DeGuelle v. Camilli et al

Filing 11

ORDER signed by Judge J P Stadtmueller on 4/12/10 granting 7 defendant's Motion to Dismiss the complaint; Counts One and Two of the complaint are dismissed with prejudice, and Counts Three, Four, and Five are dismissed without prejudice. See Order. (cc: all counsel) (nm)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN
____________________________________________ M IC H A E L J. DEGUELLE, P l a i n t if f , v. K R IS T IN J. CAMILLI, MARK H. ECKHARDT, GAYLE P. KOSTERMAN, DONALD L. PAPPENFUSS, ROBERT S. RANDLEMAN, DANIEL J. W E N Z E L , and SC JOHNSON & SON INC., D e fe n d a n ts . ____________________________________________ Case No. 10-CV-0103

ORDER
T h e plaintiff, Michael J. DeGuelle ("DeGuelle"), a former employee of SC J o h n s o n & Son Inc. ("SCJ"), filed a complaint in this court on February 5, 2010, a g a in s t his former employer and six former and current SCJ employees, alleging, a m o n g other claims, two causes of action arising under the Racketeer Influence and C o rru p t Organizations Act ("RICO"), 18 U.S.C. § 1961. (Docket #1). Less than two w e e k s later, on February 17, 2010, the defendants collectively moved to dismiss the c o m p la in t in its entirety pursuant to Fed. R. Civ. P. 12(b)(6). (Docket #7). The m o tio n to dismiss has been fully briefed, and, accordingly, the court is prepared to ru le on the motion. The court begins by recounting the facts as provided in the p la in tiff's complaint.

F AC T U AL BACKGROUND S C J is a multinational company, selling consumer products in hundreds of c o u n trie s with billions of dollars of revenue. (Compl. ¶¶ 14-16). DeGuelle's

c o m p la in t to the court indicates that from January 2, 1997, until April 10, 2009, the p la in tiff was employed at SCJ. (Compl. ¶ 12). From the commencement of his e m p lo ym e n t until September of 2004, DeGuelle served in SCJ's tax department as a n "International Tax Compliance Manager" and, in the last four years of his e m p lo ym e n t, the plaintiff was SCJ's "State Tax Manager." Id. DeGuelle alleges in h is complaint that during his tenure in both positions, he discovered several, and w h a t he believes to be purposeful, errors in SCJ's tax reporting that resulted in gains fo r the company and personal benefits for some of SCJ's employees. T h e first such error DeGuelle allegedly learned of was during his employment a s SCJ's "International Tax Compliance Manager." In that position, the plaintiff was re s p o n s ib le for preparing various forms that the company would provide to the In te rn a l Revenue Service. (Compl. ¶¶ 17-27). In these forms, SCJ was required to d is c lo s e income the company had derived from international commerce. Id.

M o re o ve r, the forms also provided SCJ an opportunity to disclose "tax credits" that w o u ld decrease the firm's tax liability. Id. The credits primarily stemmed from taxes th e company paid to foreign governments. Id. DeGuelle alleges that on December 1 5 , 2000, he discovered from audit reports provided to him by SCJ's global tax c o u n s e l, Daniel J. W e n z e l ("W e n z e l"), that SCJ had overstated the amount of foreign -2-

ta x credits it claimed in 1998, 1999, and 2000. (Compl. ¶ 31). Furthermore, the p la in tiff broadly alleges that in January of the following year, soon after the plaintiff in fo rm e d SCJ's tax counsel of the errors, that W e n z e l told the plaintiff to ignore the p ro b le m and eventually forced DeGuelle to "alter, destroy and change SCJ's b u s in e s s records so that the IRS errors could not be detected." (Compl. ¶ 37). The p la in tiff further contends that W e n z e l's misdeeds did not cease in 2001, and that W e n z e l instructed the plaintiff and a fellow employee to "structure a transaction that w o u ld allow SCJ to claim a tax deduction for the same goods sold twice" and to "d e s tro y all business records of SCJ associated with the . . . transaction." (Compl. ¶ 38). DeGuelle argues that W e n z e l took such actions in order to receive a

"sig n ific a n tly higher discretionary bonus" from the company. (Compl. ¶ 42). D e G u e lle 's complaint further alleges that four years later, in February of 2005, w h ile DeGuelle was employed as a "State Tax Manager," W e n z e l "instructed [the p la in tiff] to fraudulently alter an income statement by improperly netting numbers on th e statement against an expense, instead of reporting the numbers individually." (C o m p l. ¶ 47). The plaintiff states that he initially refused to comply with W e n z e l's re q u e s t, but upon receiving a memorandum to follow W e n z e l's instructions from D o n a ld L. Pappenfuss ("Pappenfuss"), a supervisor in SCJ's tax division, DeGuelle c o m p lie d . (Compl. ¶¶ 50-52). DeGuelle claims improprieties at SCJ continued into June of 2005 when P a p p e n fu s s prepared an amended tax return for the 1998 fiscal year, reporting -3-

"e xc e s s " tax credits on the amended return in order to, according to the plaintiff, o b t a in an undeserved tax refund. (Compl. ¶¶ 54-55). Subsequently, Robert

R a n d le m a n ("Randleman"), SCJ's Vice President and Corporate Tax Counsel, s ig n e d the amended return and submitted it to the IRS. (Compl. ¶ 56). The plaintiff a lle g e s another error occurred in July of 2007, when Pappenfuss and W e n z e l ig n o re d DeGuelle's contention that SCJ needed to "make a reserve" for state tax p u rp o s e s because a "potential $30,000,000 exposure" to SCJ stemming from an in te rc o m p a n y loan. (Compl. ¶ ¶ 58-59). In October of 2007, DeGuelle complained to the Director of Human Resources a t SCJ, Kristin J. Camilli ("Camilli"), and contended that W e n z e l was "creating a h o s tile work environment for him." (Compl. ¶ 60). However, in January of 2008, C a m illi met with DeGuelle and told him that, based on her investigation, she found tha t W e n z e l "was not creating a hostile working environment." (Comp. ¶ 62).

