DeGuelle v. Camilli

• Decision Date: 15 December 2011
• Docket Number: No. 10–2172.,10–2172.
• Citation: 33 IER Cases 242,664 F.3d 192
• Parties: Michael J. DeGUELLE, Plaintiff–Appellant, v. Kristen J. CAMILLI, et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

33 IER Cases 242

664 F.3d 192

Michael J. DeGUELLE, Plaintiff–Appellant,

v.Kristen J. CAMILLI, et al., Defendants–Appellees.

No. 10–2172.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 27, 2011.Decided Dec. 15, 2011.

R. Douglas Rees, Attorney, Jenner & Block LLP, Chicago, IL, for Plaintiff–Appellant.

Paul D. Clement, Attorney, Bancroft PLLC, Washington, DC, G. Michael Halfenger, Andrew J. Wronski, Attorneys, Foley & Lardner LLP, Milwaukee, WI, for Defendants–Appellees.

Before FLAUM, KANNE, and HAMILTON, Circuit Judges.

KANNE, Circuit Judge.

Michael J. DeGuelle, a tax employee of S.C. Johnson & Son, Inc., was terminated after reporting an alleged tax fraud scheme to the company and federal law enforcement agencies. Following his termination, DeGuelle filed suit asserting two civil claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962(c) and 1962(d). The district court dismissed DeGuelle's RICO claims with prejudice, finding that the predicate acts alleged were either unrelated or did not proximately cause DeGuelle's injuries. DeGuelle believes the district court erred in finding that the appellees' retaliatory acts were unrelated to the alleged tax fraud scheme. Because we find that the acts are related under the Supreme Court's “continuity plus relationship” test, the judgment of the district court will be reversed.

I. Background

We review de novo the district court's finding that DeGuelle failed to state a claim for relief under RICO. Rennell v. Rowe, 635 F.3d 1008, 1010 (7th Cir.2011). Construing the complaint in a light most favorable to DeGuelle, we accept all well-pleaded facts as true and draw all possible inferences in DeGuelle's favor. Golden v. Helen Sigman & Assocs., Ltd., 611 F.3d 356, 360 (7th Cir.2010).

DeGuelle worked for S.C. Johnson & Son, Inc. (“SCJ”), from approximately January 2, 1997, to April 10, 2009. SCJ employs approximately 12,000 people and sells household consumer products in more than 110 countries. DeGuelle was employed in SCJ's tax department, first as an International Tax Compliance Manager and later as a State Tax Manager.

In December of 2000, SCJ received Internal Revenue Service (“IRS”) audit reports for fiscal year-ends (“FYE”) 1998, 1999, and 2000. Defendant–Appellee Daniel Wenzel, Global Tax Counsel, delivered these reports to DeGuelle for review. DeGuelle discovered that SCJ improperly received $5,082,048 in foreign tax credits. In January of 2001, DeGuelle reported his findings to Wenzel and asked how these errors should be remedied. Wenzel responded that they should wait and “[t]his is why I go to church on Sundays.” Wenzel reported DeGuelle's findings to Defendant–Appellee Robert Randleman, Vice President and Corporate Tax Counsel, but not to the IRS. Instead, Wenzel directed DeGuelle to alter or destroy records so that the errors would not be detected. Subsequently, altered reports were submitted to the IRS via United States mail.

In 2002, Wenzel instructed DeGuelle and a fellow employee to structure a transaction so that SCJ could claim a tax deduction by exploiting tax accounting rules. Wenzel told DeGuelle and his fellow employee to fabricate a business purpose for the transaction and then destroy associated business records in case “the IRS examines this transaction in the future.” DeGuelle believes SCJ received a benefit in excess of $2,000,0000 in the form of reduced tax liability as a result of this structured transaction. Further, Wenzel received a significant discretionary bonus for his role.

In February of 2005, Wenzel directed DeGuelle to fraudulently alter an income statement, which would result in approximately $3,700,000 in financial benefits for SCJ. DeGuelle refused to alter the statement. He discussed his concerns with Donald Pappenfuss, a supervisor within the tax department, who instructed DeGuelle to alter the form pursuant to Wenzel's instructions. Wenzel approved the altered income statement and submitted it to the IRS by mail.

In June of 2005, Pappenfuss submitted a fraudulently amended tax return for FYE 1998 in order to take advantage of the IRS's previous auditing errors. Randleman approved the return and sent it to the IRS via mail. DeGuelle alleges that Randleman knew of the IRS's errors at the time he approved the amended 1998 tax return.

In July of 2007, DeGuelle and Pappenfuss discussed the need to set aside a reserve to cover potential exposure on an intercompany loan. Pappenfuss directed DeGuelle to take his concerns to Wenzel, who refused to create a reserve and downplayed the likelihood of such a reserve being necessary.

