Petition for Writ of Certiorari — WS Kirkpatrick & Co. v. Environmental Tectonics Corp., Int'l

IN THE

Supreme Court of the United States

Octoser Term, 1987

——_——_— =

W.S. KIRKPATRICK & CO., INC., D.1.C. (HOLDING) INC.

And W.S. KIRKPATRICK & CO., INTERNATIONAL,

Petitioners.

- V8. —

ENVIRONMENTAL TECTONICS CORPORATION,

INTERNATIONAL,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

THomas H. SEAR

Counsel of Record for Petitioners

280 Park Avenue

New York, New York 10017

(212) 286-4000

Of Counsel:

RHonpa D. Onin

SPENGLER CARLSON GUBAR

Bropsky & FRISCHLING

a

QUESTIONS PRESENTED

|. Does the Act of State Doctrine bar adjudication of an a

tion which would require judicial determination of whether cne

Government of Nigeria acted illegally in performing an act of

state and which would prima facie have an impact on foreign

relations?’

Does a complaint properly allege facts establishing a pat

tern of racketeering activity under the Racketeering Influenced

and Corrupt Organizations Act when that complaint auieges only

that defendants had engaged in one non-continuous, completed

scheme to influence improperly the award of a single contract?

PARTIES TO THE PROCEEDINGS BELOW

Environmental Tectonics Corporation, International was the

plaintiff below. W.S. Kirkpatrick & Co., Inc., D.1.C. (Holding)

Inc., Harry G. Carpenter, John M. Krankel, W.S. Kirkpatrick

& Co., International, Emro Engineering Co., Inc., Robert W

Ruppert, Ross E. Saxon and R.H. Edwards were named and ser.

ed as defendants below. International Development Corporation,

S.A. and Benson “Tunde” Akindele were named as defendants

below but never served. Development Industrial Corporation was

named and served as a defendant in the complaint but was drop

ped from an amended complaint that was filed subsequently

Pursuant to Rule 28.1 of the Rules of the Supreme Court of

the United States, petitioners state that D.I1.C. (Holding) Inc. is

the parent of W.S. Kirkpatrick & Co., Inc.; W.S. Kirkpatrick &

Co., International is a subsidiary of W.S. Kirkpatrick & Co., Inc.;

and International Development Corporation, S.A. is the parent

of D.L.C. (Holding) Inc. W.S. Kirkpatrick & Co., Inc. has the

following affiliates: Development Industrial Corporation, TIA

Electric Co., Inc., Aeronautical Equipment Corp., R. Bruce Fike

& Sons Dairy, Inc., Bulk Investments Corp., Daisy Lane "airy,

Deep Creek Creamery, Inc., and Interhotels of America, In

1 AMI & ©) € ON ;

| re ifira ‘ iit l ec +

t State Doctrine 1) ver \ ; }

Adiudication Of Thi Action |

VW t ADI ti able | ex ’ ; ’ :

APPENDIL\

~ .

’ '

| 4

+? ; ; yet 4

-

: >

Ti

Iw roe

Supreme Court of the United States

KIRKPATRICK & CO.. INC.. D.L.C. (HOLDING) ID

:

: ,

KIRAPATRICK & | INTERNATIONAI

NMENTAL TECTONICS CORPORATI

INTERNATIONAI

Kes nae? ‘

PETITION FOR WRIT OF CERTIORARI |

'O THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUTI

CTTATION TO OPINIONS BELOW

States Court of Appeals tor the [hira ‘

no} m tnis ast T) May

has not yet been reported, has

\ / of the Append

Z. 1¥55 I he

heen reprinted at I

attached heret:

nited States District ‘

ourt tor tive L District t New lerss

Cast T Ma ; I ell] he O} itil

ed at 659 | SUD L365] ) N.] 1987 na hi

t pages A. 38 through A. 75 of the Appendi

JURISDICTION

r’} -

7

: : . :

lgmer! t the | nite States (

ourt tA peais |

Phird Circuit

VA a‘ entered OT) Ma\ Z I ele re

ling the dismissal] of the

Doctrine

ersing and remay

action on grounds of the Act of State

and the dismissal of the cl

aims under the Racketeerj;

Influenced and ( orruy

t Organizations Act and the N lerse’

Anti- Rac keteering Act. A copy of this Judgment has bee

76 through A. 78 of the Appendix. The

action and thes claims Was entered In

the United States District Con

irt, District of New Jersey on Ma

i, 1987. On May 26. 1988

the Third Circuit staved the issuance

of a formal mandate unti} June 22, 1988, which stay will cor

tinue until fina] disposition by this ¢ ourt if the Third Cin lit

receives notice by June 22, 1988 that a petition tor a writ of ce:

iorari has been tiled. A copy of this Order has been reprinted

at page A. 79 of the Appendix Jurisdiction of this

Ked under 28 1) S¢ 91254(]

_

reprinted at pages A

‘

decision dismissing the

our;rt :

STATUTES AND DOK IRINES INVOLVED

ne Act of Stats Doctring created hy, this ¢ ourt in {

nderfit

1 é rnandez. i6k IS 250) 252 (189° which state:

ke very »OveTeign state j bound to respect the is

lependence of ever other »OverTeign state and th,

urts Of One country wil] not sit ip judgment on the

acts of the government of another, done within it: wi

territor

ihe Robin Pat " Act. | US L3 vi f

it Nall be ltuawTtul for an person engaged i oO!

lerce, in the course of such commerce, to pay or grant

tO receive or accept anything ot value as a con

ISssion brokerage Or other Compensation. or an

allowance or discount ir lieu thereof except tor ser

ices rendered in connection with the sale or purchase

4 goods, wares or merchandis either to the other Dar

ich transaction or to an agent representative

ier intermediary therei: where such

intermediar

is acting in tact tor or in behalt. or is subject to the

direct or indirect control, of any party to such tran:

action other than the person by whom such « OMmpel

sation is so granted or paid

Che tederal Racketeering Influenced and Corrupt Organiza

tions Act. 18 U.S. § 1962/a). which states

It shall be unlawful for any person who has recei\

ed any income derived, directly or indirectly, from a

pattern of racketeering activity or through collectior

of an unlawful debt in which such person has partici

pated as a principal within the meaning of section 2

title 18, United States Code. to use or invest, direct)

or indirectly, any part of such income, or the proceed

of such income, in acquisition of any interest in, or the

establishment or operation of, any enterprise which i:

engaged in. or the activities of which affect. interstat:

or toreign commerce

he New Jersey Anti-Racketeering Act, N.].S. 2C:41.2, whict

tates

It shall be unlawful for any person who have recei

ed any income derived, directly or indirectly, from a

pattern of racketeering activity or through collection

of an unlawful debt in which he has participated a

a principal within the meaning of N.J.S. 2C:2-6 to us

wr invest, directly or indirectly, any part of the incom:

or the proceeds of the income, in acquisition of any

nterest in, or the establishment or operation of an

enterprise which is engaged in or the activities of whic!

attect trade or commerce

STATEMENT OF THE CASI

t tual Bas kore und

in YS] a New Jersey corporation WS Kirkpatrick i {

In Kirkpatrick”), through a subsidiary, W.S. Kirkpatrick &

international (“Kirkpatrick International’), entered into a

contract with the Government of Nigeria. The contract piowid-

ed for Kirkpatrick International to develop an aeromedical center

at the Kaduna Air Force Base in Kaduna, Nigeria. The contract

was awarded to Kirkpatrick International by the Ministry of

Defense of the Nigerian government.

In approximately 1984, the United States Department of Just’ e

corr.nenced a grand jury investigation into the circumstances sur-

rounding the award of the 198] contract. Kirkpatrick, which was

then under new management, fully cooperated with the govern-

ment in its investigation. In the course of the investigation,

Kirkpatrick uncovered evidence which showed that an agent hired

by Kirkpatrick, Benson “Tiande” Akindele, had represented to

Kirkpatrick that officials and representatives of the Government

of Nigeria had demanded that Kirkpatrick pay bribes to them

in order to be awarded the contract. The evidence showed that,

faced with these demands, Kirkpatrick's former management had

apparently agreed to meke payments to that agent with the

understanding that he would cause bribes to be paid to officials

or representatives of the Nigerian Government. Although this

evidence did not establish that a bribe actually was paid to

anyone, the mere offer of payment or agreement to pay alone

violates the Foreign Corrupt Practices Act, 15 U.S.C. § 78 dd-2.

Accordingly, Kirkpatrick pled guilty to one count of violating

the act and was sentenced to a fine of $75,000.

The Civil Action

Following the conclusion of the criminal action, ETC filed a

complaint in United States District Court for the District of New

Jersey. The jurisdiction of the Court was invoked pursuant to 18

U.S.C. §1964, 15 U.S.C. §15 and principles of pendent jurisdic-

tion The complaint alleged that ETC was the competing bid-

der for the Kaduna contract and that ETC would have been

awarded the contract but for defendants’ payment of bribes. The

complaint also alleged that in order to obtain that one contract

the defendants had agreed to pay and had paid a single bribe

in a series of installments through one intermediary, Akindele,

for distribution to certain unnamed Nigerian officials. ETC

claimed violations of the Robinson-Patman Act, 15 U.S.C. § 13(c),

the Racketeer Influenced and Corrupt Organizations Act

(“RICO”), specifically 18 U.S.C. §§ 1962(b), (c) and (d), and the

New Jersey Anti-Racketeering Act, N.J.S. 2c:41-2. A total of eleven

defendants were named in the complaint, inclw:ing, Kirkpatrick

and Kirkpatrick International.

Kirkpatrick and several other defendants moved to dismiss the

complaint, alleging inter alia that the action was precluded by

the Act of State Doctrine. Kirkpatrick argued that adjudication

of this action would prima facie impact upon relations between

this country and the Government of Nigeria in a manner and

to an extent that would be far more offensive and embarrassing

to the Government of Nigeria than was adjudication of the

criminal action.

First, this action would mandate adjudication of whether

Nigerian government officials actually were paid bribes by

Kirkpatrick's agent, Akindele. The criminal action did not reach

or resolve that issue because, under the Foreign Corrupt Prac-

tices Act, the mere payment of money to Akindele with the

understanding that he would pay bribes constituted a violation.

Second, this action would necessarily involve proof as to the iden-

tity of the individual officials and representatives who allegedly

accepted bribes and of all the specifics of the alleged bribe giv-

ing and taking. In the criminal prosecution, such specific infor-

mation was superfluous since there was no need to prove that

a bribe was actually ever paid. Third, unlike the criminal ac-

tion, this action would adjudicate whether demanding and receiv-

ing bribes is customary for the Government of Nigeria. This issue

cannot be avoided since, in order for ETC to prove causation,

ETC would have to prove that it would have been awarded the

contract without paying a bribe. A primary defense of the defen-

dants would be that bribes are always extorted by Nigerian

government officials and that in order to do business with the

Nigerian government, bribes must be paid to its officials and

representatives. Thus, defendants would necessarily attempt to

prove that ETC would have been forced to pay a similar bribe

in order to be awarded the contract and that, therefore, ETC

has no standing to complain as to the payment of one by

Kirkpatrick.