F in d in g Camilli's treatment of his complaint unsatisfying, the plaintiff opted to d isc lo s e W e n z e l's misconduct to SCJ's human resources director. Id. Concerned w ith the plaintiff's allegations, Camilli asked DeGuelle to cooperate in an internal in ve s t ig a t io n regarding W e n z e l's alleged improprieties by providing her copies of S C J 's tax records. (Compl. ¶ 63). To properly investigate the plaintiff's allegations, S C J created an internal committee, comprised of Gayle P. Kosterman ("K o s te r m a n " ), SCJ's executive Vice President of W o r ld w id e Human Resources, S C J 's general counsel, and SCJ's head of internal audit. (Compl. ¶ 65). The -4-

in te rn a l committee also hired the international law firm of Kirkland & Ellis LLP (" K irk la n d ") to investigate the matter. (Compl. ¶ 67). The plaintiff subsequently s p o k e with attorneys from Kirkland to discuss the matter. (Compl. ¶ 68). Nothing in the complaint indicates that the internal committee investigating the matter, K irk la n d , or any other auditor found anything improper with what was occurring in S C J 's tax department. In March of 2008, the plaintiff alleges that W e n z e l met with DeGuelle and b e g a n to "yell" at the plaintiff for having "discussions with others in Accounting and H u m a n Resources." (Compl. ¶ 70). That same month, the plaintiff received a poor p e rfo r m a n c e review (Compl. ¶ 73), despite receiving an award for his job p e rfo rm a n c e two months earlier. (Compl. ¶ 69). One month later, the plaintiff re q u e s te d a "salary adjustment," such that he would receive a raise substantially a b o ve the $103,000 annual salary he was currently earning. (Compl. ¶ 76).

D e G u e lle contends that W e n z e l denied the plaintiff's request because of "some of th e problems" the plaintiff "had in the past few months." (Compl. ¶ 77). In a May 2008 meeting, Ms. Kosterman informed the plaintiff that "neither . . . W e n z e l nor any other employee of SCJ committed any wrongdoing." (Compl. ¶ 78). H o w e v e r, in the months that followed, the plaintiff continued to express frustrations w ith W e n z e l's decisions regarding SCJ's compliance with the law. (Compl. ¶¶ 808 3 ) . On September 23, 2008, the plaintiff received another poor performance e va lu a tio n from W e n z e l. (Compl. ¶¶ 84-85). After DeGuelle complained about the -5-

e va lu a tio n , Kosterman and Camilli investigated the matter and ultimately "revoked a n d invalidated" the evaluation in December of 2008. (Compl. ¶ 91). At a meeting between Kosterman, Camilli, and DeGuelle on December 18, 2 0 0 8 , the plaintiff rejected requests to cease complaining about the irregularities with S C J 's tax reporting, informed the SCJ's officials that he would be reporting the a lle g e d improprieties to the United States Department of Labor, and renewed his re q u e s t for a salary increase. (Compl. ¶¶ 91-92). Later in the day, according to the c o m p la in t, Ms. Kosterman and Ms. Camilli contacted DeGuelle and told him that S C J would provide him with a retroactive merit increase in salary and would pay D e G u e lle 's attorney fees if the plaintiff signed a "full release of claims and [a] c o n fid e n tia lity agreement." (Compl. ¶ 93). The plaintiff rejected the offer. (Compl. ¶ 94). Nonetheless, Camilli later informed DeGuelle that he would still be receiving a n increase in salary and that his poor performance review would "disappear." Id. O n the same day the plaintiff met with Kosterman and Camilli, December 18, 2 0 0 8 , DeGuelle filed a whistleblower complaint with the Department of Labor re g a rd in g the "tax fraud" being committed in SCJ's tax department, providing the g o ve rn m e n t with internal documents from SCJ. (Compl. ¶ 95). A month later, the p la in tiff made a similar complaint to the Internal Revenue Service and the D e p a rtm e n t of Justice. (Compl. ¶ 98). Eventually, the various government agencies in fo r m e d DeGuelle that the government would not act on his complaints because S C J was not a covered entity under the relevant laws and regulations. (Compl. -6-

¶ ¶ 98, 104). Nothing in the complaint suggests that the government took any s u b s ta n tiv e actions to prosecute individuals at SCJ. In early February of 2009, the plaintiff emailed Dr. H. Fisk Johnson, ("J o h n s o n "), the Chief Executive Officer of the company, requesting a personal m e e tin g to discuss what DeGuelle perceived to be illegal acts occurring in the c o m p a n y. (Compl. ¶ 101). On February 10, 2009, after Johnson had forwarded the e m a il to SCJ's human resources department, Kosterman met with DeGuelle, in fo rm in g the plaintiff that the company had investigated his allegations and found n o illegal actions had taken place, ultimately telling DeGuelle "it is appropriate for yo u and the company to move beyond these issues." (Compl. ¶¶ 102-03). DeGuelle claims that SCJ tax department's improprieties did not end, h o w e ve r. On March 10, 2009, the plaintiff alleges the tax department filed a second a m e n d e d return for fiscal year 1998, which claimed "excess foreign tax credits . . . to fraudulently obtain a tax refund." (Compl. ¶¶ 107-08). DeGuelle states, without e xp la in in g , "on information and belief, the RICO Defendants personally benefitted fro m the amended tax returns . . . as they received significantly higher discretionary b o n u s e s from SCJ in those years." (Compl. ¶ 109). Troubled by what he saw, on M a rc h 19, 2009, DeGuelle provided SCJ's tax counsel with a five page m e m o ra n d u m detailing his concerns regarding the misconduct of SCJ's tax d e p a rtm e n t. (Compl. ¶ 110).

