six different RICO

enterprises, but claim that Coke is a member of only three of them. (Id. at ¶9.)

Plaintiffs then allege that “the predicate acts and violations of RICO alleged herein

were committed by one or more” of the identified enterprises, and that “two or


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more” of the enterprises “may have acted together to defraud one or more plaintiffs

of their workers compensation benefits.” (Id. at ¶¶ 9, 11; emphasis added.) Simply

put, in their enterprise allegations, Plaintiffs do not specifically allege that Coke

actually was a member of an enterprise that did act to defraud them.


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SUMMARYOFTHEARGUMENT

The district court properly rejected Plaintiffs’ attempt to use the federal

RICO statute to re-write Michigan workers’ compensation law. Michigan law

expressly prohibits penalizing an employer for disputing or denying a claim for

workers’ compensation disability benefits – even if the employer disputes or denies

the claim in bad faith. In their RICO claims, Plaintiffs seek treble damages and

attorneys fees for Defendants’ allegedly-fraudulent denial of their claims for

benefits. That is precisely the type of liability that the Michigan legislature

intended to eliminate when it enacted Michigan’s workers’ compensation law.

Allowing Plaintiffs’ RICO claims to proceed would upset the careful

balance that the Michigan legislature struck between providing no-fault benefits to

injured employees and limiting employer liability. Such a federal intrusion into

Michigan’s workers’ compensation system would be especially unwarranted given

that Congress has consistently sought to keep workers’ compensation disputes out

of the federal courts, and given that workers’ compensation systems have

historically been regulated entirely at the state level. In short, the premise

underlying Plaintiffs’ claims – that an employer may be held liable under the

federal RICO statute for allegedly-fraudulent violations of a state workers’

compensation statute even though the state statute specifically precludes such

liability – is fundamentally flawed.


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Plaintiffs’ RICO claims also fail on their own terms. Plaintiffs allege that

Defendants committed predicate acts of mail fraud and wire fraud, but Plaintiffs

failed to plead facts showing that the Defendants devised a “scheme to defraud”

prohibited by the mail fraud statute. A “scheme to defraud” involves an effort to

deceive another into relinquishing a property right. Riverview Health Institute,

LLC v. Medical Mutual of Ohio, 601 F.3d 505, 513 (6th Cir. 2010). Here,

Plaintiffs allege only that the Defendants denied their claims for benefits in bad

faith – not that Defendants somehow deceived them into giving up their claims.

Plaintiffs have therefore not alleged a “scheme to defraud” within the meaning of

the mail and wire fraud statutes, and their RICO claims fail.

Moreover, Plaintiffs’ RICO claims fail under the settled rule that a plaintiff

alleging a wrongful denial of statutory benefits is limited to pursuing

administrative remedies under the statute creating the benefits. See, e.g.,

Danielsen v. Burnside-Ott Aviation, 746 F.Supp. 170, aff’d 941 F.2d 1220 (D.C.

Cir. 1991). Here, the Michigan workers’ compensation statute creates an extensive

administrative system for adjudicating disputes over claims for benefits, and

Plaintiffs’ remedies are limited to those provided in the statute. Plaintiffs may not

sidestep Michigan law by characterizing their administrative benefits claims as

federal RICO ones.


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Plaintiffs also failed to plead that Coke participated in the alleged RICO

“enterprise” or that Coke committed a “pattern” of predicate acts. In order to

participate in a RICO enterprise, a member must have some level of control.

Plaintiffs admit that Coke hired Sedgwick to administer claims, and Plaintiffs do

not plead sufficient facts connecting Coke to the denial of their claims. Moreover,

Plaintiffs do not allege that Coke itself committed any “pattern” of predicate acts

of mail or wire fraud. Plaintiffs’ only allegation relating to Coke’s use of the mails

or wires is that after Sedgwick denied one of the Plaintiffs’ benefits claims, an

attorney for Coke mailed a document to a state workers’ compensation agency,

with a copy to Plaintiff’s lawyer. That single allegation falls far short of a

“pattern” of racketeering activity.

Plaintiffs recognize their inability to plead that Coke committed predicate

acts, and they attempt to remedy that deficiency by alleging that Coke aided and

abetted Sedgwick’s commission of predicate acts. But their aiding and abetting

claim fails as well. Plaintiffs fail to allege that Coke actively assisted any fraud;

Plaintiffs allege only that Coke knew about Sedgwick’s alleged fraud and agreed to

allow it to continue. That falls far short of aiding and abetting.

Finally, the district court correctly rejected Plaintiffs’ primary argument in

support of their claims: that this Court, in Brown v. Cassens Transport, Inc., 546

F.3d 347 (6th Cir. 2008), recognized the validity of a RICO claim for allegedly-


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fraudulent denial of workers compensation benefits. Every word from Brown upon

which Plaintiffs rely was dicta. Much more importantly, that dicta – this Court’s

statement that there is “no authority” for the proposition that Michigan limits

liability for even the bad faith denial of a claim for benefits – is flatly inconsistent

with settled Michigan law. See Couture v. General Motors, 335 N.W.2d 668

(Mich. App. 1983) (Michigan’s workers’ compensation law does not allow “a

penalty for an employer’s bad faith refusal to pay a claim.”); Warner v. Collavino

Bros., 347 N.W.2d 787 (Mich. App. 1984) (same). The parties in Brown failed to

bring these Michigan decisions to the Court’s attention, and the dicta that resulted

from that failure should be given no weight here. Brown does not control, and

does not save Plaintiffs’ facially deficient claims.


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ARGUMENT

I. ALLOWING PLAINTIFFS’ RICO CLAIMS TO PROCEED WOULDUPSET THE HISTORICAL FEDERAL-STATE BALANCE OFPOWER WITH RESPECT TO WORKERS’ COMPENSATIONSYSTEMS AND WOULD FRUSTRATE THE MICHIGANLEGISLATURE’S INTENT TO STRICTLY LIMIT EMPLOYERLIABILITY

The State of Michigan has established a comprehensive administrative

system to address and remedy the wrongful denial of benefits. Plaintiffs

apparently are unsatisfied with that system, so they have attempted to convert their

state-law administrative claim for the wrongful denial of benefits into a federal

RICO action. Allowing Plaintiffs to proceed with their RICO claims would run

directly counter to the well-established federal-state division of power with respect

to workers’ compensation systems and would frustrate the clear intent of the

Michigan legislature.

