Opinion ID: 626814
Heading Depth: 4
Heading Rank: 4

Heading: Devaluation of a Statutory Expectancy as Injury to Property

Text: The complaint identifies the plaintiffs' injuries as including the deprivation and devaluation of worker's compensation benefits. R. 1 (Compl. ¶ 17). The district court held that the fraudulent deprivation or diminution of worker's compensation benefits did not amount to an injury in property because such injury is merely another form of pecuniary loss stemming from a physical injury. Brown IV, 743 F.Supp.2d at 674. Because statutory entitlements are property, the injury to which causes harm, we see no reason under RICO to distinguish between property entitlements that accrue as a result of a personal injury from those that do not. Although none of the remaining plaintiffs in this case had started receiving their statutory benefits at the time of the fraud, Michigan's nondiscretionary worker's compensation scheme creates a property interest in the expectancy of statutory benefits following notice to the employer of injury. Finally, even if Michigan law does not create a property interest in such an expectancy, we hold that the plaintiffs' claim for benefits is an independent property interest, the devaluation of which also creates an injury to property within the meaning of RICO.
As an initial matter, both Michigan law and federal law recognize that the recipient of a statutory entitlement has a statutorily created property interest in the continued receipt of those benefits. Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 60, 119 S.Ct. 977, 143 L.Ed.2d 130 (1999) (citing Goldberg v. Kelly, 397 U.S. 254, 262 & n. 8, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970)); Perry v. Sindermann, 408 U.S. 593, 601, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972); Logan, 455 U.S. at 428, 102 S.Ct. 1148; Mathews v. Eldridge, 424 U.S. 319, 332, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976); see also Williams v. Hofley Mfg. Co., 430 Mich. 603, 424 N.W.2d 278, 282, 283 n. 16 (1988) (relying on federal due process law articulated in Logan, 455 U.S. at 428, 102 S.Ct. 1148). A recipient of Michigan worker's compensation benefits undoubtedly has a property interest under state law in the continued receipt of those benefits. We hold today that injury to such statutory entitlements is an injury to property within the meaning of RICO. [4] Congress provided in 18 U.S.C. § 1964(c) that [a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court. The statute offers no further guidance on the meaning of business or property. When faced with interpreting similar language in the context of the Clayton Act, the Supreme Court acknowledged that the inclusion of the word business works to narrow the definition of property from its otherwise naturally broad meaning. Reiter v. Sonotone Corp., 442 U.S. 330, 338, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979). Congress must have intended to exclude some class of injuries by the phrase `business or property.' Id. at 339, 99 S.Ct. 2326. This construction is equally applicable to the language in RICO. For example, money is a species of property under state law, but to hold that all monetary losses are covered by RICO would render the word business superfluous. Therefore, whereas damage to a building is an obvious property injury, purely pecuniary losses are sometimes indicative of property injury and sometimes not, depending on whether the pecuniary loss is to a legal entitlementi.e., property. See id. at 340, 99 S.Ct. 2326 ([T]he fact that petitioner [ ] was deprived of only money, albeit a modest amount, is no reason to conclude that she did not sustain a `property' injury.). Against this backdrop, the Sixth Circuit has held that [r]ecovery for physical injury or mental suffering is not allowed under civil RICO because it is not an injury to business or property. Fleischhauer v. Feltner, 879 F.2d 1290, 1300 (6th Cir.1989), cert. denied, 493 U.S. 1074, 110 S.Ct. 1122, 107 L.Ed.2d 1029 (1990); see also Drake v. B.F. Goodrich Co., 782 F.2d 638, 644 (6th Cir.1986); Evans v. City of Chicago, 434 F.3d 916, 930-31 (7th Cir.2006); Grogan v. Platt, 835 F.2d 844, 847 (11th Cir.), cert. denied, 488 U.S. 981, 109 S.Ct. 531, 102 L.Ed.2d 562 (1988). The Supreme Court similarly excluded recovery for purely personal injuries under the Clayton Act, as such injuries are not inherently injury to any entitlement we would deem property. Reiter, 442 U.S. at 339, 99 S.Ct. 2326. Any pecuniary losses proximately resulting from a personal injury caused by a RICO violation, e.g. attorney fees, lost wages, and medical expenses, are also not recoverable because they, too, do not implicate harm to any legal entitlement. [5] The defendants, the district court, and the dissent all focus on language in these cases rejecting pecuniary losses flowing from personal injuries to argue that any pecuniary losses downstream from a personal injury are categorically personal in nature and unrecoverable under RICO. See, e.g., Evans, 434 F.3d at 926. In doing so, they skip over the first and most fundamental question at issuehas any legal entitlement been harmed. They are correct that but for the personal injury, the plaintiffs here would have had no interest in any benefits. But there is nothing in the text of RICO or the cases they point to that provides for ignoring damage to an intervening legal entitlement because it arose following a personal injury. The defendants ask us to be the first circuit to read RICO as preventing recovery for injuries to property by reason of a RICO violation solely because the property interest itself would not have