Kentucky Employment Law Blog

Employer's Pretextual Reasons For Discharge Warranted Liquidated Damages for FMLA Violation, Sixth Circuit Rules

"Pretextual reasons for discharge manufactured after the fact in order to justify an earlier wrong are not consistent with good faith" stated the Sixth Circuit in Thom v. American Standard, Inc., Nos. 09-3507/3508 (6th Cir., January 20, 2012). The Court reversed a district court judgment not awarding liquidated damages where the Family Medical Leave Act (FMLA) was violated.

Liquidated damages -- in an amount double the amount of any compensatory damages -- are a presumed remedy under the FMLA, as the Sixth Circuit explained: "There is a strong presumption in favor of awarding liquidated damages that are double the amount of any compensatory damages." The burden is on the employer to show, despite a proved FMLA violation, it acted in good faith to comply with the FMLA. Hite v. Vermeer Mfg. Co., 446 F3d 858, 868 (6th Cir. 2006). 

In this case, as noted in an earlier post, FMLA Violated by Employee's Termination, Sixth Circuit Rules, American Standard claimed that it had long used a "rolling" method for calculating an employee's FMLA leave, a position that it first raised after it had fired Thom, a 36-year employee, and he had filed suit. The company got no further with this argument as proof of its good faith, as the Sixth Circuit pointedly rejected it and observed:

• Pretextual reasons for discharge manufactured after the fact in order to justify an earlier wrong are not consistent with good faith.
  
  
• Pretextual excuses are equivalent to reasons "not held in good faith." See, e.g., Thornley v. Penton Publishing, 104 F3d 26, 30 (2d Cir. 1997)("the jury is certainly entitled to reject the standards [for terminating employees] claimed by the employer on the grounds that these standards were pretextual -- i.e., they were not held in good faith.").
  
  
•  American Standard cannot demonstrate good faith by pointing to its reliance on a policy that Thom did not know about and was not used in Thom's case.
  
  
• Furthermore, after Thom was fired, his doctor wrote American Standard explaining how matters had developed with Thom's shoulder and requesting that he be reinstated to employment, a request that the company ignored, a stonewalling that caused the Sixth Circuit to observe that its "obdurate refusal to correct an obvious mistake that constituted a wrongful discharge of this 36-year employee reinforces the case for liquidated damages.

Robert L. Abell
www.RobertAbellLaw.com 

 

FMLA Violated By Employee's Termination, Sixth Circuit Rules

The rights of a long-term, 36-year employee under the Family Medical Leave Act (FMLA) were violated and he was wrongfully terminated, the Sixth Circuit has ruled in Thom v. American Standard, Inc, Nos. 09-3507/3508 (6th Cir., January 20, 2012).  The court affirmed a district court judgment.

Carl Thom began working for American Standard in June 1969. He requested FMLA leave from April 27, 2005, until June 27, 2005, on account of a non-work related shoulder injury and related surgery. American Standard approved Thom's FMLA leave through June 27, 2005, in writing.  Thom progressed well following surgery, and his doctor released him to return to "light duty" work on May 31 and further advised that Thom probably could be fully released on June 13, two weeks before the date initially expected.  

Thom tried to resume work on May 31, but the company sent him home, explaining that it did not allow "light duty" work to employees with non-work-related injuries. On June 14, the company contacted him because he did not appear for work on June 13. Thom explained that he had suffered a setback with his shoulder and said he would get a doctor's note explaining. On June 18 Thom delivered to the company a doctor's note requesting that his leave be extended to July 18. However, American Standard had already terminated his employment, because it had counted June 13-17 as unexcused absences.  

The district court ruled that Thom's termination unlawfully interfered with his rights under the FMLA. Its judgment awarded Thom $104,354.85 in back pay, $2,732.90 in costs and $99,960 in attorney's fees. It also ordered further relief to protect Thom's pension and retirement benefits.

The Sixth Circuit framed the issue as whether American Standard had properly informed Thom of the method by which it calculated his FMLA leave time. American Standard claimed that the "rolling" method of calculation applied, which meant that Thom's FMLA leave expired June 13. The "calendar" method allows for 12 weeks of FMLA leave in each calendar year, and this method would have extended Thom's FMLA leave through at least July 14.