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T h e complaint further alleges that in March of 2009 Kosterman offered D e G u e lle "the opportunity to resign his employment with SCJ in exchange for one ye a r salary and benefits if he agreed to release any and all legal claims and agreed to confidentiality," which the plaintiff subsequently rejected. (Compl. ¶ 112). In April o f 2009, Camilli and Beth P. Klimczack ("Klimczack"), SCJ's tax counsel, informed th e plaintiff that the company was investigating him in connection with his taking of c o n fid e n tia l business documents and disclosing those documents outside the c o m p a n y. (Compl. ¶ 113). On April 9, 2009, after the plaintiff had an opportunity to vis it his desk and turn in any documents he was working with to the company, D e G u e lle was "escorted" from the building by security personnel. (Compl. ¶ 114). T h e following day, Camilli, with Klimczack present, informed DeGuelle that "his e m p lo ym e n t was terminated for taking confidential business documents," including th e documents the plaintiff had provided to the Department of Labor, and "disclosing th e m outside the company and for not being truthful during the investigation." (C o m p l. ¶ 116). The plaintiff claims that Mark H. Eckhardt ("Eckhardt"), the Vice P r e s id e n t and Chief Information Officer for SCJ, and Kosterman made the final d e c is io n to terminate DeGuelle. (Compl. ¶ 117). O n April 28, 2009, SCJ brought a civil suit against DeGuelle in W is c o n s in s ta te court in Racine County claiming "replevin of company property, documentation a n d confidential information, breach of contract, and conversion." (Compl. ¶ 123). In the months that followed, SCJ has made a series of allegedly "defamatory" -8-

s ta te m e n ts that were published in local media outlets, such as the Racine Journal T im e s . (Compl. ¶¶ 126-143). Ultimately, on February 5, 2010, the plaintiff filed a lawsuit in this court against S C J , Camilli, Eckhardt, Kosterman, Pappenfuss, Randleman, and W e n z e l, alleging R IC O violations against the individually named defendants. (Docket #1).

S p e c ific a lly , the plaintiff contends the individual defendants have acted in violation o f 18 U.S.C. § 1962(c) and (d), respectively. (Compl. ¶¶ 145-46). The complaint a ls o alleges state law breach of contract, wrongful termination, and defamation c la im s . (Compl. ¶¶ 175- 85). Against this backdrop, the court now proceeds to a d d re s s the motion to dismiss. D IS C U S S I O N F e d . R. Civ. P. 12(b)(6) permits a defendant to make a motion to dismiss a c o m p la in t for failure to state a claim upon which relief can be granted. To survive a 12(b)(6) motion to dismiss, the plaintiff's complaint must only "contain sufficient fa c tu a l matter, accepted as true, to `state a claim to relief that is plausible on its fac e .'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v . Twombly, 550 U.S. 544, 555-57, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)) (e m p h a s is added). "A claim has facial plausibility when the plaintiff pleads factual c o n te n t that allows the court to draw the reasonable inference that the defendant is

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lia b le for the misconduct alleged."1 Iqbal, 129 S. Ct. at 1949. In addressing whether a complaint alleges "sufficient" facts, the court must take into consideration the c o m p le xity of the case. Limestone Dev. Corp. v. Village of Lemont, Ill., 520 F.3d 7 9 7 , 803 (7th Cir. 2008). In RICO cases, "where discovery is likely to be more than u s u a lly costly, the complaint must include as much factual detail and argument as m a y be required to show that the plaintiff has a plausible claim." Id. at 803-04. M o re o ve r, "allegations of fraud in a civil RICO claim are subject to the heightened p le a d in g standard set forth in Federal Rule of Civil Procedure 9(b), which requires a plaintiff to plead all allegations of fraud with particularity." Kaye v. D'Amato, No. 0 9 -1 0 9 1 , 2009 U.S. App. LEXIS 26526, at *9 (7th Cir. Dec. 4, 2009). At a minimum, th e complaint must describe the predicate acts with some specificity and the time, p la c e , and content of the alleged communications perpetrating the fraud. Id. W ith th e s e standards in mind, the court proceeds to examine the legal sufficiency of each o f the claims alleged in DeGuelle's complaint. D e G u e lle 's RICO claims allege violations of 18 U.S.C. § 1962(c) and (d), re s p e c tive ly, by the individually named defendants. The cause of action that permits

The court is also guided by the Seventh Circuit recent synthesis of the Suprem e Court's case law o n Fed. R. Civ. P. 12(b)(6): " S o , what do we take away from Twombly, Erickson, and Iqbal? First, a plaintiff m u s t provide n o tic e to defendants of her claim s . Second, courts m u s t accept a plaintiff's factual allegations a s true, but som e factual allegations will be so sketchy or im p la u s ib le that they fail to provide s u f f ic ie n t notice to defendants of the plaintiff's claim . Third, in considering the plaintiff's f a c t u a l allegations, courts should not accept as adequate abstract recitations of the elem e n t s o f a cause of action or conclusory legal statem e n ts ." Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009).

