This case arises from claims that two agricultural companies leveraged the hiring of undocumented immigrants in order to depress the wages of their legally documented employees. We are called upon to decide two significant issues. First, we must determine whether, under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, legally documented agricultural workers have standing to sue their employers, whom they allege depressed their salaries by conspiring to hire undocumented workers at below market wages. Second, we must consider the constitutionality of supplemental subject matter jurisdiction involving a party over whom there is no independent basis for federal court jurisdiction. The district court resolved both questions in favor of the defendants and dismissed this lawsuit on the pleadings. We reverse.
Olivia Mendoza, Juana Mendiola, and the purported class ("employees") are agricultural laborers for Zirkle Fruit Company and Matson Fruit Company ("growers"), which operate fruit orchards and packing houses in Eastern Washington, the heart of Washington's fruit industry. According to the complaint,
The Immigration and Naturalization Service has conducted investigations finding that as much as half the growers' workforce is employed illegally, and the growers have been targeted for "raids and other law enforcement procedures."
According to the complaint, the scheme is facilitated by Selective Employment Agency, Inc., a separate company that employs the workers and then "loans" them to the growers. "Defendants Matson and Zirkle use Selective Employment as a `front company' for the purpose of perpetrating this scheme with the hope that each will be thus shielded from charges that they violated federal law." Although Selective Employment was named only as an association-in-fact enterprise, not as a defendant, in the federal RICO claim, the complaint alleged a state conspiracy claim that did name Selective Employment as a defendant.
The district court dismissed the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).
The employees moved for reconsideration, proffering a proposed amended complaint that alleged a conspiracy broader than the named growers and included more specific causation allegations. The amended complaint states that the growers and unnamed conspirators "comprise a large percentage of the fruit orchards and packing houses in the area, and therefore affect wages throughout the labor market for apple pickers and fruit packers, [such that] competition with respect to wages is stifled and suppressed." The proffered complaint also adds six paragraphs explaining how the scheme injures the workers. Nonetheless, the district court denied the motion, clarifying that it was not dismissing merely for difficulty of proof, but for lack of concrete injury and proximate causation.
In addition, the district court, quite reluctantly, granted Selective Employment's motion to dismiss pursuant to Rule 12(b)(1). The district court determined that it was bound by Ayala v. United States, 550 F.2d 1196 (9th Cir.1977), cert. granted, 434 U.S. 814, 98 S.Ct. 50, 54 L.Ed.2d 70 (1977), cert. dismissed, 435 U.S. 982, 98 S.Ct. 1635, 56 L.Ed.2d 76 (1978), which it characterized as holding pendent-party jurisdiction unconstitutional.
We note at the outset that the district court dismissed this case on the pleadings. Consequently, our review is de novo, and we may affirm the dismissal "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 122 S.Ct. 992, 998, 152 L.Ed.2d 1 (2002) (quoting Hishon v. King & Spalding,
The district court offered two bases for dismissal on the pleadings: RICO standing and supplemental jurisdiction. We discuss those issues below, but first we address one proffered alternative ground for affirming the dismissal for failure to state a claim, an argument that need not detain us long. RICO prohibits engaging in a pattern of "racketeering activity," defined as violating certain laws; as such, a predicate illegal act must be alleged. 18 U.S.C. §§ 1962(c), 1961(1)(F). The district court held that the "Illegal Immigrant Hiring Scheme" as pleaded involved a predicate RICO act, knowingly hiring undocumented workers in violation of Immigration and Naturalization Act § 274, 8 U.S.C. § 1324. We are unpersuaded by the growers' argument that the district court erred in this respect. Their argument rests on a hypertechnical reading of the complaint inconsistent with the generous notice pleading standard. See Swierkiewicz, 122 S.Ct. at 999. The complaint alleges that the defendants had knowledge of illegal harboring "and/or" smuggling. Even if knowledge of smuggling were required by the statute, an issue about which we express no opinion, the complaint easily contains this allegation. We affirm the district court's analysis and reasoning on this issue, and turn to standing and supplemental jurisdiction.