The Sixth Circuit rejected American Standard's claimed reliance on the "rolling" method of calculation, explaining as follows:

• At no time throughout the FMLA process did the company mention to Thom that his leave time would be governed by a "rolling" 12-month period. 
  
  
• Thom was only notified that American Standard had accelerated his return-to-work date on June 14, after it had already elapsed the day before.
  
  
• The first time Thom was given actual notice that the Company was using a "rolling" method requiring him to return to work on an earlier date was after he filed his lawsuit in this case when the defense lawyers raised the rolling method as a defense.

The Court concluded that "the Company's post-lawsuit defenses that the rolling method should be used to fix the date or that any date earlier than June 27 should be used are unreasonable" and affirmed the district court's ruling on this point.

Robert L. Abell
www.RobertAbellLaw.com 

 

Kentucky Supreme Court Rules That The First Amendment Does Not Recognize Any Right to Seek Political Office

The First Amendment protects and promotes unfettered and robust debate, discussion and speech on political candidates, political issues and public affairs.  But does it protect or recognize a right to seek political office, to be a candidate for political office? "No" answered the Kentucky Supreme Court recently in Cook v. Popplewell, No. 2009-SC-341 (December 22, 2011), affirming summary dismissal orders of the trial court and Court of Appeals and adopting a distinctly minority view on the issue. 

Stacie Cook was employed as a deputy clerk in the Russell County Clerk's office.  Shortly after she announced her candidacy to challenge her boss and the incumbent, Lisha Popplewell, in the 2006 election she was fired.  Cook filed suit under 42 USC 1983 claiming that her firing violated her First Amendment rights. More specifically, Cook claimed that she was fired based on the mere fact that she was a candidate for the office not because of any speech in which she claimed she was a superior candidate or because of any affiliation or alliance she entered to promote her candidacy. Accordingly, the Court framed the question as "whether candidacy for political office, standing alone, receives protection under the First Amendment?" On this question the Court majority (Justices Venters, Cunningham, Schroder and Scott), held "that the First Amendment affords no constitutional protection to candidacy for political office  per se."

Justice Abramson authored a concurring opinion joined by Chief Justice Minton and Justice Noble.  While agreeing that Cook was not entitled to any relief, the concurrence rejected the view "that candidacy, running for office, seemingly one of the most basic forms of speech a democratic society fosters, enjoys no protection under the First Amendment."

Robert L. Abell
www.RobertAbellLaw.com 

 

 

Is Whether A Comparator Is Similarly Situated A Jury Question?

A common method of proof in discrimination cases is the disparate treatment between employees that are similarly situated.  But who gets to decide -- the jury at trial or the judge on the employer's motion for summary judgment -- whether the plaintiff and the proposed comparator are similarly situated?  It is a jury question the Sixth Circuit ruled in its recent case, Bobo v UPS, No 09-6348 (January 9, 2012).  This case has been discussed in two previous postings: Similarly Situated In All Relevant Respects; The Sixth Circuit Reverses Based On the District Court's Limiting of Plaintiff's Discovery and Who Is A Similarly Situated Comparator? The Sixth Circuit Again Clarifies.

The plaintiff, Walleon Bobo an African-American and Iraq War combat veteran as well as a long-term UPS employee, was investigated along with other feed line supervisors regarding falsification of "safety ride" forms for drivers each supervised.  Bobo admitted to some falsification; a number of white supervisors, according to Bobo's contention, lied and claimed that they had not done any falsification.  Bobo claimed that he and these other supervisors were similarly situated, because they all had done some falsification regarding the safety rides. Bobo also aimed to draw the contrast between his conduct and these other supervisors, who had committed the double sin of both falsifying safety ride reports and lying about it during UPS's investigation yet still were not fired.

The Sixth Circuit ruled that "whether the other identified supervisors who did not admit misconduct are similarly situated to Bobo is a jury question." That the issue of whether the plaintiff and proposed comparators are or are not similarly situated is for the jury to decide is the result reached by a number of circuits: Mandell v. County of Suffolk, 316 F.3d 368, 379 (2^nd Cir. 2003); George v. Leavitt, 407 F.3d 405 (D.C. Cir. 2005).

