Ruben Molina-Aranda v. Black Magic Enterpri ( 2020 )

Case: 19-50638 Document: 00515680084 Page: 1 Date Filed: 12/21/2020
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
December 21, 2020
No. 19-50638 Lyle W. Cayce
Clerk
Ruben Molina-Aranda; Jose Eduardo Martinez-Vela;
Juan Gerardo Lopez-Quesada,
Plaintiffs—Appellants,
versus
Black Magic Enterprises, L.L.C., doing business as JMPAL
Trucking; Carmen Ramirez; Jessie Ramirez, III,
Defendants—Appellees.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 7:16-cv-376
Before Owen, Chief Judge, and Dennis and Haynes, Circuit Judges.
Haynes, Circuit Judge:
Plaintiffs allege that Carmen and Jessie Ramirez brought them to the
United States under the H-2B visa program to work as construction workers.
Once Plaintiffs arrived in the United States, however, the Ramirezes
allegedly made them work as truck drivers, who typically receive higher
wages and for whom H-2B visas are consequently harder to obtain. But
Plaintiffs never saw those higher wages; instead, they claim they were paid
worse than either truck drivers or construction workers, with the Ramirezes
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unlawfully deducting from their paychecks, denying them overtime pay, and
sometimes failing to pay them entirely.
Plaintiffs sued Carmen and Jessie Ramirez and their company, Black
Magic Enterprises, L.L.C. (“Black Magic”), claiming, as relevant here, that
the Ramirezes violated (1) the Racketeer Influenced and Corrupt
Organizations Act (“RICO”), and (2) the Fair Labor Standards Act
(“FLSA”). The district court dismissed those claims for failure to state a
claim, declined to exercise supplemental jurisdiction over Plaintiffs’ related
state law claims, and denied Plaintiffs’ later-filed motion for leave to amend
the complaint.
For the following reasons, we AFFIRM the district court’s dismissal
of Plaintiffs’ RICO claims and the district court’s denial of Plaintiffs’ motion
for leave to amend, REVERSE the dismissal of Plaintiffs’ FLSA claims,
VACATE the dismissal of the state law claims, and REMAND for further
proceedings.
I. Background
Plaintiffs are former employees of the Ramirezes who were brought to
work for Black Magic in Texas under the United States Department of
Labor’s H-2B guest worker visa program. 1 H-2B visas allow employers to
bring foreign workers to the United States for temporary non-agricultural
work if (1) “qualified workers in the United States are not available” and
(2) “the alien’s employment will not adversely affect the wages and working
conditions of similarly employed United States workers.” 8 C.F.R.
§ 214.2(h)(6)(iv)(A); see 8 U.S.C. § 1101(a)(15)(H)(ii)(b). To obtain an H-
1
Black Magic filed for bankruptcy and has since been dismissed from the case.
2
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2B visa for an employee, the employer must first apply for and obtain a labor
certification with the Department of Labor. 8 C.F.R. § 214.2(h)(6)(iii)(C).
Plaintiffs alleged that the Ramirezes “systematically defrauded the
federal government to obtain” the visas that brought them to the United
States by misrepresenting to the Department of Labor the type of work
Plaintiffs would perform. According to Plaintiffs, the applications the
Ramirezes submitted claimed falsely that Black Magic sought guest workers
for “physical labor at construction sites . . . operat[ing] hand and power tools
of all types.” Plaintiffs alleged that the Ramirezes obtained a labor
certification by stating that the “offered wage” for such work “equal[ed] or
exceed[ed] the highest of the most recent prevailing wage for the
occupation”—$13.72 per hour. Plaintiffs alleged that, after obtaining that
certification, the Ramirezes additionally submitted H-2B visa applications
stating that they would “pay at least the offered wage . . . during the entire
period of th[e] application,” minus “authorized and reasonable deductions.”