A. STATUTORY STANDING
We turn first to the statutory standing requirements particular to RICO. Under RICO, "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court" for civil damages. 18 U.S.C. § 1964(c). This statute is quite similar to the antitrust statute granting standing to "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws," 15 U.S.C. § 15(a), and consequently the two have been interpreted in tandem. Holmes v. Sec. Inv. Protection Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992). The employees allege an injury to their property in the form of lost wages.
In a series of cases beginning in the antitrust context and later extended to RICO, the Supreme Court clarified that potential plaintiffs who have suffered
In this circuit, we focus on three nonexhaustive factors in considering causation, that is whether the injury is "too remote" to allow recovery:
Ass'n of Wash. Pub. Hosp. Dists. v. Philip Morris Inc., 241 F.3d 696, 701 (9th Cir.) (quoting Oregon Laborers — Employers Health & Welfare Trust Fund v. Philip Morris, Inc., 185 F.3d 957, 963 (9th Cir.1999)), cert. denied, ___ U.S. ___, 122 S.Ct. 207, 151 L.Ed.2d 147 (2001) ("Wash.Pub.Hosp."). At this stage of the proceedings, we cannot say that there is "no set of facts that could be proved," to satisfy these requirements. Swierkiewicz, 122 S.Ct. at 998.
Our analysis is guided by two key cases, both decided after the district court's original opinion. See Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979, 987 (9th Cir.2000); Commercial Cleaning Servs. v. Colin Serv. Sys., Inc., 271 F.3d 374, 378 (2d Cir.2001).
The relationships among the parties in this case bear a striking resemblance to those in Knevelbaard Dairies, an antitrust case in which we recently held that the plaintiffs had standing. There, milk producers sued defendant cheese producers, who illegally fixed the price of cheese, which in turn set the price of milk artificially low. 232 F.3d at 989. Applying classic antitrust standing principles, we looked "to the chain of causation between [plaintiff's] injury and the alleged restraint in the market." Id. at 989 (quoting Am. Ad Mgmt. Inc. v. General Tel. Co., 190 F.3d 1051, 1058 (9th Cir.1999)). We concluded that the milk producers' injury was sufficiently direct. Their allegations that they would "receive less for milk than they otherwise would have received in the absence of the defendants' unlawful conduct" were "disputed claims of causation and injury [that] cannot be decided on a Rule 12(b)(6) motion." Id. at 989. The employees here, like the milk producers in Knevelbaard Dairies, claim a direct market injury as a result of the alleged illegal hiring scheme (or in the case of Knevelbaard Dairies, as a result of the price fixing in the cheese market). In fact, the causation allegations here are more direct than Knevelbaard Dairies, as the employees allege a direct impact on the labor market, not the more attenuated claim of
The Second Circuit, the only circuit to have considered allegations of illegal immigrant hiring based on the same predicate act as that at issue here, held that the plaintiffs had standing to sue under RICO. In Commercial Cleaning, a competitor alleged that the defendant janitorial service underbid it by relying on laborers that the defendant knew to be undocumented. 271 F.3d at 378. The injury was not derivative of an injury to a third party because "the theory of Commercial's claim is that Colin undertook the illegal immigrant hiring scheme in order to undercut its business rivals." Id. at 384. Similarly here, the employees allege that the illegal hiring scheme was divined in order to depress the normal labor market.
Turning to the first factor, taking the allegations in the complaint as true, we are unable to discern a more direct victim of the illegal conduct. The documented employees here do not complain of a passed-on harm. They allege that the scheme had the purpose and direct result of depressing the wages paid to them by the growers. Thus, as the district court correctly determined, "plaintiffs have stated a claim that they are the direct victims of the illegal hiring scheme."
