In 2000 the Supreme Court held that the whistle-blower who was fired for exposing his employer’s RICO violations could not assert a RICO claim. The reasoning was that the whistle-blower was damaged by being fired, which is not a RICO violation (also known as a predicate act, one of the forms of “racketeering activity” specified in the law). RICO requires a plaintiff to allege and to prove an injury “proximately caused” by a RICO violation. But in 2002 the Sarbanes-Oxley law added paragraph (e) to 18 U.S.C. 1513, the criminal statute used to prosecute “obstruction of justice,” and specifically retaliation against witnesses in federal court proceedings. This statute was a RICO predicate act. The newly added paragraph made it a federal crime for an employer to “retaliate” against an employee who blows the whistle to a federal official or court about the employer’s misconduct. It states: “Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment of any person, for providing to a law enforcement officer any truthful information relating to the commission of any federal offense,” is guilty of a federal crime.
Recently, the Seventh Circuit Court of Appeals in Chicago issued its decision in DeGuelle v. Camilli, _F.3d_, 2011 WL 6287913 (7th Cir. December 15, 2011), which reversed the dismissal of an employee’s retaliatory firing case against his former human resources (“HR”) director and executives of S.C. Johnson & Son, Inc. (“SC”), a large manufacturer of consumer goods with 12,000 employees. Mr. DeGuille was employed in SC’s tax department and was allegedly told to fabricate tax information and file false returns to the I.R.S. When he complained to the company’s HR Director, he was given a negative performance review. Again, according to his complaint, DeGuelle’s superiors told him the negative review was retaliation for his repeated complaints about the tax fraud scheme. DeGuelle then threatened to file a federal retaliation complaint against the company under the Sarbanes-Oxley Act’s whistle-blower protection provisions. DeGuelle’s superiors then offered to rescind the negative review and give him a raise if he would sign a confidentiality agreement, essentially hush money not to go to the Feds. He refused and filed the complaint as well as documents which supposedly exposed the tax fraud SC had been perpetrating for years. SC fired DeGuelle for disclosing confidential company documents and sued him for damages. DeGuelle counter-sued with a RICO suit predicated upon SC’s pattern of mail fraud (perpetrated against the IRS), tampering with a witness (18 U.S.C. 1512(c)(1), namely him, by offering him a raise in exchange for confidentiality), destruction of tax records, and his termination as retaliation for blowing the whistle, a violation of 18 U.S.C. 1513(e)(the paragraph added in 2002).
So, DeGuelle’s RICO complaint alleged one long scheme of racketeering activity commencing in 2000 with the underlying tax fraud and culminating in his retaliatory firing. The district court interpreted this as two separate schemes: the tax fraud and the retaliation. Not only were the schemes separate, but the predicate acts comprising them were not related because they were committed by different SC officers (the tax department and the HR department). So the upshot was that the complaint did not allege a pattern of related predicate acts, which is necessary. The district court dismissed the case.
The Seventh Circuit agreed with DeGuelle’s interpretation of the RICO violations: one long pattern of tax fraud followed by efforts to cover it up by tampering with him and the retaliatory firing. Reading it this way, the complaint stated a RICO pattern. The opinion also held that the complaint adequately alleged a conspiracy among the tax department and HR employees to damage DeGuelle. So his RICO conspiracy claim against all of them was allowed to proceed even though he alleged no direct evidence that they all formed an agreement to fire him. The agreement to do so was adequately described by the circumstantial evidence of what each conspirator did.
Overall, the Seventh Circuit was generous in interpreting DeGuelle’s complaint so as to allow his RICO claim to proceed. It has not usually been so. Most RICO cases are disposed of in the district courts, and the Seventh Circuit typically affirms the dismissals. But 2011 saw the Court revive two civil RICO cases. The earlier one, BSC Services, Inc. v. Heartwood 88, LLC, 637 F.3d 750 (7th Cir. 2011) significantly lightened the plaintiff’s burden in establishing causation. So 2011 was the best year for RICO cases from this Court since the heyday of the early 1980’s.
This case could lead to many more RICO actions predicated upon retaliation against whistle-blowers. And keep in mind the retaliation need not be a firing or even employment related. The statute, which I’ve quoted above, prohibits actions “harmful to a person, including interference with the lawful employment.” So a threat which causes some sort of damage to one’s “business or property” could suffice. (RICO does not allow recovery for personal injuries because they are not to “business or property.”) On the other hand, the retaliation must be in response to the whistle-blower’s actions to expose wrongdoing in a federal proceeding, i.e., a federal agency or court. But I expect to see quite a few more RICO whistle-blower cases. The Plaintiff’s bar is creative, and ultimately, needs to be reined in when it goes too far.