existed but for an unrelated personal injury. We decline to take this approach for three reasons. First, a plain reading of the text of RICO provides no support for excluding certain categories of property interests based on how the interest itself originated. Recognizing statutory entitlements as property under RICO does not render any term of the act superfluous. See Reiter, 442 U.S. at 338-39, 99 S.Ct. 2326. Nor does the text reject recovery for certain legal entitlements because they accrued following a personal injury wholly unrelated to the RICO offense at issue. Congress's only other express limitation is that the injury to property must be by reason of a § 1962 violation; the text narrows recovery based on the origin of the injury, not the origin of the property. Based on the plain language of § 1964, we see no reason to exclude statutory entitlements to worker's compensation benefitswhich are recognized as property under state lawfrom the category protected by RICO. Second, focusing on the predicate injury that gave rise to the property interest ignores the Supreme Court's instruction to interpret RICO broadly. Section 1964 places no restrictions ... on the words `injured in his property.' The statute does not limit standing to those `directly injured in his property,' or `injured only in his property.' Comment, Patrick Wackerly, Personal Versus Property Harm and Civil RICO Standing, 73 U. Chi. L. Rev. 1513, 1520-21 (2006). To the contrary, the language reads that `any' injured party has standing to sue. Id. The Supreme Court has repeatedly refused to graft additional requirements onto the plain language of both this statute and the identical language in the Clayton Act when doing so would defeat Congress's intent that the statute have broad and inclusive application. See Reiter, 442 U.S. at 339, 99 S.Ct. 2326 (rejecting argument that Clayton Act requires injury to commercial property interests); Sedima, S.P.R.L., 473 U.S. at 497, 105 S.Ct. 3275 (rejecting argument that RICO applies only to organized crime). The dissent urges a narrow reading of the word property, but points to nothing in the text of RICO or statements of Congress to justify that approach. Because Congress intended us to interpret RICO broadly, Sedima, S.P.R.L., 473 U.S. at 497, 105 S.Ct. 3275, we see no reason to preclude RICO suits that are based on injury to property, not the predicate physical injury that gave rise to the property interest in the first place. Third, such an approach would yield inconsistent results. The defendants do not argue statutory entitlements or claims to benefits generally are not property under RICO, but they argue such interests may be RICO `property' only when the wrong to be vindicated by the cause of action is an injury to business or property. Appellee Cassens Br. at 26 (capitalization omitted). [6] Such an approach would have us hold that a plaintiff could recover under RICO for the fraudulent devaluation of welfare benefits, which do not arise following a personal injury, but not for the fraudulent devaluation of worker's compensation benefits, solely because the latter do. A plaintiff could recover for the loss of a cause of action for wrongful termination, but not for the loss of a cause of action for wrongful death. Nothing in the text of RICO evinces an intent by Congress to draw such arbitrary distinctions among property interests, nor do we find any support for the exclusion of these claims from the protections of RICO. Such an approach is incompatible with RICO because it qualifies the term property without a basis to do so in the RICO statute. See Reiter, 442 U.S. at 338-39, 99 S.Ct. 2326 (rejecting interpretation of business or property as business or business property). Classifying property interests according to their origins creates untenable distinctions. The dissent makes the same mistake that the district court did by misconstruing the meaning of language from our sister circuits that pecuniary losses flowing from [personal] injuries are insufficient to establish injury to property. Evans, 434 F.3d at 930 (emphasis added); see also Grogan v. Platt, 835 F.2d 844, 847 (11th Cir.), cert. denied, 488 U.S. 981, 109 S.Ct. 531, 102 L.Ed.2d 562 (1988). Neither of these cases involved an injury to an intervening legal entitlement. Both addressed whether various damages that were the proximate result of a personal injury caused by a RICO violation, albeit some more indirectly than others, could be deemed property interests on their own. Evans, 434 F.3d at 930 (lost wages from wrongful incarceration caused by alleged RICO violation not property); Grogan, 835 F.2d at 846-47 (economic losses from wrongful death caused by alleged RICO violation not property). We take no issue with their holdings that they could not. Evans even left open the possibility that a plaintiff might be able to recover under RICO for loss of an employment opportunity if an employee is able to establish that he has been unlawfully deprived of a property right in promised or contracted[-]for wages. 434 F.3d at 928. The Evans court did not say it would permit recovery for such a property deprivation only if the promise of wages did not arise following a physical injury at work. [7] Such a scenario involving harm to an intervening legal entitlement, separating the physical injury from the downstream pecuniary losses, would be more factually analogous to this case than the actual facts of Evans are. Focusing on whether pecuniary losses flowed in some way from a personal injury does not make sense in cases involving the devaluation of an actual legal entitlement as the result of an independent RICO fraud.