Plaintiffs claimed, however, that the Ramirezes knowingly lied in
those materials: the Ramirezes did not want physical laborers—they actually
wanted heavy truckers. That lie, Plaintiffs claimed, was central to the
Ramirezes getting the visas in the first place. Heavy truckers are paid more
than physical laborers at $20 per hour, and, because there might be American
citizens willing to work at that rate, the Ramirezes might not have been able
to get the H2-B visas had they told the truth in their applications. According
to Plaintiffs, the Ramirezes’ gambit paid off; although Plaintiffs were
ostensibly brought in as construction workers, the Ramirezes made them
work as heavy truck drivers once they arrived. But Plaintiffs did not make
$20 per hour—or even the $13.72 per hour they were initially promised.
Instead, because the Ramirezes allegedly unlawfully deducted from their pay,
failed to pay overtime despite work weeks between fifty and eighty hours, and
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sometimes failed to pay Plaintiffs entirely, Plaintiffs claimed they effectively
made much less.
On the basis of these allegations, Plaintiffs sued the Ramirezes in
federal district court. In their complaint, Plaintiffs sought relief under
RICO’s civil penalty section, 18 U.S.C. § 1964(c); the FLSA, 29
U.S.C.§ 216(b); and Texas state law. The district court dismissed the federal
causes of action with prejudice for failure to state a claim under Federal Rules
of Civil Procedure 12(b)(6) and 9(b). With no federal claims left, the district
court declined to exercise supplemental jurisdiction over the remaining state-
law claims. After their complaint was dismissed, Plaintiffs filed a motion for
leave to amend, which the district court denied. Plaintiffs timely appealed.
II. Jurisdiction & Standard of Review
The district court had federal-question jurisdiction over Plaintiffs’
RICO and FLSA claims, see 28 U.S.C. § 1331, and we have jurisdiction to
review the district court’s final judgment, see id. § 1291.
We review a district court’s dismissal under Rule 12(b)(6) de novo,
accepting all well-pleaded facts as true and viewing those facts in the light
most favorable to the plaintiffs. See Gonzalez v. Kay, 577 F.3d 600, 603 (5th
Cir. 2009). To meet the pleading standard of Rule 12(b)(6), plaintiffs must
allege “enough facts to state a claim that is plausible on its face.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). Additionally, allegations of
fraud—like the predicate acts Plaintiffs allege in connection with their RICO
claims—must meet Rule 9(b)’s heightened pleading standard, under which
plaintiffs “must state with particularity the circumstances” of the allegedly
fraudulent conduct. See Williams v. WMX Techs., Inc., 112 F.3d 175, 177 (5th
Cir. 1997). Accordingly, plaintiffs alleging fraud must additionally describe,
in short, “the who, what, when, and where” supporting their fraud
allegations. Id. at 178.
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Plaintiffs also challenge the district court’s denial of leave to amend
their complaint, which we review for abuse of discretion. N. Cypress Med.
Ctr. Operating Co., Ltd. v. Aetna Life Ins. Co., 898 F.3d 461, 477 (5th Cir.
2018). A district court does not abuse its discretion when denying leave to
amend if, for example, amendment would be futile, the moving party has
repeatedly failed to cure the deficiencies in its pleadings, or the opposing
party would suffer undue prejudice. See id.
III. Discussion
On appeal, Plaintiffs argue that the district court erred in dismissing
their RICO, FLSA, and state law claims and abused its discretion in denying
their motion for leave to amend. We address each argument in turn.
A. RICO Claims
RICO makes it “unlawful for any person employed by or associated
with any enterprise engaged in, or the activities of which affect, interstate or
foreign commerce, to conduct or participate, directly or indirectly, in the
conduct of such enterprise’s affairs through a pattern of racketeering
activity.” 18 U.S.C. § 1962(c). It allows “[a]ny person injured in his
business or property by reason of a violation of section 1962” to bring a civil
suit for treble damages. Id. § 1964(c). To state a claim under § 1962(c), a
plaintiff must adequately plead that the defendant engaged in “(1) conduct
(2) of an enterprise (3) through a pattern (4) of racketeering activity.”
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985) (footnote omitted). 2
A RICO plaintiff must also plausibly allege that the RICO violation
proximately caused the plaintiff’s injuries. See Holmes v. Secs. Inv. Prot.