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a civil suit for a violation of § 1962(c) and (d) is formally addressed in 18 U.S.C. § 1964(c). That statute provides, in relevant part, that "any person injured in his

b u s in e s s or property by reason of a violation of section 1962 . . . may sue therefor in any appropriate United States district court." 18 U.S.C. § 1964(c). Accordingly, a civil RICO cause of action requires DeGuelle to adequately plead three things: (1) a n injury in his business or property (2) "by reason of" (3) the defendants' violation o f section 1962. RWB Servs., LLC v. Hartford Computer Group, 539 F.3d 681, 685 (7 th Cir. 2008). The defendants do not contest that the plaintiff suffered an injury to h is business or property, in that DeGuelle was terminated from his job, sued by the d e fe n d a n ts , and allegedly defamed by the defendants.2 Because the causation p ro n g of making out a § 1964(c) claim is contingent on a violation of § 1962, the c o u rt must first examine whether the plaintiff's pleadings are legally sufficient to meet th e third prong of a civil RICO claim. D e G u e lle first states in his complaint that the individual defendants violated § 1962(c). The court is obliged to keep in mind throughout its analysis that RICO "d o e s not cover all instances of wrong-doing," but is rather a "unique cause of action th a t is concerned with eradicating organized, long-term, habitual criminal activity." G a m b o a v. Velez, 457 F.3d 703, 705 (7th Cir. 2006). In "keeping with this limited p u rp o s e , " there are four elements, each of which must be proven, to establish a
However, § 1964(c) only perm its recovery to injuries to one's business or property and not for p e r s o n a l injuries, such as hum ilia t io n , anguish, and em o t io n a l distress. Evans v. City of Chicago, 434 F.3d 9 1 6 , 930 (7th Cir. 2006) ("personal injuries, and the pecuniary losses flowing from those injuries, are in s u f f ic ie n t to establish standing under the civil RICO, § 1964(c)").
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vio la tio n of § 1962(c): (1) conduct (2) of an enterprise (3) through a pattern (4) of ra c k e te e rin g activity. Id. (citing Sedima v. Imrex Co., 473 U.S. 479, 496 (1985). "R a c k e te e rin g activity" in this case means "any act which is indictable under . . . s e c tio n 1341 (relating to mail fraud) . . . section 1512 (relating to tampering with a w itn e s s , victim or an informant) . . . [or] section 1513 (relating to retaliating against a witness, victim, or an informant.") 3 18 U.S.C. § 1961(1). The plaintiff contends in h is complaint that the defendants had a scheme "to conceal and benefit from e rro n e o u s ly -p ro vid e d foreign tax credits, to defraud the IRS and United States ta xp a ye rs through that concealment, and to silence" DeGuelle to prevent him "from e xp o s in g the errors and the RICO defendants' unlawful actions." (Compl. ¶ 155). T h e plaintiff outlines in his complaint the specific "predicate acts" that the defendants d id to fulfill the defendants' "scheme" including: (1) using the United States Postal S e rv ic e to deliver fraudulent audit reports, tax reports, and tax returns to the IRS in vio la tio n of 18 U.S.C. § 1341, (Compl. ¶ 155(a)-(c)); (2) altering, destroying and falsifyin g SCJ's records to "obstruct the availability of those records" in future p ro c e e d in g s in violation of 18 U.S.C. § 1512(c)(1), (Compl. ¶ 155(e)); (3) attempting to persuade the plaintiff in a "corrupt manner" from exposing the defendants'

In the plaintiff's complaint, D e G u e l le alleges that the defendants engaged in actions that violated 1 8 U.S.C. §§ 1341, 1512, 1513, and 1519. (Com p l. ¶ 152). However, 18 U.S.C. § 1519 is not listed in the R IC O statute as a crim in a l statute whose violation can constitute "racketeering activity." 18 U.S.C. § 1961(1). A s such, the court will disregard any predicate acts done in violation of 18 U.S.C. § 1519. Section 1961(1) s e ts forth an exclusive list of predicate offenses and, therefore, no unenum e r a t e d offense (no m a tte r how s im ila r to those enum e r a t e d in § 1961(1)) can constitute a predicate act. See Miranda v. Ponce Fed. Bank, 9 4 8 F.2d 41, 48 (1st Cir. 1991).

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a c tivitie s by offering him benefits, such as a raise or a year of salary and benefits u p o n resignation, in violation of 18 U.S.C. § 1512(b)(3), (Compl. ¶ 155(f)-(g)); and (4 ) interfering with the plaintiff's lawful employment and/or livelihood by: (a) offering h im a full year of salary and benefits to resign and waive claims against the company a fte r the plaintiff submitted complaints to the government about SCJ; (b) terminating th e plaintiff's employment in retaliation for reporting SCJ's activities to the g o ve rn m e n t; (c) filing a lawsuit against the plaintiff in retaliation for DeGuelle's w h is tle blowing; and (d) disseminating defamatory statements about the plaintiff in re ta lia tio n for his actions, all done in violation of 18 U.S.C. § 1513(e) and (f) (Compl. ¶ 155 (h)-(n)). T h e defendants argue that the plaintiff's complaint is insufficient with respect to only one of the four elements of a § 1962(c) violation: alleging a "pattern of ra c k e te e rin g activity." Under the statute, a "pattern of racketeering activity" requires a t least two predicate acts within a ten-year period. 18 U.S.C. § 1961(5). The p la in tiff's complaint plainly meets the statutory definition of "pattern of racketeering a c tivity," as the plaintiff has alleged several predicate acts occurring within a ten-year p e rio d . However, establishing a "pattern" also requires that the plaintiff demonstrate th a t the racketeering predicates: (1) are related; and (2) "amount to or pose a threat o f continued criminal activity." H.J., Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 2 4 9 (1989).