A. Workers’ Compensation Is a Traditional Area of State Regulationand One That Congress Has Attempted to Exclude From FederalCourt Jurisdiction

“[W]orkers’ compensation is clearly one of the state’s traditional areas of

authority.” Saylor v. Parker Seal Co., 975 F.2d 252, 256 (6th Cir. 1992). From

the inception of workers’ compensation laws in this country, workers’

compensation systems have been established and administered exclusively at the

state level. Indeed, “workers compensation laws are unlike other social insurance

programs in the United States – such as Social Security, Medicare, and


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unemployment insurance – in that they have no federal involvement in financing,

administration, or mandatory minimum coverage standards.” Christopher Howard,

Workers Compensation, Federalism, and the Heavy Hand of History, 16 Studies in

American Political Development 28, 29 (Spring 2002) (emphasis added; quotation

omitted), attached as Addendum A. While other social programs have evolved

from state-centered to federal-government centered, “workers compensation came

to be established as the exclusive responsibility of state governments and stayed

that way.” Id. at 45. For nearly one hundred years “states have [had] greater

control of workers’ compensation than any other major social program.” Id. at 46.3

Congress has never sought to expand federal court jurisdiction to cover

workers’ compensation disputes. Just the opposite is true. Congress decided that

“state courts should resolve workers compensation suits,” Jones v. Ry. Express,

Inc., 936 F.2d 789, 792 (5th Cir. 1991), and, accordingly, Congress barred the

removal to federal court of civil actions “arising under” the workers’ compensation

3 States enact and administer workers’ compensation regimes “based on [their]fundamental police power to safeguard the welfare of [their] citizens.” South RidgeBaptist Church v. Industrial Comm. of Ohio, 911 F.2d 1203, 1208 (6th Cir. 1990)(emphasis added) (upholding workers’ compensation statute against Free Exercisechallenge); see also In Re Mansfield Tire and Rubber Co., 660 F.2d 1108, 1113(6th Cir. 1981) (both the enactment of workers’ compensation statutes and theadministration of claims under such statutes are exercises of a state’s traditionalpolice powers). The states enjoy “broad authority” to devise and operate theirworkers’ compensation systems as they see fit. DeCanas v. Bica, 424 U.S. 351,356 (1976).


16

laws. See 28 U.S.C. § 1445(c). This sharp limitation on federal court jurisdiction

grew in large part out of Congress’s respect for “the states’ interest in

administering their own workers compensation systems.” Armistead v. C & M

Transp., 49 F.3d 43, 46 (1st Cir. 1995). This restriction also evidences that “the

federal interest” in employee and public safety does “not extend into the operation

of state workers’ compensation laws.” Judy v. Tri-State Motor Transit Co., 844

F.2d 1496, 1502 (11th Cir. 1988).

B. In the Exercise of Its Traditional Authority to Establish andRegulate a Workers’ Compensation System, the MichiganLegislature Precluded the Imposition of Liability Upon anEmployer for Even the Bad Faith Denial of a Claim for Benefits

The Michigan Legislature’s enactment of the WDCA resulted from a

compromise between the interests of organized labor and the interests of corporate

employers. See generally Boaz Siegel, “Enactment of the Workmen’s

Compensation Law in Michigan,” Workmen’s Compensation in Michigan (1962),

attached as Addendum B 4 . The compromise allowed employees to recover

benefits for work-related injuries without having to show fault and simultaneously

shielded employers from tort suits arising out of workplace injuries. Id. at VI-A-12

– VI-A-25.

4 The Michigan Supreme Court has cited Mr. Siegel’s speech as an authoritativesource concerning the foundation of Michigan’s workers’ compensation laws. See,e.g., Beauchamp v. Dow Chemical Co., 318 N.W.2d 882, 885, n. 11 (Mich. 1986).


17

Another important later compromise shielded employers and workers’

compensation insurers from liability arising out of their denial of claims – even if

the denials were made in bad faith. As the Michigan Court of Appeals has

repeatedly explained, the legislature made a deliberate decision to bar an

employer’s liability for the bad faith denial of claims for workers’ compensation

benefits. In Couture v. General Motors Corp., 335 N.W.2d 668 (Mich. App. 1983),

for example, the court held that the WDCA does not “allow[] the WCAB [the

administrative agency that reviews denials of claims] to impose a penalty for an

employer’s bad faith refusal to pay a claim.” Id. at 669. The court explained that

while an employer who fails to pay benefits that have become due and payable

may be penalized, the legislature barred the assessment of a penalty against an

employer who fails to pay benefits that are in “dispute.” Id. at 670. Critically, the

court held that the “dispute” precluding assessment of a penalty need not be “a

meritorious or nonfrivolous dispute,” and thus an employer may not be penalized

for disputing – and failing to pay – a claim for benefits in bad faith. Id. Finally,

the court “note[d] the possible salutary effect of a penalty provision in deterring the

bad faith failure to pay meritorious claims,” but held that the legislature

intentionally omitted such a provision from the WDCA. Id. at 670-71.

The court again rejected the argument that an employer could be penalized

for disputing a claim in bad faith in Warner v. Collavino Bros., 347 N.W.2d 787


18

(Mich. App. 1984). Echoing the holding in Couture, the court explained that the

WDCA “does not distinguish good faith disputes from bad faith disputes or

unreasonable disputes.” Id. Instead, it precludes imposition of a penalty whenever

there is any “dispute” – even a bad faith dispute. Id. The court emphasized that

the legislature “was aware that prompt payment of compensation benefits could be

encouraged by imposing a penalty for the bad faith denial of benefits,” but the

legislature intentionally decided to omit such a provision from the WDCA. Id. at

789-90.

Allowing a federal RICO claim based upon an allegedly fraudulent denial of

workers’ compensation benefits would plainly frustrate the Michigan legislature’s

decision to shield employers from penalties. Indeed, applying the federal RICO

and mail fraud statutes to the denial of benefits – as Plaintiffs seek to do here –

could potentially subject employers to substantial prison terms for conduct that the

Michigan legislature has determined shall not be the basis of any penalty. That

would upset the careful balance that the Michigan legislature struck in enacting

and amending the WDCA.

