Beck, Robert v. Prupis, Robert, et al. (04/26/2000)

By: Hara Marks, Medill News Service

Questions presented

May an employee who is terminated for both blowing whistle on and refusing to participate in a pattern of predicate acts of racketeering assert a civil RICO conspiracy claim when he has been injured by an overt act in furtherance of the RICO conspiracy, even if the overt act is not itself a predicate act of racketeering?

Brief

Robert Beck II was hired as the president of Southeastern Insurance Group (SIG), a Florida holding company, soon after its founding in 1983. Within five years, Beck discovered that the other directors of SIG were engaging in illegal activities; extracting fees from non-creditworthy contractors, diverting corporate funds to personal use and falsifying the company's financial statements to increase the corporation's value.

When Beck ""blew the whistle,"" informing insurance regulators about the ""modifications"" the company was making on its financial statements, the other directors concocted a fake negative performance review of Beck and fired him. This part of Beck's case is not in dispute.

During his tenure as president of SIG, Beck had purchased a substantial amount of company stock and personally guaranteed a $7.5 million bank loan to the corporation. SIG went bankrupt in 1990, partly as a result of paying for the lawsuits filed after Beck blew the whistle, and Beck's investments became worthless.

Beck sued his fellow company directors, all of whom were involved in the falsification of financial records, on the grounds that their fraudulent activities had induced him to make financial decisions that he would not otherwise have made.

Specifically, Beck sued for RICO (Racketeering Influenced and Corrupt Organizations Act) violations. He claimed that the other SIG directors' actions constituted mail and wire fraud under RICO, and that the defendants' racketeering injured him personally (his termination). He filed a civil RICO suit in the U.S. District Court for the Southern District of Florida.

The District Court ruled that Beck's RICO claims were without merit. Beck appealed to the 11th Circuit Court of Appeals, which affirmed.

The appeals court unanimously found that none of Beck's arguments for inducement by SIG could serve as the basis for a claim of fraud. Beck claimed that the defendants failed to tell him of his impending termination; knowledge that would certainly have caused him NOT to invest large sums of money in the company.

""The defendants' failure to tell Beck of his impending termination cannot serve as a basis for a claim of fraud, because a reasonable person making financial decisions would not have relied on such an omission,"" Appeals Judge Gerald Tjoflat wrote. Further, the court found no evidence of malicious intention on the part of SIG. ""Beck has presented no evidence that the defendants refrained from telling him of his impending termination in an attempt to induce him to make financial commitments to SIG. He therefore has not proven the essential element of intent.""

The appeals court found a similar lack of intent on the part of the defendants when Beck accused his employers of deceiving him with their false financial statements. ""They intended to deceive someone. There is no evidence, however, that the someone to be deceived was Beck.""

Beck asserted that his firing from SIG was a direct result of a racketeering conspiracy. He argued that because he refused to participate in the illegal activities and alerted authorities to his colleagues' misconduct, he was fired. The District Court and the 11th Circuit rejected this claim under RICO.

""A terminated whistle blower, although he may have a wrongful termination claim, has not suffered an injury that was proximately caused by the defendants' racketeering activities... We believe that such a claim goes further than what Congress has authorized under RICO,"" the appeals court held.

The Supreme Court granted certiorari on June 7, 1999, and affirmed by a 7-2 vote on April 26, 2000.

""A person may not bring suit under (RICO) for injuries caused by an overt act that is not an act of racketeering or otherwise unlawful under the statute,"" wrote Justice Clarence Thomas for the Court. Citing the common law of conspiracy, the majority concluded that the overt act cannot be ""merely the termination of employment,"" even if such an action against a whistleblower might constitute wrongful termination.

Justices John Paul Stevens and David Souter dissented. ""The plain language of RICO makes it clear that petitioners civil cause of action...does not require that he be injured in his business or property by any particular kind of overt act in furtherance of the conspiracy. The Courts recitation of the common law of civil conspiracy does not prove otherwise, and, indeed, contradicts its own holding,"" wrote Stevens.