Yax v. UPS & Liberty Mutual , 196 F. App'x 379 ( 2006 )

NOT RECOMMENDED FOR PUBLICATION
File Name: 06a0631n.06
Filed: August 24, 2006
No. 05-1843
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
SHERRI YAX, BRIAN TRAYNOR, and PATRICK )
DZAGULONES, )
)
Plaintiffs-Appellants, )
)
v. ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR
) THE EASTERN DISTRICT OF
UPS a/k/a UNITED PARCEL SERVICE and ) MICHIGAN
LIBERTY MUTUAL INSURANCE COMPANY, )
)
Defendants-Appellees. )
Before: SILER, McKEAGUE, and GRIFFIN, Circuit Judges.
SILER, Circuit Judge. Former UPS employees Sherri Yax, Brian Traynor, and Patrick
Dzagulones (“Plaintiffs”) filed suit against UPS and Liberty Mutual (“Defendants”) claiming
violations of the federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et
seq. (“RICO”), and the Michigan Worker’s Disability Compensation Act of 1969, M.C.L. § 418.101,
et seq. (“WDCA”). Ultimately, the district court dismissed all of Plaintiffs’ allegations for failure
to state a claim under FED. R. CIV. P. 12(b)(6). For the following reasons, we affirm the judgment,
except for the state-law claims that we remand for the entry of an order of dismissal without
prejudice.
BACKGROUND
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Plaintiffs are former employees of UPS who claimed to have been injured during the course
of their employment with UPS. After the alleged injury, each Plaintiff applied for and was awarded
workers’ compensation benefits. Beginning in September 2002, Liberty Mutual, UPS’s workers’
compensation insurance provider, filed a “Notice of Dispute” in each case with the Michigan Bureau
of Workers’ Disability Compensation (“Bureau”) contesting the award of benefits to each Plaintiff
on the ground that there was no continuing disability. All Plaintiffs ceased receiving workers’
compensation benefits in 2002 or 2003.
In 2003, Plaintiffs sued Defendants in the Eastern District of Michigan alleging (1)
Defendants fraudulently deprived them of their workers’ compensation benefits through a pattern
of racketeering activity, specifically mail and wire fraud, in violation of RICO, (2) wrongfully
terminated benefits, and (3) retaliated for filing workers’ compensation claims in violation of M.C.L.
§ 418.301(11). The district court dismissed all of Plaintiffs’ claims pursuant to Rule 12(b)(6),
except for Plaintiffs’ RICO claims against UPS. With respect to the RICO claim against UPS, the
district court found that Plaintiffs had failed to state a claim in their amended complaint on that
action, but it granted “Plaintiffs’ Motion to Amend as to their RICO claim against Defendant UPS
only” and allowed that claim to proceed. Plaintiffs filed a second amended complaint reasserting
their prior RICO claims against both UPS and Liberty Mutual and also asserting for the first time
an intentional infliction of emotional distress (“IIED”) claim against the Defendants. The district
court dismissed with prejudice Plaintiffs’ entire complaint pursuant to Rule 12(b)(6). Plaintiffs
appeal only the district court’s dismissals of their RICO and IIED claims.
STANDARD OF REVIEW
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A district court’s decision on a motion to dismiss under Rule 12(b)(6) is generally reviewed
de novo by an appellate court. Simon v. Pfizer Inc., 398 F.3d 765, 772 (6th Cir. 2005).
ANALYSIS
A. RICO Claim
RICO provides:
It shall be 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 or collection of unlawful debt.
18 U.S.C. § 1962(c). Plaintiffs alleged that Defendants violated § 1961(c) by “fraudulently
depriv[ing] them of their workers[’] compensation benefits through a series of predicate acts of
racketeering activity involving mail and wire fraud.”
The district court dismissed Plaintiffs’ RICO claim against Liberty Mutual as reverse-
preempted under the McCarran-Ferguson Act. As for the RICO claim against UPS, the district court
held that: (1) Plaintiffs failed to plead any false statements or misrepresentations by UPS with
particularity; and (2) Plaintiffs failed to present any evidence that they detrimentally relied upon
UPS’s alleged misrepresentations.
Looking first to the issue of detrimental reliance, when mail and wire fraud are the predicate
acts of a RICO claim, a plaintiff “cannot maintain a civil RICO claim . . . absent evidence that the
defendants made misrepresentations or omissions of material fact to [the plaintiff] and evidence that
[the plaintiff] relied on those misrepresentations or omissions to its detriment.” Cent. Distribs. of
Beer, Inc. v. Conn, 5 F.3d 181, 184 (6th Cir. 1993) (citing Bender v. Southland Corp., 749 F.2d
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1205, 1216 (6th Cir. 1984)). Plaintiffs concede that “[t]his court has repeatedly held that a civil
RICO plaintiff who alleges defendants committed a predicate act violating 18 U.S.C. §§ 1341 or
1343 must allege a claim for common law fraud – that is, he detrimentally relied on a deception
defendants made to him.” Nevertheless, Plaintiffs make a variety of arguments for overturning this
precedent and requiring a plaintiff to show only a misrepresentation to a third party that proximately
injured the plaintiff.
