Corporate Giant Can Proceed on Bribery and Racketeering Claims Against
By org jforward wisbar Joe Forward, Legal Writer,
State Bar of Wisconsin
Oct. 9, 2012 – Corporate giant S.C. Johnson & Sons,
which claimed various trucking companies engaged in kickback and bribery
schemes to the detriment of S.C. Johnson, recently
survived the defendants’ argument that federal law preempts the
state law claims.
Milton Morris was S.C. Johnson’s transportation department
director for almost 16 years. He selected carriers to transport goods
and negotiated transportation contracts.
In 2004, the company discovered that Morris was taking bribes from
carriers – including cash, goods, travel, and even prostitutes
– and giving favorable treatment on jobs and contracts.
Milton siphoned nearly $1.2 million into his personal accounts, and
S.C. Johnson claimed it paid more for transportation services because of
the unlawful scheme. It alleged that the defendants broke state laws on
bribery, fraud, conspiracy, and racketeering, among others.
Morris was convicted on criminal charges, and S.C. Johnson obtained a
$203.8 million state court judgment against several carriers involved.
However, S.C. Johnson subsequently filed claims in federal court after
discovering other suspected carriers involved.
Unlike the state court in S.C. Johnson’s state court case, the
U.S. District Court for the Eastern District of Wisconsin ruled that the
Federal Aviation Administration Authorization Act (FAAAA) of 1994
preempted the state law claims against the other carriers. It dismissed
Under that federal law, states “may not enact or enforce a law,
regulation, or other provision having the force and effect of law
related to a price, route or service of any motor carrier … with
respect to the transportation of property.” 49 U.S.C. §
The federal district court said the state laws on which S.C. Johnson
relied could not be enforced because the claims related to price, route,
or service of a motor carrier.
However, in S.C.
Johnson & Son, Inc. v. Transport Corporation of America Inc., et
al., No 11-3577 (Sept. 21, 2012), the U.S. Court of Appeals for
the Seventh Circuit reversed.
“In our view, the enforcement of anti-bribery (and more generally
anti-corruption) laws is too tenuously related to the regulation of the
rates, routes, and services in the trucking industry to fall within the
FAAAA’s preemption rule,” wrote Judge Diane Wood for a
“Although the racketeering claim presents a closer case, we
conclude that it too may go forward,” Judge Wood wrote. “To
the extent the racketeering charge relies on a bribery theory, what we
already have said about bribery is enough to show why any relation to
rates, routes, or services is tangential enough to survive
While the appeals court panel revived S.C. Johnson’s bribery and
racketeering clams, the panel agreed with the lower district court that
claims asserting fraudulent misrepresentation by omission and conspiracy
to commit fraud were preempted by federal law.