Schiffels v. Kemper Financial Services, Inc., 91-2706

• Decision Date: 27 October 1992
• Docket Number: No. 91-2706,91-2706
• Parties: , 24 Fed.R.Serv.3d 283, RICO Bus.Disp.Guide 8132 Carolyn M. SCHIFFELS, Plaintiff-Appellant, v. KEMPER FINANCIAL SERVICES, INCORPORATED, a corporation, Thomas H. Richards, Charles M. Kierscht, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 344

978 F.2d 344

61 USLW 2279, 24 Fed.R.Serv.3d 283, RICO

Bus.Disp.Guide 8132

Carolyn M. SCHIFFELS, Plaintiff-Appellant, v. KEMPER FINANCIAL SERVICES, INCORPORATED, a corporation, Thomas H. Richards, Charles M. Kierscht, et al.,

Defendants-Appellees.

No. 91-2706.

United States Court of Appeals, Seventh Circuit.

Argued March 31, 1992.

Decided Oct. 27, 1992.

William T. Huyck (argued), Chicago, Ill., for plaintiff-appellant.

Joan M. Hall (argued), Douglas A. Graham, J. Kevin McCall, Jenner & Block, Chicago, Ill., for Kemper Financial Services, Inc.

Joan M. Hall, Douglas A. Graham, J. Kevin McCall, Jenner & Block, Margaret L. Paris, Ann C. Tighe, James R. Streicker, Cotsirilos, Stephenson, Tighe & Streicker, Chicago, Ill., for other defendants-appellees.

Before RIPPLE and MANION, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

MANION, Circuit Judge.

Carolyn Schiffels, a former employee of Kemper Financial Services, sued Kemper and several Kemper officials alleging that the officials conspired to violate the Racketeer Influenced and Corrupt Organizations Act (RICO) by agreeing to conduct the affairs of an enterprise through a pattern of racketeering activity. See 18 U.S.C. § 1962(c)-(d). This appeal requires us to determine whether a plaintiff who alleges she has been injured by a conspiracy to violate RICO, but not by the predicate acts of racketeering underlying the RICO violation, has standing to sue under RICO. The district court dismissed Schiffels' RICO claim, holding that she did not have standing to sue under RICO because she was not directly injured by any predicate act of racketeering. Because we conclude that the court placed a limitation on RICO standing that RICO itself does not impose, we reverse and remand.

I.

We review the district court's decision to dismiss Schiffels' RICO claim de novo, taking all facts alleged in the complaint, as well as any reasonable inferences from those facts, in the light most favorable to Schiffels. Caldwell v. City of Elwood, 959 F.2d 670, 671 (7th Cir.1992). Schiffels alleged that she was employed by Kemper in its equity options unit which was managed by Thomas Richards, a Kemper vice-president. Among Richards' responsibilities was the management of two public mutual funds with combined assets of $1 billion. Richards also managed a portion of the Kemper Financial Services Profit Sharing Plan (the "Kemper Plan"), a plan whose participants were Kemper officers and employees, including Richards and the other defendants in this case. Both the mutual funds and the Kemper Plan involved Richards in speculative trading in Standard & Poor's 500 Stock Index Futures Contracts on the Chicago Mercantile Exchange.

According to Schiffels, "[f]rom sometime prior to January, 1987, until sometime after October, 1987," Richards conducted a scheme to defraud the two mutual funds by allocating losing trades in S & P 500 futures contracts to the mutual funds and allocating winning trades to the Kemper Plan. Richards accomplished this feat by placing trade orders in S & P 500 futures contracts by telephone to his floor traders without designating which account the trade was for. If during the day the market went up, Richards would close out the position and allocate the profit to the Kemper Plan. If the market went down, Richards would leave the trade open and allocate the loss to the mutual funds. As a result of Richards' scheme, the mutual funds lost $40 million during the first ten months of 1987.

Schiffels caught wind of Richards' scheme and expressed her concern to Richards in April 1987. Richards responded by relieving Schiffels of her duty of writing computer input tickets reflecting Richards' allocation of trades. In August 1987, Schiffels spoke to Richards' supervisor about Richards' activities, and in September 1987 she spoke to a member of Kemper's legal department. In October 1987, when Richards learned about Schiffels' attempts to blow the whistle on him, he put Schiffels on probation and suggested she seek work elsewhere. Schiffels responded by writing a letter to defendant Charles Kierscht, Kemper's president, in which she set forth her allegations about Richards' activities.