Robert L. Abell
www.RobertAbellLaw.com 

 

5th Time the Charm in Ash v. Tyson Foods? The Eleventh Circuit Reverses Itself and Allows To Stand (Partially) A 2d Jury's Race Discrimination Verdict for Plaintiff On The Court's 5th Pass At the Case

Some cases are hard. Some cases illustrate the at times seemingly insurmountable barriers that plaintiffs must overcome time and again to hold one of our Nation's large corporations accountable for lawless and wrongful conduct. And some cases also illustrate the erosion of the primacy of the civil jury to find facts and decide cases. Ash v. Tyson Foods is all three. On December 16, 2011, on the 5th pass by the Eleventh Circuit at the case, Judges Carnes and Pryor reversed their earlier per curiam opinion and allowed to stand the 2d jury verdict in the plaintiff's favor, although the court scornfully vacated the jury's  $1 million punitive damages award, which was the 2d jury to assess $1 million or more in punitive damages in the case.   

15 years of litigation is too much to discuss in a blog post but here is a chronology of the case:

• December 16, 1996 - the case is filed in federal district court in Birmingham, Alabama. There are six plaintiffs, Anthony Ash, Eddie Bullock, Robin Davenport, John Hithon, Travis Tanner and Vivian Thornton
   
• November 18, 1999 - the trial court, Magistrate Judge Robert Armstrong, partially grants but mostly denies Tyson's motions for summary judgment. Left standing are racial discrimination in promotion claims by Ash and Hithon, retaliation claims by Bullock and Tanner, and a fraudulent inducement claim by Thornton. Davenport's claims are dismissed. The claims of Ash and Hithon are severed for trial from the others.
  
  
• February 6, 2002 -  after plaintiffs stay the case and obtain appealability of the summary judgment order, the Eleventh Circuit affirms without issuing a written opinion of any kind, simply a one word order "affirmed." Judges Anderson, Dubina and Mills preside over Ash I.
  
  
• September 19, 2002 - a jury returns identical verdicts in favor of both Ash and Hithon on their race discrimination claims awarding each $250,000 in compensatory damages and $1.5 million in punitive damages.
  
  
• March 26, 2004 - a year and a half after the trial, the Magistrate Judge Robert Armstrong grants Tyson's Rule 50 motions and vacates the jury's verdicts in the plaintiff's favor. The same day stipulations of dismissal are filed as to the claims of Bullock, Tanner and Thornton.
  
  
• May 18, 2004 - although Magistrate Judge Armstrong has already vacated the jury's verdict and granted Tyson's Rule 50 motion, Judge Armstrong, nonetheless, also grants Tyson's alternative motion for a new trial.  Judge Armstrong explains that the compensatory damages and punitive damages awards "are against the great weight of the evidence and are outrageously excessive and shocking to the judicial conscience." A second jury will later award Hithon $300,000 in compensatory damages and $1 million in punitive damages.
  
  
•  April 19, 2005 - the Eleventh Circuit (Judges Dubina, Carnes and Marcus) affirms the district court's rulings regarding Ash's discrimination claims but reverses regarding Hithon's, although it upholds the new trial order explaining that "there was insufficient evidence to support the jury's punitive damages award and the compensatory damages award was excessive." This is Ash II. 
  
  
• February 21, 2006 - the Supreme Court reverses the Eleventh Circuit in a per curiam opinion. 546 U.S. 454 (2006). The Court chastised the Eleventh Circuit for its efforts to disregard or explain away the racially discriminatory bias that can reasonably be inferred from a white supervisor referring to a grown African-American man as "boy":
  
  First, there was evidence that Tyson's plant manager, who made the disputed hiring decisions, had referred on some occasions to each of the petitioners as "boy." Petitioners argued this was evidence of discriminatory animus. The Court of Appeals disagreed, holding that "while the use of 'boy' when modified by a racial classification like 'black' or 'white' is evidence of discriminatory intent, the use of 'boy' alone is not evidence of discrimination." Id. at 533. (citation omitted). Although it is true the disputed word will not always be evidence of racial animus, it does not follow that the term, standing alone, is always benign. The speaker's meaning may depend on various factors including context, inflection, tone of voice, local custom, and historical usage. Insofar as the Court of Appeals held that modifiers or qualifications are necessary in all instances to render the disputed term probative of bias, the court's decision is erroneous. 
  