As in Knevelbaard Dairies and Commercial Cleaning, the scheme aims to gain an illegal commercial advantage — here, disproportionate bargaining power in employment contracts — in the growers' dealings with the employees. Neither the government nor the undocumented workers are an intervening third party in this scheme, despite the growers' arguments to the contrary. The claims here thus differ fundamentally from passed-on injury cases. See Imagineering Inc. v. Kiewit Pac. Co., 976 F.2d 1303, 1312 (9th Cir.1992) (holding that minority- and women-owned subcontractors could not sue general contractors under RICO for an illegal scheme to evade federally required quotas because the direct harm was to competitor general contractors who complied with the quotas); Oregon Laborers, 185 F.3d at 963-67 (holding that health care trust funds could not sue tobacco companies under RICO because their injury derived from the smokers' injury); Wash. Pub. Hosp., 241 F.3d at 703 (same for health care providers). In contrast to these other cases, the alleged scheme here was intended to give the growers a contract advantage at the expense of the documented workers, a direct rather than a pass-through injury.
We also note that the undocumented workers cannot "be counted on to bring suit for the law's vindication." Holmes, 503 U.S. at 273; cf. Hoffman Plastic Compounds Inc. v. NLRB, ___ U.S. ___, 122 S.Ct. 1275, 152 L.Ed.2d 271 (2002) (holding that undocumented workers are not entitled to backpay wrongfully withheld in a labor dispute). Although not dispositive, see Oregon Laborers, 185 F.3d 957, we heed the Supreme Court's example and consider this factor in our analysis. As the district court noted, the fact that RICO specifically provides that illegal hiring is a predicate offense indicates that Congress contemplated the enforcement of the immigration laws through lawsuits like this one. 18 U.S.C. § 1961(1)(F).
The second concern to which we direct our attention is the speculative measure of harm. The district court noted that "intervening factors ... could have interfered with the plaintiffs receiving higher pay absent the defendants' hiring of undocumented workers. These intervening factors include the wage paid by other orchards in the area, the skill and qualifications of each plaintiff, the profitability of the defendants' businesses without the undocumented workers, and the general
The district court's analysis focused primarily on cause-in-fact, not proximate cause, and it is inappropriate at this stage to substitute speculation for the complaint's allegations of causation. As we explained in Knevelbaard Dairies when we rejected the claim that milk prices might have been lower due to independent factors instead of the cheese price fixing: "Whether experts will be able to measure the difference between the allegedly restrained price for milk and the price that would have prevailed but for the antitrust violation remains to be seen; in deciding a Rule 12(b)(6) motion we are dealing only with the complaint's allegations, which in this instance do not make the claim speculative." 232 F.3d at 991.
Similarly here, the workers must be allowed to make their case through presentation of evidence, including experts who will testify about the labor market, the geographic market, and the effects of the illegal scheme. Questions regarding the relevant labor market and the growers' power within that market are exceedingly complex and best addressed by economic experts and other evidence at a later stage in the proceedings. For now, it is sufficient that the employees have alleged market power — they must not be put to the test to prove this allegation at the pleading stage. See Scheidler, 510 U.S. at 256; In re Warfarin Sodium Antitrust Litigation, 214 F.3d 395, 398 (3d Cir.2000) (reversing dismissal based on lack of antitrust standing because "the District Court considered facts gleaned from counsel's argument and from its own experience, factors not contemplated by the dictates of Rule 12(b)(6)").
Finally, it is important to distinguish between uncertainty in the fact of damage and in the amount of damage. Knutson v. Daily Review, Inc., 548 F.2d 795, 811 (9th Cir.1976) ("Different standards govern proof of the fact and proof of the amount of damages."). That wages would be lower if, as alleged, the growers relied on a workforce consisting largely of undocumented workers, is a claim at least plausible enough to survive a motion to dismiss, whatever difficulty might arise in establishing how much lower the wages would be. Cf. Oregon Laborers, 185 F.3d at 964 (holding medical costs resulting from injury to smokers easily established).
Turning to the final factor, the growers do not appear to argue that there is a significant risk of multiple recovery in this case. No other potential plaintiffs emerge with clarity. Also, as the Second Circuit reasoned, even if there are other classes of potential plaintiffs who could recover for the alleged illegal hiring scheme, such lawsuits would not threaten multiple recovery of passed-on harm. Commercial Cleaning, 271 F.3d at 383-84.
