Court Doesn’t Buy Racketeering Claims Based on Union’s ‘Corporate Campaign’

A federal district court in California recently dismissed an employer’s claim that SEIU and affiliates, including the CTW Investment Group, violated RICO when they allegedly conspired in a “corporate campaign” that used extortion to unionize hospitals. Prime Healthcare Servs., Inc. v. Service Employees, 202 LRRM 3685, 2015 BL 93290 (S.D. Cal 2015).

Prime Healthcare Services, Inc., which operates 28 hospitals in eight states and describes itself as “largely non-union,” brought the action against the Service Employees International Union, United Healthcare Workers West, Change to Win, CTW Investment Group and three union officers.

Change to Win is a union federation made up of SEIU, the International Brotherhood of Teamsters and the United Farmworkers of America.

According to the employer, Change to Win approves of SEIU’s tactics and supports them through CTW Investment Group, the federation’s “investment arm.”

The employer says that, since around 2010, the defendants attempted to thwart its purchases of hospitals, talked trash about its investment partners and produced false and misleading reports and studies for the sole purpose of damaging its goodwill.

Defendants allegedly worked with sham media outlets to publicize baseless allegations against the employer, initiated sham litigation and regulatory filings, persuaded agencies and politicians to raise bogus claims about its conduct, targeted an employer association with a phony ballot initiative to impose a “top-down” neutrality agreement on the employer and coerced and threatened patients.

The employer claimed that, through such shady tactics, defendants acquired and are attempting to acquire tens of millions of dollars, the employer’s goodwill, its customers and related revenues, its right to “grow its business” and its right to oppose unionization.

The employer raised several arguments to support its claim that the defendants engaged in racketeering and extortion.

The judge first rejected two of the employer’s RICO claims that dovetailed with alleged violations of Section 302 of the LMRA, which makes it unlawful for a union to demand or accept “any money or thing of value” from an employer.

The employer argued that a “Joint Advocacy Fund”—which was funded in part by $80 million from a multiemployer association—was a “direct payment” to the United Healthcare Workers.

Rejecting the claim that the union will unlawfully use that money as a “slush fund” to “advance whatever agenda it chooses,” the judge observed that the money may not be spent without approval of both the association and the union.

Next, the employer alleged that a neutrality agreement between the association and the union requires the employer to provide the union “things of value.”

Rejecting arguments that the union is demanding “positive” communications and access to nonunion employees, the court reasoned that concessions made by signatory hospitals eliminate the potential for hostile organizing campaigns in the workplace.

The fact that the neutrality agreement benefits both parties with efficiency and cost savings, the court concluded, does not transform it into payment or delivery of a benefit.

Finally, the judge rejected a RICO claim based on extortion.

The employer had alleged that the defendants were unlawfully trying to take its money in the form of dues and benefit contributions.

Here, the judge observed that there is no allegation that the defendants are already demanding dues and benefit contributions.

The judge was also underwhelmed by the argument that the defendants were using their economic pressure to “coerce” the employer to sign an agreement that is “illegitimate under labor law.”

Among other things, the judge observed that the neutrality agreement only establishes ground rules for a union organizing campaign.

At the end of the day, the employer failed because it didn’t spell out every element of the serious claim of “extortion.”

Although the judge acknowledged that the employer did allege that the defendants sought to “coerce” it to recognize the union, this wasn’t enough. The employer also needed to say that the union sought to “acquire” its recognition.

Dismissing with leave to amend, the judge didn’t turn down the possibility of a successful RICO claim on the facts of this “corporate campaign” or any other. What the judge did signal is that such a claim would need to say exactly how defendants were applying something more than the kinds of economic pressure that are otherwise regulated by labor law.

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