Court OKs RICO Suit Against Mohawk

Atlanta, GA, June 14--A federal appeals court has denied efforts by Mohawk Industries to kill a racketeering class action. The suit claims the company recruited and employed illegal aliens in order to depress wages of legitimate employees, according to law.com. The June 9 decision of an 11th U.S. Circuit Court of Appeals panel upheld key elements of a ruling by U.S. District Senior Judge Harold L. Murphy that allowed the case to proceed. While the decision comes at an early stage in the case, the matter could be headed to the U.S. Supreme Court because the 11th Circuit's reasoning splits with another circuit's. The four plaintiffs, who are current and former Mohawk employees, are alleging federal and state violations of the Racketeer Influenced and Corrupt Organizations Act. They accuse the company of working with employee recruiters who hired illegal workers in Texas and Georgia, often providing them with phony Social Security cards. The suit also alleges that Mohawk hid illegal workers during law enforcement inspections. The manufacturer had sought to have the charges tossed out, claiming the plaintiffs had not stated a viable claim under either state or federal RICO laws. Murphy disagreed and was affirmed by the 11th Circuit panel: Judge R. Lanier Anderson III, Judge Frank M. Hull and visiting 8th Circuit Senior Judge John R. Gibson. The panel said that the plaintiffs easily met two of the four requirements to bring a federal RICO suit -- alleging a pattern of racketeering activity. The harder questions, the decision said, were whether the plaintiffs had established "conduct of an enterprise" and whether the enterprise had a common goal. The "enterprise" prong was met, the panel decided, because "Mohawk and the third-party recruiters are distinct entities that, at least according to the complaint, are engaged in a conspiracy to bring illegal workers into this country for Mohawk's benefit." The common-purpose test was met because the plaintiffs clearly alleged that the members of the enterprise stand to gain sufficient financial benefits from Mohawk's employment of illegal workers. The complaint sufficiently alleges that Mohawk is engaged in operating the enterprise, the panel found. But the judges added that "at this stage of the litigation, we simply cannot say whether the plaintiffs will be able to establish that Mohawk had 'some part in directing' the affairs of the enterprise." Williams v. Mohawk, No. 04-13740 (11th Cir. June 9, 2005). While noting that state RICO standards do not allow a corporation to be prosecuted, the appellate panel cited the Georgia law in observing that a corporation will be liable under Georgia RICO "if the crime is authorized, requested, commanded, performed, or recklessly tolerated by the board of directors or by a managerial official who is acting within the scope of his duties. "The plaintiffs' complaint is rife with allegations that supervisors and managers at Mohawk were either aware of, or in reckless disregard of, the misuse of various work-related documents," said the judges. "Consequently, the plaintiffs have alleged sufficient conduct that, if proven, would allow them to hold Mohawk liable under state law." Mohawk did not come away from the 11th Circuit empty-handed, however. The panel upheld Murphy's refusal to let the plaintiffs press claims of unjust enrichment by Mohawk, which were based on allegations that the company had profited by reducing the number of workers' compensation claims it had to pay. "We're obviously pleased that four out of four judges agree with us so far," said plaintiffs' lawyer John E. Floyd of Atlanta's Bondurant, Mixson & Elmore. "While we respectfully disagree with the unjust enrichment decisions ... we think the interpretation of the Georgia RICO statutes is very important." Carter G. Phillips, a partner at Washington's Sidley Austin Brown & Wood, representing Mohawk, said his client has yet to decide on its next move. Phillips is a frequent advocate at the U.S. high court. "Mohawk is studying the issues, is obviously happy that unjust enrichment was dismissed, and will have to decide whether to seek en banc review, Supreme Court review or return to the district court and seek summary judgment," he said.