  
•  August 2, 2006 - undeterred by the Supreme Court's reversal the Eleventh Circuit (Judges Dubina, Carnes and Marcus) repeats its earlier ruling. Ash's claims are finished and Hithon's remanded for a second jury trial. This is Ash III.
  
  
• August 14, 2007 -  a second jury returns a verdict for Hithon and against Tyson on his race discrimination claim. The jury awards Hithon $35,000 in back pay, $300,000 in compensatory damages and $1 million in punitive damages.
  
  
• August 17, 2010 - more than 3 years after the second jury's verdict in Hithon's favor against Tyson, the Eleventh Circuit in a 2-1 decision by Judges Carnes and Pryor vacates the jury's verdict and orders, notwithstanding the verdicts of two separate juries at two separate trials nearly five years apart, that judgment be entered in Tyson's favor. Judge David Dowd (a visiting district judge from the Northern District of Ohio) dissents, explaining simply "Two juries have found the issues in favor of the plaintiff Hithon and granted both compensatory and punitive damages." Judge Dowd does suggest that the punitive damages should be remitted.  This is Ash IV.
   
•  December 16, 2011 - exactly 15 years after the case was filed, Judges Carnes and Pryor reverse themselves on a petition for rehearing. On its 5th pass at the case, the Eleventh Circuit partially lets stand a jury's verdict in Hithon's favor against Tyson Foods and upholds the jury's award of compensatory damages and back pay, although it strikes down the $1 million punitive damages award explaining, in essence, that Tyson Foods is too large and unwieldy to be held accountable for the lawlessness of its manager's conduct. This is Ash V. 

The lead plaintiffs' counsel in the case is Alicia K. Haynes of the Birmingham, Alabama firm of Haynes & Haynes. Whatever your view of this case may be lawyer Haynes is to be commended for her extraordinary representation of her clients in this case.

Robert L. Abell
www.RobertAbellLaw.com 

 

 

Similarly-Situated In All Relevant Respects; The Sixth Circuit Reverses Based On the District Court's Limiting of Plaintiff's Discovery

Discrimination cases turn frequently on whether the plaintiff can identify one or more comparators who are similarly-situated in all relevant respects. The different treatment between the employees serves as powerful illustration and evidence of discrimination. In an extremely rare development, the Sixth Circuit recently reversed in Bobo v. UPS, No. 09-6348 (January 9, 2012), a summary judgment granted UPS based principally on the trial court's limiting of plaintiff's discovery.

The plaintiff, Walleon Bobo, an African-American, was a long-term UPS employee as well as an Army Reservist injured in combat in Iraq. Although his immediate supervisors expressed resentment with this Army service, he obtained certification for the job of on-road feeder supervisor to train and supervise UPS drivers.  

Bobo and the other feeder supervisors were required to conduct an annual "safety ride" and one following an accident with each driver they supervised. A "safety ride" was supposed to consume a full workday, cover various topics and the driver was also required to certify its completion. In theory, a "safety ride" was supposed to take all day and be completed off UPS property. In practice, however, safety rides were routinely conducted on UPS property and the forms regarding their conduct routinely falsified by both driver and supervisor. Eventually, a driver, Flenorl, perhaps at the instigation of other supervisors resentful of Bobo filed a complaint against Bobo asserting that his "safety ride" with Bobo had not been conducted properly.  

Flenorl's complaint prompted an investigation. Bobo admitted that he did not properly conduct Flenorl's safety ride and that the form had been falsified. Interestingly, Flenorl provided Bobo an affidavit in the litigation stating that such violations were routine including among white feeder supervisors. Bobo was fire in May 2007 as a result of the violations of the "safety ride" practice and alleged dishonesty regarding completion of the forms.

