U.S. 5th Circuit holds school district not a proper RICO defendant, but former trustee is; former trustee not entitled to §101.106 immunity for bribery allegations

The Gil Ramirez Group, L.L.C. v. Houston Independent School District  13-20753 (5th Cir. May 18, 2015).

This is a bribery and federal Racketeer Influenced Corrupt Organizations Act (“RICO”), claim case against the Houston Independent School District (“HISD”), a former HISD trustee (“Marshall”) and his consulting company and various private companies. In the end, the Fifth Circuit determined that while HISD is not a proper RICO defendant, the individuals involved could have potential liability and must proceed to trial.

This is a thirty page opinion with various parties, procedures, and complex aspects. The main thing for a local government lawyer to take away from the case is the fact entities like HISD are not proper RICO defendants, but individual members of the governing body may be. The analysis of immunity for “employees” is also important.  HISD has a job-order contract (“JOC”) program. Under this program, HISD periodically solicits requests for proposals (“RFPs”), following which a committee of HISD administrators (the “selection committee”) evaluates vendors’ bids. The Board of Trustees then votes on the selection committee recommendations. Marshall, a trustee at the time, “masterminded questionable business arrangements in which he served as a paid consultant for several organizations that did business with the District. When the District explicitly prohibited that conduct, those companies hired Marshall’s business associate Joyce Moss Clay (together with her company, ‘Clay’), whose company began paying Marshall a share of its consulting fees.” Private vendors paid Clay over $2,000 per month for several years, but could not explain what work Clay actually performed. Ramirez was told his company would have to hire Clay in order to protect its participation in the JOC program. Ramirez refused and his volume of jobs decreased. He sued alleging violations of RICO, First and Fourteenth Amendment rights violations and state law claims for breach of contract, estoppel, and civil conspiracy.  The trial court dismissed the claims and Ramirez appealed.

The Fifth Circuit first analyzed and held Ramirez was a proper RICO Plaintiff. Then the court held the HISD entity is not a proper RICO defendant because 1)  RICO requires demonstrating an underlying criminal act, which entails a mens rea requirement that a governmental entity cannot form and 2)  municipal entities enjoy common law immunity from punitive damages, and, whatever else it is, RICO’s treble damages provision is punitive.  The court dismissed Ramirez’ breach of contract, promissory estoppel and quasi estoppel claims as HISD did not breach any contracts or promises, but simply did not hire them as much. However, with respect to Marshall, individually, the court showed no deference. The court held he was not entitled to either the statutory immunity under Tex. Civ. Prac. And Rem. Code §101.106 or the Education Code’s professional immunity section as he was not acting as an “employee” at the time of the alleged acts. He was a volunteer elected trustee over which HISD had no direct control. He was also not acting within the scope of his duties, if the allegations are to be believed. “He was allegedly defiling his position and wholly outside the legitimate scope of a trustee’s duties if he accepted bribes in exchange for advancing the interests of certain contractors.”  The court does give an interesting analysis of the constitutional claims, which it dismissed against both HISD and Marshall.  Essentially, Ramirez did not speak out on a matter and had no vested right to a contract.  He merely refused to participate in bribery. The Equal Protection Clause forbids state actors from treating similarly situated individuals differently for a discriminatory purpose and without a rational basis. “‘Discriminatory purpose,’ however, implies more than intent as volition or intent as awareness of consequences.’” Noting  “[t]hat Marshall may have perverted HISD’s procurement processes to cause HISD to discriminate in favor of RHJ and FBM is not sufficient to show that [Ramirez] was discriminated against.” Ramirez did not assert he was a member of a particular class and the “class-of-one” analysis does not apply to actions which, by their nature, involve discretionary decision-making based on individualized assessments.  So, in the end, HISD is dismissed completely, the constitutional claims against Marshall are dismissed, but all other claims remain.

If you would like to read this opinion click here. Panel: REAVLEY, JONES, and ELROD.  Opinion by Justice Jones.