Plaintiffs counter that in Brown v. Cassens Transport, Inc., 546 F.3d 347

(6th Cir. 2008), this Court said in dicta that there is “no authority” for the “faulty

premise that [Michigan] has a policy of limited liability for employers even when

they fraudulently deny workers compensation benefits.” (Pl.’s Br. at 35, quoting


19

Brown, 546 F.3d at 363.) Plaintiffs’ reliance on this dicta from Brown is

misplaced.5 The Court in Brown offered this dicta without having been informed

of the Michigan Court of Appeals decisions in Couture and Warner. The parties’

briefs did not cite those cases, and the Court did not cite them in the opinion. Had

the parties brought Couture and Warner to the Court’s attention, the Court surely

would have recognized that Michigan law does strictly limit – indeed, precludes –

liability for the bad faith denial of a workers’ compensation claim. In short,

Michigan public policy is clear: there can be no imposition of a penalty for the bad

faith denial of a benefits claim. Allowing Plaintiffs’ RICO claims to proceed here

would conflict with that public policy and, in addition, would frustrate Congress’s

clear intent to exclude workers’ compensation disputes from federal courts. It is

against this background that this Court should consider Plaintiffs’ effort to apply

federal criminal law (via the RICO and mail fraud statutes) to this run-of-the-mill

workers’ compensation dispute.

5 Plaintiffs properly admit that the statement from Brown on which they rely wasdicta (Plaintiffs/Appellants’ Br. at 7.) The statement is dicta because the Courtsaid that it had already “dispose[d] of” the case before it made this statement. Id. at361. This dicta is not binding. See, e.g., Hinchman v. Moore, 312 F.3d 198, 204(6th Cir. 2003).


20

II. THE DISTRICT COURT CORRECTLY HELD THAT PLAINTIFFS’RICO CLAIMS FAIL AS A MATTER OF LAW BECAUSEPLAINTIFFS FAIL TO PLEAD PREDICATE ACTS OF MAIL ANDWIRE FRAUD

A. Plaintiffs Do Not Allege That Defendants Engaged in the Type ofDeception That Is an Essential Element of Their AllegedPredicate Acts

Plaintiffs allege that Defendants committed RICO predicate acts of mail and

wire fraud when they denied Plaintiffs’ claims for workers compensation benefits

in bad faith. But that alleged misconduct does not amount to mail or wire fraud.

Thus, the district court correctly dismissed Plaintiffs’ RICO claims.

The mail and wire fraud statutes have “been invoked to impose criminal

penalties upon a staggeringly broad swath of behavior.” Sorich v. United States,

__ U.S. __, 129 S.Ct. 1308 (2009) (Scalia, J., dissenting from denial of certiorari).

But despite their undeniably broad reach, the statutes do not punish all bad

behavior that involves use of the mails or wires. The statutes instead apply only

where a person executes a “scheme or artifice to defraud” involving the mails or

wires. See 18 U.S.C. §§1341, 1343.

This “scheme or artifice to defraud” requirement meaningfully limits the

reach of the statutes because “not all conduct that strikes a court as sharp dealing or

unethical conduct is a ‘scheme or artifice to defraud.’” United States v. Chandler,

376 F.3d 1303, 1314 (11th Cir. 2004) (quoting United States v. Holzer, 816 F.3d

304, 309 (7th Cir. 1987)). Misconduct rises to the level of a scheme or artifice to


21

defraud only if it “involves intentional fraud, consisting in deception intentionally

practiced to induce another to part with property or surrender some legal right,

and which accomplishes the end designed.” Riverview Health Institute, LLC v.

Medical Mutual of Ohio, 601 F.3d 505, 513 (6th Cir. 2010) (emphasis added)

(quoting Bender v. Southland Corp., 749 F.2d 1205, 1216 (6th Cir. 1984) and

Epstein v. United States, 174 F.2d 754, 765 (6th Cir. 1949)). Indeed, “[i]t is well-

established in this circuit that a scheme to defraud as prohibited by the mail fraud

statute must involve misrepresentations or omissions reasonably calculated to

deceive persons of ordinary prudence and comprehension.” United States v.

Jamieson, 427 F.3d 394, 415 (6th Cir. 2006) (emphasis added and quotation

omitted).6

Here, Plaintiffs do not allege that Defendants intentionally used “deception”

in order to induce Plaintiffs to part with property or surrender a property right. The

gist of Plaintiffs’ claims is that the Defendants denied their claim for benefits or

terminated their benefits in bad faith, not that Defendants somehow tricked or

misled Plaintiffs into surrendering their right to benefits. The primary “fraud”

underlying Plaintiffs’ claims, in Plaintiffs’ own words, is that Sedgwick and Coke

6 The Supreme Court held in Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639(2008), that reliance on the scheme to defraud is not an element of mail fraud, butthat holding did not alter the deception requirement. See Riverview, 601 F.3d at513 (stating post-Bridge that mail fraud must involve “deception intentionallypracticed to induce another to part with property or surrender some legal right”).


22

(1) “cited Dr. Drouillard’s fraudulent reports as grounds to deny or terminate

benefits;” (2) “rel[ied] on the allegedly fraudulent report … [to] continue[] to deny

disability;” and (3) denied benefits “contrary to all evidence” that Plaintiffs were,

in fact, disabled. (See Appellants’ Br. at 18-19 – describing the nature of their

claims.) None of this alleged misconduct amounts to an intentional effort to

deceive Plaintiffs into giving up something of value. Sedgwick and Coke were not

suggesting that Plaintiffs rely on the allegedly-fraudulent report, nor were they

citing the reports in an effort to trick Plaintiffs into abandoning their claims for

benefits. At worst under Plaintiffs’ allegations, Coke and Sedgwick were relying

in bad faith on a report that did not support their position.

Plaintiffs do allege that Sedgwick and Coke misrepresented that Dr.

Drouillard’s examination was “independent” (see, e.g., R 44 Am. Mot to Amend,

Attachment 1, Sec. Am. Compl. (Sec. Rev.) at ¶15), but that allegedly false

statement, too, falls far short of the deception necessary to sustain a mail fraud

claim. Plaintiffs do not allege that Coke and Sedgwick labeled Dr. Drouillard as

“independent” in an effort to induce Plaintiffs to rely upon his opinion. Indeed, it

would have made no sense for Coke and Sedgwick to have done so. Both

Plaintiffs had their own treating physicians (see, e.g., id. at ¶¶31A & B), and thus

they would never have been in a position to look to, nor rely upon, Dr. Drouillard –

whether he was “independent” or not.


23

In short, there is a clear difference between dishonestly denying a claim, on

one hand, and undertaking an intentional effort to deceive a person into giving up

something of value, on the other hand. Plaintiffs allege only the former here, and

their failure to allege the latter is fatal to their mail and wire fraud claims.

