Labor & Employment Law Daily Wrap Up, COVERAGE, LIABILITY—8th Cir.: Employees failed to show RICO scheme to evade sexual harassment judgments totaling $1.8M, (Jul 31, 2026)

By Kathleen Kapusta, J.D.

“Ultimately, we are left agreeing with the district court: ‘the record is large but lacking.’”

Five women who filed workplace sexual harassment lawsuits against the same 15 defendants, and obtained judgments totaling more than $1.8 million that went unpaid, failed to show the defendants engaged in an unlawful scheme to evade collection of the outstanding judgments, the Eighth Circuit ruled, affirming summary judgment against their RICO Act claim. And while the district court acknowledged that the employees had “well-founded grievances concerning Defendants’ apparent lack of forthrightness in this matter,” it did not err in holding that the employees were not entitled to adverse inference sanctions (Rennenger v. Aquawood, LLC, Nos. 25-1845, 25-1847, 25-1848, 25-1850, 25-1853 (8th Cir. July 30, 2026)).

The five employees filed complaints involving the same 15 defendants, including three judgment debtors, which included nearly similar factual allegations and the same three counts—a substantive RICO claim, a conspiracy RICO claim, and a request for declaratory relief establishing alter ego liability for all the defendants.

To establish a substantive predicate RICO claim, the appeals court observed, the employees had to show the defendants conducted the affairs of an enterprise through “a pattern of racketeering activity” by committing at least two predicate acts listed in the statute. For a conspiracy claim, the court explained, they had to show a substantive RICO violation and that the defendants entered into an agreement to breach the statute.

Lower court proceedings. As predicate acts, the employees alleged wire fraud, bankruptcy crimes, money laundering, and obstruction of justice. In ruling on the defendants’ motion to dismiss, the district court found the employees failed to state claims based on bankruptcy crimes, money laundering, or obstruction of justice and that they failed to sufficiently establish any alter ego relationship between the defendants. It allowed them, however, to continue with their substantive and conspiracy RICO claims to the extent they were predicated on wire fraud “in furtherance of a sham consignment scheme” involving allegedly fraudulent customs forms.

Consignment scheme. In support of their wire fraud theory, the employees presented evidence showing that one or more of three Hong Kong corporations, and their alleged principals, falsely listed a nondefendant California company on a U.S. customs form as the importer of record or consignee of products that were actually sent to MSG International, LLC, in Iowa, which then worked with the Hong Kong defendants to sell the products to customers in the United States. According to the employees, if they had known these products were in Iowa, they could have seized them and at least partially satisfied their judgments.

They also argued that Aquawood, LLC, one of the three judgment debtors, prevented them from collecting their judgments by “parking” its assets in a nonparty entity. The evidence, they claimed, also showed they were injured by the predicate act of money laundering based on the customs scheme and asset parking; the predicate act of bankruptcy crimes based on the defendants’ purported manipulation of a nonparty, nonjudgment debtor’s bankruptcy proceedings; and the predicate act of obstruction of justice based on the same bankruptcy proceedings and the defendants’ discovery conduct in another lawsuit. A reasonable factfinder, they asserted, would be able to draw adverse inferences based on the defendants’ discovery misconduct in this and other cases.

Summary judgment. Granting summary judgment to the defendants, the district court found the employees failed to show the customs scheme was the proximate cause of their injury. Any injury resulting from that scheme, it explained, was too indirect for the proximate cause standard because there was no evidence the products ever belonged to Aquawood and any attempt to have the products seized, impounded, or levied upon would necessarily involve many steps, including litigation against non-judgment debtors establishing alter ego liability.

Although it acknowledged the employees had “well-founded grievances concerning Defendants’ apparent lack of forthrightness in this matter,” it also held that they were not entitled to adverse inference sanctions.

Proximate cause. On appeal, the employees argued that the district court applied an “unduly rigid” conception of proximate cause that conflicted with the Supreme Court’s 2023 decision in Yegiazaryan v. Smagin. Disagreeing, the Eighth Circuit explained that this case presented a more basic but-for causation problem. While the employees argued that but for the consignment scheme, they could have seized the products and at least partially satisfied their judgments, the products, the court explained, could not have been seized unless they belonged to a judgment debtor or some other defendant answerable for the judgment, and the employees did not argue that the products belonged to any of the judgment debtors.

As to their claim they could have tried to seize the products from whoever did own them—seemingly, another defendant—based on successor liability, fraudulent transfer, or alter ego theories, they failed to explain what jurisdictions’ laws applied, what was required to establish any of those theories, or how any record evidence satisfied their requirements. Because they failed to show they could have reached the products to satisfy their judgments under any viable legal theory, they failed to show the consignment scheme was a but-for cause of their injury.

Other predicate acts. Turning to the employees’ argument on summary judgment that they were also proximately injured by the other alleged predicate acts of money laundering, bankruptcy crimes, and obstruction of justice, the appeals court pointed out that the district court had, at the motion to dismiss stage, found they failed to state claims based on those offenses. On appeal, the employees argued that the district court erred by “ignoring” those arguments when it granted summary judgment.

Here, the Eighth Circuit noted that the employees brought one substantive and one conspiracy RICO count alleging one enterprise engaged in one pattern of racketeering activity. While a motion to dismiss under Rule 12(b)(6) does not permit piecemeal dismissals of parts of claims, the district court did not err in granting summary judgment as the employees failed to clearly identify evidence of these additional predicate offenses. “Ultimately,” said the court, “we are left agreeing with the district court: ‘the record is large, but lacking.’”

As to their argument the district court ignored “all acts of wire fraud other than the false customs forms,” including Aquawood’s “asset parking,” the appeals court explained that none of these other acts of wire fraud were pleaded with sufficient particularity.

Adverse inferences. Finally, the employees argued that the defendants engaged in extensive discovery misconduct warranting adverse inferences and the district court “confus[ed] the availability of adverse inferences as a sanction for discovery violations with the ability of a factfinder to draw adverse inferences.” According to the employees, a reasonable jury could draw adverse inferences against the defendants based on their deliberate withholding and destruction of evidence and the district court’s failure to draw those inferences at summary judgment to “fill any gaps” in their causation evidence amounted to a failure to draw all reasonable inferences in their favor.

The adverse inference rule, said the appeals court, allows a judicial factfinder to “draw an adverse inference when a party fails to produce highly probative evidence that it could readily obtain if in fact such evidence exists.” While the court noted that it has suggested the rule also permits a district court to infer that withheld evidence would undermine a moving party’s argument at summary judgment, it found the district court did not err in not doing so here as none of the adverse inferences the employees asked it to draw would have filled the “gaps” in their causation evidence.

RICO conspiracy. Because the employees did not present enough evidence to establish their substantive RICO claim, the court found their conspiracy RICO claim also failed.

The case is Nos. 25-1845, 25-1847, 25-1848, 25-1850, 25-1853.

Judge: Kobes, J.

Attorneys: Shelli L. Calland (Weisbrod Matteis & Copley) for Danielle M. Rennenger. Matthew D. Callanan (Belin McCormick) for Aquawood, LLC, Ming Yiu Chan, Siu Lun Chan, Dollar Empire, LLC, Brian Dubinsky, Yi Man Liu aka Lisa Liu, Banzai International Ltd., Park Lane Solutions, Ltd., and Toy Quest Ltd.

Companies: Aquawood, LLC; Dollar Empire, LLC; Manley Toy Direct L.L.C.; Worldwide Toy Direct; MGS International, LLC; Toy Network L.L.C.; Toy Network Hong Kong; Banzai International Ltd.; Park Lane Solutions, Ltd.; Toy Quest Ltd.

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