Having determined that the devaluation or loss of a statutory entitlement is an injury to property, we must next decide whether the plaintiffs in this case had accrued such a legal entitlement. None of the remaining plaintiffs in this case had started receiving any worker's compensation benefits under Michigan law at the time of filing their RICO action. The issue is, therefore, whether an injured employee obtains a property interest in his expectancy of worker's compensation benefits. Again, we look first to Michigan law. Michigan has not directly addressed at what point an injured employee has a property interest in the benefits provided by the WDCA. In construing other statutes, Michigan courts have held that a unilateral expectation of [a statutory] benefit before the benefit is awarded is not property because the claimant must have a legitimate claim of entitlement to the funds. City of St. Louis v. Mich. Underground Storage Tank Fin. Assurance Policy Bd., 215 Mich.App. 69, 544 N.W.2d 705, 708-09 (1996) (citing Williams, 424 N.W.2d 278). However, that principle originates in federal due process law. [8] Town of Castle Rock v. Gonzales, 545 U.S. 748, 756, 125 S.Ct. 2796, 162 L.Ed.2d 658 (2005) (quoting Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972)). And when interpreting federal due process law, [e]very regional circuit to address the question, including the Sixth Circuit, has concluded that applicants for benefits, no less than benefits recipients, may possess a property interest in the receipt of public welfare entitlements, Cushman v. Shinseki, 576 F.3d 1290, 1297 (Fed.Cir.2009), so long as a statute mandates the payment of benefits to eligible applicants based on objective, particularized criteria, Mallette v. Arlington Cnty. Emps.' Supplemental Ret. Sys. II, 91 F.3d 630, 639-40 (4th Cir.1996); see also Hamby v. Neel, 368 F.3d 549, 559 (6th Cir.2004); Flatford v. Chater, 93 F.3d 1296, 1305 (6th Cir.1996). [9] Federal due process law therefore recognizes a property interest in benefits that have not yet been awarded if the party asserting the property entitlement can point to some policy, law, or mutually explicit understanding that both confers the benefits and limits the discretion of the [other party] to rescind the benefit. R.S.W.W., Inc. v. City of Keego Harbor, 397 F.3d 427, 435 (6th Cir.2005) (internal quotation marks omitted); see also Castle Rock, 545 U.S. at 756, 125 S.Ct. 2796 ([A] benefit is not a protected entitlement if government officials may grant or deny it in their discretion.). Michigan law is consistent with this approach. For example, the Michigan Supreme Court has held that a bar owner with a liquor license has a property interest in his expectancy of receiving a renewal license, independent of his interest in his existing license, despite having had no property interest in his expectancy of an initial license in the first place. Bundo v. City of Walled Lake, 395 Mich. 679, 238 N.W.2d 154, 160 (1976). The Michigan Supreme Court focused entirely on the differences in the statutory procedures for obtaining a renewal license as compared to an initial license. An initial applicant for a liquor license must obtain approval from the local legislative body before the license may be granted; the initial applicant therefore has nothing more than a unilateral expectation or hope that he may receive the license. An existing licensee need not obtain such approval; unless an objection by the local body is filed prior to thirty days before his license expires, renewal take[s] place as a matter of course. Id. at 157, 161. Applying this principle to the present context, we look to the statutory procedures for obtaining worker's compensation in Michigan and conclude that applicants for worker's compensation benefits have a property interest in those benefits at the time that their employer becomes aware of the injury. The WDCA's mandatory language deprives the WCAC of discretion about whether to award benefits. The statute says that employees injured in the course of employment  shall be paid compensation, which is calculated according to a rigid schedule. Mich. Comp. Laws § 418.301(1) (emphasis added). In the context of the WDCA, there is no well established tradition of government officials having discretion despite apparently mandatory ... statutes. Castle