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 interrelated 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?
