Summary
The Second Circuit held that a whistleblower employee fired for refusing to participate in his employer's mail and wire fraud scheme lacked civil RICO standing because his injury was not proximately caused by the racketeering activity. The court further ruled that standing for a RICO conspiracy violation requires injury from an overt act that is itself a RICO predicate act, and that the employee's discharge did not qualify. The decision reinforces that civil RICO is not a remedy for retaliatory discharge and that a plaintiff must be the target, competitor, or customer of the racketeering enterprise to establish proximate causation.
Topics
Practice areas
Questions Presented
- 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.
- Whether an employee's discharge, as an overt act in furtherance of a RICO conspiracy, suffices to create civil liability under 18 U.S.C. § 1962(d).
- Whether the plaintiff adequately pleaded a RICO conspiracy.
Holdings
- Loss of employment and loss of commissions due to failure to participate in or report RICO violations does not confer civil RICO standing because the injury is not proximately caused by the RICO violations.
- Standing for a civil RICO conspiracy claim under § 1962(d) requires injury from an overt act that is also a predicate act under § 1961(1); an overt act that is not a predicate act cannot confer standing.
- The complaint did not adequately plead a RICO conspiracy because it did not allege facts implying an agreement involving each defendant to commit at least two predicate acts.
Key quotations
“Assuming, as we must, that the allegations of the complaint are true, we nevertheless affirm the order of the district court.” (at 21)
“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.” (at 22)
“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.” (at 23)
“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.” (at 24)
“Because Hecht was 'neither the target of the racketeering enterprise nor the competitor[ ] nor the customer[ ] of the racketeer[s],' the injury to Hecht from customers' deciding to cancel subscriptions or to withdraw business upon discovering the frauds was not reasonably foreseeable as a natural consequence of the RICO violations.” (at 24)
“Therefore, we hold that standing may be founded only upon injury from overt acts that are also section 1961 predicate acts, and not upon any and all overt acts furthering a RICO conspiracy.” (at 25)
Factual background
Hecht began working at Commerce Clearing House (CCH) in January 1985 as a Candidate Sales Representative. He allegedly learned that CCH and its employees were forging customer signatures on orders, billing customers for fabricated or improperly confirmed orders, and disregarding subscription cancellation requests. Hecht demanded that these practices be corrected, but was told by his supervisors that he must either cooperate with the concealment of the frauds or lose his job. Upon refusing to cooperate, Hecht was terminated for insubordination.
Procedural history
Hecht filed a complaint on December 24, 1986, and an amended complaint on August 3, 1987, seeking civil remedies under RICO and common law theories. The district court (Kram, J.) dismissed the complaint, holding that Hecht lacked standing to assert civil RICO claims because his injuries were not proximately caused by the alleged RICO violations, and alternatively that Hecht failed to plead a RICO conspiracy adequately. The district court also dismissed pendent state law claims. Hecht appealed.