This Court’s decision in Brown does not say otherwise. While the plaintiffs

in Brown brought similar RICO claims to those asserted here, this Court did not

hold that the plaintiffs alleged sufficient deceptive conduct to satisfy the “scheme

or artifice to defraud” element of mail or wire fraud. That issue simply was not

before the Court. The defendants challenged the plaintiffs’ RICO claims under the

McCarran-Ferguson Act and attacked the sufficiency of the plaintiffs’ reliance and

pattern allegations. While this Court rejected the specific arguments raised by the

defendants, it did not go beyond the issues raised by the defendants. Indeed,

Plaintiffs read Brown far too broadly when they repeatedly argue that Brown

forecloses any challenge to their RICO claims. Brown cannot shield Plaintiffs’

claims from challenges that were not presented to this Court in that case. Cf.

United States v. Booker, 543 U.S. 220 (2005) (Supreme Court held that mandatory

sentencing guidelines were unconstitutional even though that Court had previously

rejected a different constitutional challenge to the guidelines in Mistretta v. United

States, 488 U.S. 361 (1989)).


24

B. The Clear Statement Rule Precludes Application of the Mail andWire Fraud Statutes to Defendants’ Alleged Bad Faith Denial ofPlaintiffs’ Claims

Plaintiffs have failed to rebut Defendants’ showing that the mail and wire

fraud statutes do not apply to a bad faith denial of a claim for workers’

compensation benefits. But even if Plaintiffs had offered a competing

interpretation of the mail and wire fraud statutes and thereby created some

ambiguity concerning the reach of the statutes, the “clear statement rule” would

require the adoption of Defendants’ reading of the statutes and the dismissal of

Plaintiff’s claims.

The “clear statement rule” is a rule of statutory construction designed to

guard against an unwarranted expansion of federal jurisdiction into areas

traditionally controlled by the states. See United States v. Turner, 465 F.3d 667,

683 (6th Cir. 2006). In Turner, this Court held that, under the clear statement rule,

the mail and wire fraud statutes could not be applied to fraud committed in

connection with local elections:

We stress that our interpretation of §§1341 and 1346 is guided by therequirement that Congress speak clearly when enacting criminalstatutes, and to an even greater degree, when altering the federal-statebalance in the prosecution of crimes. In general, ambiguityconcerning the ambit of criminal statutes should be resolved in favorof lenity. When there are two rational readings of a criminal statute,one harsher than the other, we are to choose the harsher only whenCongress has spoken in clear and definite language. Applying thisrule when interpreting the mail fraud statute is especially appropriate… because … mail fraud is a predicate act under RICO and the money


25

laundering statute. Moreover, the requirement that Congress speak inclear and definite terms is amplified where, as here, the federal law inquestion applies to conduct traditionally regulated by state law.

Id. (emphasis added; citations and quotations omitted.)

The Supreme Court applied the clear statement rule in Cleveland v. United

States, 531 U.S. 12 (2000). There, the Court refused to apply the mail fraud

statutes to alleged fraud committed in connection with an application for a state

gambling license. The Court explained that applying the mail and wire fraud

statutes to the state licensing process would “subject to federal mail fraud

prosecution a wide range of conduct traditionally regulated by state and local

authorities,” and the Court refused to allow such a “sweeping expansion of federal

criminal jurisdiction” in the absence of a “clear statement from Congress.” Id. at

24. Turner and Cleveland underscore that Congress must speak with special

clarity before a federal statute may be construed in a manner that “displace[s] a

policy choice made by [a] State.” Jones v. United States, 529 U.S. 848, 859 (2000)

(Stevens, J., concurring).

The clear statement rule applies here because, as explained above, extending

the reach of the mail and wire fraud statutes to the denial benefits under

Michigan’s workers’ compensation statute would radically alter a system

traditionally regulated by state authorities. Moreover, such an extension would

criminalize behavior – bad faith denial of benefits – that the Michigan legislature


26

has shielded from penalties. The clear statement rule is applicable to guard against

such an unwarranted federal intrusion into Michigan’s workers compensation

system.

The clear statement rule plainly precludes application of the mail and wire

fraud statutes to denials of workers’ compensation benefits. The mail and wire

fraud statutes, of course, say nothing about workers’ compensation nor about fraud

allegedly committed within an administrative system that is wholly a creature of

state law. There is, in short, no evidence that Congress intended that the mail and

wire fraud statutes would be used to expand federal jurisdiction to include

workers’ compensation disputes or to displace a state legislature’s decision to limit

employer liability within its workers’ compensation system. On the contrary, as

explained in detail above in Section IA, the available evidence strongly suggests

that Congress wants to keep workers’ compensation disputes out of federal court.

See 28 U.S.C. § 1445(c). Accordingly, the clear statement rule requires rejection

of Plaintiffs’ effort to expand the mail and wire fraud statute to fit the misconduct

alleged here.


27

III. THE DISTRICT COURT CORRECTLY DISMISSED PLAINTIFFS’RICO CLAIMS ON THE GROUND THAT RICO MAY NOT BEUSED AS AN “END RUN” AROUND THE WDCA’SADMINISTRATIVE SYSTEM FOR ADJUDICATINGENTITLEMENT TO BENEFITS

The flaws in Plaintiffs’ RICO claims run deeper than Plaintiffs’ failure to

plead viable predicate acts of mail and wire fraud. The claims are also barred by

the settled rule that a plaintiff may not assert a RICO claim for deprivation of

statutory benefits where the statute in question establishes an administrative

scheme to adjudicate disputes over benefits.

In Danielsen v. Burnside-Ott Aviation, 746 F. Supp. 170, 176 (D.D.C. 1990),

aff’d 941 F.2d 1220 (D.C. Cir. 1991), for example, the court rejected RICO claims

similar to Plaintiffs’ here. The plaintiffs in Danielsen alleged that the defendants

“engaged in a scheme to defraud employees of the minimum wages and fringe

benefits to which they were entitled” under the McNamara-O’Hara Services

Contract Act, 41 U.S.C. § 351 et seq. (“SCA”). 746 F. Supp. at 171. Even though

the plaintiffs had no private right of action directly under the SCA, and even

though federal law assigned to the Department of Labor the exclusive authority to

address violations of the SCA, the plaintiffs brought a RICO claim based upon the

alleged SCA violations. The court rejected the plaintiffs’ effort to convert the

alleged SCA violations into a RICO claim:

Here, the fraudulent scheme alleged by the plaintiffs is anunderpayment of wages and fringe benefits due them pursuant to the


28

SCA. Plaintiffs’ RICO claims are all premised on alleged violationsof the SCA. However, the SCA expressly assigns the responsibilityfor determining and enforcing wage levels and other employeebenefits to DOL. Allowing plaintiffs to proceed with their RICOclaims would not only upset the careful blend of administrative andjudicial powers that Congress has created under the SCA, but alsooverturn well-established precedent that employees have no privateright of action under the Act.

