Sunday, January 8, 2012

7th Circuit Ruling Permits Whistleblower to Bring Civil RICO Against Employer for Retaliation

Called a “landmark” ruling by Whistleblowers Protection Blog, a recent 7th Circuit case appears to have substantially expanded the rights of whistleblowers to sue their employers.  In DeGuelle v. Camilli, et al., (7th Cir. Dec. 15, 2011), the 7th Circuit held that a former employee could bring a Civil RICO action against his former employer and several of its managers who he alleged had engaged in tax fraud on behalf of the employer, S.C. Johnson & Son, Inc., for losses he had suffered as result of their alleged retaliatory conduct against him. To bring a Civil RICO claim pursuant to 18 U.S.C. § 1964(c), the plaintiff must suffer an injury in his “business or property” as a result of the “pattern of racketeering activity.”  The former employee, a whistleblower, alleged that he was injured in his business or property by the defendants “retaliatory actions,” in terminating him from his employment, being sued by his employer, and defamed in the media.  These retaliatory actions, he claimed, constituted a violation of the Sarbanes Oxley Act which made it a crime to intend to retaliate and “take any action harmful to any person” for “providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense.” 18 U.S.C. § 1513(e)(part of the statute prohibiting retaliation against witness, victim or informant).

The District Court had dismissed the former employee’s Civil RICO complaint on the grounds that the alleged retaliation against him an unrelated separate scheme from the tax fraud scheme which purportedly gave rise to the Civil RICO.  The District Court appeared to be following other courts who found that retaliation could not give rise to Civil RICO.  See, e.g., Hoatson v. N.Y. Archdiocese, No. 05 Civ. 10467, 2007 WL 431098, at *6 (S.D.N.Y. Feb. 8, 2007) (“Retaliatory firing is clearly not a listed predicate act or ‘racketeering activity.’ ”), aff’d, 280 F. App’x 88 (2d Cir. 2008); Herrick v. South Bay Labor Council, No. C-04-02673, 2004 WL 2645980, at *3 (N.D. Cal. Nov. 19, 2004) (whistleblower terminated in retaliation for reporting her concerns could not bring RICO claim because her injuries stemmed from wrongful discharge, not alleged racketeering activity).

The 7th Circuit overturned the District Court, declaring “[r]etaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower.”  The Court observed  that the predicate acts of the tax scheme were related to the retaliation scheme, and it noted one link between the two schemes in that the three of the managers who allegedly had sought to “corruptly persuade” the employee from disclosing the company’s alleged wrongdoing by offering “an increase in salary and payment of attorney’s fees if he agreed to sign an confidentiality agreement and release all claims” were the same “three actors responsible for [the employee’s] termination.”  A so called “second act of tampering” occurred when one of the managers offered the employee “the opportunity to resign with pay and benefits if he signed a confidentiality agreement and release of claims.”

The Court also permitted the employee to bring a claim for Civil RICO conspiracy,  18 U.S.C. § 1962(d), against the managers who had alleged engaged in the tax fraud and retaliated against him.
The False Claims Act (“FCA”) already has a strong anti-retaliation provision, 31 U.S.C. § 3130(h) and thus this ruling does not expand the rights of FCA qui tam relators.  Nevertheless, the 7th Circuit’s ruling provides another basis for a retaliation claim based on Civil RICO.  For example, if there were a pattern of health care fraud, a whistleblower who claimed they were retaliated against could bring a Civil RICO action instead of a retaliation claim or even together with a retaliation claim. For the Civil RICO claim, they would allege that they were harmed as a result of a pattern of racketeering activity  --the health care fraud scheme--  and include as one “predicate” act of the scheme the retaliation against the whistleblower in violation of 18 U.S.C. § 1513(e).  Pled in that fashion, a whistleblower could bring the entire health care fraud scheme into evidence along with the retaliation claim.

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