B. CONSTITUTIONAL STANDING
Because they are invoking federal jurisdiction, the employees must establish "the irreducible constitutional minimum of standing" in addition to meeting the statutory standing requirements. Lujan, 504 U.S at 560-61. This minimum or threshold consists of three factors: (1) injury in fact: "an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical," id. at 560 (citations and internal quotations omitted); (2) causation: the injury must be fairly traceable to the defendant's challenged action, id.; and (3) redressability: "it must be likely as opposed to merely speculative that the injury will be redressed by a favorable decision," id. at 561 (internal quotations omitted).
Based on the complaint, the employees easily meet this test. First, they allege a concrete, actual injury in their lost wages. As discussed above, their causation allegations are sufficient at this stage. See Scheidler, 510 U.S. at 256 (rejecting a constitutional causation challenge in a RICO suit where the plaintiffs alleged that a conspiracy to threaten staff and patients "has injured the business and/or property interests of the [petitioners]"). Finally, because the award of money damages will redress the injury of lost wages, the third element is also met.
II. SUPPLEMENTAL PARTY JURISDICTION
The employees sued Selective Employment solely under state law, precluding federal question jurisdiction, and all parties are Washington citizens, precluding diversity jurisdiction. See 28 U.S.C. §§ 1331 & 1332. In such a situation, absent an independent basis for federal subject matter jurisdiction, Congress has authorized the district court to exercise supplemental jurisdiction:
28 U.S.C. § 1337(a).
Prior to the passage of § 1337, supplemental jurisdiction was more circumscribed and the addition of a party was one factor that barred jurisdiction over additional claims brought by plaintiffs. See generally Denis F. McLaughlin, The Federal Supplemental Jurisdictional Statute — A Constitutional and Statutory Analysis, 24 Ariz. St. L.J. 849, 859-89 (1992). In 1973, the Supreme Court expressed some skepticism about "pendent party jurisdiction" — jurisdiction over plaintiffs' claims requiring the addition of parties not involved in the main lawsuit. The Court characterized this issue as a "subtle and complex question with far-reaching implications." Moor v. County of Alameda, 411 U.S. 693, 715, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973). Continuing this thread, in Aldinger v. Howard, 427 U.S. 1, 96 S.Ct. 2413, 49 L.Ed.2d 276 (1976), the
The statutory grant of jurisdiction is, of course, limited by constitutional boundaries. Upon careful review, however, we are convinced that the controlling constitutional standard remains that articulated in United Mine Workers of America v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966): The claims must form "but one constitutional `case'" and "derive from a common nucleus of operative fact." We therefore decline Selective Employment's invitation to impose a per se constitutional bar on supplemental jurisdiction over claims against additional parties.
AYALA V. UNITED STATES
Selective Employment relies on Ayala v. United States, 550 F.2d 1196, 1199-1200 (9th Cir.1977), where we held that federal courts were without power to exercise pendent party jurisdiction under the Federal Tort Claims Act. At that time, neither of the key Supreme Court cases, Moor and Aldinger, had resolved the question, nor did we have the benefit of the explicit language of Finley, which came ten years later. Selective Employment, however, points to language that implied that, in addition to not being authorized under any statute, pendent party jurisdiction posed constitutional difficulties. Id. at 1199, 1200 n. 8. These statements, however, are best read as flagging the necessity for caution due to potential constitutional problems that might arise with an unduly broad exercise of pendent jurisdiction.
Significantly, Ayala also came before intervening decisions that clarified that Ayala's restrictive interpretation does not survive the 1990 passage of § 1367. We explained in Galt G/S v. Hapag-Lloyd AG, 60 F.3d 1370, 1374 (9th Cir.1995), that Finley imposed two requirements for supplemental jurisdiction: (1) the claims must be "part of the same constitutional `case'"; and (2) the jurisdiction must be expressly authorized by statute. We further observed that "28 U.S.C. § 1367 supercedes this second Finley requirement...." Id. at 1374 n. 3; see also Yanez v. United States, 989 F.2d 323, 327 n. 3 (9th Cir.1993) (holding that court lacked jurisdiction in pre-1990 suit, but noting that "Congress has now explicitly authorized pendent party jurisdiction" (citing 28 U.S.C. § 1367)).
