fourth circuit.bmpBy Gerald L. Maatman, Jr. and Chris Palamountain 

In a recent unanimous decision – Walters, et al. v. McMahen, et al., 2012 U.S. App. LEXIS 13682 (4th Cir. July 5, 2012) – the Fourth Circuit held that Spartan-like pleading allegations were insufficient to support a workplace class action where hourly employees who claimed that their employer engaged in a conspiracy to depress their wages. On July 5, 2012, Judge Keenan of the 4th Circuit affirmed the U.S. District Court for the District of Maryland’s dismissal of plaintiffs’ class claim. The 4th Circuit ruled that the entire theory on which Plaintiff’s complaint was based lacked sufficient facts to support the alleged violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). Although Congress passed RICO in 1970 to use mainly as a weapon in criminal cases, today it is most commonly used in civil actions. To establish a RICO violation, the plaintiff must prove that the defendant engaged in at least two “distinct but related” violations of federal law within a 10-year period. Id. at *10. Alleged violations of RICO are – of course – subject to the pleading structure that the Supreme Court set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 662 (2009), and Ashcroft v. Iqbal, 556 U.S. 662 (2009). In other words, RICO plaintiffs must plead sufficient facts to advance the elements of the predicate acts “across the line from conceivable to plausible.” Id. at *9.  

Background Of The Case

In March 2010, Plaintiffs filed their lawsuit in the U.S. District Court for the Middle District of Alabama on behalf of themselves and similarly-situated employees. Plaintiffs alleged that the Defendant’s facility and corporate managers engaged in a conspiracy with clerks in the Human Resources department to hire hundreds of foreign nationals who were not authorized for employment. Additionally, the Plaintiffs asserted that the conspirators’ acts “resulted in the depression of wages of every hourly-wage employee” working for the Defendant. Id. at *5.

In the Plaintiffs’ amended complaint, they specified that the conspiracy violated two federal laws. First, Plaintiffs claimed that in violation of 8 U.S.C. § 1324, Defendant’s clerks intentionally processed the employment applications and hired the unauthorized aliens. Second, Plaintiffs asserted that Defendant violated 18 U.S.C. § 1546 because the clerks knowingly accepted the employees’ false identification documents and attested to the documents validity on I-9 forms. Plaintiffs characterized these violations as a conspiracy because the facility and corporate managers allegedly ordered the clerks to engage in the unlawful conduct.

Defendants successfully moved to transfer the case to the U.S. District Court for the District of Maryland and filed a 12(b)(6) motion to dismiss Plaintiffs’ complaint for failure to state a claim. Granting Defendants’ motion to dismiss, the District Court ruled that the fatal deficiency in Plaintiffs’ amended complaint was their failure to plead the existence of a conspiracy with sufficient particularity.

Basis Of The Fourth Circuit’s Ruling

On appeal, the 4th Circuit affirmed the District Court’s dismissal and determined that Plaintiffs’ allegations did not satisfy the pleading standards established in Twombly and Iqbal. The 4th Circuit analyzed Plaintiffs’ two allegations in turn. As to the illegal hiring predicate allegations, the 4th Circuit reasoned that Plaintiffs’ allegations merely recited the elements of the cause of action. The 4th Circuit concluded that Plaintiffs did not provide any “factual basis to support the statement” that the Defendant had “actual knowledge” that it hired unauthorized aliens, or that the employees were “brought into the country with the assistance of others.” Id. at *16. Furthermore, the 4th Circuit reviewed Plaintiffs’ claim that Defendants engaged in fraudulent use and false attestation of documents. Plaintiffs’ claim failed because they did “not allege facts establishing that they suffered an injury proximately caused by the hiring clerks’ violation of the false attestation predicate[.]” Id. at *20. In sum, the 4th Circuit concluded that Plaintiffs did not meet the pleading standard of either of their allegations and therefore affirmed the District Court’s motion to dismiss.

 Impact On Employers

Employers facing similar bare-bones class actions complaints should consider challenging plaintiffs’ case theories from the outset and, where appropriate, file a Twombly-style motion to dismiss. As the Walters decision shows, such a strategy may result in dismissal of class claims.