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Court allows RICO suit over comp claim denial

Claimants allege employer, TPA conspiracy


A federal appeals court decision allowing a racketeering lawsuit to proceed against an employer and its third-party administrator could drive increased litigation over denial of workers compensation claims, some attorneys say.

The Oct. 23 ruling by the 6th U.S. Circuit Court of Appeals also could put workers comp claims decisions in a federal judge's hands and potentially drive up claims costs, attorneys add.

Most states adjudicate workers comp claims, often with specialist judges or magistrates, including Michigan, where the current case arose.

But the 6th Circuit's opinion in Paul Brown, William Fanaly, Charles Thomas, Gary Riggs, Robert Orlikowski and Scott Wa vs. Cassens Transport Co., Crawford & Co. and Dr. Saul Margules allows workers comp claimants to pursue a federal case alleging mail fraud, wire fraud and violations of the federal Racketeer Influenced and Corrupt Organizations Act stemming from the denial of their claims. Defense and claimants attorneys say this is the first time that a federal appeals court has allowed a RICO suit in a comp case.

A federal trial judge now must determine whether certain medical evidence and opinions have relevance in denying workers comp benefits, said Michael Brenton, a workers comp defense specialist at law firm Murphy, Brenton & Spagnuolo P.C. in East Lansing, Mich.

Under the workers comp exclusive remedy doctrine, such determinations have statutorily been the domain of Michigan workers comp magistrates, who have experience with such matters, said Mr. Brenton, who did not represent parties in the case.

"I have a real concern that...this sort of action opens the door for a federal district judge to make such decisions," Mr. Brenton said.

"It is definitely a workers compensation matter landing in a federal court, where it is not supposed to be," agreed Kimberly D. Brown, senior vp and general counsel for Sedgwick Claims Management Services Inc. in Memphis. "The whole purpose of the (state) workers compensation regime is a compromise on behalf of employers and employees (reached) ages ago when it was created to avoid extraneous litigation of this type."

The plaintiffs in the case allege that "Cassens and Crawford deliberately selected and paid unqualified doctors, including Margules, to give fraudulent medical opinions that would support the denial of workers compensation benefits, and that defendants ignored other medical evidence in denying them benefits," the appeals court opinion states.

The plaintiffs claim that the defendants' communications among themselves constituted mail and wire fraud.

The court opinion neither provides details about the underlying workers comp claims, nor does it describe any evidence concerning RICO violations.

The attorney for the plaintiffs, Marshall D. Lasser of Southfield, Mich., declined to elaborate.

"I don't want to telegraph my moves," Mr. Lasser said.

But civil RICO rules allow him broad discovery, including inspecting communications between the defendants concerning their claims-handling practices, Mr. Lasser said.

Defense attorneys agree that RICO allows broad discovery.

The 6th Circuit originally affirmed a district court's 2005 dismissal of the plaintiffs' RICO claims, finding that they failed to plead a detrimental reliance on the defendants' alleged misrepresentations.

But earlier this year, the U.S. Supreme Court vacated the 6th Circuit's initial ruling and remanded the case, citing another Supreme Court case earlier this year, Bridge vs. Phoenix Bond & Indemnity Co., finding that civil law RICO plaintiffs do not need to show that they detrimentally relied on alleged misrepresentations.

The 6th Circuit then allowed the case to proceed because Michigan workers comp law does not pre-empt RICO claims and "because plaintiffs have sufficiently pleaded a pattern of racketeering activity given that reliance is not an element of a civil RICO fraud claim."

The plaintiffs, however, still carry the burden of proving collusion and fraud, said Kerry L. Morgan, of counsel and a specialist in labor and employment law at Pentiuk, Couvreur & Kobiljak P.C. in Wyandotte, Mich., who is not involved in the case.

Aside from broad discovery, RICO cases allow plaintiffs to collect triple damages and attorney fees, the lawyers said. The two factors combined could encourage plaintiffs attorneys to allege RICO violations in more workers comp cases, they add.

Should that happen, workers comp insurers are not likely to fund a federal court defense because policies normally cover only state-level disputes, Mr. Morgan said.

Neither Atlanta-based Crawford & Co. nor attorneys for Edwardsville, Ill.-based Cassens Transport returned telephone calls.

No. 05-2089. Paul Brown, William Fanaly, Charles Thomas, Gary Riggs, Robert Orlikowski, and Scott Way vs. Cassens Transport Co., Crawford & Co., and Dr. Saul Margules.