2
Consistent with Rule 9(b), a RICO plaintiff alleging predicate acts of fraud (like
Plaintiffs do here) must plead the circumstances of that fraud with particularity. Tel-Phonic
Servs., Inc. v. TBS Int’l, Inc., 975 F.2d 1134, 1138 (5th Cir. 1992).
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Corp., 503 U.S. 258, 268 (1992). The proximate causation standard in this
context is not one of foreseeability; instead, the plaintiff must demonstrate
that the alleged violation “led directly” to the injuries. Anza v. Ideal Steel
Supply Corp., 547 U.S. 451, 461 (2006); see also Hemi Grp., LLC v. City of New
York, 559 U.S. 1, 10, 12 (2010) (plurality opinion). If some other conduct
directly caused the harm, the plaintiff cannot sustain a RICO claim. See Hemi
Grp., LLC, 559 U.S. at 11 (rejecting a RICO claim on proximate causation
grounds because “the conduct directly causing the harm was distinct from
the conduct giving rise to the fraud”).
Here, Plaintiffs’ allegations, taken as true, do not support a conclusion
that their underpayment injuries were directly caused by the Ramirezes’
alleged fraud in obtaining the H-2B visas. Rather, their complaint shows that
the injury was caused by the alleged underpayments which were not required
by the alleged fraud. See Walters v. McMahen, 684 F.3d 435 (4th Cir. 2012).
The Fourth Circuit in Walters addressed a similar situation where a set of
domestic U.S. workers alleged that a company’s managers filed false
immigration forms that led to depressed wages for local workers—allegations
the Fourth Circuit found insufficient precisely because other managerial
decisions more directly impacted the workers’ compensation:
Although false attestations made by the hiring clerks are one
step in a chain of events that ultimately may have resulted in
the employment of unauthorized aliens . . . , the plaintiffs have
not demonstrated that the false attestations themselves have
had a direct negative impact on the plaintiffs’ wages, or on any
other aspect of their compensation.
Id. at 444. 3
3
It does not appear that prior panels of this court have had occasion to squarely
address RICO proximate causation for this type of fact pattern: workers claiming that they
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Similar reasoning applies here. Understating the type of work to be
done may have supported obtaining the visas, but it was not the cause of
underpayment; indeed, if one accepts the Plaintiffs’ allegations, truthfulness
would likely have resulted in a lack of visas, keeping Plaintiffs from being able
to come to the United States in the first place. 4 But, critically, Plaintiffs’
reduced wages were several steps in the causal chain away from the
transmission of fraudulent forms; nothing about the forms required
underpayment. To even have the opportunity to underpay Plaintiffs, the
Ramirezes had to submit fraudulent forms, obtain authorization, and bring
the Plaintiffs to the United States for work. Only then could the Ramirezes
actually underpay Plaintiffs. Importantly, the claim in this case is not just
that the $13.72 per hour that the Ramirezes represented they would pay
Plaintiffs was inadequate to cover the work done but that the Ramirezes did
not even pay that amount properly. It is therefore clear that the Ramirezes’
underpayment was not a necessary result of their alleged fraud—
underpayment “in no sense required [them] to defraud” the Department of
Labor. Anza, 547 U.S. at 459. Whatever hourly rate is stated to the
Department of Labor is irrelevant if the employer is going to fail to pay what
is owed, refuse to pay for overtime, or deduct inappropriate charges.
were underpaid after their employer succeeded in defrauding the government. We find the
Fourth Circuit’s analysis in Walters persuasive.
4
The parties agree that, if the Ramirezes had truthfully represented that they
sought truck drivers, the Department of Labor likely would not have provided the necessary
certifications because the prevailing wage rate for truck drivers is high enough that
domestic workers would be available to perform the job.
