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RICO Claim of Retaliation for Whistleblower Activity Restored on Appeal

A tax manager at a home products company was terminated after reporting a tax fraud scheme to the company and federal agencies. Following the internal report, the tax manager received a negative performance evaluation from a supervisor involved in the alleged scheme. After the external reports and failed attempts to get the tax manager to sign a release of claims, the company terminated him and sued the tax manager for breach of contract and conversion. In response, the tax manager sued for a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). In a RICO claim, recovery is available upon a showing that the plaintiff was injured “by reason of” a pattern of racketeering activity. Based on the pleadings, the tax manager was limited to showing that he was injured “by reason of” the company’s retaliatory conduct to his whistleblower activity. In allowing the tax manager’s claim to survive a motion to dismiss, the U.S. Court of Appeals Seventh Circuit focused on a provision of the Sarbanes-Oxley Act making it unlawful to “knowingly . . . 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.” Violation of this provision is a “racketeering activity” under the RICO, and the Seventh Circuit held that retaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower. Accordingly, the alleged tax fraud scheme and retaliatory acts could not be viewed as isolated acts. After all, the same supervisors involved in the tax fraud scheme were responsible for the retaliatory conduct. Additionally, the timing between the whistle-blowing, attempts to get a release and the decision to terminate could support an inference that the tax manager was terminated for whistle-blowing after attempts to silence him failed. If possible, employers should prohibit supervisors accused of wrongdoing from making disciplinary decisions related to the complaining employee.

DeGuelle v. Camilli, No. 10-2172 (7th Cir. Dec. 15, 2011)