In considering the Act of State issue, the District Court invited

the Department of State to offer input on whether it objected

to adjudication on foreign relations grounds. The State Depart-

ment responded by letter that adjudication could prove detrimen-

tal to foreign relations with Nigeria. However, the letter also

stated, in contradictory fashion, that the State Department did

not believe that adjudication was barred by the Act of State Doc-

trine. The District Court determined that this letter provided no

guidance about whether the action could be adjudicated.

Also, while awaiting a response from the State Department

to the Court's invitation to offer input, ETC privately wrote to

the Nigerian government seeking a statement that the govern-

ment has no objection to adjudication of this action. The govern-

ment did not respond to ETC’s request.

The District Court decided that the action was barred by the

Act of State Doctrine and must be dismissed. The Court also held

that the complaint failed to plead a pattern of racketeering ac-

tivity under RICO.

REASONS FOR GRANTING THE WRIT

1. The Third Circuit's Decision Creates a Direct

and Irreconcilable Conflict Among Several

Circuits Regarding the Proper Application of

the Act of State Doctrine

A. The Conflict

The decision of the Third Circuit in this case squarely and ir-

reconcilably conflicts with a decision reached by the Ninth Cir-

cuit on substantially indistinguishable facts. See Clayco Petroleum

Corp. v. Occidental Petroleum Corp., 712 F.2d 404 ‘9th Cir.

1983). The conflict, which regards the proper application of the

Act of State Doctrine, impacts upon this country’s conduct of

foreign relations as well as the fundamental constitutional prin-

ciple of separation of powers. Since this case presents a direct

conflict between circuits involving important constitutional issues,

certiorari should be granted. See Aldinger v. Howard, 427 U.S.

1, 3 (1976); Rules of the Supreme Court of the United States, Rule

17.1(a).

In Clayco, the plaintiff and the defendant, Occidental

Petroleum, were in competition for an off-shore oi] concession

offered by Um Al Quywayn. Clayco, the plaintiff, alleged that

it was first offered the concession, but that Um Al Quywayn’s

oil minister awarded Occidental, the defendant, the contract after

Occidental paid the minister and his son more than $400,000 in

bribes. After the media discovered and reported the bribery

scheme, the SEC brought an action against Occidental that charg-

ed violations of the Securities Exchange Act of 1934, based on

the allegedly illegal payments. Occidental agreed to a perma-

nent injunction, and to an internal review of its bidding prac-

tices. Clayco brought suit after the report prepared pursuant to

that review revealed that illegal payments had in fact been made.

See Clayco, 712 F.2d at 405-06.

The district court dismissed Clayco’s lawsuit on Act of State

grounds and the Ninth Circuit affirmed the dismissal. The Ninth

Circv it held that since a determination that bribery had in fact

occurred would “impugn or question the nobility of a foreign

nation’s motivation,” and since “the very existence of plaintiffs’

claim depends upon establishing that the motivation for the

sovereign act was bribery,” the executive's conduct of foreign af-

fairs was sure to be embarrassed by such a proceeding. See Clayco,

712 F.2d at 407.

Clayco is on all fours with this case. Here, as in Clayco, the

plaintiff and the defendants were in competition for a contract

with a foreign government. The plaintiff alleged that it would

have been awarded the contract but for the defendants’ payment

of bribes to foreign officials and representatives. The defendants’

conduct came under scrutiny by officials in this country, resulting

in confirmation that the defendants had violated the laws of this

country. The plaintiff then sued on grounds that its rights had

been violated.

The similarity between this case and Clayco is underscored

by the failure of ETC and the Third Circuit even to attempt to

distinguish Clayco. Rather, ETC argued, and the Third Circuit

found, that the Ninth Circuit's holding in Clayco was simply

wrong. See Transcript of Argument on November 20, 1987, at

7; Environmental Tectonics Corp., Intl v. W.S. Kirkpatrick &

Co., Inc., Nos. 87-5328 and 87-5546 at 17 (3rd Cir. May 2, 1988)

(“Clayco’'s expansive application of the act of state doctrine seems

at variance with the principle which has guided this cvurt. . .”).

This conflict regarding the proper application of the Act of

State Doctrine extends to the Second Circuit as well since chat

circuit favors the view of the Act of State Doctrine that is reflected

in Clayco. See Hunt v. Mobil Oil Corp., 550 F.2d 68 (2d Cir.),

cert. denied, 434 U.S. 984 (1977). In Hunt, the Second Circuit

held that the Act of State Doctrine rendered nonjusticiable a claim

that required inquiry into the motives of a foreign government

in performing certain acts. Citing Hunt, the Third Circuit here

suggested that the Second Circuit's interpretation of the Act of

State Doctrine is excessively strict. Environmental Tectonics Corp.

Intl v. W.S. Kirkpatrick & Co., Inc. Nos. 87-5328 and 87-5546

at 17 n.9.

Similarly, in O.N.E. Shipping Ltd. v. Flota Mercante Gran-

colombiana, S.A., 830 F.2d 449, 453 (2d Cir. 1987), petition for

cert. filed, (U.S. Feb. 8, 1988) (No. 87-1350), the Second Circuit

again held that adjudication was precluded by the Act of State

Doctrine when an action required inquiry into the motives of

a foreign government in performing certain acts:

' The plaintiff in O.N.E. recently filed a Petition for a Writ of Certiorari, which

is pending before this Court. O.N.E. Shipping Ltd. v. Flota Mercante Gran-

colombiana, S.A., 830 F.2d 449 (2d Cir. 1987), petition for cert. filed, (US.

Feb. 8, 1988) (No. 87-1350). The existence of this petition further demonstrates

the importance of this issue and the need for resolution by this Court. However,

O.N.E., which involved several issues, including comity and foreign compu)-

sion considerations, does not present as straightforward an Act of State issi—

as is presented here. Thus, this action provides a better vehicle for this Court

to delineate the parameters of the doctrine.

B. The Importance Of The Issue

This Court recognized years ago in Banco Nacional de Cuba

v. Sabbatino that the Act of State Doctrine bears importantly

“on the conduct of this country’s foreign relations and more par-

ticularly on the proper role of the Judicial Branch in this sen-

sitive area.” See Banco Nacional de Cuba v. Sabbatino, 376 U.S.

398, 407 (1964). Indeed, the importance of these issues was the

reason why this Court granted certiorari in that case. Id. More

than two decades later, the proper construction and application

of the Act of State Doctrine remains as critical as ever to both

our conduct of foreign relations and the proper role of the

judiciary. Thus, certiorari should be granted here to eliminate

the conflict and confusion which has been generated by the re-

cent decisions on this issue.

2. The Third Circuit's Decision That The

Act of State Doctrine Does Not Proscribe

Adjudication Of This Action Is In Conflict

With Applicable Decisions of This Court

The classic statement of the Act of State Doctrine is set forth

in Underhill v. Hernandez, 168 U.S. 250, 252 (1897):

Every sovereign state is bound to respect the in-

dependence of every other sovereign state, and the

courts of one country will not sit in judgment on the

acts of the government of another done within its own

territory.

As this Court stated in Sabbatino, the doctrine expresses the strong

sense of the judiciary that its engagement in the task of passing

on the validity of foreign acts of state may hinder rather than

further this country’s pursuit of goals both for itself and for the

community of nations as a whole in the international sphere. Sab-

batino, 376 U.S. at 423.

The Third Circuit's decision is in direct conflict with the doc-

trine as outlined by this Court in Underhill and Sabbatino. Ac-

cording to the decision, the Act of State Doctrine does not bar

10

adjudication of this action for two basic reasons: (i) adjudica-

tion would require at most an inquiry into the motivations

behind, rather than the legality of, the foreign government's acts;

and (ii) defendants failed to demonstrate that adjudication was

bound to result in conflict between the executive and the judiciary.

Environmental Tectonics Corp., Intl v. W.S. Kirkpatrick & Co.,

Inc., Nos. 87-5328 and 87-5546 at 23. Thus, the Third Circuit

apparently reasoned that judicial inquiry into the motivations

behind a foreign government's acts is permissable under the doc-

trine and that defendants who invoke the doctrine must prove

that conflict between the judiciary and the executive is an in-

evitable consequence of adjudication.

Contrary to the Third Circuit's decision, the holding and

reasoning of Sabbatino make clear that inquiry by the courts of

this country into whether foreign government officials were in-

fluenced by bribery in the award of a government contract is

exactly the sort of inquiry that the Act of State Doctrine was

designed to proscribe. Sabbatino, 376 U.S. at 401. If the doctrine,

as created by this Court, has any meaning at all, it must mean

that the courts of this country shall not sit in judgment on whether

Nigerian government officials or representatives demanded in this

case that bribes be paid to them, whether they awarded the con-

tract on the basis of those bribes and whether they customarily

demand bribes from anyone who wishes to do business with their

country. Since bribery is almost universally recognized as a crime,

adjudication of these questions by the courts of this country would

necessarily be offensive to the government of Nigeria. Adjudica-

tion therefore would inevitably affect our relations with that

government as well as relations between the executive and the

judiciary.

3. The Third Circuit's Finding That a

Pattern Exists Under RICO Conflicts

Directly with Sedima and with

Decisions of Several Other Circuits

This Court recently recognized the need for clarity in the deter-

mination of what is a RICO pattern by granting certiorari in

H.J. Inc. v. Northwestern Bell Tel. Co., 829 F.2d 648 (8th Cir.

1987), cert. granted, ___. U.S. ___, 108 S. Ct. 1219 (1988). This

case would make an excellent companion case to H.J. and con-

sideration of it by this Court along with H.J., which involved

bribery allegations of a much more pervasive and variegated

nature than present here, would help facilitate this Court's ef-

forts to clarify an area of law that has been aptly characterized

as “sheer bedlam.” See Furman v. Cirrito, 828 F.2d 898, 909 (2d

Cir. 1987) (Pratt, ]., dissenting).

In H.J., petitioners allege that from 1980 through the present,

Northwestern Bell attempted to, or did, bribe com-

missioners of the Minnesota Public Utilities Cornmission through

a variety of methods. At least three distinct, dissimilar acts of

bribery were described in the complaint, one involving payments

made to commissioners through a middleman, one involving

payments made to a former commissioner in “consulting fees”,

and one involving the payment by re.pondent for parties, gifts

and meals for commissioners. See Petition for Writ of Certiorari,

HJ. Inc. v. Northwestern Bell Tel. Co. (87-1252) (filed Jan. 20,

1988), at 5. The Eighth Circuit dismissed the complaint on

grounds that only one scheme existed for purposes of RICO and

therefore that the pattern requirement was not satisfied. H_./.,

Inc., 829 F.2d at 650. On March 21 of this year, this Court agreed

to review that decision.