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Accordingly, Plaintiffs failed to adequately plead proximate causation, and
the district court properly dismissed their RICO claims. 5
B. FLSA Claims
The FLSA claims are different. The FLSA was “enacted in 1938 to
protect all covered workers from substandard wages and oppressive working
hours.” Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2121 (2016)
(quotation omitted). An employee can be covered by the FLSA if either the
employee or the employing enterprise is “engaged in commerce or in the
production of goods for commerce.” See id.; Martin v. Bedell, 955 F.2d 1029,
1032 (5th Cir. 1992). Among other requirements, the statute requires
employers to pay any covered employee at least a minimum wage of $7.25
per hour, 29 U.S.C. § 206(a)(1)(C), and to pay any covered employee at least
one-and-one-half times the employee’s regular wages when the employee
works more than forty hours in a week, id. § 207(a)(1). To state an FLSA
claim, then, an employee must plead that the employee is covered by the
FLSA and that the employer failed to pay the FLSA-required wages.
1. Enterprise Coverage
The first FLSA issue on appeal is the enterprise coverage provision,
which extends the FLSA’s requirements to any enterprise that, as relevant
here, either “has employees engaged in commerce or in the production of
goods for commerce” (the “engaged-in clause”) or “has employees
handling, selling, or otherwise working on goods or materials that have been
moved in or produced for commerce by any person” (the “handling
clause”). 29 U.S.C § 203(s)(1)(A)(i).
5
Because we conclude that Plaintiffs failed to adequately allege proximate
causation, we do not address whether Plaintiffs adequately alleged a pattern of racketeering
activity.
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Plaintiffs contend that the Ramirezes and Black Magic trigger the
handling clause “by employing more than 11 drivers and hauling water, sand,
gravel[,] and construction and oilfield equipment both interstate and
intrastate,” as well as by “handling, selling, or otherwise working on goods
or materials (such as heavy trucks, fuel and equipment) that have been moved
in or produced for commerce by any person.” The district court concluded
that this assertion was conclusory. We disagree and conclude that Plaintiffs’
allegation is sufficiently plausible to survive dismissal on this issue.
We have not had many occasions to discuss the handling clause, but
the limited case law on point makes clear that it does not impose a strenuous
pleading burden on plaintiffs. For example, addressing a prior version of the
handling clause, we reasoned in Brennan v. Greene’s Propane Gas Service that,
unlike the engaged-in clause, the handling clause’s requirements are in the
past tense—that is, the “employees’ handling, selling, or otherwise
working” must be “on goods that have been moved in or produced for
commerce by any person.” 479 F.2d 1027, 1030 (5th Cir. 1973). That
phrasing, we concluded, means that “[t]here is no requirement of continuity
in the present.” Id. Instead, “the legislation was designed to regulate
enterprises dealing in articles acquired intrastate after travel in interstate
commerce.” Id. (quotation omitted).
Brennan’s reasoning has generated similar holdings in our sister
circuits. For instance, the Eleventh Circuit relied on Brennan in applying the
handling clause to items that travelled interstate prior to sale in Polycarpe v.
E&S Landscaping Service, 616 F.3d 1217, 1221 (11th Cir. 2010). In particular,
the Eleventh Circuit rejected the alternative “ʻcoming to rest’ doctrine,”
under which “interstate goods or materials can lose their interstate quality if
the items have already come to rest within a state before intrastate purchase
by a business.” Id. In turn, the Sixth Circuit has cited Polycarpe in applying
the handling clause to a logging company whose employees used logging
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equipment that had been moved in commerce. See Sec’y of Labor v.
Timberline S., LLC, 925 F.3d 838, 845, 848 (6th Cir. 2019). As these cases
make clear, an employer can trigger enterprise coverage if its employees
handle items that had travelled in interstate commerce at some point in the
past, even if the act of handling those items does not amount to engaging in
commerce in the present.
The Ramirezes argue that Plaintiffs must nonetheless show that their
work directly affected commerce. But the Ramirezes rely primarily on two
summary judgment opinions implicating the engaged-in clause—not the
handling clause—for that proposition. See Williams v. Henagan, 595 F.3d 610
(5th Cir. 2010) (per curiam); Sobrinio v. Med. Ctr. Visitor’s Lodge, Inc., 474
F.3d 828 (5th Cir. 2007) (per curiam). 6 Those cases do not compel dismissal
of Plaintiffs’ claims. As we have discussed, the handling clause does not
require the same sort of present-tense continuity that the Ramirezes suggest.