Bobo filed suit following his termination claiming discrimination and retaliation in violation of the Uniformed Services Employment and Reemployment Rights Act (USERRA), race discrimination and retaliation in violation of 42 USC 1981, Title VII and state law. The district court granted UPS summary judgment on all Bobo's claims.

Bobo sought in discovery information regarding a number of white, non-military supervisors to whom he compared himself.  UPS provided information regarding only one, a man named Randy Wallace, who was fired five months after Bobo and after he also admitting falsifying safety ride forms. Bobo identified others about whom he specifically sought further information as follows: (1) two other supervisors, Pendleton and Jordan, who received better treatment (so Bobo claimed) because they falsely denied falsification of safety ride forms; (2) a Spears, who had falsified an audit document and like Bobo was a long-term employee without any prior disciplinary record; (3) a Hardy, who falsified time cards but was not fired; and, (4) an investigator, Barrett, who used deceptive tricks during an investigation.  

The district court denied Bobo's motion that UPS be compelled to provide further information regarding the employees besides Randy Wallace relying erroneously on Mitchell v. Toledo Hospital, 964 F.2d 577 (6th Cir. 1992). The erroneous application of Mitchell was discussed in a previous post, Who Is A Similarly-Situated Comparator; The Sixth Circuit Again Clarifies.

Although the Sixth Circuit, in an opinion written by its newest member, Judge Jane Stranch of Tennessee, ruled that disputed issues of material fact existed to justify reversal of summary judgment, it advised that it was reversing "primarily because of discovery and procedural error." First, the court explained that the district court's "framing of the similarly-situated standard [was] too narrow and necessitate[d] an exact correlation not required by the law of this circuit." Martin v. Toledo Cardiology Consultants, Inc., 548 F.3d 405, 412 (6th Cir. 2008). Second, citing its prior decision in Clay v. UPS, 501 F.3d 695 (6th Cir. 2007), the court observed that an adverse inference might be drawn properly against UPS based on the "general rule ... that where relevant information ... is in the possession of one party and not provided, then an adverse inference may be drawn that such information would be harmful to the party who fails to provide it." Finally, the court noted that "Clay and this case also point to the problems inherent in allowing a defendant to control the designation of comparators by simply refusing to provide requested comparator evidence except as to those persons it selects." Accordingly, the court ordered that Bobo's discovery requests be re-examined on remand.  

Robert L. Abell
www.RobertAbellLaw.com 

  

Who Is A Similarly-Situated Comparator? The Sixth Circuit Again Clarifies

Who is similarly-situated comparator employee whose different treatment suggests, indicates or proves discrimination toward a plaintiff? In a 1992 decision, Mitchell v. Toledo Hospital, 964 F2d 577 (6th Cir. 1992), the Sixth Circuit remarked that to be considered similarly-situated to the plaintiff, the comparator employee must have worked for the same supervisor. It clarified the limitations of this point later in Ercegovich v. Goodyear Tire, 154 F.3d 344 (6th Cir. 1998), where the court explained that comparator employees need be similar in all relevant aspects, a requirement that did not necessarily include the same supervisor.  

The Sixth Circuit was again caused to take up the issue of who may properly be considered as similarly-situated comparator employees in Bobo v. UPS, No. 09-6348 (6th Cir., January 9, 2012), where it reversed the summary judgment granted UPS by the district court.  The court, in an opinion authored by Judge Stranch, explained as follows:

• "We long ago clarified that courts should not assume 'the specific factors discussed in Mitchell are relevant factors in cases arising under different circumstances, but should make an independent determination as to the relevancy of a particular aspect of the plaintiff's employment status and that of the non-protected employee.'"
  
  
• "In Ercegovich, we concluded that the differences in job activities did not destroy comparator status because such differences do not 'automatically constitute a meaningful distinction that explains the employer's differential treatment of the two employees.' The key word in Ercegovich is 'relevant' and the case instructs that the factors listed in Mitchell or other cases are only apposite  where they are meaningful to the particular claim of discrimination presented."
  
  
•  Plaintiff "was not required to demonstrate an exact correlation between himself and others similarly situated; rather, he had to show only that he and his proposed comparators were similar in all relevant aspects, and, that he and his proposed comparators engaged in acts of comparable seriousness."
  