The Eighth Circuit's decision reflects what has been

characterized as the restrictive interpretation of RICO’s pattern

req Jrement. According to this interpretation, a RICO pattern

exists only when a complaint alleges multiple separate criminal

schemes or episodes. E.g. Superior Oil Co. v. Fulmer, 785 F.2d

252, 257 (Sth Cir. 1986). The approach is the opposite of the

liberal view, which holds that two related acts may constitute

a pattern when committed in furtherance of a single scheme. Fg.

United States v. lanniello, 808 F.2d 184, 192 (2d Cir. 1986). Bet-

ween these views lies the moderate approach, which involves the

analysis of a number of factors to determine whether a pattern

has been alleged. See Lawaetz v. Bank of Nova Scotia, 655 F.

Supp. 1278, 1286 (D. Virgin Islands 1987).

12

In this case, the Third Circuit expanded the liberal approach

in finding thai a RICO pattern had been pleaded and therefore

stands a: the opposite end of the spectrum from H.J.. Here, the

Third Circuit found that even though only one series of payments

to effectuate a single bribe was alleged, the pattern requirement

was nonetheless satisfied. See Environmental Tectonics Corp.,

Intl v. W.S. Kirkpatrick & Co., Inc., Nos. 87-5328 and 87-5546,

at 25-26. Thus, there was less reason here to find a pattern than

in H.J., yet in this case a pattern was found to have been pro-

perly pleaded.

An affirmance by the Court of the decision in H.J. would

necessarily determine whether a RICO pattern has been alleg-

ed in this case. However, a reversal of the decision in H.J. would

not necessarily resolve that issue in this action or determine

whether the “moderate” or “liberal” approach to determining

what is necessary for a RICO pattern is appropriate or whether

some variation ought to be applied. Thus, given the facts and

decisions in this case and H.J., this case would be an excellent

companion case to be decided along with H_J. because, with two

cases at opposite ends of the spectrum, the RICO pattern issue

could be fully considered and resolved.

In any event, if this Court determines that its ruling in H.J.

will fully resolve what is necessary to establish a RICO pattern,

this Court should defer ruling on this petition for certiorari in-

sofar as it relates to the pattern issue until after it decides HJ.

See, e.g., Keney v. New York, 388 U.S. 440 (1967) (petition held

by this Court until decisions were rendered in other cases rais-

ing similar issues).

CONCLUSION

It should be resolved whether the Act of State Doctrine bars

Respectfully submitted,

Tuomas H. Sear

Counsel of Record

for Petitioners

Of Counsel and On the Petition

Ruonpa D. Onin

SPENGLER CARLSON GUBAR

Bropsky & FRISCHLING

280 Park Avenue

New York, New York 10017

(212) 286-4000

——

A-l

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NOS. 87-5328 and 87-5546

ENVIRONMENTAL TECTONICS

v.

W.S. KIRKPATRICK INC.,

DEVELOPMENT INTERNATIONAL CORPORATION,

DIC (HOLDING) INC.,

IDC INTERNATIONAL

S.A. LUXEMBOURG,

HARRY G. CARPENTER

c/o W.S. Kirkpatrick, Inc.

and

BENSON “TUNDE” AKINDELE

JOHN M. KRANKEL, EMRO ENGINEERING CO., INC.

ROBERT W. RUPPERT c/o EMRO ENGINEERING

CO., INC., ROSS E. SAXON c/o NAUTILUS

ENVIRONMENTAL SYSTEMS, INC. & R.H. EDWARDS

Environmental Tectonics

Corporation International

Appeilant in 87-5328

W.S. Kirkpatrick & Co., Inc..

W.S. Kirkpatrick & Co.,

International and D.1.C.

(Holding) Inc.,

Appellants in No. 87-5546

A-2

On Appeal from the United States District

Court for the District of New Jersey

(D.C. Civil Action No. 86-0796)

Argued November 20, 1987

BEFORE: GREENBERG and SCIRICA, Circuit Judges

and POLLAK, District Judge*

(Filed May 2, 1988)

THOMAS H. SEAR, ESQ. (Argued)

RHONDA D. ORIN, ESQ.

SPENGLER, CARLSON, GUBAR.

BRODSKY & FRISCHLING

280 Park Avenue

New York, NY 10017

Attorneys for Appellee-

Cross-Appellant.

W.S. Kirkpatrick & Co.,

Inc., et al.

THOMAS B. RUTTER, ESQ. (Argued)

RUTTER, TURNER & STEIN

872 Public Ledger Building

Philadelphia, PA 19106

Attorney for Appellant-

Cross-Appellee.,

Environmental Tectonics

International, Inc.

* Honorable Louis H. Pollak. United States District Judge for the

Eastern District of Pennsylvania, sitting by designation.

A-3

THEODORE V. WELLS. JR.. ESQ.

ROBERT L. KRAKOWER, ESQ. (Argued)

LOWENSTEIN, SANDLER, KOHL, FISHER

& BOYLAN

65 Livingston Avenue

Roseland, NJ 07068

Attorneys for Appellee-

Cross-Appellant.

Harry G. Carpenter

OPINION OF THE COURT

POLLAK, District Judge:

Appellant Environmental Tectonics Corporation

International (“ETC”), a Pennsylvania corporation,

brought this action to recover damages against several

defendants for. inter alia, violations of the federal

Racketeering Influenced Corrupt Organizations Acts.

18 U.S.C. 88 1962-1968, the New Jersey

Anti-Racketeering Act, 2C N.J.C.S. § 41-1, and the

Robinson-Patman Act, 15 U.S.C. 13(c). Essentially.

ETC claims to have been injured by an apparently

successful scheme, allegedly participated in by all of

the defendants, to influence the award of a Nigerian

defense contract through bribery of Nigerian

government officials. The district court concluded that

the act of state doctrine barred adjudication of ETC’s

claims; and dismissed the action in its entirety. In the

alternative, the court also ruled on other substantive

and procedural issues.

This action arose from the award of a contract by

the Federal Republic of Nigeria to defendants W. S.

A-4

Kirkpatrick & Co. (“Kirkpatrick”) and W. S.

Kirkpatrick & Co. International (“Kirkpatrick

International’), both of which are New Jersey

corporations. Kirkpatrick is in the business of selling

and brokering aircraft equipment, parts and facilities

to airlines and foreign air forces. Kirkpatrick

International, its wholly-owned subsidiary, was formed

to carry out Kirkpatrick's duties under the contract to

be awarded by the Nigerian government. Also named as

defendants were Kirkpatrick's parent corporations,

DIC (Holding) Inc. (“DIC”), a Delaware Corporation,

and International Development Corporation, S.A.

(“IDC”), a Luxembourg corporation.

In 1980, when the events alleged in the amended

complaint’ began, defendant Harry Carpenter was

chairman of Kirkpatrick's board of directors and the

company’s chief executive officer. In 1980, Carpenter

learned that the Nigerian government was interested in

purchasing aeromedical equipment, and in

constructing and equipping an aeromedical center for

the Nigerian Air Force at Kaduna Air Force Base (the

“Air Force contract”). Kirkpatrick contracted with

defendants Emro Engineering Co.. Inc. (“EMRO”) and

Nautilus Environmedical Systems, Inc. (“Nautilus”) to

provide engineering, design and related assistance

needed to build the proposed facility and to supply the

equipment.

Carpenter hired a Nigerian national, defendant

Benson (“Tunde™) Akindele, to act as Kirkpatrick's

local agent in all matters pertaining to the Air Force

contract. In or around March of 1981, Carpenter and

Nautilus president Ross Saxon’ met with Akindele to

l. The following factual recital is based primarily on the

amended compiaint.

2. Saxon and Robert Ruppert. Emro's president. were also

named as defendants. Two other Kirkpatrick officers. Robert H.

Edwards and John M. Krankel. were named as well.

A-5

discuss their bid strategy. According to a

contemporaneous memorandum written by Carpenter.

Akindele told Carpenter and Saxon that to secure the

bid Kirkpatrick should be prepared to pay a sales

commission totalling twenty percent (20%) of the

contract price. Most of this commission was to be paid

to Nigerian political and military officials.’ Akindele

explained that Nigerian officials generally expected

such payments from contract bidders, and that

American companies often lost Nigerian defense

contracts to their European competitors because they

failed to make such arrangements.

Through a written agreement with Akindele.

Kirkpatrick agreed to pay the commissions to two

Panamanian corporations. In May of 1981, these

corporations -- which were controlled by Akindele --

were established to receive the commissions and to

distribute them to Nigerian officials. On March 19.

1982, the Nigerian Defense Ministry entered into an

agreement awarding the Air Force contract to

Kirkpatrick International. In September of 1982, the

Nigerian government made the first of four contract

payments to Kirkpatrick. The remaining payments

were made in December of 1982, in February of 1983.

and in August of 1983. After each of the four contract

payments, the defendants via the United States mails

and wire transfers paid a portion of the promised

commissions to Akindele’s Panamanian corporations,

whence the monies were distributed to Nigerian

officials. In the end, Kirkpatrick's commission

payments to the Panamanian corporations, and thus.

3. ETC alleged in its complaint that the 20% commission was to

be distributed as follows: 2 1/2% for Akindele. 5% for the Nigerian

Air Force, 2 1/2% for the medical group. 5% for a political party. 2

1/2% for the relevant cabinet minister. and 2 1/2% for other key

defense personnel.

A-6

to Akindele and various Nigerian officials, totalled over

Sl. illion.

7 - the latter half of 1981 and 1982, while

Kirkpatrick was impiementing the bid strategy

described above, ETC, which is also in the business of

selling aeromedical equipment to foreign governments,

was p ng its own bid for the Air Force project.

ETC submitted its pricing information to the Nigerian

government in February of 1981, and it continued in

contact with Nigerian military and diplomatic officials

throughout the course of that year. ETC’s president

met with Nigerian oificials in Nigeria, and submitted a

formal bid for the Air Force contract in December of

1981. ETC submitted its final formal bid in February of

1982, a month before the Nigerian government

awarded the contract to Kirkpatrick.

ETC states that it decided to investigate the

Nigerian government's award of the Kaduna contract

to Kirkpatrick in April of 1983, after learning that its

bid had been far lower than Kirkpatrick's. ETC

reported its findings to the Nigerian Air Force* and to

the United States Embassy in Lagos, Nigeria. After an

investigation by the United States Justice Department,

Carpenter and Kirkpatrick each were charged with

violating the Foreign Corrupt Practices Act, 15 U.S.C.

§ 78dd-2 (hereinafter “FCPA”).

As part of its plea negotiations on the United

States charges, Kirkpatrick and Carpenter both agreed

to offers of proof which outlined the Air Force contract

scheme in its entirety, including Carpenter's hiring of

Akindele, and Akindele’s control of the Panamanian

corporations. Both offers of proof also stated that

Akindele and Carpenter agreed that the money paid to

4. Both bribery and the acceptance of a bribe by a government

official are illegal under Nigerian law. See Decree No.38 (November

22. 1975) in Federal Republic of Nigeria Official Gazette

Extraordinary, No. 59, December 2. 1975.