Id. at 176.7 On appeal, the D.C. Circuit affirmed. Danielsen, 941 F.2d 1220. It

stressed that allowing the plaintiffs’ RICO claim to proceed would lead to a

patently absurd result: namely, that notwithstanding the bar against private actions

seeking compensation for violations of the SCA, a plaintiff could pursue a RICO

claim and seek three times its damages plus attorneys fees for a violation of the Act.

Id. at 1228-29.

The court in Livingston v. Shore Slurry Seal, Inc., 98 F. Supp. 2d 594 (D.N.J.

2000), likewise dismissed a RICO claim based upon the denial of statutory benefits.

The plaintiffs in Livingston alleged that the defendants had violated the Davis-

Bacon Act, 40 U.S.C. § 276a et seq., by fraudulently failing to pay employees the

prevailing wage on public contracts. Even though the Davis-Bacon Act

established a detailed administrative scheme to remedy violations of its provisions,

7 The district court in Danielsen used the term “preemption” to describe how theadministrative scheme took precedence over the RICO claim. Danielsen, 746 F.Supp. at 176. On appeal, the D.C. Circuit said the issue is best described as one ofexclusive remedy rather than preemption but added that the label is not critical.Danielsen, 941 F.2d at 1226-27.


29

the plaintiffs brought a RICO claim. The court rejected the plaintiffs’ attempt to

convert their dispute into a RICO case. The court explained that “because the

gravamen of plaintiffs’ Amended Complaint is that they were paid less than the

prevailing wage in violation of the Davis-Bacon Act,” they could pursue their

claim only through “the detailed administrative scheme created by the [Davis-

Bacon] Act,” and not through a RICO cause of action. Id. at 600. The court cited

Danielsen and stressed that Danielsen “has been adopted by [many] courts and

applied to [many] statutes other than” the Davis-Bacon Act. Id. at 601 (collecting

cases barring RICO claims in a wide variety of contexts).

The Eleventh Circuit is one of the many other courts to adopt the reasoning

from Danielsen. See Ayres v. General Motors Corp., 234 F.3d 514 (11th Cir.

2000). In Ayres, the plaintiffs brought a claim against General Motors under the

Georgia civil RICO statute. Plaintiffs alleged that General Motors committed a

pattern of federal mail and wire fraud violations by fraudulently failing to disclose

information that it was required to disclose under the National Traffic and Motor

Vehicle Safety Act, 49 U.S.C. § 30118 et seq. The court held that this alleged

pattern of predicate acts could not support a RICO claim. Id. at 522-25. In support

of its holding, the court stressed that the Safety Act “establishes its own extensive

array of administrative remedies for a violation of its notification obligations,”

“does not make violation of the notification requirements criminal,” does not


30

establish “a private right of action,” and does establish “limits on the civil

penalties.” Id. Given these features of the Act, Congress could “not [have]

intend[ed]” that violations of the Act’s notification requirements would subject a

violator to “unlimited treble damages” under RICO. Id. See also McCulloch v.

PNC Bank, Inc., 298 F.3d 1217 (11th Cir. 2002) (affirming dismissal of a RICO

claim for allegedly-fraudulent violation of the Higher Education Act because Act

created administrative remedies and did not create private right of action).

The district court correctly concluded that the WDCA shares all of the

essential features of the statutes in Danielsen, Livingston, and Ayres, and, therefore,

that RICO may not be used as an “end run” around the WDCA. Like the statutes

at issue in those cases, the WDCA establishes a comprehensive administrative

system to address claims that an employer or insurer has wrongfully denied

benefits.8 The WDCA requires an injured employees seeking benefits to use this

system and precludes him from asserting a private cause of action; the

8 An employee may seek mediation of his denied claim or may seek a hearingbefore a workers’ compensation magistrate. Mich. Comp. Laws § 418.847. If heloses, he may appeal to the Workers’ Compensation Appellate Commission. Mich.Comp. Laws § 418.859(a). And, if that appeal fails, he may petition the Michigancourts to review his claim. Mich. Comp. Laws § 418.861(a). In addition, theWDCA empowers the Michigan Commissioner of Insurance to (1) revoke thelicense of any workers’ compensation insurer that “fails to live up to all of itsobligations under th[e] act” and (2) bar an employer from self-insuring if it fails topay claims for which it has become liable and/or fails to file the required reports.Mich. Comp. Laws § 418.631(1) & (2).


31

administrative procedures are his “exclusive remedy.” Mich. Comp. Laws §

418.131; see also Gray v. Morley, 460 Mich. 738, 741, 596 N.W.2d 922 (1999).

And, as noted above, the WDCA bars an injured employee from recovering any

penalty against an insurer or employer who disputes his claim for benefits – even if

the employer acts in bad faith. In short, the WDCA creates the exact type of

exclusive administrative system that may not be avoided by a RICO suit.

Allowing Plaintiffs’ RICO claims to proceed here would create the type of

absurd result that the courts in Danielsen, Livingston, and Ayres sought to avoid:

plaintiffs suing for treble damages and attorneys fees for the violation of a statute

(the WDCA) that does not create a private right of action, requires the use of

administrative remedies, and strictly limits liability. RICO was never intended to

create a path into court for litigants who would otherwise be limited to exclusive

administrative remedies and procedures and who would be subject to strict

damages limitations. Simply put, Plaintiffs here “should not be able to avoid [the

workers’ compensation administrative tribunal’s exclusive] jurisdiction or the

designated remedial scheme [under the WDCA] by asserting a RICO claim.”

Miller v. Norfolk Southern Ry., 183 F. Supp. 2d 996, 1000 (N.D. Ohio 2002)


32

(dismissing RICO claim based upon allegedly fraudulent denial of benefits rights

under Railway Labor Act).7

Plaintiffs attempt to avoid the rule in Danielsen, Livingston, and Ayres –

prohibiting use of RICO as an end run around administrative procedures and

remedies – on several grounds, but none are persuasive. Plaintiffs primarily argue

that the rule does not apply because the WDCA provides no procedures to address,

and no remedy for, their claimed injury: a “fraudulent” denial of benefits.

