Varela v. Gonzales

• Decision Date: 11 December 2014
• Docket Number: No. 14–10452.,14–10452.
• Parties: Jaime VARELA, individually and on behalf of similarly situated individuals; Yesica Wiegert, individually and on behalf of similarly situated individuals, Plaintiffs–Appellants v. David Benitez GONZALES; Ana Cristina Benitez; Intelligent Mexican Marketing, Incorporated; Marketing and Inventory Management, L.L.C., Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

773 F.3d 704

Jaime VARELA, individually and on behalf of similarly situated individuals; Yesica Wiegert, individually and on behalf of similarly situated individuals, Plaintiffs–Appellants
v.
David Benitez GONZALES; Ana Cristina Benitez; Intelligent Mexican Marketing, Incorporated; Marketing and Inventory Management, L.L.C., Defendants–Appellees.

No. 14–10452.

United States Court of Appeals, Fifth Circuit.

Dec. 11, 2014

Affirmed.

[773 F.3d 705]

Colin William Walsh, Robert Joseph Wiley, Rob Wiley, P.C., Dallas, TX, for Plaintiff–Appellant.

John Bridges Brown, Attorney, Gavin Samuel Martinson, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Dallas, TX, for Defendant–Appellee.

Appeal from the United States District Court for the Northern District of Texas.
Before KING, DENNIS, and CLEMENT, Circuit Judges. PER CURIAM:

Appellants Jaime Varela and Yesica Wiegert bring this civil action alleging RICO violations against their former employers, Appellees David Benitez Gonzales, Ana Cristina Benitez, Intelligent Mexican Marketing, Inc., and Marketing and Inventory Management, L.L.C. Appellants allege that Appellees' hiring of undocumented workers resulted in the depression of their wages. On appeal, Appellants challenge the district court's dismissal of their second amended complaint for failure to establish RICO standing, as well as the district court's denial of their motion for leave to file a third amended complaint. For the reasons below, we affirm the judgment of the district court.

I. Factual and Procedural Background

Appellees Intelligent Mexican Marketing, Inc. (“IMM”) and Marketing and Inventory Management, L.L.C. (“MIM”) are Texas-based entities engaged in business marketing, advertising, and consulting services for companies in the U.S. Hispanic market.¹ Appellee David Benitez Gonzales is the president of IMM, and Appellee Ana Cristina Benitez is the president of MIM. Gonzales and Benitez run the companies jointly, sharing employees, staff, and payroll obligations.

Appellant Jaime Varela worked as a sales representative for Appellees in Dallas,

[773 F.3d 706]

Texas from February 2011 to June 2012. In that position, Varela was tasked with delivering products to stores and negotiating product sales with those stores. Varela, who was paid a base weekly salary and a commission of four to six percent of his sales, earned approximately $46,000 annually. Appellant Yesica Wiegert worked as a merchandiser for Appellees in Dallas, Texas from August 2011 until July 2012, with an annual base salary of $26,000.² Despite her different title, Wiegert performed approximately the same functions as Varela.

Appellants allege that their wages were depressed due to Appellees' racketeering activity—specifically, Appellees' “transporting, harboring, encouraging entrance of, and hiring of illegal aliens,” which “expanded the labor pool [Appellees] draw from.” According to Appellants, Appellees took these actions because of the “significant wage savings” that result from hiring undocumented workers. Appellants allege that Appellees used the enterprise of MIM and IMM to knowingly hire undocumented workers in all positions, including sales representatives. Appellees allegedly hired at least ten undocumented workers during the calendar years 2010, 2011, 2012, and 2013.³ Moreover, Appellants allege that Appellees implemented policies to conceal, harbor, and shield these workers.

In support of their contention that Appellees' actions caused Appellants' alleged wage depression, Appellants rely on data used by the Bureau of Labor Statistics showing that the average salary in Dallas and Houston for employees in advertising and consulting services is between $78,000 and $81,000. Appellants further allege that “[d]epressed wages necessarily occur as a direct result of the expansion of the labor pool by the use of legal and illegal workers,” and that this effect occurs “regardless of the market ... power of the employer.” In addition, Appellants allege that the dollar amount of the wage depression caused by the use of undocumented workers is calculable with reasonable precision, estimating that “the direct effect of the employment of only ten undocumented workers out of one hundred workers is a loss of between $8,455 and $14,959 per worker, per year.”