A-7

the Panamanian corporations as commissions would

be distributed to Nigerian political and military

officials. Carpenter and Kirkpatrick both pled guilty to

one FCPA violation, and were eventually sentenced:

Carpenter to two hundred hours of community service

and a fine of $10,000, and Kirkpatrick to a fine of

$75,000, payable over a five-year period.*

5. At Kirkpatrick's sentencing on January 6. 1986. Assistant

United States Attorney Steven Levy, who was in charge of

Carpenter's and Kirkpatrick's prosecutions, made the following

representation to the court:

Your Honor, | guess | would also like to say that the

political impact of this case. of this case cannot be

underestimated [sic]. ...l can say that the government of

Nigeria as well as the State Department [of the United

States] have shown a vital interest in this case. In fact.

the State Department has been very concerned about the

possible political impact upon the government of Nigeria

if the Grand Jury disclosed certain information about

who possibly received the payments which are set forth

in the memorandum that Mr. Carpenter wrote to other

senior officers of the corporation.

I have as attorney for the Government (of the United

States], your Honor. been resisting attempts by the

Nigerian government to find out this information

because | have not had a disclosure order and the S.ate

(Djepartment has its concerns about what would happen

if the government of Nigeria actually knew who was

involved in this scheme to sort of rip off money from this

Nigerian contract.

This is not a case where there is not a victim.

Shagari. who was the president of Nigeria at the time of

this contract{.| is now under house arrest. Some of these

other individuals |.] and | can name them if the Court is

interested. are very prominent military figures who are

still in power in Nigeria. The Nigerian government would

certainly like to have their names.....

Transcript of Sentencing of Kirkpatrick, dated January 6, 1986. p.

9.1. 2l top. 10 1. 22.

A-8

ETC filed this action shortly after Kirkpatrick's

sentencing. Defendants filed a motion to dismiss

under Federal Rule of Civil Procedure 12(b)(6), which

contended, inter alia, that the plaintiff had failed to

allege a “pattern of racketeering activity” as required by

the federal and state RICO statutes. ETC filed an

amended complaint that responded to some of the

issues raised by the defendants’ motion to dismiss,

and that added common law counts to ETC’s antitrust.

RICO, and anti-racketeering counts. ETC also filed an

answer to the remainder of the defendants’ motion to

dismiss.

In their reply to ETC’s answer to their motion.

defendants moved for dismissal of the action in its

entirety on act of state grounds. The district court

requested further submissions from the parties in the

form of answers to specific questions. The court also

requested a Bernstein letter, i.e.. an opinion from the

State Department on whether the act of state doctrine

should be applied in the circumstances presented by

this case.*® Legal Adviser Abraham Sofaer responded to

6. The term “Bernstein letter” is derived from the Second

Circuit's opinion in Bernstein v. N.V. Nederlandsche-

Amerikaansche Stoomvaart-Maatschappij, 210 F.2d 375 (2nd Cir.

1954). Plaintiff Bernstein. a German national. owned a corporation

that was confiscated by the Nazi government during World War II.

The corporation's main asset was a ship; Bernstein was forced to

relinquish title to the ship, as well as all other interest in the

corporation. The Second Circuit initially dismissed Bernstein's

Suit against the ship's st:bsequent owners on act of state grounds.

See Bernstein v. Van Heygen Freres Societe Anonyme, 163 F.2d

246 (2nd Cir. 1947). The court reversed itself after receiving a letter

from the State Department's Legal Adviser, which stated that it was

United States policy to permit the courts to exercise jurisdiction

over claims to recover property expropriated by Nazi officials.

The Supreme Court subsequently determined that.

while it was proper for a federal court to consider a Bernstein letter.

|

|

A Nt I i tt tt

A-9

the court’s request in a letter dated December 10.

1986, which is appended to this opinion. Treating

defendants’ motion to dismiss as a motion for

summary judgment. the district court dismissed the

action on act of state grounds. See Environmental

Tectonics Corp., International v. W.S. Kirkpatrick &

Co., Inc., 659 F. Supp. 1381, 139198 (D.N.J. 1987).

Although the dismissal on act of state grounds

embraced ETC's entire claim against all the

defendants, the district court went on to rule, in the

alternative, on other issues: The court rejected

defendants’ contention that ETC lacked standing to

assert antitrust and RICO claims. The court did.

however, dismiss the RICO count for failure to allege a

pattern of racketeering activity. For the same reason.

the court dismissed the New Jersey Anti-Racketeering

count. In addition, the court upheld a magistrate's

determination that Carpenter was entitled to decline to

answer, on Fifth Amendment grounds, certain

questions put to him on deposition. Finally, the court

held that ETC’s amended complaint adequately stated

a case for holding IDC and DIC legally responsible for

Kirkpatrick's scheme to obtain the Air Fore contract.

ETC appeals from the act of state, RICO, and Fifth

Amendment rulings. The defendants, in addition to

urging the correctness of these rulings. have

cross-appealed from those alternative rulings that were

the Legal Adviser's recommendation in any given case was not (o be

considered binding on the court. In First National City Bank v.

Baaco Nactonal de Cuba. 406 U.S. 759 (1972). Justice Rehnquist.

announcing the judgment of the court, argued that the federal

courts should defer to the view of the State Department: but only

two other members of the court. Chief Justice Burger and Justice

White, joined in his opinion. Justices Douglas and Powell. each of

whom concurred separately. rejected the view that the State

Department's view should control. So. too. did Justice Brennan.

joined by Justices Stewart. Marshall, and Blackmun in dissent.

A-10

adverse to them. Since the district court's grant of

summary judgment on act of state grounds, if affirmed

here, would obviate consideration of all other issues.

we turn first to the act of state question.

II.

On review of a district court's grant of summary

judgment, we utilize the same standard that the

district court was required to apply. See Tigg Corp. v.

Dow Corning Corp., 822 F.2d 358, 361 (3rd Cir. 1987).

There is no real disagreement on the facts relevant ‘o

the district court's act of state determination. On this

appeal, therefore, we are called upon to decide whether

the appellees were entitled to judgment as a matter of

law. See Fed. R. Civ. P. 56(c).

ETC’s challenge to the district court's grant of

summary judgment raises important issues about the

proper application of the act of state doctrine. The

doctrine is the judiciary's institutional response to the

foreign relations tensions that can be generated when

a United States court appears to sit in judgment on a

foreign state's regulation of its internal affairs. Under

the doctrine, the courts of this country will refrain

from judging the validity of a foreign state's

governmental acts in regard to matters within that

country’s borders. See Restatement (Revised) of

Foreign Relations Law of the United States § 469( 428)

(1986). The party moving for the doctrine’s application

has the burden of proving that dismissal is an

appropriate response to the circumstances presented

in the case. See Alfred Dunhill of London. Inc. v.

Cuba, 425 U.S. 682. 694 (1976): Williams v.

Curtiss-Wright, 694 F.2d 300, 303 n.4 (3rd Cir. 1982).

Although earlier formulations of the doctrine were

grounded in notions of comity among sister states.’

7. See Underhill v. Fernandez. 168 U.S. 250. 252 (1898).

Restatement (Revised) of U.S. Foreign Relations Law § 469 |428)

comment a.

A-11

the core concern of modern act of state jurisprudence

is preserving the separation of powers between the

federal judiciary and the political branches of our

government -- especially. the executive branch, where

primary responsibility for the conduct of foreign affairs

is lodged. As explained by the Supreme Court in Banco

Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964),

the doctrine “expresses the strong sense of the Judicial

Branch that its engagement in the task of passing on

the validity of foreign acts of state may hinder rather

than further this country’s pursuit of goals both for

itself and for the community of nations as a whole in

the international sphere.” Id. at 423. Thus, courts are

required to decline to exercise jurisdiction over cases

that may embarrass or impede the political branches of

government in their conduct of foreign affairs. See

First Nat. City Bank v. Banco Nacional de Cuba, 406

U.S. 759. 765-68 (1972) (hereinafter “Citibank’).

Sensitively applied. the doctrine can prevent

judicial entanglement in international conflicts that

are more appropriately resolved through political

channels. Individual litigants and the enforcement of

national policies pay a price, however. for this

institutional self-discipline -- its application in effect

means that “on occasion individual litigants may have

to forgo decisions on the merits of their claims because

the involvement of the courts in such a decision might

frustrate the conduct of the Nation's foreign policy.”

Citibank. 406 U.S. at 769 (opinion of Rehnquist, J.).

For this reason. the Supreme Court has not laid down

rigid rules to govern the doctrine’s application. but

leaves it to the lower courts to determine whether a

conflict between the judicial and political branches

exists in a particular case. See id. at 775-76 (Powell. J.

concurring): Mannington Mills v. Congoleum Corp..

595 F.2d 1287. 1293 (3rd Cir. 1979) (courts should

A-12

analyze the nature of the questioned conduct and the

effect upon the parties in addition to appraising the

sovereign's role).

The main issue raised by ETC’s appeal involves the

proper application of the doctrine when a litigant

invokes the doctrine as a defense to a suit for damage

or injury stemming from a course of events that

included some acts by officials of a foreign government.

Sabbatino and the Supreme Court's other modern act

of state cases have focused on state expropriations of

private property, the clearest example of a political act

that, to paraphrase Justice Harlan, touches on the

nerves of the international community. See

Sabbatino, 376 U.S. at 428. This has, however, left a

broad range of governmental conduct -- e.g.. court

decisions; the granting of a license, patent. or some

other state monopoly; or. as in this case, the award of a

construction or procurement contract -- for lower

courts to consider.

The appellant has advanced several objections to

the district court's act of state determination. Two of

these objections lack merit. First. we agree with the

district court’s conclusion that the award of a military

procurement contract can be, in certain

circumstances, a sufficiently formal expression of a

government's public interests to trigger application of

the doctrine. It is true that certain governmentally

authorized acts. such as the award of a patent or the

acts of a bankruptcy trustee. are considered so routine

as to be not of substantial concern to the political

branches in their conduct of foreign policy. See

Remington Rand Corp. v. Business Systems. Inc.. 830

F.2d 1260. 1265 (3rd Cir. 1987): Mannington Mills.

995 F.2d at 1294. But the award of a major defense

contract generally does not result from a

near-mechanical exercise of narrowly-defined

governmental discretion. The award of a military

A-13

contract. particularly one for a major project, is usually

influenced by national security considerations --

considerations that are far from routine.

We also agree with the district court that the

so-called “commercial” exception to the act of state

doctrine -- an exception endorsed by a plurality of the

Supreme Court but neither acquiesced in nor rejected

by a majority, see Alfred Dunhill of London v. Cuba.

425 U.S. 682 (1976) -- has no application to this case."

Under the commercial exception’s terms, a court would

not abstain from deciding a case involving the purely

commercial act of a sovereign or one of its

instrumentalities. See Dunhill, 425 U.S. at 695

(plurality opinion of White, J.). To determine whether

an act is purely commercial in character, a court looks

not to the purpose of the act but to its nature, i.e..

whether the activity is of the type that an individual

would carry on for profit. Cf. Letelier v. Republic of

Chile, 748 F.2d 790, 797 (2nd Cir. 1984)(applying the

Foreign Sovereign Immunity Act's definition of

“commercial”), cert. denied 471 U.S. 1125 (1985);

Texas Trading v. Federal Republic of Nigeria, 647

F.2d 300, 310 (2nd Cir. 1981)(same), cert. denied 454

U.S. 1148 (1982). While the act of contracting will in

many circumstances be properly characterized as

commercial conduct. the decision to award a defense

contract to one bidder or another is by its very nature

governmental. See Curtiss-Wright, 694 F.2d at 302.