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T h e first issue the court must resolve is determining whether the predicate a c ts complained of are related. The predicate acts of racketeering satisfy the re la tio n s h ip test if they have "same or similar purposes, results, participants, victims, o r methods of commission, or otherwise are interrelated by distinguishing c h a ra c teris tic s and are not isolated events." Id. at 240. Here, the court agrees with the defendants that, assuming the plaintiff's a lle g a tio n s to be true, only some of the predicate acts complained of are related. U ltim a te ly , the court views the predicate acts outlined in the complaint as constituting tw o separate schemes ­ a scheme to defraud the United States of tax revenue, and a scheme to retaliate against the defendant for reporting SCJ's misdeeds. S p e c ific a lly , three of SJC's predicate acts ­ (1) using the United States Postal S e r v ic e to defraud the government through the filing of faulty tax returns; (2) d e s tro yin g records to cover up the improprieties; and (3) offering the plaintiff benefits to persuade him not to disclose the company's illicit actions ­ collectively had a p u rp o s e of successfully swindling the government out of money.4 The remaining p re d ic a te acts ­ interfering with the plaintiff's employment and livelihood by: (1) c a jo lin g the plaintiff into resigning from his job; (2) terminating the plaintiff's e m p lo ym e n t; (3) filing a lawsuit against the plaintiff; and (4) making defamatory s ta te m e n t s against the plaintiff ­ are divorced from the scheme to defraud. The

Assum in g the plaintiff's allegations to be true, the destruction of records and the corrupt persuasion o f the plaintiff were efforts to cover up the defendant's schem e to defraud the governm e n t .

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la tte r four actions all occurred after DeGuelle disclosed to the government SCJ's a lle g e d ly fraudulent actions and were done with the exclusive purpose of retaliating a g a in s t DeGuelle for being a whistleblower.5 Moreover, the victims of the scheme to defraud were the "IRS and United States taxpayers," (Compl. ¶ 155), whereas the s c h e m e to retaliate had a distinct victim, the plaintiff. Additionally, the different p re d ic a te acts were perpetrated by separate individuals: the attempts to defraud the g o ve rn m e n t were taken by defendants Wenzel, Pappenfuss, and Randleman, m e m b e rs of SCJ's tax department; where as, the attempts to retaliate against the p la in t if f for reporting SCJ's conduct to the government were done by Camilli and K o s term a n , members of SCJ's human resources group, and Eckhardt, an executive a t SCJ.6 In sum, the court finds that collectively the predicate acts are unrelated, a n d in fact constitute two distinct schemes. See Vicom, Inc. v. Harbridge Merchant S e r v s ., 20 F.3d 771, 779 (7th Cir. 1994) ("The relationship part of this `continuity

5 Given that the plaintiff had already disclosed the defendants' conduct to the governm e n t, any actions b y the defendants after the fact could not have been a cover up of the fraud as the "jig was up."

Indeed, DeGuelle's complaint is bereft of any allegation that SCJ's hum a n resources departm e n t w a s som e h o w in "cahoots" with SCJ's tax departm e n t in the latter's attem p t to com m it tax fraud. If anything, C a m illi, Kosterm a n , and Eckhardt created roadblocks that m a d e it harder for SCJ's tax departm e n t to com m it f r a u d . DeGuelle's com p la in t indicates that instead of cooperating with or aiding W e n ze l, Pappenfuss, and R a n d le m a n 's m is c o n d u c t, the rem a in in g defendants took the plaintiff's com p la in t quite seriously. Cam illi and K o s t e r m a n independently investigated DeGuelle's allegations and even went so far as to hire an external a u d ito r to m o n ito r SCJ's com p lia n c e with federal tax regulations. In addition, Cam illi and Kosterm a n revoked W e n ze l's poor review of DeGuelle's perform a n c e . The com p la in t hints that Cam illi and Kosterm a n aided the ta x fraud schem e by m a k in g an offer on behalf of the com p a n y to pay the plaintiff's attorney fees in exchange f o r his confidentiality, but there is nothing in the com p la in t to indicate that this was done to further tax fraud. In sum , there is little, if anything, in the com p la in t to connect Cam illi, Kosterm a n , and Eckhardt to the tax fraud s c h e m e , and the court views the plaintiff's com p la in t as an attem p t to "lum p " the latter three defendants with t h e others as a thinly veiled m e a n s to acquire standing for the m o r e obvious RICO violations. See Goren v. N e w Vision Int'l, 156 F.3d 721, 730 (7th Cir. 1998) ([S]uch "lum p in g together" of defendants is clearly in s u f f ic ie n t to state a RICO claim under § 1962(c)).