Rock, 545 U.S. at 760, 125 S.Ct. 2796. In fact, no adjudication is required: an employee receives worker's compensation benefits fourteen days after the employer has notice or knowledge of the disability. Mich. Comp. Laws § 418.801(1). Applicants therefore acquire a property interest in worker's compensation when employers learn of their employees' physical injuries. The property interest has an ascertainable monetary value and the identity of the entitlement is neither indeterminate nor vague. Castle Rock, 545 U.S. at 763, 125 S.Ct. 2796. These features demarcate a property interest guaranteed by the mandatory language of the WDCA. The dissent argues that the employer's statutory ability to dispute the payment of benefits negates any claim of legal entitlement to benefits prior to a decision to award them. [10] As an initial matter, both the dissent and the district court misread Michigan Compiled Laws § 418.801(2) as permitting the nonpayment of otherwise mandatory weekly compensation in the event of an ongoing dispute. It does not. Subsection (2) relieves an employer of an otherwise automatic penalty for the non-payment of the benefits owed under the statute in the event of an ongoing dispute. [11] But even if it did relieve the employer of its obligation, the existence of a limited mechanism to dispute the receipt of benefits otherwise awarded as a matter of course does not make the expectation cease to be a property interest. [12] In Bundo, 238 N.W.2d at 160-61, for example, the Michigan Supreme Court deemed it of no consequence that the local legislative body retained a statutory right to object to renewal of a liquor license. The absence of a specific statutory provision authorizing an employer not to pay compensation during a dispute also distinguishes this case from American Manufacturers Mutual Insurance Co. v. Sullivan, 526 U.S. 40, 58-61, 119 S.Ct. 977, 143 L.Ed.2d 130 (1999). In American Manufacturers, the Supreme Court held that claimants of worker's compensation benefits in Pennsylvania did not have a property interest in the payment of benefits prior to an adjudication that the medical treatments for which they sought compensation were reasonable and necessary. Id. at 61, 119 S.Ct. 977. In 1993, Pennsylvania had amended its worker's compensation laws to insert a procedure by which an employer could require a review of the necessity of an employee's treatments before a medical bill must be paid. Id. at 45, 119 S.Ct. 977. The Supreme Court held that under the new regime, it was no longer enough that the plaintiffs demonstrated their initial eligibility for medical treatment because they had not overcome the second statutory hurdle of showing that the particular medical treatment they received was reasonable and necessary. Id. at 61, 119 S.Ct. 977. The injured employees therefore could not yet claim a property interest in their expectation of benefits. Id. Here, the underlying Michigan state law does not require injured employees to make such an initial showing before they receive benefits, as Pennsylvania's law did. In contrast, Michigan law resembles the old Pennsylvania regime, stating simply that [a]n employee[ ] who receives a personal injury arising out of and in the course of employment by an employer ... shall be paid compensation as provided in this act. Mich. Comp. Laws § 418.301(1) (emphasis added); see 77 Pa. Stat. Ann. § 531(5) (Purdon Supp. 1978) (The employer shall provide payment for reasonable... services rendered ... as and when needed.). Although an employee bears the burden of showing his personal injury arose during the course of his employment in the event of a dispute, Mich. Comp. Laws § 418.851, no Michigan statutory provision permits the employer to withhold compensation until such a showing has been made. Where, as here, the receipt of the benefit is nondiscretionary and statutorily occurs as a matter of course, we firmly believe that the Michigan courts would recognize a property interest in an injured employee's expectancy of worker's compensation. And, as already discussed, because a property interest in the form of entitlement to benefits is consistent with property as defined by RICO, the plaintiffs have properly stated a claim alleging injury to property when they alleged harm to their expectancy of statutory benefits under the WDCA.
