Williams v. Hall, Civ A. No. 84-149.

• Decision Date: 05 April 1988
• Docket Number: Civ A. No. 84-149.
• Citation: 683 F. Supp. 639
• Parties: Harry D. WILLIAMS, Plaintiff, v. John R. HALL, et al., Defendants. Bill E. McKAY, Jr., Plaintiff, v. ASHLAND OIL, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

683 F. Supp. 639

Harry D. WILLIAMS, Plaintiff, v. John R. HALL, et al., Defendants.

Bill E. McKAY, Jr., Plaintiff, v. ASHLAND OIL, INC., et al., Defendants.

Civ A. No. 84-149.

United States District Court, E.D. Kentucky, Ashland Division.

April 5, 1988.

John McCall and David Tachau, Brown, Todd & Heyburn, Louisville, Ky., for William E. McKay.

Warren Anthony Fitch and Ken Robinson, Kohlman & Fitch, Washington, D.C., for Harry D. Williams.

William E. Johnson and Robert M. Watt, III, Stoll, Keenon & Park, Lexington, Ky., for Ashland Oil, Inc., John R. Hall, Robert T. McCowan, Richard W. Spears.

Ben L. Kessinger, Jr., Lexington, Ky., for Ashland Oil, Inc.

David R. Monohan, Woodward, Hobson & Fulton, Louisville, Ky., John E. Jenkins, Jr., Jenkins, Fernstermaker, Krieger, Huntington, W.Va., for Orin E. Atkins.

Joe C. Savage & William Elliott, Savage, Garmer & Elliott, Lexington, Ky., for Charles J. Queenan, Jr.

OPINION

BERTELSMAN, District Judge.

The summary judgment motion by defendants in this action requires the court to construe the causation requirements of the RICO conspiracy statute. 18 U.S.C. § 1962(d).

Although the record is voluminous and complex, a succinct summary of the facts will suffice for purposes of this motion.

These consolidated actions sound in wrongful discharge. Plaintiffs McKay and Williams are former officers of defendant Ashland Oil. They allege that for several years Ashland conducted the procurement phase of its operations in part by illegally bribing officials of Middle Eastern countries. Such bribes are prohibited by the Foreign Corrupt Practices Act. 15 U.S.C. § 78dd-1. Plaintiffs charge that these bribes were paid in a surreptitious manner disguised as investments. For instance, one of the contentions is that Ashland made an investment in a chrome mine which was not really an investment but a disguised bribe to the proprietor of the chrome mine, who was a foreign official.

Plaintiffs further charge that when they refused to participate in these illegal activities and refused to cooperate in the cover-up that necessarily resulted, they were discharged from their employment.

Plaintiffs claim that these activities involved violations of the RICO statutes, in that an enterprise (Ashland) was operated by defendants through a "pattern of racketeering activity" involving a multitude of prohibited "predicate acts," such as wire fraud, mail fraud, travelling in interstate and foreign commerce to deliver the bribes, (violating the Travel Act) and securities fraud in that false financial statements were filed with the SEC and distributed to investors. Specifically, the plaintiffs claim violations of 18 U.S.C. § 1962(a) and (c), which provide in relevant part:

"(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code 18 USCS § 2, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engages sic in, or the activities of which affect, interstate or foreign commerce.

* * * * * *

"(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." (emphasis added).

Plaintiffs also allege a conspiracy to operate Ashland in violation of the conspiracy provisions of the RICO statute, 18 U.S.C. § 1962(d), which provides:

"(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section."

Plaintiffs also assert numerous state causes of action over which the court is exercising pendent jurisdiction. Among these are claims for wrongful discharge of both the contractual and public policy types, libel and slander, and intentional infliction of emotional distress. Also asserted is a claim for unlawful conspiracy under 42 U.S.C. § 1985. The court has dismissed some of these claims in separate unpublished orders.

Defendants have moved for summary judgment on all these claims. Of particular importance, however, are the RICO claims because of the treble damages and attorney fees allowed by the RICO civil action statute. See 18 U.S.C. § 1964(c). This Opinion addresses only the RICO issue.

Of course, almost all plaintiffs' factual allegations are hotly and indignantly denied by defendants. The record at the close of discovery, however, reveals that plaintiffs will be able to adduce some evidence, if only their own testimony, in support of their factual contentions. Therefore, on these summary judgment motions the facts will be presumed to be as plaintiffs claim.