(Appellants’ Br. at 35-38.) But the distinction Plaintiffs attempt to draw between a

wrongful denial of benefits and a “fraudulent” denial of benefits is wholly artificial

and has been rejected by a number of federal courts. With respect to both types of

denials, the essence of the harm to the claimant is the same: namely, the

9 In Trollinger v. Tyson Foods, Inc., 370 F.3d 602 (6th Cir. 2004), this Courtaddressed whether a RICO claim was preempted by, and had to give way to,administrative procedures and remedies created by another statute. In that case,this Court held that plaintiffs could pursue a RICO claim based upon predicate actsof unlawfully harboring of illegal alien laborers in violation of the Immigration andNationality Act (“INA”); the court rejected the argument that the claim waspreempted under the so-called Garmon labor law pre-emption doctrine. ButTrollinger is easily distinguishable from this case. Most importantly, the RICOstatute specifically identified the violations of the INA at issue in Trollinger aspredicate acts that could support a RICO claim, id. at 611-612, so there was nodanger that the plaintiff was using RICO, contrary to Congress’ intent, to avoidexclusive administrative procedures and remedies established by other statutes.Furthermore, Trollinger did not involve any potential federal interference withstate-created statutory and administrative procedures and remedies. Finally,Trollinger did not involve an effort to radically expand the reach of RICO throughan overly expansive construction of the mail and wire fraud statutes.


33

deprivation of benefits to which he is entitled. See, e.g., Butchers’ Union Local No.

498 v. SDC Inv., Inc., 631 F.Supp. 1001, 1226 (E.D. Cal. 1986) (“Bluntly put, no

matter how you cut the complaint, the only conceivable ‘fraud’ is the deprivation

of plaintiff’s rights [to benefits] under the labor law”); Danielsen, 746 F. Supp.

176-77 (same). Notably, there is no indication in Danielsen, Livingston, or Ayres

that the statutes at issue in those cases provided a special remedy for a “fraudulent”

denial of benefits (in addition to the remedy for the wrongful denial of benefits),

yet the remedies available under those statutes were sufficient to prevent the

plaintiffs from bringing a RICO claim. Here, the WDCA undeniably creates a

remedy for the wrongful denial of benefits, and thus Plaintiffs cannot escape the

rule in the Danielsen, Livingston, and Ayres on the ground that the WDCA

provides no remedy for their alleged injuries.

Plaintiffs next argue that Danielsen, Livingston, and Ayres do not apply

because they involved “whether there is a statutory provision of an exclusive

remedy in a federal statute.” (Appellants’ Br. at 42; emphasis in original.)

Plaintiffs have things backwards. The case for limiting RICO is even stronger

here because this case involves an exclusive remedy provision in a state statute

governing a matter of traditional state concern and because allowing Plaintiffs’

claim would displace the Michigan legislature’s decision to limit employer liability.

Indeed, as noted above, the Supreme Court and this Court have developed special


34

rules of statutory construction to prevent the very type of encroachment into state

sovereignty that Plaintiffs seek to accomplish here. And, given Congress’s clearly-

expressed desire to limit federal jurisdiction over state workers’ compensation

disputes, see 28 U.S.C. § 1445(c), it would make no sense to conclude that RICO

provides a broader remedy for violation of the state WDCA than for violation of

the analogous federal statutes in Danielsen, Livingston, and Ayres.

Plaintiffs also claim that the Danielsen decision is not on point because the

plaintiffs in that case “sought to bypass the system and instead recover triple

damages through RICO,” while the Plaintiffs here “used the system – filing claims

and litigating claims in the manner prescribed by the WDCA – but Sedgwick and

Coca Cola allegedly corrupted the system.” (Appellants’ Br. at 43; emphasis

added.) That’s just wrong. The plaintiffs in Danielsen took the very same route to

court and made the same allegations as the Plaintiffs here. The plaintiffs in

Danielsen first pursued administrative remedies through the statutorily-prescribed

administrative system, and then, believing they were entitled to more than they had

recovered through the administrative system, they filed their RICO claims. See

Danielsen, 746 F. Supp. at 171-73 (describing administrative process). And the

plaintiffs in Danielsen alleged that the defendants corrupted the system by

“sending various deceptive letters” to persons involved in the administrative claims


35

review process. Id. at 173 (describing allegations). The posture of this case and

Danielsen is identical.

Plaintiffs finally insist that Danielsen, Livingston, and Ayres do not apply

because the statutes at issue in those cases did not create a private cause of action,

but Michigan, in contrast, does “punish[] fraudulent denial of benefits through civil

prosecution.”10 (Appellants’ Br. at 39-40, 44-46, 48.) In support, Plaintiffs cite a

“Notice of Dispute” form promulgated by a state administrative agency. The

Notice refers to a possible “civil prosecution for fraud” against persons who make

fraudulent statements in connection with a claim for benefits under the WDCA.

This Notice, though, is not a part of the record in this case and thus may not be

considered in this appeal. See United States v. Summit Fideltiy & Surety Co., 408

F.3d 46, 48 (6th Cir. 1969) (“We do not consider evidence which was not presented

to the district court.”) In any event, the Notice does not say that an employee may

bring a claim against an employer who denies a claim for benefits in bad faith.11

Finally, even if the Notice could be read that way, it would be entitled to no weight.

As noted above, the Michigan Court of Appeals has clearly held that an employer

10This argument conflicts with Plaintiffs’ earlier claim that they have no remedyunder Michigan law for the fraudulent denial of benefits.11 The statement to which Plaintiffs refer is supported by a citation to Mich. Comp.Laws § 418.631 ! a statute that allows the Michigan Insurance Commissioner toimpose penalties upon insurers and employers who do not timely pay undisputedclaims. The statement cannot be read as supporting Plaintiffs’ argument thatMichigan recognizes a private cause of action for the fraudulent denial of benefits.


36

may not be penalized for fraudulently denying claims. Couture, supra; Warriner,

supra. No administrative Notice can change Michigan law on this point.

IV. THE DISTRICT COURT CORRECTLY HELD THAT PLAINTIFFSFAILED TO PLEAD VIABLE RICO CLAIMS AGAINST COKE

The district court properly held that, in addition to failing to allege that any

Defendant committed cognizable predicate acts of mail and wire fraud, Plaintiffs

failed to allege against Coke the essential elements of a RICO claim under 18

U.S.C. § 1962(c). That statute provides in relevant part:

It shall be unlawful for any person employed by or associated withany enterprise engaged in, or the activities of which affect, interstateor foreign commerce, to conduct or participate, directly or indirectly,in the conduct of such enterprise’s affairs through a pattern ofracketeering activity….

In order to state a viable claim under this statute, a plaintiff must allege that

the defendant conducted or participated in the affairs of an enterprise through a

pattern of racketeering activity. See Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S.