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p lu s relationship' test requires that the predicate acts be `committed somewhat c lo s e ly in time to one another, involve the same victim, or involve the same type of m isc o n d u c t.'") (internal citations omitted). DeGuelle makes two arguments as to why the two sets of predicate acts are re la te d . First, the plaintiff points to the statement in his complaint that "all predicate a c ts committed by the RICO defendants are related," arguing that the scheme c o lle c tive ly was for the defendants to defraud the United States by concealing and b e n e fittin g from "erroneously-provided foreign tax credits" and to silence the plaintiff fro m exposing the errors. (Pl's Resp. Br. 14). However, the plaintiff's conclusory le g a l statement made in his complaint does not suffice to survive a motion to d ism iss . Brooks, 578 F.3d at 581 ("[I]n considering the plaintiff's factual allegations, c o u r ts should not accept as adequate abstract recitations of the elements of a cause o f action or conclusory legal statements."). The plaintiff cannot artificially join two s e p a ra te schemes together by merely declaring that the predicate acts are c o lle c tive ly related. More importantly, however, the plaintiff fails to explain how the va rio u s predicate acts that collectively attempted to "interfere with the lawful e m p lo y m e n t or livelihood" of DeGuelle were an attempt to "silence" the plaintiff. Ind e e d , even assuming all of DeGuelle's allegations to be true, SCJ could not have trie d to silence the plaintiff by, for example, terminating him, as the plaintiff had a lre a d y broken any silence by disclosing to the government SCJ's alleged im p ro p rie tie s . In fact, the predicate acts that DeGuelle alleges occurred arise under -16-

1 8 U.S.C. § 1513 (e), which punishes conduct that interferes with the lawful e m p lo ym e n t or livelihood of any person with the "intent to retaliate . . . for providing to a law enforcement officer any truthful information relating to the commission or p o s s ib le commission of a Federal offense."7 The conduct DeGuelle complains of c o n s titu te s completely separate criminal activity, the attempt to retaliate against s o m e o n e for disclosing information about a potential federal offense.8 D e G u e lle also argues, citing to the cases of Midwest Grinding v. Spitz, 976 F . 2 d 1016 (7th Cir. 1992) and Jones v. Lampe, 845 F.2d 755 (7th Cir. 1988), that "c o ve r- u p activity" can be "part and parcel of an underlying scheme to defraud." (Pl's R e s p . Br. 14). The court does not disagree with the plaintiff on the principle of law h e articulates, as attempts to try to silence someone from disclosing fraudulent a c tivity are actions taken in furtherance of ensuring the fraudulent activity occurs. H o w e v e r, the plaintiff misses the point. The plaintiff has only described one

p re d ic a te act in his complaint that describes an attempt to "silence" DeGuelle from d is c lo s in g SCJ's alleged illegalities, the offer of benefits to the plaintiff in return for h is maintaining confidentiality. Even if the court assumes the plaintiff's allegations to be true, the predicate acts taken in violation of 18 U.S.C. § 1513(e) and (f) were
DeGuelle also alleges predicate acts arising under 18 U.S.C. § 1513(f), but that section of the statute m e r e ly m a k e s it a crim e to conspire to com m it an offense under § 1513. G iv e n that § 1513(e) is the only o f f e n s e articulated by the plaintiff in his com p la in t or in his briefs to the court, the court assum e s the plaintiff is alleging that the defendants conspired to retaliate against DeGuelle for reporting inform a tio n regarding the p o s s ib le com m is s io n of a federal offense to the governm e n t . In fact, the court is at a loss as to how term in a tin g DeGuelle could have been an attem p t by the d e f e n d a n t s to silence him . W r o n g f u lly term in a tin g an em p lo y e e would seem to only m a k e the plaintiff more lik e ly to report the m is d e e d s of the com p a n y externally.
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n o t an attempt to further fraudulent tax reporting, but were rather, at best, a separate s c h e m e engineered by different parties to retaliate against DeGuelle for reporting S C J 's alleged fraudulent activities to the government. Nothing in Midwest Grinding o r Lampe suggests that a scheme to defraud the government by one group within a n organization can be related to a separate attempt to retaliate against a w h istle b lo w e r perpetrated by a different group of people. See Lampe, 845 F.2d at 7 5 8 ("[M]erely stating [that defendants engaged in actions that constituted a c o lle c t ive schemes], however, does not make the allegations sufficient...plaintiffs' c h a ra c te riz a tio n of events must be consistent with the facts alleged in the c o m p la in t ." ) A s such, the court views the complaint as alleging two completely separate s c h e m e s ­ a scheme to defraud and a scheme to retaliate. However, the

d e fe n d a n ts concede that the predicate acts within each scheme are related, re q u irin g the court to evaluate each set of predicate acts to determine whether c o lle c tive ly either of the sets "amount to or pose a threat of continued criminal a c tivity," H.J., Inc., 492 U.S. at 249, such that the defendants engaged in a pattern o f racketeering activity. O ve ra ll, the continuity requirement reflects Congress' desire to use RICO to ta rg e t the unique dangers posed by long-term criminal conduct as opposed to d is c re te acts of fraud. Id. at 242. To ensure that civil RICO claims were restricted to combat such criminal conduct, the Supreme Court stated that a plaintiff can satisfy -18-

