Corporate Giant Can Proceed on Bribery and Racketeering Claims Against Carriers

By Joe Forward, Legal Writer, State Bar of Wisconsin

Oct. 9, 2012 – Corporate giant S.C. Johnson & Sons, which claimed various trucking companies engaged in kickback and bribery schemes to the detriment of S.C. Johnson, recently survived the defendants’ argument that federal law preempts the state law claims.

Milton Morris was S.C. Johnson’s transportation department director for almost 16 years. He selected carriers to transport goods and negotiated transportation contracts.

In 2004, the company discovered that Morris was taking bribes from carriers – including cash, goods, travel, and even prostitutes – and giving favorable treatment on jobs and contracts.

Milton siphoned nearly $1.2 million into his personal accounts, and S.C. Johnson claimed it paid more for transportation services because of the unlawful scheme. It alleged that the defendants broke state laws on bribery, fraud, conspiracy, and racketeering, among others.

Morris was convicted on criminal charges, and S.C. Johnson obtained a $203.8 million state court judgment against several carriers involved. However, S.C. Johnson subsequently filed claims in federal court after discovering other suspected carriers involved.

Unlike the state court in S.C. Johnson’s state court case, the U.S. District Court for the Eastern District of Wisconsin ruled that the Federal Aviation Administration Authorization Act (FAAAA) of 1994 preempted the state law claims against the other carriers. It dismissed the case.

Under that federal law, states “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route or service of any motor carrier … with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1).

The federal district court said the state laws on which S.C. Johnson relied could not be enforced because the claims related to price, route, or service of a motor carrier.

However, in S.C. Johnson & Son, Inc. v. Transport Corporation of America Inc., et al., No 11-3577 (Sept. 21, 2012), the U.S. Court of Appeals for the Seventh Circuit reversed.

“In our view, the enforcement of anti-bribery (and more generally anti-corruption) laws is too tenuously related to the regulation of the rates, routes, and services in the trucking industry to fall within the FAAAA’s preemption rule,” wrote Judge Diane Wood for a three-judge panel.

“Although the racketeering claim presents a closer case, we conclude that it too may go forward,” Judge Wood wrote. “To the extent the racketeering charge relies on a bribery theory, what we already have said about bribery is enough to show why any relation to rates, routes, or services is tangential enough to survive preemption.”

While the appeals court panel revived S.C. Johnson’s bribery and racketeering clams, the panel agreed with the lower district court that claims asserting fraudulent misrepresentation by omission and conspiracy to commit fraud were preempted by federal law.