Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

DEGUELLE v. CAMILLI (December 15, 2011)

Michael DeGuelle worked for S. C. Johnson & Son, Inc. in its tax department. In the early 2000s, he came to believe that the company was submitting false income tax reports to the IRS. He discussed his concerns with several others within the company to no avail. He complained to Human Resources that Global Tax Counsel Wenzel was creating a hostile work environment by instructing him to engage in what he considered illegal activity. Wenzel criticized DeGuelle for taking his complaints outside the department, even becoming physically aggressive, and gave DeGuelle a negative performance review. The tension between the two continued for months. Finally, DeGuelle indicated that he was going to file a whistleblower complaint with the Department of Labor. The company offered to pay some of his attorney's fees if he would sign a release and confidentiality agreement. He declined and filed the complaint, attaching financial documents and internal communications. He continued to press the issue internally at the company as well. He provided company counsel with a lengthy memorandum detailing his concerns. The company offered one-year severance if he resigned and signed a confidentiality agreement. DeGuelle refused. A few weeks later, the company began an investigation of DeGuelle relating to the documents he disclosed in his complaint. He was eventually terminated for disclosing company documents. The company filed suit in state court for breach of contract and for the recovery of documents. DeGuelle filed suit in federal court, alleging RICO violations, breach of contract, wrongful termination, and defamation. Judge Stadtmueller (E.D. Wis.) dismissed the RICO claims with prejudice and declined to exercise jurisdiction over the state law claims. DeGuelle appeals.

In their opinion, Seventh Circuit Judges Flaum, Kanne, and Hamilton reversed and remanded. The Court addressed the RICO pleading requirements. Under §1964(c), DeGuelle must allege that he was injured by reason of a § 1962 violation. DeGuelle alleged violations of subsections 1962(c) and 1962(d). Subsection (c) requires a "pattern of racketeering activity" allegation. Northwestern Bell requires that the alleged predicate acts of racketeering be related to each other and that there is a continuing threat. Finally, subsection (c) requires "but for" causation between the racketeering activity and the plaintiff's injury. Since DeGuelle’s alleged injuries were related only to the retaliation and since the retaliatory attacks were not themselves a pattern of racketeering activity, the Court concluded that the retaliatory activity must be related to the tax fraud activity. The Court found the district court erred in concluding that they were unrelated because they involved different people, motives, and victims. The retaliatory conduct was inherently related to the scheme that DeGuelle exposed. Specifically relying on the Sarbanes-Oxley whistleblower provisions, the Court stated that courts must examine the facts in each case to determine if the retaliation is related to the underlying wrongdoing. The Court concluded, on the record before it, that DeGuelle satisfied the Northwestern Bell test for his subsection (c) allegation. DeGuelle also alleged a subsection (d) claim. Under subsection (d), DeGuelle must allege an agreement to commit at least two predicate acts. The Court concluded that DeGuelle adequately alleged an agreement among the tax department defendants. Again, since DeGuelle's alleged injury was related only to the retaliatory conduct, the Court inquired whether DeGuelle adequately alleged an agreement between the participants in the tax fraud and the participants in the retaliation. It concluded that the complaint adequately, although sparsely, alleged that the retaliatory actors aided the tax fraud actors in concealing their conduct and thus were part of the original tax fraud conspiracy.

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AMERICAN BOTTOM CONSERVANCY v. U.S. ARMY CORPS OF ENGINEERS (June 14, 2011)

Waste Management of Illinois, Inc. operates a landfill near Madison, Illinois. The landfill is just southwest of the Horseshoe Lake State Park. Waste Management wants to build a second landfill even closer to the park. In order to do so, it wants to destroy approximately 18 acres of wetlands. Waste Management has applied to the Illinois Environmental Protection Agency for a permit to build the landfill. That application is pending. Waste Management also applied to the Army Corps of Engineers for a permit to destroy the wetlands. That permit was granted on the condition that Waste Management create twice as many wetlands as they destroy. American Bottom Conservancy, an environmental group, brought suit challenging the permit. Judge Murphy (S.D. Ill.) dismissed the suit on the grounds that the Conservancy failed to establish standing. The Conservancy appeals.