It is apparent that plaintiffs will adduce evidence which, if believed, would establish the necessary prerequisites for a RICO civil claim. The evidence would tend to prove the operation of Ashland's business (the enterprise) by a "pattern of racketeering activity" consisting of numerous "predicate acts" of bribery, travel in interstate and foreign commerce to commit bribery, mail fraud and wire fraud in committing and disguising the bribery, securities fraud as part of the cover-up of the bribery and perhaps violations of the Victim and Witness Protection Act and obstruction of justice. Clearly, the evidence, if believed, would also tend to prove the existence of a conspiracy by numerous Ashland officers and employees and others to operate the enterprise in this illegal manner.

Indeed, while contesting the credibility of plaintiffs' evidence, defendants do not seem to contest that, if it is accepted, it would establish RICO violations. Rather, defendants base their summary judgment arguments on the proposition that plaintiffs lack standing to sue under RICO because they were not directly damaged by the predicate acts.

Defendants cite several cases in which discharged "whistleblowers" have been held not to have sustained injury from the predicate acts employed to operate a business by means of a pattern of racketeering activity. See, e.g., Morast v. Lance, 807 F.2d 926 (11th Cir.1987) (employee fired for reporting illegal activity had no RICO standing; however, court implies employee would have had standing if fired for refusing to participate); Nodine v. Textron, Inc., 819 F.2d 347 (1st Cir.1987).

Plaintiffs cite contrary authority. See Komm v. McFliker, 662 F.Supp. 924 (W.D. Mo.1987); Callan v. State Chemical Mfg. Co., 584 F.Supp. 619 (E.D.Pa.1984).

This division of authority seems to reflect a disagreement among the circuits as to whether a plaintiff may sue under § 1962(a) or (c) on the basis of an indirect injury from the predicate acts. The Sixth Circuit seems to be leaning toward the view that indirect injury is sufficient. See Grantham & Mann, Inc. v. American Safety Products, Inc., 831 F.2d 596, 606 (6th Cir.1987) (plaintiff suffered no loss, direct or indirect), quoting Haroco, Inc. v. American Nat'l Bank & Trust Co., 747 F.2d 384, 398 (7th Cir.1984). Haroco was cited with approval by the United States Supreme Court in Sedima, S.P.R.L. v. Imrex, 473 U.S. 479, 105 S.Ct. 3275, 3285-86, 87 L.Ed.2d 346 (1985). But the language of the Supreme Court is not clear as to whether indirect injury is sufficient. Id. 105 S.Ct. at 3286. Although the matter is not free from doubt, the logical conclusion from the opinion of the Court in Sedima is that indirect injury is a sufficient basis for a RICO claim under § 1962(a) or (c). See Sedima, 105 S.Ct. at 3286 n. 15.

This issue is one that the court need not resolve definitively, however, in that plaintiffs here make another argument not made in the cases cited by defendant. In the alternative, the plaintiffs argue that they can meet the causation requirement, even if direct causation is required, because they were directly injured by the violation of 18 U.S.C. § 1962(d), the RICO conspiracy statute. Again, § 1962(d) reads:

"(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section."

Plaintiffs argue that their proof will show that a conspiracy to violate § 1962(a) and (c) existed by operating Ashland in part by a series of illegal bribes, that part of the conspiracy was to cover up these illegalities by eliminating opposition within the company, and that plaintiffs were discharged and discredited as part of the cover-up, which actions constituted overt acts in furtherance of the conspiracy, even though they might not have been prohibited predicate acts.

Defendants argue that even though there is evidence of the conspiracy, the plaintiffs must still show direct injury from predicate acts as defined in the RICO statute to have standing to sue.

The issue is thus presented: Does a plaintiff have standing to sue under RICO if he can show the existence of a conspiracy to violate RICO, prohibited by § 1962(d), and that some overt acts committed in furtherance of the conspiracy were prohibited predicate acts under § 1961, but his only injury was caused by other overt acts, which were not "predicate acts."

The court holds that this issue must be resolved in favor of plaintiffs and that they have standing to sue for their discharge and resulting damage if they can prove that the terminations were overt acts done in furtherance of a conspiracy to operate Ashland through a pattern of racketeering activity as defined by the RICO statute.

Courts have been admonished to construe RICO liberally to effectuate its remedial purposes. See Sedima, S.P.R.L. v. Imrex, 105 S.Ct. at 3286. Section 1962(d) by its plain meaning...