We part company with the district court, however.

on the remainder of its act of state analysis. The

district court employed a formulation of the doctrine

that barred the adjudication of ETC’s claims “if the

inquiry presented for judicial determination includes

8. In Curtiss-Wright, 694 F.2d at 302 n.2. this court noted that

the commercial exception has not been endorsed by a majority of

the Supreme Court. We have no occasion here for going beyond

what was said in Curtiss-Wright.

A-14

‘the motivation of a sovereign act which would result in

“embarrassment to the sovereign or constitute

interference in the conduct of the foreign policy of the

United States.” ETC, 659 F. Supp. at 1392-93. The

court found that adjudication of ETC’s claims would

lead inevitably to an examination of the Nigerian

government's motives in awarding the Nigerian

contract to Kirkpatrick. Because the district court was

convinced that such a finding would be interpreted as

criticism of the Nigerian Government, it concluded

that this case presents the type of situation which

precludes judicial inquiry. See id. at 1393.

In reaching its conclusion, the district court relied

primarily on the interpretation of the act of state

doctrine advanced in a Ninth Circuit case. Clayco

Petroleum v. Occidental Petroleum, 712 F.2d 404 (9th

Cir.), cert. denied 464 U.S. 1040 (1984). In Clayeo, the

plaintiff and the defendant, Occidental Petroleum.

were in competition for an off-shore oil concession

offered by Um Al Quywayn. Clayco alleged that it was

first offered the concession, but that Um Al Quywayn’s

oil minister awarded Occidental the contract after

Occidental paid the minister and his son over

$400,000 in bribes. After the media discovered and

reported the bribery scheme, the SEC brought an

action against Occidental that charged violations of the

Securities Exchange Act of 1934, based on the allegedly

illegal payments. Occidental agreed to a permanent

injunction, and to an internal review of its bidding

practices. Clayco brought suit after the report prepared

pursuant to that review revealed that illegal payments

had in fact been made. See Clayco, 712 F.2d at

405-06. The district court dismissed Clayco's lawsuit

on act of state grounds.

In a per curiam opinion, the Ninth Circuit

affirmed the dismissal. concluding that the act of state

A-15

doctrine barred adjudication of Clayco’s claims.

Although calling for a “flexible” approach to the

doctrine’s application, the court expressed its

unwillingness to permit judicial inquiry into the

motivation behind Um Al Quywayn’s award of the

concession. Since a determination that bribery had in

fact occurred would “impugn or question the nobility

of a foreign nation’s motivation,” and since “the very

existence of plaintiffs’ claim depends upon

establishing that the motivation for the sovereign act

was bribery.” the court concluded that the executive's

conduct of foreign affairs was sure to be embarrassed

by such a proceeding. See Clayco, 712 F.2d at 407.

Clayco’s expansive application of the act of state

doctrine seems at variance with the principle which

has guided this court, that the doctrine “is not lightly

to be imposed...."* Mannington Mills, 595 F.2d at

1293. In Mannington Mills, the plaintiff claimed that

defendant Congoleum violated the antitrust laws by

using patents it allegedly procured by fraud to restrict

the plaintiff's trade abroad. In bringing its suit,

plaintiff did not ask the court to declare the foreign

patents invalid. Instead, Mannington argued that its

9. One commentator has noted that Clayco has adopted the

“strict” view of the act of state doctrine favored by other courts,

most notably the Second Circuit in Hunt v. Mobil Oil, 550 F.2d 68

(2nd Cir.). cert. denied 434 U.S. 984 (1977), that precludes

examination of a foreign sovereign’s motivations. See Bazyler.

Abolishing the Act of State Doctrine, 134 U. Pa. L. Rev. 325, 357

n.190 (1986). Courts and commentators alike have criticized this

interpretation of the doctrine as discouraging effective enforcement

of United States regulatory policies against those who violate the

law by engaging in illegal or anticompetitive conduct abroad. See.

e.g.. Industrial Investment Development Corp. v. Mitsui & Co..

Ltd.. 594 F.2d 48. 55 (5th Cir. 1979). cert. denied 445 U.S. 903

(1980): Sage International, Ltd. v. Cadillac Gage Co., 534 F.

Supp. 896 (E.D. Mich. 1981): Bazyler. supra, at 347. This court

has expressed similar concerns with too sweeping an application of

the doctrine. See Curtiss-Wright. 694 F.2d at 304 & n.5

A-16

action was concerned only with proving Congoleum's

violations of United States trade regulations. See

Mannington Mills, 595 F.2d at 1290-91.

In Mannington Mills this court held, through

Judge Weis, that the act of state doctrine did not bar

adjudication of the plaintiffs claims. The court focused

on the nature of the questioned conduct -- the grant of

a patent, an essentially routine act that raised no

serious foreign policy concerns. See id. at 1294. But

implicit in the opinion was an unwillingness to allow

litigants to shield themselves from the consequences of

illegal conduct abroad by invoking the act of state

doctrine as a defense in American courts. See id. at

1293.

What was implicit in Mannington Mills became

explicit in Williams v. Curtiss-Wright. Plaintiff

Williams alleged that defendant Curtiss-Wright

monopolized the international market for a certain

kind of jet engine, and claimed violations of the federal

antitrust laws, as well as injury caused by common-law

torts. Curtiss-Wright moved to dismiss Williams

compiaint on act of state grounds, arguing that the

doctrine precluded the examination of foreign

governments’ motives in refusing to buy engine parts

from the plaintiff. The district court denied

Curtiss-Wright's motion. See Curtiss-Wright, 694 F.2d

at 301-02. .

On appeal, this court, again speaking through

Judge Weis, affirmed. This court rejected an approach

to the doctrine that would in all circumstances

foreclose judicial scrutiny of the motivations behind

the military procurement decisions of a foreign

government. Judge Weis noted that a private litigant is

not necessarily immune from antitrust liability simply

because the illegal scheme involves some acts by an

agent of a foreign government. See id. at 304 (citing

Continental Ore v. Union Carbide & Carbon Corp..

A-17

370 U.S. 690 (1962)). The opinion stressed the

importance of insuring that the act of state coctrine

not interfere with the implementation of the policies

served by antitrust and other regulatory statutes. “The

act of state doctrine should not be applied to thwart

legitimate American regulatory goals in the absence of

a showing that adjudication may hinder international

relations.... " See id. at 304 (citations omitted). Having

found that the record did not show that litigation of

Williams’ claims would impede the exec utive’s conduct

of foreign relations, this court held that application of

the doctrine was not called for.

The formulation of the act of state doctrine

outlined in Mannington Mills and Curtiss-Wright does

not allow a court to invoke the doctrine on the basis of

mere conjecture about the effect that the disclosure of

certain facts might have on the sensibilities of foreign

governments. Instead, these cases require that a

defendant come forward with proof that adjudication

of a plaintiffs claim poses a demonstrable. not a

speculative, threat to the conduct of foreign relations

by the political branches of the United States

government.

In the instant case, the district court's dismissal

was based on little more than speculation about the

effect that ETC’s lawsuit might have on relations

between the United States and Nigeria. The traditional

justification for involving the doctrine. i.e., avoiding a

judicial determination of the legal validity of a state's

act within its own borders, is not present in this case.

Appellant does not seek to have the Air Force contract

invalidated, nor does it seek compensation for its

alleged losses from the Nigerian government. No

Nigerian official is named as a defendant in the

complaint.

Thus. to resolve ETC’s claims on their merits, the

district court would be called on simply to determine as

A-18

a factual matter whether the appellees’ alleged bribery

of Nigerian officials motivated the award of the

contract. The only information before the court

authoritatively measuring the impact such a

determination might have on the executive's conduct

of foreign policy was the letter from Legal Adviser

Sofaer.'® That official pronouncement of State

Department policy, as it relates to this litigation, reads

as follows:

In recent years, the United States Executive

Branch has addressed the question of whether the

act of state doctrine requires dismissal of

Avceedings that may call for judicial inquiry into

the motivations (as opposed to the legal validity) of

the public acts of foreign states. Specifically, as the

United States stated in an amicus curiae brief

before the United States Supreme Court:

(Wjhile judicial exar-ination of purpose may on

occasion implicate some of the concerns

underlying the act of state doctrine, that doctrine

only precludes judicial questioning of the validity

or legality of foreign government actions....

None of this Court's decisions suggest that the act

of state doctrine precludes all iudicial inquiries

that may embarrass a foreign state or affect the

political branches’ conduct of foreign relations.

Rather, the act of state doctrine is based on the

aeed to avoid unprincipled decisions resulting

from the absence of legal standards, and the

unique embarrassment, and the particular

interference with the conduct of foreign affairs.

that may result from the judicial determination

10. Assistant United States Attorney Levy's representations at

Kirkpatrick's sentencing. supra note 5, were not made in the

course of these proceedings. were not addressed to act of state

questions. and antedated the Legal Adviser's letter by nearly a year

a

A-19

that a foreign sovereign’s acts are invalid. Judicial

inquiry into the purpose of a foreign sovereign's

acts would not require a court to rule on the

legality of those acts. and a finding concerning

purpose would not entail the particular kind of

harm that the act of state doctrine is designed to

avoid. Dismissal of a complaint before the

development of evidence, merely because

adjudication raises the bare possibility of

embarrassment, constitutes an unwarranted

expansion of the act of state doctrine and is

contrary to the flexibility with which that doctrine

should be applied.

These statements represent our views. As the

Department understands the allegations in the

instant suit, the validity of the Nigerian

Government's decision to award the contract in

question is not in question. If the adjudication of

this suit were to involve a judicial inquiry into the

motivations of the government of Nigeria's

decision to award the contract, the Department

does not believe the act of state doctrine would bar

the court from adjudicating this dispute.

See Letter from Abraham D. Sofaer. Appendix to this

Opinion (December 10. 1986) (emphasis in original).

In sum, the State Department is satisfied that the

conduct of American foreign policy relative to Nigeria

will not be compromised by orderly federal court

adjudication of ETC’s lawsuit.'' We appreciate. of

:

11. The Legal Adviser's letter does urge the court to exercise

“caution and due regard for foreign sensibilities” at each stage of

the litigation. In particular. the court is asked “to endeavor to

assure that no unnecessary inquiries are made. or allegations

tested. during the course of discovery or trial.” Interpreting this

passage as a failure on the part of the Legal Adviser to “sign off”

completely on the act of state question. the district court dismissed

A-20

course, that the Department's legal conclusions as to

the reach of the act of state doctrine are not controlling

on the courts.'? But the Department's factual

assessment of whether fulfillment of its

responsibilities will be prejudiced by the course of civil

litigation is entitled to substantial respect.’ As against

that assessment, defendants have not developed a

factual record “showing that adjudication may hinder

international relations ...." Curtiss-Wright, 694 F.2d at

304.

the Legal Adviser's caveats with respect to the production of

evidence as impractical and unconstitutional. See ETC, 659 F.