In their opinion, Circuit Judges Posner and Manion and District Judge Lefkow reversed. The only issue before the Court was standing. To establish standing, a plaintiff must establish that granting the relief sought will avert or mitigate injury to him caused by the defendants. The Conservancy filed affidavits from several of its members who enjoy watching the birds and wildlife in the park, particularly at the southern end near the wetlands. They assert that Waste Management's wetland destruction will adversely affect the wildlife population and, therefore, their enjoyment of the park. The Court concluded that plaintiff’s member’s reduced enjoyment was an injury caused or to be caused by Waste Management. The Court also found that the injury was not implausible. The habitat reduction will likely negatively affect the wildlife population and the replacement wetlands will not be able to support a new wildlife population for some time. If the permit is voided, the wetlands and the wildlife population will be preserved. That is enough to confer standing on the Conservancy. The Court rejected Waste Management's alternative argument to find in its favor on the merits. It an appellee wants a judgment affirmed on an alternative ground, it need not file a cross-appeal. If, however, an appellee wants a judgment changed (here, from a dismissal without prejudice to a dismissal with prejudice), it must file a cross-appeal. Waste Management did not.

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FREEDOM FROM RELIGION FOUNDATION v. OBAMA (April 14, 2011)

Presidential proclamations inviting citizens to pray are as old as the country itself, dating back to George Washington. Congress enacted a statute in 1988 that calls on the President to issue an annual proclamation setting aside the first Thursday in May as a National Day of Prayer. President Barack Obama issued such a proclamation on April 30, 2010. Freedom From Religion Foundation filed suit against President Obama and his Press Secretary, alleging that the statute and the proclamations contravene the First Amendment. Judge Crabb (W.D. Wis.) agreed, concluding that the statute and the proclamation violated the First Amendment. She issued an injunction forbidding any further such proclamations. The President and his Press Secretary appeal.

In their opinion, Chief Judge Easterbrook and Circuit Judges Manion and Williams (concurring) vacated and remanded with instructions to dismiss. The Court first addressed plaintiffs’ standing and found it lacking. In order to establish standing, one must show injury, causation, and redressability. The statute itself imposes a duty only on the President. The plaintiffs do not have standing to object to a statute that imposes duties only on others. But the proclamation is addressed to all citizens, including the plaintiffs. The proclamation, however, imposes no duty -- it simply makes a request. Plaintiffs cannot show any injury caused by such a request. The Court cited the Supreme Court's decisions in Newdow and Valley Forge Christian College as controlling precedent.

Judge Williams concurred in a separate opinion. She distinguished Newdow, disagreed with what she thought was the majority's conclusion that a change in behavior is required for standing, noted a number of Supreme Court decisions on the merits where the standing injury is hard to distinguish from that of the Foundation, but ultimately concluded that Valley Forge precludes standing.

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HERSHEY v. PACIFIC INVESTMENT MANAGEMENT CO. (JULY 7, 2009)

A number of investors sold 10-year U.S. Treasury notes short and, between May 9 and June 30, 2005, bought futures contracts in settlement of their obligations. These investors brought a class action against Pacific Investment Management Co. (PIMCO), alleging that PIMCO violated the Commodity Exchange Act by cornering the market in certain Treasury notes. The class alleges that PIMCO increased its ownership of the notes to the point where it created a monopoly price, resulting in losses to the class of more than $600 million. PIMCO challenged the class definition. It pointed out that many class members did not lose money because of the net effects of multiple trades. The district court certified the class. PIMCO appeals.

In their opinion, Judges Posner, Evans and Tinder affirmed. The Court rejected PIMCO's argument that a district court had to determine which class members suffered damages before certifying a class. The standing requirement is satisfied as long as one member of the class has a plausible damage claim. The fact that a class member ultimately is shown to have not been injured does not preclude class certification. The Court cautioned, however, that a class should not be certified if it appears that many class members have suffered no injury. Although the Court did not believe that to be the case, it invited PIMCO, on remand, to find out through a random sample of depositions. The Court also rejected PIMCO's argument that a conflict of interest existed among class members because they purchased the notes at different times. The conflict was only hypothetical and may never materialize.

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