th e continuity requirement by showing "closed-ended" continuity or "open-ended" c o n tin u ity. Id. at 241-42. Continuity is closed-ended if the related predicate acts h a ve ceased but extended over such a substantial period of time that they pose an im p lic it risk of future harm. Roger Whitmore's Auto. Services, Inc. v. Lake County, 4 2 4 F.3d 659, 672-73 (7th Cir. 2005). The Seventh Circuit has analyzed closede n d e d continuity by considering "the number and variety of predicate acts and the le n g th of time over which they were committed, the number of victims, the presence o f separate schemes and the occurrence of distinct injuries." Morgan v. Bank of W a u k e g a n , 804 F.2d 970, 975 (7th Cir. 1986). No one factor is decisive. Id. at 976. H e re , the tax fraud scheme satisfies the closed-ended continuity test. The a lle g a tio n s made in the complaint indicate that, over a period of five years, starting in 2004 and ending in 2009, several of the defendants repeatedly engaged in actions th a t allegedly constituted fraud to reduce SCJ's tax liability. The tax fraud occurred in a variety of ways, such as inflating the tax credits and deductions that SCJ c la im e d on its federal tax returns. However, the court is unable to conclude that the retaliation scheme meets the c lo s e d -e n d e d continuity test. Assuming everything in the plaintiff's complaint to be tru e , three of the defendants attempted to retaliate against the plaintiff for his re p o rtin g of SCJ's conduct to the government over a short period of time, five to six m o n th s at the most. The scheme to retaliate against the plaintiff ultimately only in vo lve d a few predicate acts, including terminating the plaintiff's employment, suing -19-

th e plaintiff, and making statements about the plaintiff to local news outlets. M o re o ve r, the only victim alleged from the retaliation scheme is the plaintiff. In short, s u c h conduct does not fit within the definition of closed-ended continuity. See M id w e s t Grinding Co., 976 F.2d at 1024 (finding that predicate acts that are a "ones h o t" scheme stretching over "at most . . . nine months" does not meet the definition o f closed-ended continuity). The court must then determine whether open-ended continuity exists in this c a s e with respect to the retaliation scheme. Continuity is open-ended if the alleged s c h e m e is of limited duration but threatens repetition and future harm. Gamboa, 457 F .3 d at 706. A plaintiff can demonstrate open-ended continuity by showing one of th re e things: "(1) `a specific threat of repetition' exists; (2) `the predicates are a re g u la r way of conducting an ongoing legitimate business,' or (3) `the predicates can b e attributed to a defendant operating as part of a long-term association that exists fo r criminal purposes.'" Vicom, 20 F.3d at 782 (quoting H.J. Inc., 492 U.S. at 2 4 2 -4 3 ). Here, there is nothing to indicate that the defendants' retaliatory actions a g a in s t the plaintiff will repeat into the future, such as a specific threat of repetition o r the nature of the enterprise. The plaintiff only argues that because a majority of th e defendants still work at SCJ that they have the propensity to retaliate against the p la in tiff in the future. However, such "cursory and unparticularized allegations" will n o t suffice to meet the standard of open-ended continuity. Vicom, 20 F.3d at 783; s e e also Edmondson & Gallagher v. Alban Towers Tenants Ass'n, 48 F.3d 1260, -20-

1 2 6 4 (D.C. Cir. 1995) ("The only possible rationale that could support such a p re d ic tio n ­ once a RICO violator, always a RICO violator ­ would deprive the p a tte rn requirement of all meaning by establishing open-ended continuity whenever tw o or more predicate acts were shown.") Ultimately, with respect to the retaliation s c h e m e , such "isolated instances of criminal behavior, not presenting at least some thre a t of future harm, cannot meet § 1962(c)'s continuity element." Gamboa, 457 F .3 d at 706. Given this, the court finds that the plaintiff has not sufficiently plead that a vio la tio n of § 1962(c) occurred through the predicate acts constituting the retaliation s c h e m e . However, the court does find that the plaintiff has adequately plead that a vio la tio n of § 1962(c) occurred through the predicate acts that form the tax fraud s c h e m e .9 As a result, with respect to the tax fraud scheme, the plaintiff's complaint a d e q u a te pleads the third prong of making out a § 1964(c) claim. All that is left for th e court to determine is whether, assuming the plaintiff's allegations to be true, the in ju r ie s to the plaintiff's business or property were "by reason of" the defendants' vio la tio n s of § 1962.

The court need not opine on whether the plaintiff has adequately plead a violation of § 1962(d), w h ic h m a k e s it unlawful "for any person to conspire to violate any of the provisions of" § 1962 (a), (b), or (c). E v e n if the court finds that there was an agreem e n t between the defendants to conspire to com m it tax fraud, th e question would still rem a in as to whether the plaintiff has proven that his injuries were "by reason of" the a g r e e m e n t to violate § 1962(c). Given the court's answer to the causation question, the court will not discuss w h e t h e r a violation of § 1962(d) has occurred. See Daniels v. Liberty Mut. Ins. Co., 484 F.3d 884, 888 (7th C ir . 2007) (holding that a federal court should not discuss legal issues that would not change the court's u lt im a t e conclusion, as such a discussion would be advisory in nature).

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T h e Supreme Court has interpreted the "by reason of" language in § 1964(c) a s requiring that the defendant's violations be a proximate cause of the plaintiff's in ju ry ­ i.e., that there was a direct relationship between the plaintiff's injury and the d e fe n d a n t's injurious conduct. Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 2 6 8 (1992). A plaintiff who is harmed merely as the result of the "misfortunes visited u p o n a third person" by a defendant's conduct generally cannot establish this direct re la tio n . Id. at 268-69; see also Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2 0 0 6 ) ("W h e n a court evaluates a RICO claim for proximate causation, the central q u e s tio n it must ask is whether the alleged violation led directly to the plaintiff's in ju rie s ). DeGuelle alleges that his "injuries to his business or property" are the te rm in a tio n of his employment, the lawsuit brought by SCJ against him, and the d e fa m a to ry statements made by SCJ to the press in the wake of that lawsuit. (Pl's R e s p . Br. 16) ("The multiple victims suffered separate and distinct injuries . . . P la in tiff was terminated, sued, defamed."). However, none of these injuries are d ire c tly attributable to the tax fraud scheme. The only party that would have been d ire c tly injured by the alleged tax scheme was the United States federal government. A t best, the fraud scheme was a "but for" cause of DeGuelle's injuries, but such c a u s a tio n is inadequate to satisfy the final prong of a § 1964(c) claim. Holmes, 503

