Whistleblower Adequately Alleged Subsection 1962(c) And 1962(d) Violations
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.
Richard Rennell and Randall Rowe created a joint venture in 2004 to own and manage manufactured-housing communities in several states. Rowe provided the financing and Rennell managed the properties. After a few years, notwithstanding excellent results from Rennell, Rowe hired someone to manage the properties and no longer needed Rennell. In 2007, Rowe told Rennell that he was terminating the joint venture. He offered Rennell approximately $300,000 for his share in the venture, notwithstanding that they had recently valued it at $3.5 million. Rowe also demanded an answer within 24 hours and threatened to make the termination public if Rennell did not accept the offer. Rennell did sign the termination agreement and promised not to sue Rowe. Notwithstanding that promise, Rennell filed suit alleging two different theories of
In 2006, Illinois Governor
Robert Anderson sold his California insurance brokerage firm to
Jay Hayden died in 1985. His will established the Jay E. Hayden Foundation and named Robert Cochonour as executor. Between 1985 and 2001, Cochonour allegedly embezzled from both the Foundation and from accounts belonging to Hayden's mother and his mother’s friend. Cochonour apparently had the cooperation of First Neighbor Bank in carrying out his misdeeds. By 2002, Cochonour admitted that he had stolen some money and had resigned his state court judgeship. The trustees of the Foundation were aware that it no longer had any assets but there was no record of what happened. For several years, Cochonour and the bank took steps to prevent the plaintiffs from learning additional facts. Eventually, in May of 2008, plaintiffs brought a RICO action against the bank, two law firms, and several associated individuals. Judge Reagan (S.D. Ill.) granted defendants' motion to dismiss on statute of limitations grounds. Plaintiffs appeal.
Rex Carr was a lawyer in southern Illinois. He and his partners had several agreements concerning the allocation of fees earned by the firm. The agreements continued in effect after the dissolution of the firm in 2003. Significant disputes arose, and a host of lawsuits were filed, with respect to those fees. A Memorandum of Understanding (MOU) was agreed to in 2004. It was meant to control the distribution of all fees, past and future, among the partners. Notwithstanding an agreement to dismiss all pending cases, Carr actually amended a counterclaim in one of the pending actions to assert that he had been fraudulently induced to enter into the MOU. The claim was eventually dismissed and the dismissal was affirmed. While the appeal was pending, Carr brought four separate suits in state court, then brought this federal case, and then voluntarily dismissed the state cases. He brought the federal case under RICO, repeating many of the allegations of the earlier suits, including the fraudulent inducement claim. The district court dismissed the suit for failure to state a claim. Carr appeals. The defendants cross-appeal from the court's denial of their motion for sanctions.
Stroitelstvo Bulgaria Limited ("Limited") is a Bulgarian construction company. In 2005, it borrowed almost €2 million from the Bulgarian-American Credit Bank ("
Salik Rao operated as a BP gasoline service station dealer in the Chicago area. For 10 years beginning in the early 1990s, Rao gave over $100,000 worth of cash and gifts to a BP sales manager. In return, the sales manager performed many favors for Rao, to his great benefit. In 2003, Rao reported this improper activity to BP. However, he characterized it as extortion on the part of the sales manager. BP begin an investigation which ultimately led to the termination of the sales manager in November of 2003. BP continued its investigation, seeking to confirm the extortion. Although Rao promised to cooperate, he never met with BP after November of 2003 and affirmatively withdrew his pledge of cooperation in June of 2004. BP notified Rao in October 2004 that it was terminating its franchise relationship with him because of his improper activity. Rao brought suit under the Petroleum Marketing Practices Act ("PMPA"), as well as RICO, fraud, breach of contract and extortion. The court dismissed the counts based on RICO, fraud and breach of contract and granted summary judgment on the PMPA claim. Rao appeals.