## Facts

- Williams Electronics Games, Inc. manufactured video games and purchased electronic components from suppliers including Arrow Electronics, Inc. and Milgray Electronics, Inc.
- Greg Barry, a Williams buyer, allegedly accepted over $100,000 in secret cash bribes from Arrow and Milgray over four years while the suppliers sold Williams about $100 million in components.
- Williams discovered Barry’s conduct and terminated him.
- Evidence suggested Williams knew some suppliers gave employees modest holiday gift certificates; the parties disputed whether Williams knew of or tolerated the larger, covert bribe scheme.
- Williams sued Arrow, Milgray, and Arrow salesman James M. Garrity asserting federal claims (including RICO-type theories) and Illinois law claims (including fraud and equitable relief seeking disgorgement/constructive trust).
- Milgray counterclaimed that Williams conspired with two Milgray employees (Lawrence J. Gnat and Richard S. Slupik) to defraud Milgray through a sham supplier, Microcomp, allegedly created and operated by those employees.

## Issues

1. Whether erroneous jury instructions on defenses (based on Williams’s knowledge, negligence, or acquiescence) required a new trial on Williams’s Illinois fraud claim against Arrow and Milgray.
2. Whether, upon proving fraud based on bribery of an employee, Williams could pursue restitutionary relief (including constructive trust/disgorgement of profits) rather than being limited to damages tied to the bribes or out-of-pocket loss.
3. Whether the dismissal of Williams’s federal claims and most other state-law claims should be affirmed.
4. Whether the rejection of Milgray’s counterclaims and cross-claims concerning the Microcomp scheme should be affirmed.

## Decision

- Affirmed dismissal of all federal claims and affirmed rejection of most of Williams’s state-law theories.
- Reversed in part and remanded for a new trial on Williams’s Illinois fraud claim against Arrow and Milgray because the jury instructions misstated or overstated defenses tied to Williams’s alleged knowledge or lax oversight.
- Held that if Williams proves liability on retrial, it may seek restitution in lieu of damages, including a constructive trust/disgorgement of the suppliers’ profits attributable to the bribery-tainted business.
- Affirmed rejection of Milgray’s counterclaims and cross-claims against Williams, Gnat, and Slupik.

## Legal Principles

- Under Illinois law, bribing a company’s employee to influence purchasing decisions can support a fraud-based claim by the employer against the briber.
- A victim company’s negligence in supervision, or limited awareness of minor gift-giving, does not automatically bar recovery for an employee-bribery scheme; defenses premised on imputation, ratification, or complicity must be stated consistently with governing state law.
- When a defendant obtains business through bribery, Illinois equitable remedies may allow restitution/disgorgement of the wrongdoer’s gains (including constructive trust on profits) rather than limiting recovery to the amount of the bribe or traditional compensatory damages.
- Instructional error that materially affects the jury’s consideration of defenses on a core liability theory warrants a new trial confined to the affected claim.

## Conclusion

The Seventh Circuit upheld the dismissal of Williams’s federal claims and most state-law claims and rejected Milgray’s counterclaims, but ordered a new trial on Williams’s Illinois fraud claim against the suppliers due to erroneous defense instructions and recognized that restitutionary relief, including disgorgement/constructive trust of bribery-derived profits, may be available if liability is proven.


Williams Elecs. Games, Inc. v. Garrity, 366 F.3d 569 (7th Cir. 2004)