697 F.3d 544 (7th Cir. 2012), 11-3577, S.C. Johnson & Son, Inc. v. Transport Corp. of America, Inc.
|Citation:||697 F.3d 544|
|Opinion Judge:||WOOD, Circuit Judge.|
|Party Name:||S.C. JOHNSON & SON, INC., Plaintiff-Appellant, v. TRANSPORT CORPORATION OF AMERICA, INC., et al., Defendants-Appellees.|
|Attorney:||Paul D. Clement (argued), Attorney, Bancroft PLLC, Washington, DC, Sarah A. Huck, Attorney, Reinhart Boerner Van Deuren S. C., Milwaukee, WI, Jeffrey L. Willian, Attorney, Kirkland & Ellis LLP, Chicago, IL, for Plaintiff-Appellant. Edward B. Magarian, Attorney, Dorsey & Whitney, Minneapolis, MN, ...|
|Judge Panel:||Before WOOD, SYKES, and TINDER, Circuit Judges.|
|Case Date:||September 21, 2012|
|Court:||United States Courts of Appeals, Court of Appeals for the Seventh Circuit|
Argued May 29, 2012.
Injured by a bribery and kickback scheme hatched by a dishonest employee and some transportation companies, S.C. Johnson & Son, Inc., fought back with two lawsuits. The first was a civil lawsuit in Wisconsin state court, in which it raised several tort claims against a number of transportation companies. This is the second one, filed against different defendants in federal court. Relying on the court's diversity jurisdiction, S.C. Johnson raised a number of state-law claims, including one based on the state law prohibiting bribery and another under Wisconsin's counterpart to the federal Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO. See 18 U.S.C. § 1961 et seq. The district court dismissed the action, believing that federal law preempts
the company's state tort claims because they could have " the force and effect of a law related to a price, route, or service of any motor carrier ... with respect to the transportation of property." 49 U.S.C. § 14501(c)(1). We reverse. We conclude that S.C. Johnson's claim for fraudulent misrepresentation was properly dismissed, but that its theories based on bribery and kickbacks fall outside the scope of the preemption provision. We find it unnecessary to discuss its theory based on aiding and abetting breach of a fiduciary duty, because (as it admits) this is time-barred. S.C. Johnson is therefore entitled to move forward with these aspects of its case.
S.C. Johnson is a manufacturer of domestic and personal care products; it sells these products both within the United States and internationally in over 100 countries. It handles distribution internally, through its Transportation Department. From 1988 through October 2004, Milton Morris was the director of that department. It was his job to select carriers to transport goods for the company, to negotiate contracts with them, and to authorize payments. The annual budget of the Transportation Department was roughly $90 million.
In early 2004, S.C. Johnson became aware that there were problems in its transportation operations. It investigated and learned to its dismay that Morris was dishonest to the core. He had received hundreds of thousands of dollars in cash, goods, travel, and services (licit and illicit, it seems— including prostitutes) from various carriers. In exchange, Morris provided favorable treatment to the donor-carriers; for example, he awarded to some carriers business that they would not otherwise have received and for others he caused S.C. Johnson to pay above-market rates. Johnson terminated Morris's employment on October 18, 2004. Morris was later criminally prosecuted and convicted for these actions.
S.C. Johnson filed suit against Morris in the Circuit Court of Racine County, Wisconsin, on the day that it fired him. Over time, it added as defendants four trucking companies and their owners, all of whom allegedly conspired with Morris, and then later added another two companies and three of their employees, as well as another former S.C. Johnson employee, Katherine Scheller. In that civil case, S.C. Johnson asserted five tort claims: (1) fraudulent misrepresentation by omission; (2) civil conspiracy to violate the Wisconsin bribery statute, WIS. STAT. § 134.05; (3) civil conspiracy to commit fraud; (4) violation of the Wisconsin Organized Crime Control Act (WOCCA), WIS. STAT. § 946.80; and (5) aiding and abetting a breach of fiduciary duty. Some of the carrier-defendants moved to dismiss the case on the ground that S.C. Johnson's claims were preempted by the Federal Aviation Administration Authorization Act of 1994 (FAAAA), which (despite the name) includes a section providing that 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. § 14501(c)(1). The state court rejected that defense, ruling that Johnson's claims were based not on the amount that was charged, but on the tortious nature of the defendants' alleged bribery, conspiracy, fraud, and racketeering activities.