479, 496 (1985). Here, Plaintiffs’ RICO claim fails because they have not

sufficiently alleged that the Coke formed an enterprise, that Coke participated in

the affairs of the enterprise, or that Coke engaged in a pattern of racketeering

activity.

First, Plaintiffs failed to plead that Coke formed a RICO “enterprise.” An

enterprise is “a group of persons associated together for a common purpose of

engaging in a course of conduct” and “must have at least three structural features: a


37

purpose, relationships among those associated with the enterprise, and longevity

sufficient to permit these associates to pursue the enterprise’s purpose.” Boyle v.

United States, __ U.S. __, 129 S.Ct. 2237, 2242-44 (2009). Here, Plaintiffs allege

six different RICO enterprises, but mention Coke in only three of them. (Id. at ¶9.)

Plaintiffs then allege that “the predicate acts and violations of RICO alleged herein

were committed by one or more” of the identified enterprises, and that “two or

more” of the enterprises “may have acted together to defraud one or more plaintiffs

of their workers compensation benefits.” (Id. at ¶¶ 9, 11; emphasis added.) But

Plaintiffs do not definitively allege in their enterprise allegations that Coke actually

was a member of an enterprise that did act to defraud them. As the district court

properly concluded, Plaintiffs’ resort to pleading six different enterprises and

merely hinting at Coke’s involvement in some of them shows “Plaintiffs’ inability

to plead non-conclusory allegations that are enough to raise a right to relief above

the speculative level.” (R. 59, Opinion and Order at 51.)

Second, Plaintiffs failed to properly plead that Coke participated in the

enterprise’s affairs. The “participation” required by the statute means taking an

operational or management role in the enterprise. Reves v. Ernst & Young, 507

U.S. 170, 185 (1993). Plaintiffs do not allege any such role played by Coke. They

instead allege that the purpose of the alleged enterprise was the denial of worker’s

compensation claims submitted by Coke employees, and they admit that Sedgwick,


38

not Coke, adjusted those claims. (R. 44, Am. Mot. to Amend, Attachment 1,

Proposed Sec. Am Compl. (Sec. Rev.) at ¶¶6-7.) The most Plaintiffs say with

respect to Coke is that the denials “were made by Sedgwick and/or Coke, or by

Sedgwick after consulting with Coke and with workers’ compensation attorneys, or

were ratified by Coke after being made by Sedgwick in consultation with its

workers compensation attorneys.” (Id. at ¶8.) This allegation stretches the bounds

of “pleading in the alternative” beyond all reasonable limits and lays bare

Plaintiffs’ inability to allege specific facts that, if proven, would establish that

Coke managed or operated the alleged enterprise. The district court properly held

that “Plaintiffs have not alleged non-conclusory facts to demonstrate that Coca

Cola” operated any alleged enterprise. (R. 59, Opinion and Order at 52.)

Finally, Plaintiffs were required to allege that Coke itself committed specific

predicate acts constituting a pattern of racketeering activity, but Plaintiffs failed to

do so. As the Supreme Court has explained, a plaintiff “has a claim” for a

violation of Section 1962(c) where “the defendant engages in a pattern of

racketeering activity in a manner forbidden by [the statute.]” Sedima, 473 U.S. at

495 (emphasis added). Thus, a plaintiff must specifically identify the predicate

acts by each defendant the plaintiff seeks to hold liable under the statute. The

requirement that a plaintiff plead sufficient predicate acts by each defendant comes

directly from the plain language of the statute which makes a defendant liable only


39

where it actually participates in the affairs of an enterprise through a pattern of

racketeering activity (i.e., through a pattern of predicate acts). Neither Plaintiff in

this action carried his burden of pleading predicate acts by Coke. Indeed,

Plaintiffs’ own recitation of the alleged predicate acts does not include a single

specific act by Coke. (See Appellants’ Br. at 63 – listing six alleged incidents of

mail fraud by Sedgwick or Dr. Drouillard.12) To be sure, Plaintiffs do generally

allege throughout their Complaint that Coke committed unspecified mail and wire

fraud (see, e.g., R. 44, Am. Mot. to Amend, Attachment 1, Proposed Sec. Am.

Compl. (Sec. Rev.) at ¶16), but these allegations cannot not save Plaintiffs’ claim

under Section 1962(c) because alleged predicate acts of mail and wire fraud must

12 Although not cited by Plaintiffs in their appeal brief, Plaintiff Scharnitzke didallege a single predicate act by Coke in Plaintiffs’ Amended Complaint (R. 2, Am.Compl. at ¶31(B)), but this lone allegation was insufficient to save Scharnitzke’sclaim because a RICO claim requires the commission of at least two predicate acts.See VanDenBroeck v. CommonPoint Mortage Co., 210 F.3d 696, 699 (6th Cir.2000). In Plaintiffs’ final proposed Second Amended Complaint, Plaintiff Jacksonalleged that Coke committed two predicate acts of mail fraud (R. 44, Am. Mot. toAmend, Attachment 1, Proposed Sec. Am. Compl. (Sec. Rev.) at ¶31.) But theseallegations were plainly insufficient to establish a pattern of racketeering activityby Coke. The two alleged predicate acts were the mailing by Coke’s attorney ofthe same pleading to two recipients on the very same day. By any measure, theselimited mailings are insufficient to satisfy the requirement of a “pattern ofracketeering.” See Moon v. Harrison Pipin Supply, 465 F.3d 719 (6th Cir. 2006).The “pattern” requirement is explained more fully in Appellee Sedgwick ClaimsManagement’s brief, and Coke adopts Sedgwick’s discussion and argument on the“pattern” issue.


40

be pleaded with particularity. See Advocacy Org. for Patients and Providers v.

Auto Club Ins. Ass’n, 176 F.3d 315, 322 (6th Cir. 1999).

Plaintiffs recognized that they could not allege two predicate acts by Coke,

so they proposed to allege that Coke “aided and abetted” the commission of

predicate acts by the other defendants. (R. 44, Am. Mot. to Amend, Attachment 1,

Proposed Sec. Am. Compl. (Sec. Rev.) at ¶¶11-13.) Their aiding and abetting

allegations were insufficient for two reasons. First, as explained above, a plaintiff

must plead that the defendant actually committed predicate acts; thus, Plaintiffs’

allegations of aiding and abetting did not state a claim under 18 U.S.C. §1962(c).