At about this time, according to Schiffels, the individual defendants--Richards, Kierscht, Robert Engling, and John Serpe--entered into a conspiracy "to further Richards' scheme by covering up Richards' fraudulent activities, minimizing the impact of plaintiff's disclosures by undermining her credibility, and discouraging other employees from making similar disclosures." Part of the conspiracy involved excluding material information about Richards' activities and their resulting risks and losses from reports to the mutual funds' boards and shareholders, from prospectuses, and from other required filings concerning the funds. The defendants did have a fiduciary duty to disclose the information. The conspiracy also allegedly involved a campaign of "harassment" against Schiffels that eventually led to her firing.

From October 30, 1987 until March 16, 1988, Schiffels was placed on a paid leave of absence. During this time, Kemper's internal auditors "allegedly" investigated her charges. Schiffels, however, was not allowed to participate in the investigation in any meaningful way, and was eventually informed that the investigation disclosed no basis for her allegations. After the internal investigation, Schiffels returned to work in a newly-created job that initially involved no duties and that was designed mainly to isolate her from Richards' department, deny her access to information that would corroborate her charges, and punish her for trying to blow the whistle on Richards. All during this time, however, Schiffels continued to receive her full pay.

During the spring and summer of 1988, Kemper employed Arthur Young & Company to investigate Schiffels' allegations. Again, Schiffels was not allowed to participate in this investigation in any meaningful way. In early 1989, the FBI began to investigate Richards' scheme, and shareholders in the two mutual funds filed a class action suit. In response, Kierscht again placed Schiffels on a paid leave of absence to punish and discredit her and to keep her from providing information to the FBI or shareholders. Serpe personally escorted Schiffels to her desk to retrieve her belongings, and from her desk to the elevator.

On December 20, 1989, the class action suit was dismissed on procedural grounds. The defendants decided at that time to fire Schiffels for blowing the whistle on Richards. After taking several unsuccessful actions to force her to resign, Kierscht fired Schiffels on February 15, 1990.

Schiffels responded to her firing by filing this suit in federal court. The district court dismissed Schiffels' RICO claim, holding that she did not have standing to sue under RICO because she was not injured by any predicate act of racketeering. See Schiffels v. Kemper Fin. Servs., Inc., 767 F.Supp. 909 (N.D.Ill.1991). On appeal, we must decide if that decision is correct. We must also decide whether Schiffels has properly pleaded a RICO conspiracy claim in any event and if not, whether we should remand to allow Schiffels an opportunity to amend her complaint.

II.

RICO's standing provision, 18 U.S.C. § 1964(c), provides that "[a]ny person injured in his business or property by reason of a violation of section 1962" may bring a civil action under RICO. 18 U.S.C. § 1962 sets out the activities RICO prohibits. Sections 1962(a), (b), and (c) set out substantive violations; ¹ section 1962(d) makes it unlawful "for any person to conspire to violate any of the provisions of sections 1962(a), (b), or (c)." Schiffels contends that she was injured "by reason of" the defendants' conspiracy because her harassment and eventual firing were acts taken expressly to further the conspiracy. The defendants argue, as the district court held, that Schiffels did not have standing under § 1964(c) because she was not directly injured by any of the defendants' alleged predicate acts of racketeering activity. The circuits have split on the issue of whether a person has standing to sue for conspiracy to violate RICO if he is injured by conspirators' acts that do not constitute predicate acts of racketeering. Compare Miranda v. Ponce Fed. Bank, 948 F.2d 41, 48 (1st Cir.1991); Reddy v. Litton Industries, Inc., 912 F.2d 291, 294-95 (9th Cir.1990), cert. denied, --- U.S. ----, 112 S.Ct. 332, 116 L.Ed.2d 272 (1991); and Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (2d Cir.1990) (all holding that to have standing to bring RICO conspiracy claim, plaintiff must allege injury directly caused by predicate acts of racketeering) with Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162, 1168-70 (3d Cir.1989) (injury from overt act that furthers RICO conspiracy is sufficient to confer standing, even if overt act is not a predicate act of racketeering). See also Reddy v. Litton Indus., Inc., --- U.S. ----, 112 S.Ct. 332, 116 L.Ed.2d 272 (1991) (White, J., dissenting from denial of certiorari) (noting split in the circuits); Flinders v. Datasec Corp., 742 F.Supp. 929, 932-35 (E.D.Va.1990) (injury from overt act, not necessarily a predicate act of racketeering, is sufficient to confer standing if the overt act is wrongful).

We conclude that the approach expounded in Shearin is the correct approach because it is consistent with RICO's unambiguous language and with traditional concepts of conspiracy law. As we noted in United States v. Neapolitan, 791 F.2d 489 (7th Cir.1986), RICO conspiracy is governed by traditional concepts of conspiracy law; "a conspiracy to violate RICO should not require anything beyond that required for a conspiracy to violate any other crimes." Id. at 497. Section 1962(d)'s target, like that of all provisions prohibiting conspiracies, is the agreement to violate RICO's substantive provisions, not the actual violations themselves. See United States v....