See Brennan, 479 F.2d at 1030. That means that, unlike the Williams and
Sobrinio plaintiffs, Plaintiffs here do not need to allege that their actual work
activities directly affected interstate commerce, merely that the goods or
materials they handled had previously come into the state from elsewhere.
The Ramirezes’ argument also conflates Plaintiffs’ ultimate burden of proof
with what must be plausibly alleged. Indeed, Williams and Sobrinio were
6
In Williams, we concluded that a police chief was entitled to summary judgment
on an inmate’s FLSA claims because the inmate, who waxed church floors, worked at a city
railroad festival, cooked for local fundraisers, counted burnt-out streetlamps, worked for
the chief’s bounce-castle rental and grass-cutting businesses, and traveled with a mayor
from Louisiana to Texas to transport the mayor’s furniture, performed only “occasional
odd jobs” and was not actively “engaged in commerce.” 595 F.3d at 613–14, 621. In
Sobrinio, we concluded that a motel was entitled to summary judgment on an employee’s
FLSA claims because the employee, who “acted as a janitor, security guard and a driver for
the motel’s guests, who were often from out of town,” but “did not drive them to or from
any airport or other interstate transportation center,” was not “engaged in interstate
commerce.” 474 F.3d at 829–30.
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resolved at summary judgment, where the plaintiffs were required to
demonstrate, with evidence showing at least a genuine dispute of material
fact, a relationship between their work and interstate commerce. See
Williams, 595 at 615. Here, Plaintiffs need only plausibly allege that they
handled goods or materials that had at some point travelled interstate. See
Twombly, 550 U.S. at 570.
We conclude that Plaintiffs have done so. They identified water, sand,
gravel, construction equipment, oilfield equipment, trucks, and fuel as goods
or materials that had potentially been moved in commerce before being
handled by Black Magic and its employees. At least some of these items are
plausibly goods or materials: they are all items one could plausibly conclude
are used in or produced during construction and trucking work. 7 It is also
plausible that some or all of these items had travelled interstate at some point
in their life cycle. Texas is a large state with considerable industrial capacity,
but it does not stretch the definition of plausible for Plaintiffs to allege that at
least some of the raw materials and machinery that they handled came from
beyond Texas’s borders. Importantly, Plaintiffs will have to provide proof of
these allegations at the summary judgment or trial stage (after they have had
a chance to conduct discovery), but they are not required to provide further
details than they have at this stage.
7
We note that the distinction between “goods” and “materials” in the handling
clause has been the subject of considerable judicial discussion. See Timberline, 925 F.3d at
845–48 (collecting and summarizing cases); Polycarpe, 616 F.3d at 1223–25 (examining
dictionary sources, legislative history, an agency opinion letter, and a law review article on
the distinction). Because the parties do not suggest such a distinction makes any difference
here, we need not wade into those waters. We merely conclude that many of the items
Plaintiffs identify plausibly constitute either goods or materials.
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2. Failure to Pay
Plaintiffs also adequately pleaded that they lost wages as a result of the
alleged FLSA violations. Plaintiffs claimed that they were paid less than $18
per hour for overtime, less than one-and-one-half times their contractually
agreed upon hourly wage. Plaintiffs further alleged that the Ramirezes
effectively paid Plaintiffs less than the federal minimum wage by making
impermissible deductions from their paychecks. They also identified that,
for “several pay periods during late August and September of 2015,” they
“worked 50 to 80 or more hours a week” but “were not paid fully or paid at
all.” The district court concluded that these allegations were insufficient to
establish the amount of compensation and overtime Plaintiffs were due.
We conclude that Plaintiffs’ allegations are sufficient at the pleadings
stage. The allegations put the Ramirezes on notice of minimum and overtime
wage claims for specific time periods and set forth a plausible claim for relief.