Second (and in any event), Plaintiffs failed to allege a viable aiding and

abetting claim against Coke. “To establish aiding and abetting, [a plaintiff] must

prove that [the defendant] committed an act that contributed to the execution of a

crime, and intended to aid the commission of the crime.” United States v. Driver,

535 F.3d 424, 431 (6th Cir. 2008) (citing United States v. Davis, 306 F.3d 398, 409

(6th Cir. 2002)). Moreover, “there must be evidence that [the defendant] offered

assistance or encouragement to his principal in the commission of the crime.” Id.

Thus, in Driver, this Court found insufficient evidence of aiding and abetting

where the government failed to prove that the defendant “contributed to or offered

assistance or encouragement to” the principal’s offense. Here, Plaintiffs alleged

that employees of Coke knew of Sedgwick’s alleged fraud and allowed the fraud to


41

take place. (R. 44, Am. Mot. to Amend, Attachment 1, Proposed Sec. Am. Compl.

(Sec. Rev.) at ¶32.) That allegation falls far short the active “assistance or

encouragement” and actual participation required under Driver for a viable aiding

and abetting claim. Plaintiffs’ failure to properly allege that Coke aided and

abetted any predicate acts further justified the district court’s dismissal of

Plaintiffs’ Complaint and denial of Plaintiffs’ request for leave to amend.

In a last ditch effort to save their claims, Plaintiffs argue that they should

have been given an opportunity to conduct discovery in order to gather facts that

would have permitted them to sufficiently plead that Coke committed fraud.

(Appellants’ Br. at 60.) But they had no right to such discovery. See, e.g., Yuhasz

v. Brush Wellman, Inc., 341 F.3d 559, 566 (6th Cir. 2003) (rejecting argument that

plaintiff had right to discovery to learn facts to enable it to satisfy Rule 9(b) of the

Federal Rules of Civil Procedure). Contrary to Plaintiffs’ argument to the district

court, this Court’s decision in Brown does not authorize such discovery. The court

in Brown “express[ed] no view” as to whether the plaintiffs should have been

given leave to conduct discovery “other than to note that such a notion is not

foreign to this court.” Brown, 546 F.3d at 356, n. 4. Simply put, given the plain

insufficiency of Plaintiffs’ RICO claims, the district court properly dismissed them.


42

V. COKE ADOPTS BY REFERENCE ALL OTHER ARGUMENTS INSUPPORT OF AFFIRMANCE BY APPELLEES PAULDROUILLARD, M.D., AND SEDGWICK CLAIMS MANAGEMENTSERVICES, INC.

Pursuant to Federal Rule of Appellate Procedure 28(i), Coke adopts by this

reference the all of the arguments made by Appellees Paul Drouillard, M.D., and

Sedgwick Claims Management Services, Inc., including but not limited to:

A. Dr. Drouillard’s and Sedgwick’s statements of the standard of reviewand applicable law;

B. Dr. Drouillard’s argument supporting affirmance under the primaryjurisdiction and/or Burford abstention doctrines;

C. Dr. Drouillard’s argument supporting affirmance on the ground thatPlaintiffs may not use RICO as an end run around the WDCA;

D. Sedgwick’s argument supporting affirmance on the ground thatPlaintiffs lack standing (or, stated another way, that Plaintiffs’ claimsare not ripe); and

E. Sedgwick’s and Dr. Drouillard’s arguments supporting affirmance onthe ground that Plaintiffs failed to adequately allege the essentialelements of a RICO claim under 18 U.S.C. §1962(c).


43

CONCLUSIONAND RELIEF REQUESTED

The district court correctly dismissed Plaintiffs’ Amended Complaint and

denied leave to file a Second Amended Complaint. For all of the reasons

explained above and in the district court’s well-reasoned decision, this Court

should affirm.

Respectfully submitted,

MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.

By: s/Matthew F. LeitmanMatthew F. Leitman (P48999)Thomas W. Cranmer (P25252)Paul D. Hudson (P69844)840 West Long Lake Road, Suite 200Troy, Michigan 48098Telephone: (248) [email protected] for Defendant-Appellee Coca-ColaEnterprises, Inc.

Dated: September 13, 2010


44

CERTIFICATE OF COMPLIANCE

I hereby certify that the foregoing brief complies with the type-volume

limitation set forth in Federal Rule Appellate Procedure 32(a)(7)(B). The brief

contains 9,834 words. This brief was prepared using Microsoft Word and 14-point

Times New Roman proportional type.




Dated: September 13, 2010


45

CERTIFICATE OF SERVICE

I hereby certify that on September 13, 2010, I electronically filed theforegoing document, with the Clerk of the court using the ECF system which sentnotification of such filing to the following:

" Katherine D. Goudie: [email protected], [email protected]

" Kathleen H. Klaus: [email protected], [email protected]

" Marshall D. Lasser: [email protected], [email protected]

" Lynn A. Sheehy: [email protected], [email protected]

" Daniel B. Tukel: [email protected], [email protected]

" Michael Francis Smith: [email protected],[email protected], [email protected]

and hereby certify that I have mailed by United States Postal Service the paper tothe following non-ECF participants:

None.





i

DESIGNATION OFRELEVANT DISTRICT COURT DOCUMENTS

RecordEntry No. Description

R. 1 Complaint and JuryR. 2 Amended ComplaintR. 15 Motion to Dismiss Pursuant to Fed.R.Civ.P. 12 (b)(1) and/or 12

(b)(6), Brief in SupportR. 21 Motion to Dismiss, Or, In the Alternative, For a Stay of Proceedings,

and Notice of Joinder in Defendant Paul Drouillard’s Motion toDismiss by Coca Cola Enterprises, Inc.

R. 26 Motion to Amend/Correct Second Amended ComplaintR. 31 Renewed Motion for Leave to File Second Amended ComplaintR. 35 Amended Motion for Leave to File Second Amended ComplaintR. 38 Amended Motion to Amend/Correct Motion for Leave to File Second

Amended Complaint (Second Revision) & Brief in SupportR. 39 Motion to Dismiss First Amended Complaint and Joinder in Motions

to Dismiss Filed by Co-DefendantsR. 44 Amended Motion for Leave to File to File Second Amended

Complaint (Second Revision) & Brief in Support of MotionAttachment 1: Second Amended Complaint

R. 59 Opinion and Order


ii

ADDENDUM

A. Christopher Howard, Workers’ Compensation, Federalism, and the HeavyHand of History Studies in American Political Development 28, 29 (Spring2002)

B. Boaz Siegel, “Enactment of the Workmen’s Compensation Law inMichigan,”Workmen’s Compensation in Michigan (1962)