  
• "While Mitchell stated that similarly-situated employees must have dealt with the same supervisor, we later explained that the inquiry 'does not automatically apply in every employment discrimination case.' McMillan v. Castro, 405 F.3d 405, 414 (6th Cir. 2005). Moreover, we hae never read 'the same supervisor criterium' as an 'inflexible requirement.' Seay v. TVA, 339 F3d 454, 479-80 (6th Cir. 2003). Whether it is relevant in a particular case that employees dealt with the same supervisor depends on the facts presented. McMillan, 405 F3d at 414. Thus, the focus of the litigation is not on a comparison of 'the employment status of the plaintiff and other employees in every single aspect of employment.' Ercegovich, 154 F.3d at 352."
  
  

The Sixth Circuit betrays a bit of impatience (as indicated by phrases such as "We long ago clarified," "we later explained," "we have never read") and its discussion and holding aligns with other circuits who have themselves found necessary recently to address the proper analysis of the similarly-situated issue as this blog has previously discussed: Can A Supervisor Be Similarly-Situated To A Subordinate Employee and Similarly-Situated Employees Need Not Have the Same Supervisor.   

Robert L. Abell
www.RobertAbellLaw.com 

For How Long May Front Pay Be Awarded?

Front pay is awarded to compensate for future income lost due to an unlawful termination of employment. Its amount should be equal to the difference between what the employee would have earned from his or her former employer and the amount, if any, he or she could expect to earn from her new employer. The how much question regarding front pay is easy. More difficult is the how long question. Recently, a federal district court in Alabama examined the how long question in Warren v County Commission of Lawrence County, Alabama and found that front pay covering 32 years should be awarded.

Bonnie Warren was a payroll clerk for the County. For particulars that the opinion does not discuss she was discharged from employment and filed suit for overtime compensation under the Fair Labor Standards Act and for retaliation under Title VII. A jury found for her on both claims and awarded damages of $400,600. Following trial she filed a motion for equitable relief seeking front pay covering 32 years, all the way to retirement age 65.

The court awarded Warren front pay covering 32 years and totaling $650,886.40, explaining as follows along the way:

• prevailing Title VII plaintiffs are presumptively entitled to either reinstatement or front pay
• where reinstatement is not a realistic option, an award of front pay is a necessary part of the "make whole" relief mandated by Congress. Pollard v. E.I. du Pont de Nemours & Co., 532 US 843 (2001); Shore v. Federal Express, 777 F2d 1155, 1158-59 (6th Cir. 1985)
  
  
• Expert economic testimony was not necessary to support warrants calculations of either lost wages or benefits
  
  
• County employees had long stable work histories and it was not unusual for county employees to work for the county for several decades before reaching retirement age
  
  
• Numerous courts have awarded front pay covering long periods of time where the opportunities for a plaintiff to find an equivalent job were limited. Tyler v. Bethlehem Steel, 958 F2d 1176 (2d Cir. 1992)(upholding award of 17 years of front pay in age discrimination case until employee reached retirement age); Passantino v. Johnson & Johnson, 212 F3d 493 (9th Cir 2000)(upholding award of 22 years of front pay in retaliation case until employee reached age 65); Gotthardt v. National R.R. Passenger Corp., 191 F3d 1148 (9th Cir. 1999) (upholding front pay award of $603,928.37 for employee until mandatory retirement age of 70); Padilla v. Metro-North Commuter R.R., 92 F3d 117 (2d Cir. 1996)( upholding front pay award of over 20 years until retirement age of 67)
  
  
• A discounting to present value was not necessary where the front pay calculation does not factor in any future increases in pay or cost-of-living increases. This method of calculating front pay is known as the "total offset method" or the "Alaska Rule." 

Robert L. Abell
www.RobertAbellLaw.com 

What Must a Credit Union Whistleblower Prove In a Retaliation Case?

The Federal Credit Union Act, 12 U.S.C. sec. 1790b, makes it unlawful to retaliate against a whistleblower who engages in certain protected activity. The statute states as follows:

No insured credit union may discharge or otherwise discriminate against any employee with respect to compensation, terms, conditions, or privileges of employment because the employee (or any person acting pursuant to the request of the employee) provided information to the [National Credit Union Administration] Board or the Attorney General regarding any possible violation of any law or regulation by the credit union or any director, officer, or employee of the credit union.

