On December 15, 2011, the United States Court of Appeals for the Seventh Circuit issued a landmark opinion in DeGuelle v. Camilli, Appeal No. 10-2172, holding that a company’s retaliatory actions against a whistleblower gave rise to liability under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). In coming to this conclusion, the Seventh Circuit took a broad, commonsense view of the requisite level of interrelatedness necessary between the retaliation suffered and the underlying fraud.
The Plaintiff, Michael J. DeGuelle, worked in the tax department of S.C. Johnson & Son, Inc. (“SCJ”) and, in April of 2009, was fired after blowing the whistle on multiple instances of tax fraud within the company. DeGuelle alleged that, over a period of approximately eight years, he was instructed by several of his superiors to participate in a complex tax fraud scheme, which included mail fraud and record destruction. Initially, although DeGuelle expressed serious concerns with these requests to his department superiors, he complied. However, in October of 2007, he complained directly to human resources. And, although human resources officials claimed to investigate his allegations of fraud, DeGuelle was soon met with retaliation by his superiors. In March of 2008, he received a negative performance review even though, just two months prior, he had received an award for his excellent work performance. Undeterred, DeGuelle continued to meet with his superiors and human resources managers throughout 2008 and 2009 regarding the fraud. And, on more than one occasion, SCJ tried to silence DeGuelle by offering him severance packages that included “confidentiality” requirements. DeGuelle rejected SCJ’s offers and ultimately filed a complaint with the Department of Labor. He was terminated shortly thereafter, allegedly for attaching confidential business information to his DOL filing. SCJ also sued DeGuelle for breach of contract and conversion and allegedly defamed DeGuelle in the local media.
In February of 2010, DeGuelle brought suit against SCJ in the Eastern District of Wisconsin, alleging that his former employer committed several RICO violations and then unlawfully retaliated against him for reporting its misconduct. Section 1962(c) of RICO makes it unlawful for an employee of an enterprise engaged in interstate commerce to “conduct or participate, directly or indirectly, in the conduct of such enterprise’s racketeering activity” with such “racketeering activity” defined as, amongst other things, mail fraud and witness tampering. In order to show the “pattern of racketeering activity” required by RICO, a plaintiff must demonstrate a “relationship” between the predicate acts or, as the Supreme Court has put it, “the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.” H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 240 (1989). In DeGuelle, because the only injury or damage suffered by Mr. DeGuelle flowed from SCJ’s retaliation, those retaliatory actions must have been sufficiently related to the predicate acts of actual fraud in order to prove the requisite “pattern of racketeering activity.”
The District Court dismissed DeGuelle’s case, holding that no such pattern of racketeering existed because the fraudulent activity consisted of two unrelated schemes—tax fraud and retaliation—that involved different players, motives, and victims. The lower court also noted that, since none of the retaliatory acts alleged occurred before DeGuelle blew the whistle on the tax fraud, it could not be said that SCJ was trying to cover up its unlawful behavior.
On appeal, the Seventh Circuit reversed the District Court. The Court of Appeals noted that “under the district court’s reasoning, retaliation cannot be related to the underlying wrongdoing for purposes of RICO because the retaliatory acts will always occur after the underlying wrongdoing has been disclosed.” But, as the Seventh Circuit explained:
Retaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower. Although there may not be the same victim or results, in most cases retaliatory acts and the underlying scheme are interrelated by distinguishing characteristics and are not isolated events. Accordingly, we believe a relationship can exist between § 1513(e) predicate acts and predicate acts involving the underlying cause for such retaliation.
In expounding on what sort of “relationship” must be shown, the Court stated that a fact-intensive inquiry is required. As to DeGuelle, the Court focused on several “key allegations linking the predicate acts” such as plaintiff’s allegations that most (although not all) of the same actors were involved in both the fraud scheme and the retaliation. The Court also stated that the temporal relationship between the predicate acts—namely, that “over a five month period, the company engaged in two acts of [witness] tampering, one act of mail fraud, and three actions of retaliation”—provided support for the necessary link between the fraud scheme and retaliation. Taken together, the Seventh Circuit held that the plaintiff’s allegations were sufficient to infer that the retaliation against DeGuelle was “part of the original conspirators’ agreement to conceal their fraud” and, therefore, reversed the decision below and remanded the case back to the District Court.
The DeGuelle Court’s broad view of the relationship between the predicate acts required to bring a RICO whistleblower claim recognizes the natural connection between retaliation and fraud and employs a commonsense approach to the analysis. This analysis should be adopted by sister circuits, providing an important and powerful avenue of redress for whistleblowers who suffer retaliation.