Hecht v. Commerce Clearing House, Inc.

• Decision Date: 25 January 1990
• Docket Number: D,No. 418,418
• Citation: 897 F.2d 21
• Parties: , 58 USLW 2458, RICO Bus.Disp.Guide 7411, 5 Indiv.Empl.Rts.Cas. 78 Jeffrey HECHT, Appellant, v. COMMERCE CLEARING HOUSE, INC., William Miller, Louis Ceccoli, and Stanley Stephens, Appellees. ocket 89-7515.
• Court: U.S. Court of Appeals — Second Circuit

Page 21

897 F.2d 21

100 A.L.R.Fed. 655, 58 USLW 2458, RICO

Bus.Disp.Guide 7411,

5 Indiv.Empl.Rts.Cas. 78

Jeffrey HECHT, Appellant, v. COMMERCE CLEARING HOUSE, INC., William Miller, Louis Ceccoli, and Stanley Stephens, Appellees.

No. 418, Docket 89-7515.

United States Court of Appeals Second Circuit.

Argued Nov. 20, 1989.

Decided Jan. 25, 1990.

Michael Flomenhaft, New York City, for appellant.

David F. Graham, Sidley & Austin, New York City, for appellees Commerce Clearing House, Inc., William Miller, and Louis Ceccoli.

Before OAKES, Chief Judge, CARDAMONE, Circuit Judge, and POLLACK, District Judge. ^*

OAKES, Chief Judge:

Jeffrey Hecht appeals an April 28, 1989, judgment of the United States District Court for the Southern District of New York, Shirley Wohl Kram, Judge, dismissing his complaint seeking civil remedies under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961-68 (1988), for failure to state a claim upon which relief can be granted and failure to plead with sufficient particularity. Assuming, as we must, that the allegations of the complaint are true, we nevertheless affirm the order of the district court.

In this case, we primarily consider whether an employee has civil RICO standing for injuries from loss of employment and business commissions resulting from his failure to aid or abet alleged RICO violations by his employer and co-employees targeted at the employer's customers.

Hecht began working in January 1985 at Commerce Clearing House ("CCH"), a publisher of various law and business publications, as a Candidate Sales Representative. Assuming the position previously held by defendant Stanley Stephens, and working under the supervision of defendants Louis Ceccoli and William Miller, Hecht was responsible for servicing existing subscriptions and promoting new business in an assigned geographical area.

After beginning work at CCH, Hecht allegedly learned of various fraudulent acts committed by defendants and their agents, including forging customer signatures on orders, billing customers for fabricated or improperly confirmed orders, and disregarding subscription cancellation requests. Some customers advised Hecht that they would make no further purchases from CCH until the allegedly irregular practices were rectified. Hecht demanded that these practices be corrected, but was told by Ceccoli and Miller that he must either cooperate with the concealment of these frauds or lose his job. Upon refusing to cooperate, Hecht was terminated for insubordination.

Hecht filed a complaint on December 24, 1986, and an amended complaint on August 3, 1987, seeking recovery against CCH and the individual defendants under RICO's civil liability treble damages provision, 18 U.S.C. Sec. 1964(c) (1988), as well as under common law theories of prima facie tort and fraud. He based his RICO claim on allegations that the defendants violated 18 U.S.C. Sec. 1962 (1988) ¹ through participation as an enterprise in fraudulent acts constituting mail fraud under 18 U.S.C. Sec. 1341 (1988) and wire fraud under 18 U.S.C. Sec. 1343 (1988) and qualifying as RICO predicate acts of "racketeering activity" under 18 U.S.C. Sec. 1961(1) (1988).

The district court, in Hecht v. Commerce Clearing House, Inc., 713 F.Supp. 72 (S.D.N.Y.1989), found that whether or not Hecht's injuries resulted from his "blowing the whistle" and insisting on correction of defrauded customer accounts or from his simple refusal not to participate in the frauds, his injuries were not proximately caused by either defendants' racketeering conduct in violation of 18 U.S.C. Sec. 1962(a)-(c) or defendants' racketeering conspiracy in violation of 18 U.S.C. Sec. 1962(d). On this basis, the district court concluded Hecht had no standing to assert civil claims. In the alternative, the district court found that Hecht failed to plead a RICO conspiracy adequately. Finally, the district court dismissed the pendent common law claims as lacking sufficient federal jurisdictional basis.

On appeal, Hecht advances two theories of standing. First, he argues that defendants' racketeering conduct violating section 1962(c) proximately caused him to lose not only his job but also business commissions, thus distinguishing his case from the line of cases relied on by the district court. Second, he argues that an overt act in furtherance of defendants' conspiracy to racketeer was his discharge from employment and that such an act suffices to create civil liability under section 1962(d). Hecht also argues that he properly pleaded a RICO conspiracy, and that, even if he did not, he should be permitted to amend his complaint.

