Dec. 19, 2011 – A former S.C. Johnson & Son Inc. tax employee who claims he was fired for reporting an alleged tax fraud scheme has overcome the defendants’ motion to dismiss the federal claims under the Racketeer Influenced and Corrupt Organizations Act (RICO).
S.C. Johnson canned Michael DeGuelle, allegedly for taking confidential business documents and disclosing them to an outside party. DeGuelle had filed a whistleblower complaint with the Department of Labor in 2008, accusing company employees of illegal tax schemes that defrauded the Internal Revenue Service out of millions of dollars.
In 2010, DeGuelle filed a federal lawsuit against company employees, alleging violations of RICO. DeGulle says he was injured by violations of law that prohibit any person employed by an enterprise engaged in interstate or foreign commerce from engaging in or conspiring to engage in a pattern of “racketeering activity” under 18 U.S.C. section 1962(c) and (d). To be successful, plaintiffs must show the injury resulted from the racketeering activity.
The U.S. District Court for the Eastern District of Wisconsin dismissed DeGuelle’s complaint, which alleges continuous racketeering acts like mail fraud, altering, destroying, or concealing documents with intent to obstruct justice, and retaliation against a witness.
The district court ruled that the alleged pattern of racketeering activity did not relate to the retaliatory actions taken against DeGuelle, namely, his termination, the company’s state lawsuit against him to retain confidential documents, and defamatory statements to the media.
According to the district court, the “tax fraud scheme aimed to defraud the IRS of tax revenue while the retaliation scheme’s sole purpose was to retaliate against DeGuelle for being a whistleblower,” wrote appeals panel Judge Michael Kanne.
But the appeals panel in DeGuelle v. Camilli et. al., No. 10-2172 (Dec. 15, 2011), agreed with Deguelle that section 1513(e) of the Sarbanes-Oxley Act provides additional remedies to whistleblowers under RICO, and thus the district erred in dismissing the case.
Under that provision, persons who retaliate against whistleblowers, including interfering with a whistleblower’s lawful employment, engage in racketeering activity, the panel explained. Under section 1513(e), “[r]etaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower,” the appeals panel ruled.
“Accordingly, we believe a relationship can exist between § 1513(e) predicate acts and predicate acts involving the underlying cause for such a retaliation.”
Thus, the appeals panel reversed the district court’s decision to dismiss the case in favor of the defendant S.C. Johnson employees involved in the alleged tax scheme and his termination.