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Exclusive Remedies Might Not Be So Exclusive

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Nicole E. Stratton & Joseph E. Kozely, Jr.
Foster Swift Health Care Law E-News
May 31, 2012

In early April, the Sixth Circuit Court of Appeals decided that the "exclusive remedy" provision of Michigan's Workers' Disability Compensation Act ("Workers' Comp Act"), found at MCL 418.131, did not prevent an individual from bringing a federal Racketeer Influenced and Corrupt Act ("RICO") lawsuit.  In Brown v. Cassens Transport Company, No. 10-2334,  the employees seeking relief under the Workers' Comp Act ("Plaintiffs") brought a RICO lawsuit against their employer, the workers' compensation claims adjuster, and their employer's examining physician (collectively "Defendants").  RICO makes it a crime to directly or indirectly interfere with interstate or foreign commerce through a pattern of racketeering activity (including mail fraud).  The Plaintiffs alleged that the Defendants engaged in a conspiracy of submitting fraudulent medical reports through the mail to deny valid workers' compensation claims.  The Defendants proposed two main defenses to the RICO claim:

  1. The Plaintiffs did not have a property interest in which to bring a RICO claim and
  2. The Workers' Comp Act was the Plaintiffs' exclusive avenue for any remedy.

The Court of Appeals held, in regards to the property issue, that the Plaintiffs did have a property interest sufficient for a RICO case. (RICO generally does not permit recovery for physical or mental injury.)  The Court of Appeals agreed that the injuries raised in the Plaintiffs’ underlying workers' compensation case were physical in nature, but there was a "property interest” sufficient for purposes of RICO because of an alleged injury to their claim for benefits because of the Defendants’ (alleged) actions.

With respect to the “exclusive remedy” defense, the Court of Appeals held that the Supremacy Clause of the U.S. Constitution prevents Michigan from preempting the RICO claim because RICO is a federal cause of action. While courts have held RICO inapplicable to claims that should have been raised before federal agencies that had exclusive-remedy clauses in their enabling statutes, the Court of Appeals did not extend this to state causes of action with exclusive-remedy clauses. Specifically, the Court of Appeals noted that state law can only eliminate federal remedies when authorized by a "reverse-preemption clause" such as the one contained in the McCarran–Ferguson Act (that gives states the right to regulate insurance). 

This case has important implications: 

  1. Other state statutes that contain "exclusive remedy" provisions may now be subject to RICO claims.  Michigan has a bevy of other statutes that have exclusive remedy provisions, such as the Elliot-Larsen Civil Rights Act (which is the exclusive remedy for sexual harassment claims) and the Shopping Reform and Modernization Act (which prohibits knowingly publishing a false advertisement).  Thus, potentially other lawsuits that were once thought to constitute exclusive remedies may be subject to RICO claims. 
  2. Employers and physicians may be leery to defend workers’ compensation lawsuits for fear of being subjected to a RICO claim.  Moreover, employers may have a hard time convincing physicians to provide opinions for workers’ compensation lawsuits as they may fear being named in a RICO action.

It remains to be seen whether claimants and their supporters could face RICO exposure similar to that now faced by the defendants.

If you have any questions about how this case may impact your business, please contact Nicole Stratton.