S.C. Johnson ultimately prevailed in the Racine County case against eight of the defendants and was awarded a judgment of $203.8 million. It settled with two other defendants. The defendants in the present case, however, were not among those
named in the state court suit. S.C. Johnson explains that it was only after it initiated the state suit that it learned that Morris's scheme had reached even more entities. This discovery led to the case that is now before us.
On August 10, 2010, S.C. Johnson filed its complaint against Transport Corporation of America, Inc. (Transport), Stevens Transport, Inc., Far Side Trucking, Inc., and Graham Kent Pharr (collectively, the Carriers) in the U.S. District Court for the Eastern District of Wisconsin, relying as we said on the court's diversity jurisdiction. Although the defendants were different from those in the Racine County case, the allegations were essentially the same. The complaint asserted that the Carriers had conspired with Morris to exchange bribes for favorable treatment, such as awarding them business they would not otherwise have received and causing S.C. Johnson to pay above-market rates. For example, the Carriers allegedly picked up Morris's tab for extravagant business travel on many occasions. Perks included meals, golf, stays at luxury hotels, and the provision of prostitutes. S.C. Johnson also alleged that Morris received substantial cash bribes from the Carriers during his tenure in the Transportation Department. In all (including payments from companies involved in the state case), Morris deposited over $1.2 million in addition to his legitimate compensation from S.C. Johnson into various accounts.
Without reviewing every detail, we can say that S.C. Johnson's complaint alleged numerous ways in which the alleged tortious conduct of Morris and the Carriers harmed it. Because of the bribes and kickbacks, S.C. Johnson paid more for transportation services than it would have done in a market untainted by these acts. In addition, the tortious conduct distorted its choice of transportation providers. Its theories of liability focus on " unnecessary awards of business" to the Carriers, non-competitive terms, conspiracy to commit bribery in violation of state law, fraud for failing to disclose the true (unlawful) basis of the transactions, violations of Wisconsin's state-law equivalent to RICO, and the Carriers' aiding and abetting Morris's breach of an alleged fiduciary duty owed to S.C. Johnson as its Director of the Transportation Department.
As their counterparts had done in state court, the Carriers moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the complaint on the ground that every count was preempted by federal law, pursuant to the FAAAA, 42 U.S.C. § 14501(c)(1). (Preemption is an affirmative defense, we note, and thus the more appropriate motion would have been one under Rule 12(c); plaintiffs have no duty to anticipate affirmative defenses, and we cannot say in this case that S.C. Johnson pleaded itself out of court. But no one has made anything of this point, and so we will let it pass.) This time, the effort succeeded. The district court was persuaded that the state laws on which S.C. Johnson wished to rely were all provisions " having the force and effect of law related to a price, route, or service of any motor carrier." It phrased the question before it as " whether enforcement of the state laws underlying a claim asserted in the complaint in this case relates to plaintiff's prices, routes, or services by either expressly referring to them or having a significant economic effect upon them." Finding that the answer was yes, the court concluded that preemption necessarily followed. It also ruled in the alternative that the claim for aiding and abetting a breach of fiduciary duty was time-barred. It thus granted the Carriers' motion to dismiss, and this appeal followed.
The United States began its great experiment in the regulation of the transportation industry (and eventually others) with the passage in 1887 of the Interstate Commerce Act, ch. 104, 24 Stat. 379 (1887). Under that authority, the Interstate Commerce Commission first regulated the nation's railroads; the Motor Carrier Act of 1935, 49 Stat. 543, added the trucking business to the ICC's responsibilities. Three years later Congress provided for the regulation of the airline business in the Civil Aeronautics Act of 1938, 52 Stat. 973. This regime lasted approximately four decades, but by the time President Carter took office, the movement to deregulate these and other sectors was picking up steam. See, e.g., Andrew Downer Crain, Ford, Carter, and Deregulation in the 1970s, 5 J. TELECOMM. & HIGH TECH. L. 413 (2007). Advocates of deregulation had become convinced that industry control of...
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