Independently of our analysis thus far, we also hold that the plaintiffs in this case have a property interest in their claim for benefits. Therefore, even if Michigan courts would not recognize an expectancy of benefits under the WDCA as property, the plaintiffs in this case may proceed by alleging injury to property in that their claim to benefits under the worker's compensation scheme was damaged by the defendants' actions. American Manufacturers specifically reserved judgment on whether an applicant has a property interest in ... claims for payment, as distinct from the payments themselves. Am. Mfrs., 526 U.S. at 61 n. 13, 119 S.Ct. 977 (emphasis added). The holding was limited to the expectation of payment of worker's compensation (i.e., mailing a particular check), not the claim for payment (i.e., entitlement to present a claim). Had the defendants in American Manufacturers barred the plaintiffs from following the statutory procedures for presenting a claim at all, the result would very likely have been different. Michigan law describes a cause of action for worker's compensation as a species of propertyfor both the plaintiff and the defendant. Williams v. Hofley Mfg. Co., 430 Mich. 603, 424 N.W.2d 278, 282, 283 & n. 16 (1988) (citing Logan, 455 U.S. at 428, 102 S.Ct. 1148). Although the dissent is correct that the plaintiff in Williams had already been awarded worker's compensation, unlike here, the relevant interest at issue was not the employee's expectancy in benefits but whether an employer had a property interest in a worker's compensation cause of action such that a failure to afford the employer adequate process in such a proceeding injured his property. The court held that it was property. Here, the plaintiffs' claim is not necessarily about particular payments themselves, but also about the defendants' deception before the WDCA that deprived the plaintiffs of the ability to assert their claim for benefits under the statute in a fair forum. [13] We hold that Michigan would recognize a claim for worker's compensation benefits as a species of property independently of whether the employee had obtained an interest yet in the underlying benefits themselves. And as discussed throughout, we see no reason to exclude injuries to causes of action, which are indisputably injuries to property, from the category identified by Congress as property in RICO. Finally, the defendants are correct that worker's compensation is a substitute for the tort system. Brown III, 546 F.3d at 359. That does not mean, however, that claims for worker's compensation sound in tort. When a plaintiff's personal injury is filtered through the WDCA, it is converted into a property right.
Attacking the plaintiffs from another angle, the defendants claim that the plaintiffs were not deprived of their causes of action because the plaintiffs pursued the claims to resolution, be it by settlement or by final adjudication. Appellee Cassens Br. at 28. This argument mischaracterizes the plaintiffs' property interest. The plaintiffs did not lose the ability to litigate their claims entirely, but the value of their claims was allegedly diminished because of the fraud. Of course, the plaintiffs' RICO action can succeed only by proving that the plaintiffs suffered an ascertainable injury from the defendants' fraud. To do that, they must show that their claims to benefits had value, i.e., the claims had some likelihood of success had they been able to present them in a fair proceeding. This is similar to legal malpractice cases, where the plaintiffs also allege injury to an underlying claim, and Michigan requires plaintiffs to prove a suit within a suitin other words, that they could have prevailed or obtained a better outcome in the original lawsuit. Coleman v. Gurwin, 443 Mich. 59, 503 N.W.2d 435, 437 (1993) (internal quotation marks omitted). This requirement insure[s] that the damages claimed to result from the attorney's negligence are more than mere speculation. Id. Losing or settling the original lawsuit does not, on its own, render the injury speculative. To the contrary, damages are generally quantified counterfactually. See, e.g., Chronister Oil Co. v. Unocal Ref. & Mktg. (Union Oil Co. of Cal.), 34 F.3d 462, 464 (7th Cir.1994) (Posner, J.) (The point of an award of damages, whether it is for a breach of contract or for a tort, is, so far as possible, to put the victim where he would have been had the breach or tort not taken place. (emphasis added)). The same logic is true here; losing or settling a case due to fraudulent medical reports does not extinguish the plaintiffs' property interest in bringing a claim free of fraud. It would be nonsensical to allow a plaintiff to sue her attorney for malpractice only if she had won the suit in which the malpractice occurred, even though she must still put on evidence that she would have won absent her attorney's malpractice. Likewise, here, plaintiffs should be allowed to proceed on their RICO claim and put on evidence that they would have received a better result in the underlying state agency proceedings had the defendants not submitted fraudulent medical reports. The fact that the plaintiffs lost or settled in tainted proceedings is not evidence that the plaintiffs would have lost or settled if the proceedings had been fair. Raising an argument that goes to the merits of the adjudication, the defendants dispute whether the plaintiffs were injured on the job. Cf. Mich. Comp. Laws § 418.841(1) (Any dispute or controversy concerning compensation ... shall be submitted to the [WCAC]....). This argument relates only to damages, however, and not whether plaintiffs had a property interest in a fraud-free adjudication of their claims. Even if a person cannot ultimately satisfy the criteria to receive the statutory entitlement, she still has a property interest in her statutory right to raise the claims and be subject to a fair proceeding on the merits of her claims. We hold that the plaintiffs have a property interest in their claims for worker's compensation benefits, and the favorable or unfavorable adjudication or settlement of those claims in a proceeding tainted by fraud does not extinguish their property interest in those benefits. The plaintiffs, then, have alleged an injury to property.