Supp. at 1398.

The Legal Adviser's expressions of concern about the

possible damage to foreign relations that may result from

wide-ranging discovery against foreign officials should not have

been interpreted as a sign of ambivalence about the act of state

question. Rather, the Legal Adviser simply urged the court to

exercise appropriate supervision over discovery and other trial

preparation to limit damage to foreign sensibilities. This advice is

far from impractical. Foreign governments have often expressed

their dissatisfaction with the wide discovery authorized under the

Federal Rules, finding it intrusive and overbroad when compared to

the European version of the fact-finding process. See Comment.

Antitrust Suits Involving Foreign Commerce. 135 U. Pa. L. Rev.

1003, 1013-17 (1987). American judicial insensitivity to this

foreign reaction has resulted in the enactment of “blocking” laws.

i.e. laws that are specifically designed to block the Federal Rules’

discovery provisions. See id. at 1016. The State Department's

advice on this matter should be read as nothing more than a

reminder to the district court of the complaints about American

litigation with which the executive has become familiar.

12. See supra note 6.

13. That respect is. in our judgment. enhanced when the Legal

Adviser ts one who, in his former capacity as a federal judge. has

addressed act of state problems with marked sensitivity and rigor

in a particularly demanding context. See Sharon v. Time. 599 F.

Supp. 538 (S.D.N.Y. 1984).

A-21

This litigation falls squarely within the teaching of

Curtiss-Wright. In both cases, the plaintiff sought

damages from defendants who allegedly used illegal

tactics to influence a foreign government's award of a

contract. In both cases, adjudicating the claims before

the court would have required at most an inquiry only

into the motivations behind. rather than the legality of,

the foreign government's acts. And, finally, the

defendants in each case failed to demonstrate that the

litigation process was bound to result in the type of

institutional conflict between the political and judicial

branches that would justify invoking the doctrine. We

therefore will reverse the court's grant of summary

judgment, and will remand the case for further

proceedings. '*

III.

Having found that the act of state doctrine is no

bar to appellant's claims, we turn to the remaining

issues presented. First, ETC argues that the district

court erred in dismissing the state and federal

racketeering claims. Second, ETC seeks reversal of the

district court's order barring the depositicn testimony

of defendant Carpenter. who asserted his Fifth

Amendment privilege when examined about

Kirkpatrick’s Air Force contract bid. Third, all of the

defendants challenge the district court's determination

that ETC has standing to bring its antitrust and RICO

claims. And, fourth, defendant DIC reiterates its

contention that it is insulated from liability fer any

misdeeds of Kirkpatrick and Carpenter. We address

these questions in turn.

14. ETC has also argued that Mannington Mills’ ten-factor

balancing test should not result in a dismissal of the case on the

basis of international comity. See Mannington Mills, 595 F.2d at

1297-98. Since the issue apparently was not raised below, and the

record is substantially devoid of the sort of information called for by

A-22

A.

The district court dismissed ETC’s state and

federal RICO claims because it concluded that the

amended complaint failed to allege facts establishing a

pattern of racketeering activity. Noting that this court

had not formulated a definition of the pattern

requirement, the district court adopted a definition of

pattern which would have required the appellant to

allege facts establishing either (1) more than one

criminal scheme undertaken by the defendants. or (2)

a single, open-ended scheme. See Environmental

Tectonics v. W. S. Kirkpatrick & Co., et al., 659 F.

Supp. 1381, 1390 (D.N.J. 1987). The district court

found that ETC’s amended complaint met neither

prong of this test because it alleged a single scheme

which was neither “continuous” nor “on-going.”

The pattern requirement accepted by the district

court has since been rejected by this court. In

Barticheck v. Fidelity Unién Bank, 832 F.2d 36 (3rd

Cir. 1987), this court held that allegations of illegal

conduct that cdénstitute a single, completed criminal

episode are in some circumstances sufficient to

describe a pattern of racketeering activity. To

determine whether a “pattern” exists, a court should

consider a combination of specific factors such as the

number of unlawful acts, the length of time over which

the acts were committed, the similarity of the acts, the

number of victims, the number of perpetrators, and

the character of the unlawful activity. See id. at 38-39:

“.aporito et al. v. Combustion. Engineering. No.

87-5144 Slip Op. at 24 (March 29, 1988).

The factual allegations in ETC’s amended

complaint satisfy this more flexible interpretation of

RICO's pattern requirement. The predicate acts alleged

the Mannington Mills test. it would be inappropriate for this issue

to be examined for the first time on appeal.

A-23

in the amended complaint -- mail and wire fraud,

bribery, and violations of the Foreign Corrupt Practices

Act -- were all committed in connection with (or. to

facilitate) the payments by Kirkpatrick to the

Panamanian corporations. One could view these

payments as a single illegal payment separated into

installments, and thus as a one-time affair, rather than

as “criminal activity that, because of its organization,

duration, and objectives poses, or during its existence

posed, a threat of a series of injuries over a significant

period of time.” Marshall-Silver Construction Co. v.

Mendel. et al., 835 F.2d 63, 66-67 (3rd Cir. 1987). But.

to focus only on the series of payments -- i.e.. one bribe

divided into four parts -- is to ignore the complexity of

Kirkpatrick's scheme. If the appellant's allegations are

true, a European conglomerate, and two American

corporations -- successfully, and over a two-year period

-- organized to influence a foreign country's award of a

procurement contract by illegal, means. To facilitate

their scheme, they hired a consultant who had

contacts with Nigerian officials who were amenable to

such an arrangement. This consultant also developed a

sophisticated and outwardly legal front for the

payments. thereby increasing the difficulty already

inherent in detecting such a scheme. The wire and

mail communications used to implement this

undertaking account for numerous violations of

federal law.

The nature of the acts alleged and the number of

victims are also important considerations in this

analysis. See Barticheck, 832 F.2d at 39. ETC claims

to have suffered direct economic injury from the

appellees’ scheme. By illegally influencing the decisions

of appellees’ public officials. however. appellees have

also created an even larger class of victims, the citizens

of Nigeria. Cf. Town of Kearny v. Hudson Meadows

Urban Renewal “orp., 829 F.2d 1263, 1268 (3rd Cir.

A-24

1987) (two separate schemes to bribe local government

officials made victims of the “taxpayers and residents

of the Town of Kearny”). Moreover, because bribery of

foreign o‘ficials by American businessmen diminishes

this nation’s stature and influence abro* 4. conduct of

the kind here alleged victimizes the citizens of this

nation as weil.

Our assessment of the amended compiaint in light

of Barticheck’s specific factors persuades us that ETC

has alleged a “pattern of racketeering activity” within

the meaning of the statute. ETC may proceed on its

RICO claim, and -- assuming, as have the district court

and the parties, that the pattern requirements for the

New Jersey Anti-Racketeering act are substantially

similar -- on its state racketeering claims as well.

B.

ETC'’s final ground of appeal challenges the district

court's decision that the Fifth Amendment privilege

against self-incrimination shielded Carpenter from

responding to deposition questions the answers to

which might yield evidence that Carpenter had

committed crimes under Nigerian law. ETC argues

that the record does not establish any significant

likelihood that responding to deposition questions

here would expose Carpenter to trial in the courts of

Nigeria. ETC also argues that, in any event. the Fifth

Amendment is not a shield against foreign

prosecution.

As summarized by the court below, the evidence

adduced by Carpenter to establish the risk of criminal

prosecution in Nigeria was as follows:

Prior to his deposition, Carpenter submitted an

affidavit...setting forth his reasons for fearing

criminal prosecution in Nigeria and detailing the

factual basis of the privilege. As discussed earlier

A-25

in the opinion, defendants Kirkpatrick and

Carpenter both pled guilty to violations of the

FCPA in connection with the Nigerian Contract.

According to Akindele, Carpenter's plea and

sentencing were receiving considerable media

attention and were “front page news” in Nigeria.

Apparently, local news coverage of Carpenter's plea

and sentencing were subsequently reported by

Nigerian newspapers. Akindele also told Carpenter

of certain Nigerian government officials’ desire to

prosecute Carpenter in connection with the

Nigerian contract. Akindele further warned

Carpenter not to travel to Nigeria and to exercise

care in travelling in Europe or Africa because there

was a risk he would be taken by force to Nigeria. In

January, 1986, Carpenter's attorney was informed

by a United States Government official that “the

Nigerians wanted to get (Carpenter| to Nigeria.”

This information, which originally came from

Interpol, was relayed to Carpenter. Carpenter has

since been again warned not to travel abroad “and

that the Nigerian interest in [his] case has not

abated.” ’

The magistrate reviewed this evidence in the light

of the factors relevant to the risk of foreign prosecution

enumerated by the Second Circuit in In re Grand Jury

Subpoena of Flanagan, 691 F.2d 116, 121 (2nd Cir.

1982):

[Tihe court in resolving the issue {must focus on|

whether there is an existing or potential

prosecution of [the witness]; what foreign charges

could be filed against him; whether prosecution of

them would be initiated or furthered by his

testimony: whether any such charges would entitle

the foreign jurisdiction to have him extradited

from the United States: and whether there is a

A-26

likelihood that his testimony given here would be

disclosed to the foreign government.

The magistrate found “that. by defendant Carpenter's

affidavit, there is a real fear that he might involuntarily

be subject to the criminal jurisdiction of Nigeria.” The

district court concluded that “[t/he Magistrate's

decision has not been shown to be clearly erroneous or

contrary to law.” ETC, 659 F. Supp. at 1401.

We disagree. We have no doubt that the testimony

ETC sought to elicit at deposition might aid in a

criminal prosecution of Carpenter by Nigeria. if such a

prosecution were undertaken. However, it is not

contended that Carpenter. who has already pleaded

guilty to the criminal charges brought by the United

States, could be extradited to Nigeria for the alleged

bribes. The entire risk of prosecution in Nigeria rests.

therefore, on the possibility that Carpenter would be

kidnapped by Nigerian authorities; and we do not

think that possibility comes close enough to being a

significant likelihood to carry the day. We are prepared

to assume that a real fear. substantially grounded in

fact, of being kidnapped by the agents of a foreign

government with a view to prosecution by that

government might well justify a witness’ assertion of

his or her fifth amendment privilege. But the fact that

Carpenter has been admonished to avoid being

kidnapped does not. in our judgment. constitute

substantial proof that the feared conspiracy is more

than gossamer. Nothing in this record supports an

inference that kidnapping foreigners not resident in

Nigeria in order to bring them to trial in Nigeria is

characteristic of Nigerian law enforcement personnel.

That Carpenter is sincere in his apprehension of

the risk does not mean that the apprehension justifies

his assertion of the privilege. “The apprehension.” as

the court noted in Flanagan. “must be a real and

A-27

reasonable one, based on objective facts as

distinguished from _ subjective...speculation.”