DeGuelle met with Defendant–Appellee Kristen Camilli, Director of Human Resources, in October of 2007 to discuss his allegations that Wenzel was creating a hostile work environment. Camilli and DeGuelle had a follow-up meeting on January 9, 2008, during which Camilli informed DeGuelle that she investigated his complaints and determined that Wenzel had not created a hostile working environment. DeGuelle then informed Camilli of the IRS audit errors and Wenzel's instructions to destroy or alter records. Camilli requested documentation supporting DeGuelle's allegations, which DeGuelle provided to Camilli on January 14, 2008. DeGuelle also spoke with Defendant–Appellee Gayle Kosterman, who informed him that an internal committee had decided to hire an outside law firm to investigate DeGuelle's allegations of tax fraud. DeGuelle discussed his concerns with two attorneys from the law firm of Kirkland & Ellis LLP on January 17, 2008.

In March of 2008, Wenzel told DeGuelle to bring any concerns about issues in the tax department to appropriate department personnel instead of taking such concerns to accounting or human resources. Wenzel was loud and physically aggressive toward DeGuelle during this meeting. Wenzel also made disparaging comments about DeGuelle in front of other SCJ employees. That same month, DeGuelle received a negative six-month performance review even though such mid-year reviews were not routine, and despite the fact that DeGuelle received an Officer's Award in recognition of his superior job performance in January of that year.

DeGuelle had several meetings with Camilli and Kosterman following this negative review. First, DeGuelle met with Camilli on March 12, 2008, to discuss his performance review. He also met with Kosterman on March 14, 2008, to discuss his concerns regarding the tax credits and his personal issues with Wenzel. In April of 2008, Camilli met with DeGuelle about a salary adjustment. Camilli indicated she needed to talk about DeGuelle's salary increase with Wenzel first. (DeGuelle also raised the salary issue with Wenzel, who acknowledged a ten percent raise might be appropriate but “given some of the problems we have had in the past few months, I don't think that will be happening this year.”)

Kosterman met with DeGuelle again in May of 2008. She informed DeGuelle that no one at SCJ committed any wrongdoing and he was paranoid for thinking he would suffer reprisal from Wenzel. She recommended DeGuelle meet with Wenzel and a human resources coach to mend their relationship. It's unclear whether such coaching occurred, but the relationship between DeGuelle and Wenzel did not improve.

In August of 2008, DeGuelle met with Camilli and expressed his concerns about the reserve issue he raised with Pappenfuss and Wenzel in July of 2007. DeGuelle indicated that he would have to pursue an internal audit if no reserve was set aside. Camilli relayed DeGuelle's statements to Wenzel. All three parties met on August 28, 2008, to discuss the issue. Wenzel was confrontational and aggressive toward DeGuelle and accused DeGuelle of not bringing the issue to his attention. DeGuelle and Camilli met once again on September 10, 2008, to discuss DeGuelle's concerns for his safety in light of Wenzel's behavior.

On September 23, 2008, Wenzel and DeGuelle had another verbal altercation and DeGuelle received a negative “needs improvement” performance review from Wenzel. DeGuelle contacted Camilli and alleged that his review was retaliation for his whistleblowing activities. Camilli informed DeGuelle on October 10, 2008, that the negative review would be investigated. In November, DeGuelle contacted Camilli in writing and informed her he would contact state or federal agencies regarding Wenzel's retaliatory acts if SCJ refused to take action.

On December 18, 2008, DeGuelle met with Kosterman and Camilli. They informed DeGuelle that the negative review was retaliatory in nature and it would be revoked. They also discussed a possible salary adjustment and transfer to a different department at SCJ. Kosterman directed DeGuelle to drop his complaints of tax fraud, but DeGuelle stated he would file a whistleblower complaint with the Department of Labor. Later that day, Kosterman and Camilli contacted DeGuelle by telephone and informed him that he would receive a salary increase. They also offered to make a partial payment of DeGuelle's attorney's fees if DeGuelle agreed to sign a release of claims and confidentiality agreement. DeGuelle believes this offer came from W. Lee McCollum, Executive Vice President and Chief Financial Officer, and Defendant–Appellee Mark Eckhardt, Vice President and Chief Information Officer.

Instead of accepting the company's offer, DeGuelle filed a whistleblower complaint under the Sarbanes–Oxley Act with the Department of Labor on December 18, 2008. He attached financial statements, tax documents, and internal communications to his complaint.

DeGuelle met with Kosterman in January of 2009 to retract his salary request because he feared it could be viewed as an attempt to benefit from SCJ's tax fraud scheme. Kosterman stated that she had not interpreted his request in this way and she restated her belief that no illegal activity had occurred.

DeGuelle continued to contact federal agencies about SCJ's tax fraud. He...