Most of Plaintiffs’ arguments invite this panel to revisit the reliance requirement enunciated
in Bender and reaffirmed repeatedly since that time.
This, we are forbidden to do. In the Sixth Circuit, as well as all other federal circuits,
one panel cannot overrule a prior panel’s published decision. The prior decision
remains controlling authority unless an inconsistent decision of the United States
Supreme Court requires modification of the decision or this Court sitting en banc
overrules the prior decision.
United States v. Washington, 127 F.3d 510, 517 (6th Cir. 1997) (citations and internal quotations
omitted). To the extent Plaintiffs argue that the Supreme Court decisions in Neder v. United States,
527 U.S. 1 (1999), and Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985), affect the rule set out
in Bender, that argument has been explicitly rejected in an unpublished decision of this court, see
Chaz Constr., LLC v. Codell, 137 Fed. App’x. 735, 739 (6th Cir. 2005), and implicitly rejected in
a published decision, see VanDenBroeck v. CommonPoint Mortgage Co., 210 F.3d 696, 701 (6th
Cir. 2000) (reaffirming the requirement that plaintiffs must show reliance after both Sedima and
Neder were decided).
Alternatively, Plaintiffs argue that, even should Bender remain the law of the circuit, their
complaint sufficiently pled reliance and therefore the district court’s dismissal of their complaint was
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in error. However, the only showing of reliance that the Plaintiffs point to in their brief is the
following statement:1
Defendants’ fraud directly caused injury to Sherri Yax because it deprived her of
workers compensation benefits and because it caused her the expense of paying
attorney fees and her own mileage to and from medical care. Plaintiff relied on the
communication to the extent she suffered the financial loss of having to pay attorney
fees and medical mileage.
This showing is not enough because “the plaintiffs’ complaint does not allege what
misrepresentations (or omissions) of material fact [UPS] made to the plaintiffs that they reasonably
relied upon to their detriment.” Bender, 749 F.2d at 1216 (citation omitted). Accepting everything
Plaintiffs state as true, they did not detrimentally rely upon any statements contained within the
notices of dispute filed on UPS’s behalf by Liberty Mutual. What Plaintiffs characterize as reliance
upon the statements contained in the notices [payment of various expenses and deprivation of
benefits] are, in reality, nothing more than consequences flowing from Defendants’ decision to
contest Plaintiffs’ workers’ compensation benefits in each case.
Because of Plaintiffs’ failure to plead a necessary element of their RICO claim against UPS,
we need not reach the district court’s alternative ground of dismissal – that Plaintiffs had not pled
false statements with particularity. Moreover, we likewise need not reach the McCarran-Ferguson
Act issue regarding Liberty Mutual. Since Plaintiffs’ RICO claim against Liberty Mutual was based
upon the same factual scenario as the RICO claim against UPS, their failure to plead detrimental
reliance in their claim against UPS dooms their RICO claim against Liberty Mutual as well.
1
Similar statements were contained in the second amended complaint with respect to
Plaintiffs Traynor and Dzagulones.
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B. IIED Claim
Plaintiffs also appeal the district court’s dismissal of their IIED claims against UPS. The
district court dismissed these claims pursuant to FED. R. CIV. P. 12 on the ground that Plaintiffs were
not entitled to leave to amend their complaint to allege IIED. Alternatively, the district court held
that Plaintiffs’ IIED claims failed as a matter of law since “[n]othing described by the Plaintiffs rises
to the level of sufficiently outrageous conduct.”
We need not decide whether the district court abused its discretion in refusing to allow
Plaintiffs leave to amend their complaint or whether the district court’s conclusion that Plaintiffs’
IIED claim failed as a matter of law was correct. Instead, we need only look to the issue of
supplemental jurisdiction over Plaintiffs’ state law IIED claim. A federal court that has dismissed
a plaintiff’s federal law claims should not ordinarily reach the plaintiff’s state law claims. See 28
U.S.C. § 1367(c)(3); United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726 (1966) (“Certainly,
if the federal claims are dismissed before trial, even though not insubstantial in a jurisdictional
sense, the state claims should be dismissed as well.”). Supplemental jurisdiction should be exercised
only in cases where the “interest of judicial economy and the avoidance of multiplicity of litigation”
outweigh our concern over “needlessly deciding state law issues.” Landefeld v. Marion Gen. Hosp.,
Inc., 994 F.2d 1178, 1182 (6th Cir. 1983) (citation omitted). We review a district court’s decision
to exercise supplemental jurisdiction for abuse of discretion. Id.
Assuming that the district court’s alternative holding on the IIED claims constituted an
exercise of supplemental jurisdiction, the district court should have dismissed the IIED claims
without prejudice. Plaintiffs’ IIED claims have no bearing on their RICO claims. Moreover, the
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district court pointed to no overwhelming issues of judicial economy justifying the exercise of
supplemental jurisdiction. On the whole, this appears to be the ordinary case in which a federal
court would be “needlessly deciding state law issues.” Id. We will remand the IIED claims for
dismissal without prejudice.
The judgment is AFFIRMED as to all claims, except the IIED claims. We REVERSE the
dismissal with prejudice of the IIED claims and REMAND for the district court to dismiss the IIED
claims without prejudice.
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