See Twombly, 550 U.S. at 555. Rule 12(b)(6) “do[es] not require heightened
fact pleading of specifics, but only enough facts to state a claim to relief that
is plausible on its face.” Id. at 570. The district court required Plaintiffs to
do more than that—essentially making them prove (rather than plausibly
allege) that the Ramirezes “violated the FLSA’s overtime wage
requirements” and “the amount of overtime compensation due.” See
Johnson v. Heckmann Water Res. (CVR), Inc., 758 F.3d 627, 630 (5th Cir.
2014). Such proof is unnecessary at this point; in fact, even past the pleading
stage, when an employer fails to keep proper records, “the remedial nature
of the FLSA and the great public policy which it embodies militate against
making the burden of proving uncompensated work an impossible hurdle for
the employee.” Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1047 (2016)
(cleaned up). Plaintiffs’ allegations regarding the hours worked and
approximate wages paid during certain time periods were sufficient to meet
the pleading requirements.
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As Plaintiffs have adequately pleaded both enterprise coverage and
underpayment of wages, we reverse the district court’s dismissal of their
FLSA claims. Additionally, because Plaintiffs adequately pleaded at least one
federal claim, we conclude that the district court’s dismissal of their state law
claims should be vacated so that the district court can assess the exercise of
supplemental jurisdiction under the current pleading situation. 8
C. Leave to Amend
Finally, we turn to Plaintiffs’ challenge to the district court’s denial of
their motion for leave to amend their complaint. Plaintiffs sought such leave
more than five weeks after the district court’s order dismissing their
complaint for failure to state a claim. The district court reasoned that their
motion was untimely and noted the numerous opportunities Plaintiffs had to
fix their pleading deficiencies. The district court explained that, among other
opportunities, Plaintiffs could have raised any new matters prior to dismissal.
The district court also concluded that further amendment would be futile.
We conclude that the district court did not abuse its discretion in
denying Plaintiffs’ motion for leave to amend. Although Plaintiffs amended
their complaint only once, they did not explain what would be accomplished
by further amendment in their second request for leave to amend. That
deficiency is exacerbated by the fact that Plaintiffs waited more than five
weeks after the district court’s dismissal order to ask for leave the second
time. Plaintiffs’ failure to seriously pursue amendment until well after
8
The vacatur of the district court’s ruling on this point is solely because the district
court’s dismissal decision was premised on the now-changed ground that it had dismissed
all of Plaintiffs’ federal claims. See 28 U.S.C. § 1367(c)(3). We do not address any other
possible bases for declining supplemental jurisdiction; those topics may be raised, as
appropriate, on remand for evaluation by the district court in the first instance.
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dismissal—a combination of failure to cure and delay—more than justified
the district court’s denial of their motion.
Additionally, amendment was futile as to the RICO claims. As we
explained above, Plaintiffs’ injury was, on its face, not proximately caused by
the alleged fraud. Amendment was also unnecessary on Plaintiffs’ FLSA
claims, albeit for a different reason: Plaintiffs’ FLSA claims were adequately
pleaded in the first place. The district court thus did not abuse its discretion
by denying Plaintiffs leave to amend their complaint.
IV. Conclusion
Plaintiffs’ RICO claims fail because they did not adequately plead that
their injuries were proximately caused by the Ramirezes’ alleged fraud. But
their FLSA claims were improperly dismissed; Plaintiffs plausibly alleged
that the goods and materials they handled had travelled in interstate
commerce and that they lost wages as a result of the Ramirezes’ conduct.
Because their FLSA claim were plausibly pleaded, we remand Plaintiffs’ state
law claims for new consideration of supplemental jurisdiction. Finally, the
district court did not abuse its discretion in denying Plaintiffs’ motion to
amend their complaint.
Accordingly, we AFFIRM the district court’s dismissal of Plaintiffs’
RICO claims and the district court’s denial of Plaintiffs’ motion for leave to
amend, REVERSE the district court’s dismissal of Plaintiffs’ FLSA claims,
VACATE the district court’s dismissal of the state law claims, and
REMAND to the district court for further proceedings.
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