DISCUSSION

The RICO civil liability provision confers standing on "[a]ny person injured in his business or property by reason of a violation of section 1962." 18 U.S.C. Sec. 1964(c). Thus, in order to have standing, a plaintiff must show: (1) a violation of section 1962; (2) injury to business or property; and (3) causation of the injury by the violation. See O'Malley v. O'Neill, 887 F.2d 1557, 1561 (11th Cir.1989).

This appeal principally concerns the last element: causation. Because a plaintiff must show injury "by the conduct constituting the violation" of RICO, see Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985), the injury must be caused by a pattern of racketeering activity violating section 1962 or by individual RICO predicate acts. See Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1100 (2d Cir.1988), cert. denied, --- U.S. ----, 109 S.Ct. 1642, 104 L.Ed.2d 158 (1989). Moreover, the RICO pattern or acts must proximately cause plaintiff's injury. See Sperber v. Boesky, 849 F.2d 60, 64 (2d Cir.1988); O'Malley, 887 F.2d at 1561. By itself, factual causation (e.g., "cause-in-fact" or "but for" causation) is not sufficient. See Sperber, 849 F.2d at 63. We recognize that determining what is the proximate cause of an injury is not free from normative legal policy considerations. See id. (citing to W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and Keeton on the Law of Torts 264 (5th ed. 1984); Restatement (Second) of Torts Sec. 431 comment a (1965); Howarth, "On Madness of Discourse, That Cause Sets Up with and Against Itself!" (Book Review), 96 Yale L.J. 1389, 1394-95 (1987). For our purposes, the RICO pattern or acts proximately cause a plaintiff's injury if they are a substantial factor in the sequence of responsible causation, and if the injury is reasonably foreseeable or anticipated as a natural consequence. See Bonsignore v. City of New York, 683 F.2d 635, 637 (2d Cir.1982); Restatement (Second) of Torts Secs. 431, 435 comment b (1965).

1. Standing for Defendants' Section 1962(c) Violation

Hecht's first ground of appeal is that racketeering conduct violating section 1962(c) caused him injury in the form of lost business commissions. This injury is too speculative to confer standing, because Hecht only alleges that he would have lost commissions in the future, and not that he has lost any yet. Even assuming that Hecht actually lost commissions, we hold that his injury was not proximately caused by violations of section 1962(c).

We previously have held that loss of employment (as distinct from loss of commissions) for reporting or refusing to participate in an enterprise engaging in a pattern of racketeering activity is not injury sufficient for standing. See Burdick v. American Express Co., 865 F.2d 527, 529 (2d Cir.1989) (per curiam) (no standing for a stockbroker who alleged being fired and losing his client base for complaining about his employer's questionable practices); see also O'Malley, 887 F.2d at 1563 (no standing for vice president and dean of private university fired for refusing to participate in mail fraud scheme); Cullom v. Hibernia Nat'l Bank, 859 F.2d 1211, 1216 (5th Cir.1988) (no standing for employee constructively discharged for refusing to participate in fraudulent loan transactions); Pujol v. Shearson/American Express, Inc., 829 F.2d 1201, 1204-05 (1st Cir.1987) (no standing for whistle-blowing employee constructively discharged for reporting fraudulent securities transactions); Nodine v. Textron, Inc., 819 F.2d 347, 348-49 (1st Cir.1987) (no standing for employee fired for registering objections to employer's customs law violations); Morast v. Lance, 807 F.2d 926, 932-33 (11th Cir.1987) (no standing for bank vice president fired after reporting irregular transactions to authorities); cf. Norman v. Niagara Mohawk Power Corp., 873 F.2d 634, 635-37 (2d Cir.1989) (no standing for employee suffering intimidation and harassment for whistle-blowing activities). But see Callan v. State Chem. Mfg. Co., 584 F.Supp. 619, 622-23 (E.D.Pa.1984) (pre-Sedima finding of standing for employee fired for refusing to participate in bribery). These cases underscore that the purpose of civil RICO liability does not extend to deterring any illegal act such as retaliatory firings for which there are state and common law remedies. "A defendant is not liable for treble damages to everyone he might have injured by conduct other than that prohibited by RICO." Norman, 873 F.2d at 636. Although Hecht's loss of employment may have been factually caused by defendants' RICO violations, it was not a foreseeable natural consequence sufficient for proximate causation.

For similar reasons, Hecht's injury from loss of commissions does not confer standing. See Burdick, 865 F.2d at 529 (no standing for stockbroker impeded by employer's frauds in his " 'ability to service his customers, keep them happy and earn a living for himself' "). Hecht's loss of commissions may have been factually caused by RICO violations, but was not proximately caused by the violations. Because Hecht was "neither the target of the racketeering enterprise nor the competitor[ ] nor the customer[ ] of the racketeer[s]," see Sperber, 849 F.2d at 65, the injury to Hecht from customers' deciding to...