Flanagan, 691 F.2d at 121. And this is because, as the

Supreme Court made plain in Zicarelli v. New Jersey

State Commission of Investigation, 406 U.S. 472. 478

(1972), rejecting the Fifth Amendment claim presented

there, “the privilege protects against real dangers, not

remote and speculative possibilities.” In short, we

think the record made by Carpenter does not

constitute substantial evidence of “real dangers.”

As noted above, ETC further contends that the

Fifth Amendment is only a domestic shield, which

guards against self-incrimination in other American

courts, whether state or federal,'* but does not protect

15. Carpenter might have met his burden under this standard

if he had been officially warned by the United States Government to

forgo travelling abroad in order to avoid capture by Nigerian agents

seeking to bring him to Nigeria for triai. Other evidence -- €.g. a

pending prosecution or the institution or threatened institution of

extradition proceedings -- might also have supported Carpenter s

assertion of the privilege.

The justifications that Carpenter advances in this case.

however. amount to nothing more than speculation about Nigeria's

intentions. First. the warnings by Benson Akindelc, who does not

appear to be a Nigerian official. do not. standing alone. provide a

basis for Carpenter's fear of pro’ -cution. And the somewnat

ambiguous representation of Assistant United States Attorney

Steven Levy with respect to Nigeria's ‘vital interest” in the

American prosecution of Carpenter. supra note 5. falls short of

suggesting that Nigeria was preparing to prosecute Carpenter.

Second, what Carpenter identifies as a warning from the

United States is actually something more remote. The record

suggests that the’ Nigerian government. if interested at all in

Carpenter, sought only to question him about others rather than

prosecute him. Moreover. Carpenter himself was not troubled

enough by the warning to stay in the United States: he later

travelled to the Bahamas. To justify his invocation of the privilege.

Carpenter would have had to come forward with a good deal more

than he presented to the magistrate.

16. See Murphy v. Waterfront Commission, 378 U.S. 52 | 1962).

\

A-28

one from American court orders which would compel

testimony that might threaten incrimination in the

courts of a foreign sovereign. That issue, which the

Supreme Court found unnecessary to resolve in

zicarelli, supra, has generated a contrariety of views in

the lower courts. The Tenth Circuit, In re Parker, 411

F.2d 1067, 1070 (10th Cir. 1969), vacated as moot,

397 U.S. 96 (1970), and the Fourth Circuit, United

States v. (Under Seal), 794 F.2d 920 (4th Cir. 1986),

have rejected the contention that the Fifth Amendment

is extra-territorial in scope. The chief authority in

support of an extra-territorial application is Judge

Newman's opinion in In re Cardassi, 351 F. Supp.

1080 (D.Conn. 1972). Cardassi has been subscribed to

by Judge Hufstedler, concurring in In re Federal

Grand Jury Witness, 597 F.2d 1166, 1169 (9th Cir.

1979), and has been followed by two district courts in

this circuit. See United States v. Trucis, 89 F.R.D. 671

(E.D.Pa. 1981); United States v. Kowalchuk, No.

77-118 (E.D.Pa. 1978)."”

Because we have determined that the present

record does not, in any event, present a substantial

risk that Carpenter would be subject to prosecution in :

the courts of Nigeria, we find it unnecessary to resolve

the important constitutional question as to the reach

of the Fifth Amendment that would otherwise be

presented.

Cc.

On cross-appeal, defendants raise two objections

to rulings by the district court. The first contention,

joined in by all of the defendants, is that the district

court erred in concluding that ETC had standing to

17. The question has been discussed. but not resolved. by the

District of Columbia Circuit in In re Sealed Case. 825 F.2d 494.

497 (D.C.Cir. 1987), and by the Second Circuit in Flanagan, 691

F.2d at 124.

A-29

press its antitrust. RICO, and New Jersey

Anti-Racketeering Act claims. This argument is

premised on what the defendants perceive as factual

deficiencies in ETC’s amended complaint. In their

view, ETC has not pleaded any facts which would

establish, if true, that but for the defendants’ illegal

conduct it would have received the Air Force contract.

The defendants also argue that ETC has pleaded no

facts that would establish the payment of illegal

commissions from the defendants to Nigerian

government officials. The district court concluded that

the amended complaint’s allegations were sufficient to

confer standing on ETC, and we agree with that

assessment.

As far as ETC’s antitrust standing is concerned,

the allegations in the amended complaint as a whole

make out an actionable violation of section 2(c) of the

Robinson-Patman Act, 15 U.S.C. § 13(c).'* Congress

enacted section 2(c), the Act’s brokerage provision,

primarily to curb one particular abuse by large chain

store buyers, namely the use of “dummy” brokerage

fees as a means of securing price rehates. See

Seaboard Supply Co. v. Congoleum Corp.. 770 F.2d

367. 371 (3rd Cir. 1985). The section has also been

18. 15 U.S.C. § 13(c) states:

It shall be unlawful for any person engaged in commerce.

im the course of such commerce. to pay or grant, or to

receive or accept, anything of value as a commission,

brokerage, or other compensation, or any allowance or

discount in lieu thereof, except for services rendered in

connection with the sale or purchase of goods. wares. or

merchandise. either to the other party to such

transaction or to an agent. representative or

intermediary therein where such intermediary is acting

in fact for or in behalf, or is subject to the direct or

indirect control of any party to such transaction other

than the person by whom such compensation is so

granted or paid.

A-30

applied, however. in cases that involve commercial

bribery. See id. at 371; see also Rangen, Inc. v.

Sterling Nelson & Sons, Inc., 351 F.2d 851 (9th Cir.

1965), cert. denied 383 U.S. 936 (1966)(company

which bribed state purchasing agent liable to

competitor for state contract under 2(c)).

Although this court has concluded that as a

general matter commercial bribery is actionable under

2(c), it has ai 9 held that a plaintiff must show that the

illegal payments in question crossed the line from

buyer to seller or vice versa. See Seaboard Supply. 770

F.2d at 379. The amended complaint alleges that

Kirkpatrit k paid the illegal commissions to the

Akindele-controlled corporations. from which they

were distributed to unnamed Nigerian officials.

Though the allegation is not a detailed one, it clearly

charges that illegal payments were passed from a seller

to a buyer -- a violation of 2(c).

Not every plaintiff who alleges an actionable claim

under the antitrust laws has standing, however. to

bring a private antitrust action. In order to proceed

with a claim, a plaintiff must be able to demonstrate

that it is within the class of those injured in their

business or property who, based on a variety of factors.

are best suited to further the purposes of the statute by

remedying the violation alleged. See Alberta Gas

Chemicals, Ltd. v. E.1. Du Pont De Nemours and Co..

826 F.2d 1235, 1240 (3rd Cir. 1987). A private plaintiff

does not have to prove price discrimination to recover

for a violation of 2(c), Seaboard Supply, 770 F.2d at

371 n.3, but the plaintiff must still meet the standing

requirements to proceed. See Larry R. George Sales

Co. v. Cool Attic Corp., 587 F.2d 266. 270-72 (Sth Cir.

1979).

Because of the standing doctrine’s malleability. it

would be difficult to define with precision the contours

of the class of potential plaintiffs who have standing to

A-31

assert 2(c) claims. Indeed, this court's case-by-case

approach to the standing requirement argues against

such an attempt. See Alberta Gas Chemicals, 826

F.2d at 1239-41. We need not do so in this case,

moreover, because it is generally agreed that a direct

competitor of a company that obtains a contract

through commercial bribery has standing to press a

2(c) claim against the briber. See Cool Attic, 587 F.2d

at 271-72: Municipality of Anchorage v. Hitachi

Cable, 547 F. Supp. 633. 640 (D. Alaska- 1982):

Computer Statistics v. Blair, 418 F. Supp. 1339, 1348

(S.D. Tex. 1976); Ill E. Kintner and J. Bauer, Federal

Antitrust Law § 26.12, at 529-30 (1982).

We agree with the district court that ETC’s

amended complaint alleged sufficient facts to establish

the kind of injury that would confer standing to bring a

claim against the defendants. Plaintiff alleged that it

and the defendants are both in the business of

supplying aeromedical facilities and equipment to

foreign air forces. and that both plaintiff and

defendants were in direct competition for the Nigerian

Air Force bid. As the district court noted, short of

alleging that it was next in line for the Nigerian

contract, ETC could not have pleaded a more direct

injury from defendants alleged violation of section 2(c).

The question of ETC’s standing to bring its RICO

and Anti-Racketeering Act claims is somewhat easier

to resolve. To have standing to assert a civil RICO

claim, ETC need only allege an injury to its business or

property resulting from some or all of the predicate acts

that comprise the RICO violation. See Town of Kearny,

829 F.2d at 1268 (quoting Marshall & Ilsley Trust Co.

v. Pate. 819 F.2d 806 (7th Cir. 1987)). ETC's

allegations in the amended complaint of injury from

the bribery scheme -- a scheme that the amei.ded

complaint charges with sufficient factual specificity --

meet this standard. We also assume. as did the district

A-32

court and the parties, that the New Jersey

Anti-Racketeering Act's requirements are essentially

_ the same as the federal standards.

D.

Finally, defendant DIC, one of Kirkpatrick's

corporate parents, contends that the it is entirely

immune from liability. ETC claims that liability for the

alleged wrongful acts of the Kirkpatrick group can be

imputed to DIC on either of two theories: by piercing

the defendant's corporate veil. Melikian v. Corradetti.

791 F.2d 274 (3rd Cir. 1986), or by finding that

Carpenter acted as DIC’s agent in carrying out the

bribery scheme, Japan Petroleum Co. v. Ashland Oil.

456 F. Supp. 831 (D. Del. 1978). The district court

found that the amended complaint minimally alleged

“a relationship among [DIC], IDC, Carpenter, and

Kirkpatrick sufficient to support the potential

imposition of liability upon [DIC] or IDC for wrongtul!

acts committed by Carpenter and/or Kirkpatrick.”

ETC, 659 F. Supp. at 1388. The court also concluded

that ETC and the defendants should have the

opportunit, é9 proceed with discovery so that the facts

definim, the ré:ationship of DIC, IDC, Carpenter and

Kirkpe!t ick may be fully developed. See id. at 1389. We

find no “e®son “o question such a course, which should

produce a record on the basis of which the question of

DIC’s liability can be properly determined. See Craig v.

Lake-Asbestos of Quebec, Lid.. No. 87-1254 (3rd Cir.

March 31, 1988).

Conclusion

We therefore will reverse the district court on its

act of state decision, its dismissal of plaintiffs RICO

and Anti-Racketeering Act claims. and its affirmance of

the magistrates decision upholding Carpenter's

assertion of the Fifth Amendment privilege. As to the

A-33

other issues, we will affirm the district court. We will

remand this case for proceedings consistent with this

opinion.

A-34

APPENDIX

United States Department of State

The Legal Adviser

Washington, D.C. 20520

December 10, 1986

The Honorable

Alfred J. Lechner, Jr.

