RICO judgment against workers could chill comp claims

A company determined to stamp out allegedly bogus workers’ compensation claims recently won a $2.3 million default judgment against 86 former employees and their attorneys after suing them for violating federal racketeering laws.
After being laid off due to a plant closing, all 86 defendants were represented by the same law firm and claimed similar vague injuries after being examined by one of four doctors. They received notice of the RICO suit three times – and not one responded, according to Richard Hurford, director of litigation for Masco Corp., which filed the federal court lawsuit in New Jersey.
He suspects it was some kind of strategy.
“It’s inconceivable that 86 individuals who get notice of a lawsuit on three separate occasions all uniformly take the same action,” said Harford. “They were not so naive as to not be able to secure an attorney in the first place. How they couldn’t secure an attorney to answer is beyond me.”
However Gary Adams, vice-president of the New Jersey Advisory Council on Safety and Health, which filed an amicus brief on the workers’ behalf, said the lack of response isn’t surprising, given the workers are poorly educated, speak limited English and were out of a job. He also noted that the employees could hire a lawyer on contingency for a workers’ comp claim, but not for a federal RICO suit.
Adams said the massive workers’ comp filing may not be as nefarious as it seems – and that Masco Corp.’s aggressive response could create a chilling effect on future workers’ comp claims.
“It’s obviously something we have to be concerned about whenever we’re dealing with a plant closing,” he said. “I’ve been involved in litigation of that type, where people worked for 20 or 25 years [and] they lose their fear of filing a workers’ compensation claim. They have occupational pulmonary disease, loss of hearing, various repetitive motion injuries. Now we have to be concerned that if we file too many of them, this is the response we’re going to get, that [the employer will] file a claim in federal court.”
Since the judgment was entered, workers rights’ advocates have said it will cause plaintiffs to fear they will be slapped with a federal lawsuit they can’t afford to defend and that no lawyer would take on contingency.
The ruling could also make attorneys hesitant to represent laid off workers, since they can also be held liable if the claims are fraudulent.
And even if they do find an attorney to represent them, workers could find themselves in an extremely vulnerable position, since their attorney can be implicated and “conflicted out” because the law firm would be a co-defendant in a RICO proceeding.
But that wouldn’t be true if a claim is legitimate, Harford countered. “Anyone who files a legitimate claim will not be chilled in any way by this proceeding,” he said.
Judgment in the RICO proceeding has been entered. Adams said the council is attempting to find someone to file a motion to vacate the judgment on the workers’ behalf and represent them going forward.
In light of the RICO judgment, Masco plans file a motion to dismiss the workers’ compensation claims that started the flap, still currently pending in state court in New Jersey.
In response to the RICO suit, the defendant law firm – Minaret O’Dwyer Winograd & Laracuente of New York, N.Y. – hired an attorney and sought to have the case dismissed. They later settled under undisclosed terms.

An aggressive response
Masco Corp. is among the nation’s largest manufacturers of home improvement products, with 57,000 employees and worldwide sales of more than $12 billion.
In late 2003, Masco closed a New Jersey plant, Bath Unlimited, and laid off 115 employees. Soon after this announcement, 86 employees filed workers’ compensation claims alleging virtually identical “vague” ailments, including pulmonary, sight, hearing and orthopedic problems, Hurford said.
Masco investigated the claims in August 2004.
“We were advised by a number of employees who did not participate in the mass filing, and secured an affidavit from one, that employees were told how to fake certain injuries and when they refused to participate, they were ostracized,” Hurford said. “We had about 30 or so employees go through an independent medical evaluation and each one of those came back that there was no work-related impairment of any nature.”
However, Adams said the medical personnel the company used are “not independent. They are hired guns that do defense work.” He also said it is not surprising the defendants used only four different doctors because there are relatively few examiners in the region who specialize in occupational medicine.
Hurford defended his company’s aggressive response to the claims, noting the Bath Unlimited plant spent $1.25 million on workers’ comp claims from 1999 through 2003, demonstrating the company’s commitment to paying legitimate claims.
“We believe that’s an obligation we have,” he said. “What we were questioning and challenging [through the RICO claim] is what we thought was an abuse of the workers’ comp system to seek monies from fraudulent claims.”

Chilling suits?
On March 14, a federal judge entered a default judgment of $2.3 million against the workers’ comp claimants.
Hurford said his company’s approach could work for other organizations that suspect bogus workers’ comp claims. It could be considered another tool in the in-house counsel’s toolbox. But it shouldn’t be pursued lightly, he said.
“You’ve got to do an extremely thorough and complete factual investigation. No employer wants to be in a position where they make claims against current or former employees. That is not a decision to be made lightly or cavalierly,” he said. “It should only be done after you have done your homework and have arrived at a conviction that the system is being abused in a manner that can no longer be tolerated.”
Adams and the advisory council – a nonprofit organization of doctors, attorneys and union representatives who advocate for the rights of injured workers – shudder to think this approach could become the norm.
“We obviously think it’s the worst possible forum to litigate these cases,” Adams said of the federal court system. He said these matters are better handled in the workers’ comp system or state courts, which he said are more efficient and less expensive.
The group is also bothered by the company’s approach in the two workers’ comp claims that have been litigated, each of which was decided in favor of the employees.
Adams said Masco never argued that either claim was fraudulent, nor did they appeal either verdict. Instead, the company “added those two verdicts to the damage claim in federal court. They litigate the cases on the merits, they lose, then they claim these two people are [perpetrating] a fraud on them,” he said.