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U .S . at 268. p re ju d ic e .10

As such, the court will dismiss the plaintiff's RICO claims with

T h e remaining counts in DeGuelle's complaint against the defendants are not b a s e d on federal law, but rather stem from state statutory or state common law. The o n ly basis for the court to exercise jurisdiction over these remaining state law claims is the court's supplemental jurisdiction as provided by 28 U.S.C. § 1367(a).1 1 As a g e n e ra l rule, when all federal claims have been dismissed prior to trial and only p e n d a n t claims remain, "the federal court should relinquish jurisdiction over the re m a in in g pendant state claims." Williams v. Rodriguez, 509 F.3d 392, 404 (7th Cir. 2 0 0 7 ); see also Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7 (1988) ("[I]n

10 Generally, courts grant leave to am e n d a com p la in t after granting a m o tio n to dism is s the original c o m p la in t under Fed. R. Civ. P. 12(b). See Fed. R. Civ. P. 15(a) (providing that leave to am e n d a com p la in t s h o u ld be freely given when justice so requires). However, a district court m a y deny leave to am e n d for " u n d u e delay, bad faith, dilatory m o t iv e , prejudice, or futility." W in te r s v. Fru-Con Inc., 498 F.3d 734, 740 (7th C ir . 2007). Futile repleadings include "restating the sam e facts using different language, reasserting claim s p r e v io u s determ in e d , failing to state a valid theory of liability, and the inability to survive a m o t io n to dism is s . " G a r c ia v. City of Chicago, 24 F.3d 966 (7th Cir. 1994). Here, DeGuelle did not seek leave to am e n d his c o m p la in t , and for that reason alone, the court would be justified in dism is s in g his claim s with prejudice. See J a m e s Cape & Sons Co. v. PCC Const. Co., 453 F.3d 396, 400-01 (7th Cir. 2006) (holding that a district court d id not abuse discretion in dism is s in g claim s with prejudice where the plaintiff did not request leave to am e n d a n d pleadings were deficient). Moreover, it was not for a lack of clarity that the court finds DeGuelle's p le a d in g s to be insufficient. Rather, the court dism is s e s the com p la in t because the plaintiff's lawsuit c o n s titu te s a rather thinly veiled attem p t to transform allegations of wrongful term in a tio n into a RICO action. T h e court cannot im a g in e what m o r e the plaintiff could have plead to repair the current infirm itie s with the c o m p la in t . Id. at 401 ("District judges are not m in d readers, and should not be required to explain to parties w h e th e r or how their com p la in t s could be drafted to survive a m o t io n to dism is s ." ) Allowing DeGuelle to a m e n d his com p la in t would only allow him to continue on a hopeless journey to try to fit the proverbial "round p e g " into a "square hole." Fed. R. C i v . P. 15(a) only allows a com p la in t to be am e n d e d when justice so r e q u ir e s , and the court finds that it would be unjust to require that the defendants defend against the plaintiff's h o p e le s s RICO claim s . As such, the court is obliged to dism is s the RICO claim s with prejudice.

Diversity jurisdiction does not exist in this case. Federal diversity jurisdiction, as granted by 28 U .S .C . § 1332(c) , requires "com p le t e diversity" between all plaintiffs and all defendants ­ that is, each plaintiff m u s t be a citizen of a different state than each of the defendants. Lincoln Property Co. v. Roche, 546 U.S. 8 1 , 89 (2005). Here, com p le te diversity is lacking with all of the state law claim s : both DeGuelle and all of t h e defendants are citizens of W is c o n s in . (Com p . ¶¶ 4-11).

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th e usual case in which all federal law claims are eliminated before trial, the balance o f factors to be considered under the pendent jurisdiction doctrine ­ judicial e c o n o m y, convenience, fairness, and comity ­ will point toward declining to exercise ju ris d ic tio n over the remaining state-law claims") (citing United Mine Workers of A m e ric a v. Gibbs, 383 U.S. 715, 726 (1966)). However, there are three exceptions to this general rule: (1) when the refilling of the state claims is barred by the statute o f limitations; (2) where substantial judicial resources have already been expended o n the state claims; and (3) when it is clearly apparent how the state claim is to be d e c id e d . Williams, 509 F.3d at 404 . Having said that, DeGuelle does not argue and th e court cannot conclude that any of the three exceptions apply in this case. Given th e early stage of this litigation, the court finds that dismissing the pendant claims s u c h that the plaintiff can seek remedy in a state court proceeding is the most p ru d e n t course of action. Accordingly, IT IS ORDERED that defendant's motion to dismiss the complaint (Docket #7) b e and the same is hereby GRANTED; IT IS FURTHER ORDERED that Counts One and Two of the complaint be a n d the same are hereby DISMISSED with prejudice and Counts Three, Four, a n d Five be and the same are hereby DISMISSED without prejudice.

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T h e clerk is directed to enter judgment accordingly. Dated at Milwaukee, W is c o n s in , this 9th day of April, 2010. BY THE COURT:

J .P . Stadtmueller U .S . District Judge

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