The Fifth Circuit recently identified in Schroeder v. Greater New Orleans Federal Credit Union, No. 10-31169 (December 19, 2011), the elements of a cause of action for violation of this statute as follows: (1) that the plaintiff-employee engaged in a protected activity; (2) that the employer credit union took adverse employment action against him or her; and, (3) that a causal link exists between the protected activity and the adverse employment action.

The Fifth Circuit followed earlier decisions by the First Circuit, Simas v. First Citizens Federal Credit Union, 170 F.3d 37 (1st Cir. 1999), and the Sixth Circuit, McNett v Hardin Community Federal Credit Union, 118 Fed.Appx. 960 (6th Cir. 2004), for this holding.  

Robert L. Abell
www.RobertAbellLaw.com 

RICO Claims Arise From Retaliation Against Corporate Whistleblower, Seventh Circuit Rules

A tax employee, who claimed that he was fired in retaliation for his whistleblowing reports of tax fraud, may pursue claims and remedies under the Racketeering and Corrupt Organizations Act (RICO), 18 U.S.C. secs. 1962(c), (d), the Seventh Circuit ruled recently in DeGuelle v. Camilli, No. 10-2172 (7th Cir., December 15, 2011).  The ruling reversed a district court's dismissal of the case.

Michael DeGuelle was employed in the tax department of S.C. Johnson & Son, Inc., a company with over 120,000 employees world-wide. He learned that the company had received $5 million plus in improper foreign tax credits due to an IRS auditing error. He reported the discovery to his supervisor, Wenzel, who told him to destroy records to keep the IRS from finding out the truth and to alter some relevant returns.  This was the first instance, according to the court's opinion, where records were altered or destroyed and falsified returns mailed to the IRS. The court's opinion recites a number of disturbing instances and transactions that followed in the next few years.

DeGuelle, according to the court's opinion, met with much grief for bringing to light the company's wrongdoing.  His supervisor, Wenzel, became highly antagonistic toward him and, at times, physically aggressive.  DeGuelle received a procedurally irregular and highly negative mid-year performance review that followed only a few months his receipt of an award for outstanding job performance, had the company's human resources department acknowledge that his negative review was in retaliation for his whistleblowing activities, and received an offer to have his attorney's fees paid in exchange for signing a release of claims and confidentiality agreement the same day that he said that he would file a Sarbanes-Oxley whistleblower complaint with the Department of Labor.  DeGuelle did file a complaint with the DOL and attached financial statements, tax documents and internal emails to his complaint.  Subsequently, he was offered one year salary in exchange for his resignation, release of all claims and signing of a confidentiality agreement.  Subsequently and after DeGuelle declined the resignation etc. offer, he was fired for wrongfully taking and disclosing company documents and for being untruthful during the company's investigation of his reports.  

DeGuelle filed suit following his termination and pleaded various claims including two under RICO, 18 U.S.C. 1962(c) and (d). The district court dismissed his claims on the grounds that the retaliation against DeGuelle was unrelated to his reports of alleged tax fraud by his employer. This remarkably erroneous ruling was met with strong criticism by the Seventh Circuit:

When an employer retaliates against an employee, there is always an underlying motivation. In this case, for example, the motivation was to retaliate against DeGuelle for disclosing the tax scheme. Retaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower. Although there may not be the same victims or results, in most cases retaliatory acts and the underlying scheme "are interreleated by distinguishing characteristics and are not isolated events."  

Accordingly, the Seventh Circuit reinstated DeGuelle's RICO claims and rejected decisions by other courts that have not permitted RICO claims in similar circumstances.  

Although the court's opinion is not clear exactly what company documents the employer claimed that DeGuelle wrongfully possessed and/or disclosed, if those documents are the ones that DeGuelle tendered with his whistleblower complaint to the Department of Labor, the company's reliance on that disclosure may raise some of the issues discussed in an earlier post on this blog, Can A Policy Violation Also Be Protected Activity?

Robert L. Abell
www.RobertAbellLaw.com