Appellants, on behalf of themselves and others similarly situated, filed this action against Appellees on March 27, 2013, alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq. The First Amended Complaint (“FAC”) ⁴ alleged as RICO predicate acts the transporting, harboring, and encouraging entrance into the U.S. of illegal aliens in violation of 8 U.S.C. § 1324(a)(1)(A)(ii)-(iv), as well as the knowing hiring of at least ten illegal aliens during a twelve-month period, in violation of 8 U.S.C. § 1324(a)(3)(A). The FAC further alleged that Appellees used the enterprise of IMM and MIM to carry out these actions, and that Appellees conducted the affairs of IMM and MIM through a pattern of racketeering activity, in violation of 18 U.S.C. § 1962(c). Finally, the FAC alleged that Appellees conspired to violate 18 U.S.C. § 1962(c), in violation of 18 U.S.C. § 1962(d). Appellees moved to dismiss the FAC; the district court granted the motion to dismiss, without prejudice, on October 17, 2013. The court determined that Appellants failed to sufficiently allege RICO standing—i.e., that Appellees'

[773 F.3d 707]

actions proximately caused Appellants' injuries.

Appellants filed a Second Amended Complaint (“SAC”) on November 14, 2013. In an attempt to cure the deficiencies with respect to proximate cause, Appellants attached to the SAC an expert report purportedly authored by an economist, Dr. Nathan Berg.⁵ Appellees filed a motion to dismiss the SAC on November 27, 2013, and Appellants filed a motion for leave to file a Third Amended Complaint (“TAC”) on March 14, 2014. On March 31, 2014, the district court issued an order addressing both motions. The court found the amendments in the SAC insufficient to cure the deficiencies in the RICO standing allegations. The court also determined that it would be inappropriate for it to consider the expert report, as Appellants “use it entirely for Dr. Berg's opinion contained therein.” But even assuming the report could be considered, the court found that it could not cure the issues with respect to proximate cause. Therefore, the court dismissed the SAC with prejudice, as Appellants had already filed three amended complaints, two of which “were filed after the [district court] thoroughly discussed the implausibility of [Appellants]' RICO standing allegations.” Having noted that the new allegations in the TAC added nothing relevant to the RICO standing issues, the court also denied Appellants' motion for leave to amend. The court entered final judgment on April 1, 2014. Appellants filed a timely notice of appeal on April 15, 2014.

II. Standard of Review

A district court's dismissal under Rule 12(b)(6) is reviewed de novo, “accepting all well-pleaded facts as true and viewing those facts in the light most favorable to the plaintiffs.” Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 763 (5th Cir.2011). Rule 8 of the Federal Rules of Civil Procedure does not require “detailed factual allegations, but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). Accordingly, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Id. A plaintiff's claim must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

A district court's denial of a motion to amend is generally reviewed for abuse of discretion. Ackerson v. Bean Dredging LLC, 589 F.3d 196, 208 (5th Cir.2009). Although leave to amend should be “freely give[n] ... when justice so requires,” Fed.R.Civ.P. 15(a)(2), a district court may refuse leave to amend if the filing of the amended complaint would be futile, i.e., “if the complaint as amended would be subject to dismissal,” Ackerson, 589 F.3d at 208. Where “the district court's denial of leave to amend was based solely on futility, we apply a de novo standard of review identical, in practice, to the standard used for reviewing a dismissal under Rule 12(b)(6).” City of Clinton v. Pilgrim's Pride Corp., 632 F.3d 148, 152 (5th Cir.2010).

III. Discussion

A civil action under RICO may be brought by “[a]ny person injured in his business or property by reason of a violation of” RICO's substantive provisions. 18 U.S.C. § 1964(c) (emphasis added). The

[773 F.3d 708]

Supreme Court interpreted this language in Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 265–68, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992), determining that “by reason of” connotes proximate cause, i.e., “some direct relation between the injury asserted and the injurious conduct alleged.” Id. at 268, 112 S.Ct. 1311. The Holmes court identified three justifications for this requirement: (1) the factual difficulty in measuring damages and distinguishing among other independent causal factors where the injury is “less direct”; (2) the complexity of apportioning damages among plaintiffs “removed at different levels of injury from the violative acts” to avoid the risk of multiple recoveries; and (3) the notion that directly injured victims can be relied upon to vindicate the law. Id. at 269–70, 112 S.Ct. 1311. In Holmes, the plaintiff, Securities Investor Protection Corporation—which had a duty to reimburse customers of broker-dealers who became unable to meet financial obligations—alleged that the defendant conspired to manipulate stock prices in violation of federal securities laws, thus causing share...