B. CONSTITUTIONALITY OF SUPPLEMENTAL JURISDICTION UNDER § 1367
Any lingering doubt that Ayala establishes a binding constitutional rule is put to rest by the Supreme Court's recent decision in Raygor v. Regents of the University of Minnesota, 534 U.S. 533, 122 S.Ct. 999, 1004, 152 L.Ed.2d 27 (2002). Holding that a tolling provision was curtailed by the Eleventh Amendment, the Court discussed the history of supplemental jurisdiction:
122 S.Ct. at 1004 (emphasis added; some citations omitted). The Court elaborated that § 1367 provided just such authorization, functioning as a "general grant of jurisdiction." Id. at 1005. As the Supreme Court explained in Raygor, Article III permits supplemental jurisdiction "if the federal and state law claims `derive from a common nucleus of operative fact' and comprise `but one constitutional case.'" Id. at 1004(quoting Gibbs, 383 U.S. at 725) (some internal quotation marks omitted). Thus, any suggestion in Ayala that the Constitution imposes a bar on supplemental jurisdiction over additional parties independent of statutory authorization has been undermined by intervening Supreme Court authority. See United States v. Gay, 967 F.2d 322, 327 (9th Cir.1992) (holding that a prior panel decision is not binding in such a situation).
Selective Employment provides no compelling rationale to restrict supplemental jurisdiction beyond the limitation imposed in Gibbs. Indeed, the district court suggested that it would hold otherwise but for the belief that its hands were tied by Ayala. The district court's instincts were vindicated by the Supreme Court's later ruling in Raygor. We acknowledge, of course, that federal courts are courts of limited jurisdiction. U.S. Const. Art. III, sec. 2; Finley, 490 U.S. at 550(quoting Aldinger, 427 U.S. at 15). The Gibbs standard defines the minimum constitutional constraints, offering both Congress and the district courts flexibility to shape each case in a way that is efficient for the courts, fair to the parties, and respectful of state sovereignty.
Finally, we note that none of our sister circuits has imposed a per se constitutional restriction on supplemental jurisdiction over additional parties. See Hinson v. Norwest Financial S.C., Inc., 239 F.3d 611, 615 (4th Cir.2001) (holding that district court did not abuse its discretion in joining plaintiffs who asserted only state law claims); HB Gen'l Corp. v. Manchester Partners, L.P., 95 F.3d 1185, 1197-98 (3d Cir.1996) (holding that nondiverse party could be joined for counterclaims); Ammerman v. Sween, 54 F.3d 423, 424 (7th Cir.1995) (noting that only Gibbs now limits pendent party jurisdiction); Palmer v. Hosp. Auth., 22 F.3d 1559, 1566-67 (11th Cir.1994) (holding that district court had pendent party jurisdiction because claims involved the "same facts, occurrences, witnesses, and evidence").
Thus, to avoid dismissal for lack of federal subject matter jurisdiction, the employees must show that the state conspiracy claims against Selective Employment constitute part of the same constitutional case as the federal RICO claims against the growers. Assuming that the claims meet the Gibbs standard, the district court has the power to exercise supplemental jurisdiction. The decision to exercise that jurisdiction remains discretionary with the district court. City of Chicago v. Int'l Coll. of Surgeons, 522 U.S. 156, 172-73, 118 S.Ct. 523, 139 L.Ed.2d 525 (1997) (holding that district courts may decline to exercise jurisdiction over supplemental state law claims in the interest of judicial economy, convenience, fairness, and comity). We therefore remand for the district court to determine, in the first instance, whether the application of the Gibbs standard permits the exercise of supplemental jurisdiction, and to exercise discretion over whether such
REVERSED and REMANDED.