Antitrust Law Daily Wrap Up, RICO—NDIll: Terminated Employee Failed to State RICO Claim Against BP, (May 31, 2013)

By Peter Reap, J.D., LL.M.

Lillian Borich, a terminated employee of company BP Products N.A., Inc., failed to state a valid claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) against the oil company, the federal district court in Chicago has decided (Borich v. BP Products N.A., Inc., May 28, 2013, Marovich, G.). Borich’s RICO claim was deficient in several respects; therefore, it was dismissed with prejudice.

Background. In her second-amended complaint, Borich sought to “recover wages [she] would have earned during her employment with BP had BP not fraudulently induced her” to accept a position from which it ultimately discharged her. In early 2007, after having worked for BP for about three years, Borich applied for the position of Business-to-Business Marketing Manager at TNK-BP (a joint venture owned by BP, p.l.c. and a Russian oil company) in Ukraine. The business-to-business marketing position was new. Previously, TNK-BP had made its sales through wholesalers, and the sales made through wholesalers sometimes involved the use of bribes.

By December 2007, BP either gave up on the business-to-business model or gave up on having Borich sell business-to-business. At that time, Borich learned that BP was transferring her to the commercial sales department, where sales were made through middlemen. Borich believed such work was dangerous. At some point, Borich took a medical leave and, by March 2008, BP terminated her employment contract.

Borich alleged that, during the time she worked at TNK-BP, BP violated the Foreign Corrupt Practices Act and was “deeply engaged in a bribery-based business model.” Borich states in her second-amended complaint that these Foreign Corrupt Practices Act “crimes are pleaded in order to establish a pattern of racketeering activity, not to establish that Boric was damaged by them.”

Analysis. In order to state a claim under § 1962(c) of the federal RICO law, Borich must allege that the defendants (1) conducted or participated in the conduct of (2) an enterprise (3) through a pattern of (4) racketeering activity. A “pattern of racketeering activity” is “at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity.” 18 U.S.C. § 1961(f).

Racketeering activity, in turn, includes a number of indictable offenses, including mail and wire fraud, the court noted. RICO, though, does not apply extraterritorially. This court previously concluded that the proper focus, in determining whether a plaintiff seeks extraterritorial application of RICO, is the predicate acts and their consequences.

Borich alleged that BP used email and fax communications to induce her fraudulently into accepting the Business-to-Business Marketing Manager position. Because these communications occurred by telephone and email, Borich’s theory was that they constituted wire fraud, a predicate act under RICO. BP argued that these communications were not alleged with sufficient particularly, and, in several instances, that was true, according to the court.

The bigger problem with Borich’s wire fraud theory, though, was the absence of fraud, the court held. Borich alleged that she was told by BP representative Mark Goodwin (in at least two wire-based communications) that “BP was sincere in its desire to operate its Eastern European sales on a Business-to-Business model.” Borich also alleged that BP and Goodwin knew that it was “merely attempting to change BP’s business model from the use of wholesalers executing sales through bribes to the Business-to-Business model.” (Emphasis added). Although Borich tried to paint this as fraud, the two positions were not inconsistent and, therefore, did not suggest that Goodwin’s statements to Borich were misrepresentations, the court determined.

Knowing one was “merely attempting” to change a business practice was consistent with being “sincere” in one’s desire to change it. That BP did not succeed (according to Borich’s allegations) in changing to a business-to-business model did not suggest fraud. It merely suggested failure.

Predictions that turn out to be wrong are not fraud, the court observed. Borich alleged no domestic predicate acts and, thus, did not allege a domestic pattern of racketeering. The alleged bribes all occurred in Ukraine, but RICO did not have an extraterritorial reach. In any case, Borich was not injured by the bribes, as she essentially admitted in her second-amended complaint.

Finally, the main problem with Borich’s RICO claim was that she had no standing, because a predicate act was not the proximate cause of her injury, the court explained. Borich’s injuries, lost wages and travel expenses, were proximately caused by BP’s termination of her employment. The termination of her employment was not a predicate act under RICO and could not be unless Borich alleged retaliation under the Sarbanes-Oxley Act, 18 U.S.C. § 1513(e). Borich has not even attempted to do so, the court noted.

The case is No. 12 C 2367.

Attorneys: Jovan Radomia Ostojic (Ostojic & Scudder) for Lillian Borich. Thomas James Piskorski (Seyfarth Shaw LLP) for BP Products North America, Inc.

Companies: BP Products North America, Inc.

Cases: RICO IllinoisNews