United States District Court Judge

District of New Jersey

U.S. Post Office and Courthouse

Newark, N.J. 07101

Re: Environmental Tectonics Corporation,

International v. W.S. Kirkpatrick & Co. Inc.. et

al., Civil Action No. 86-796

Dear Judge Lechner:

I am writing on behalf of the Department of State

in reply to the Court's invitation to the Department to

express its views of the above-referenced civil action in

light of defendant's motion to dismiss on the basis of

the act of state doctrine. This court has indicated in

particular that it might become necessary to examine

the motivation of officials of the Republic of Nigeria in

taking certain public actions. The Department

appreciates the Court's consideration in offering this

opportunity for comment.

In recent years, the United States Executive

Branch has addressed the question of whether the act

of state doctrine requires dismissal of proceedings that

may call for judicial inquiry into the motivations (as

opposed to the legal validity) of the public acts of

foreign states. Specifically, as the United States stated

in «nm amicus curiae brief before the United States

Supreme Court:

A-35

(W]hile judicial examination of purpose may on

occasion implicate some of the concerns

underlying the act of state doctrine, that doctrine

only precludes judicial-questioning of the validity

or .egality of foreign government actions... .

None of this Court's decisions suggest that the act

of state doctrine precludes all judicial inquiries

that may embarrass a foreign state or affect the

political branches’ conduct of foreign relations.

Rather, the act of state doctrine is based on the

need to avoid unprincipled decisions resulting

from the absence of legal standards. and the

unique embarrassment, and the particular

interference with the conduct of foreign affairs,

that may result from the judicial determination

that a foreign sovereign’s acts are invalid. Judicial

inquiry into the purpose of a foreign sovereign’s

acts would not require a court to rule on the

legality of those acts. and a finding concerning

purpose would not entail the particular kind of

harm that the act of state doctrine is designed to

avoid. Dismissal of a complaint before the

development of evidence. merely because

adjudication raises the bare possibility of

embarrassment, constitutes an unwarranted

expansion of the act of state doctrine and is

contrary to the flexibility with which that doctrine

should be applied. (Emphasis added).

See United States Government briefs amicus curiae in

support of petitions for a writ of certiorari in Industrial

Investment Development Corp. v. Mitsui & Co., Ltd..

594 F.2d 48 (5th Cir. 1979). cert. denied, 445 U.S. 903

(1980): and in Hunt v. Mobil Oil Corp.. 550 F.2d 68 (2d

Cir. 1977), cert. denied, 434 U.S. 984 (1977). excerpts

reprinted in 1979 Digest of U.S. Practice in

International Law at 965 and 969, respectively.

A-36

These statements represent our views. As the

Department understands the allegations in the instant

suit, the validity of the Nigerian Government's decision

to award the contract in question is not in question. If

the adjudication of this suit were to involve a judicial

inquiry into the motivations of the Government of

Nigeria's decision to award the contract, the

Department does not believe the act of state doctrine

would bar the Court from adjudicating this dispute.

Moreover, the Department is of the view that the

act of state doctrine may not apply to the award of the

contract in question, to the extent that such award

does not constitute a sufficiently formal expression of

Nigeria's public policy or interests. See, e.g., Alfred

Dunhill of London, Inc. v. Republic of Cuba, 425 U.S.

682, 695 (1976); compare Sage Int'l., Ltd v. Cadillac

Gage Co., 534 F. Supp. 896, 908 (E.D. Mich. 1981)

with General Aircraft Corp. v. Air America, Inc., 482 F.

Supp. 3 (D.D.C. 1979).

Apart from the act of state question, however,

inquiries into the motivation and validity of foreign

states’ actions and discovery against foreign

government officials may seriously affect United States

foreign relations. These concerns, in the context of this

litigation, counsel that caution and due regard for

foreign sovereign sensibilities be exercised at each

relevant stage in the proceedings. Moreover, the court

should endeavor to assure that no unnecessary

inquiries are made, or allegations tested, during the

course of discovery or trial.

I hope this letter will be helpful in your disposition

of the above-referenced action.

Sincerely,

Abraham D. Sofaer

A-37

cc: Alan A. Turner, Esq.

Thomas H. Sear, Esq.

Lawrence S. Horn, Esq.

Theodore V. Well, Esq.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

A-38

APPENDIX B

ENVIRONMENTAL TECTONICS CORP, INTERNATIONAL.

Plaintiff,

Vv.

W.S. KIRKPATRICK & CO., INC.., et al..

Defendants.

Civ. A. No. 86-796.

United States District Court,

D. New Jersey.

May 1, 1987.

Corporation engaged in manufacture and sale of aircraft equip-

ment and facilities brought action against corporate competitors

and individuals, seeking damages in connection with award of

contract with government of Nigeria, which was allegedly pro-

cured in violation of antitrust and racketeering laws. Defendants

moved to dismiss for failure to state claim upon which relief could

be granted. The District Court, Lechner, J., held that: (1) allega-

tions that competitors engaged in mail and wire fraud and com-

mitted bribery were insufficient to establish pattern of racketeer-

ing activity, and (2) act of state doctrine precluded action.

A-39

Thomas B. Rutter, and Alan Turner, Rutter, Turner & Stein,

Haddonfield, N.J., for plaintiffs.

Thomas H. Sear, and Rhonda D. Orin, Spengler, Carlson,

Gubar, Brodsky & Frischling, New York City, and Lawrence S.

Horn, Sills, Beck, Cummis, Zuckerman, Radin, Tischman & Eps-

tein, Newark, N.J., for defendant Kirkpatrick and DIC Holding.

Robert L. Krakower, Lowenstein, Sandler, Kohl, Fisher &

Boylan, Roseland, N.J., for defendant Harry Carpenter.

Robert W. Delventhal, Crummy, DelDeo, Dolan, Griffinger

& Vecchione, Newark, N.J., for defendants Emro and Ruppert.

Jerome L. Merin, Asst. U.S. Atty., Office of the U.S. Atty.,

Newark, N.J., for Dept. of Justice.

Dominic F. Amorosa, Short Hills, N.J., for defendant John M.

Krankel.

John J. Barry, Clapp & Eisenberg, Newark, N.J., for defen-

dant R.H. Edwards.

OPINION

LECHNER, District Judge.

This action was brought by Environmental Tectonics Corpora-

tion, International (“ETC”) against W.S. Kirkpatrick, Inc. and

certain other corporations and individuals. ETC seeks damages

in connection with the award of a contract which contract ETC

alleges was procured in violation of antitrust and racketeering

laws. Defendants have moved to dismiss the complaint for failure

to state a claim upon which relief may be granted. ETC has filed

an amended complaint more specifically alleging certain aspects

of the original complaint while adding and dropping certain

defendants.

The motions were filed by defendants pursuant to Federal Rule

of Civil Procedure 12(b)(6). With the exception of the act of state

A-40

portion of these motions, it is assumed for the sole purpose of

the disposition of these motions the facts alleged in the amend-

ed complaint are true and all reasonable inferences have been

drawn in favor of ETC. See D.P. Enterprises, Inc. v. Bucks County

Community College, 725 F.2d 943, 944 (3d Cir.1984). According-

ly, the description of the facts concerning these motions is based

in large part upon ETC’s allegations. With regard to the act of

state argument, additional information has been requested from

counsel and, as well, from the United States Department of State '

which information has been considered together with the exhibits

attached to ETC’s brief in opposition. Therefore, this aspect of

the defendants’ motions will be treated as a motion for summary

judgment under Rule 56 of the Federal Rules of Civil Procedure:

all parties have been so informed and have been given an op-

portunity to respond. This opinion also addresses plaintiff's ap-

peal of three orders entered by Magistrate Hedges.

I. Procedural History

ETC filed a three count complaint naming the following defen-

dants: W.S. Kirkpatrick & Co., Inc. (“Kirkpatrick”)(erroneously

named as W.S. Kirkpatrick, Inc.); Development International

Corporation (“DIC”); DIC (Holding) Inc. (“Holding”); IDC In-

ternational S.A. Luxembourg; Harry G. Carpenter (“Carpenter”):

and Benson “Tunde” Akindele (“Akindele”). The complaint alleged

that defendants’ tactics in obtaining a contract with the govern-

ment of Nigeria violated sections of the Racketeer Influenced and

Corrupt Organizations Act (“RICO”) (18 U.S.C. § 1962, et seg.),

the New Jersey Anti-Racketeering Act (§ 2c:41-2, et seq.) and the

Robinson-Patman Act (15 U.S.C. § 13(c) et seq.)

‘ The Department of State was notified by telephone of this matter on September

10, 1986 (a copy of the transcript of the telephone call was made available to

all parties). In addition, a copy of all relevant documents was forwarded to

the Department of State on September 12, 1986. Because of numerous internal

problems, the Department of State repeatedly requested extensions of the time

within which to respond to the issues presented by the act of state portion of

the motions. On December 10, 1986 a response of the same date was received

from the Department of State.

A-41

ETC filed an amended complaint which added new counts

and more specifically alleged certain aspects of its origing com-

plaint. The amended complaint added the following defendants:

John M. Krankel; WS. Kirkpatrick & Co. International

(“Kirkpatrick International”); International Development Cor-

poration, S.A. (“IDC”); Emro Engineering Co., Inc. (“Emro’);

Robert W. Ruppert; Ross E. Saxon; and R.H. Edwards. DIC was

not named in the amended complaint. The amended complaint

recited the original counts and added a defamation count against

Emro and Ruppert, as well as allegations of interference with

prospective contract relations against all the defendants.’

Kirkpatrick moved to dismiss the complaint for failure to state

a claim upon which relief may be granted. Holding, DIC,

Carpenter, Krankel, Kirkpatrick International, and Edwards

joined the motion brought by Kirkpatrick. These defendants are

referred to herein collectively as the “Moving Defendants”.’

{1] The motions collectively raise four distinct issues: first,

whether ETC’s pleadings allege facts establishing that Carpenter

and Kirkpatrick are sufficiently related to Kirkpatrick's corporate

parents to warrant the inclusion of the corporate parents as defen-

dants to this action; second, whether ETC’s pleadings allege facts

showing ETC suffered injury as a result of defendants’ alleged

antitrust and RICO violations; third, whether ETC’s pleadings

allege facts to establish a “pattern of racketeering activity,’ as

required by the federal and state racketeering laws; and fourth,

whether ETC’s claims are barred by the act of state doctrine.’

? This case and the motions filed were reassigned to this Court by Order, dated

July 16, 1986.

» Although the Moving Defendants’ motions are brought against the sufficien-

cy of the pleadings as set forth in the original complaint, upon review of the

record the issues raised by the motions are properly raised against the suffi-

ciency of the pleadings as set forth in the amended complaint. I shal! consider

the motions accordingly.

* The results of the third and fourth issues, the RICO and the act of state por-

tions of the motions, are applicable to those defendants who have not so moved

or have not yet been served with the complaint or not yet answered the complaint.

A-42

II. Facts

In 1954, Carpenter became an employee of Kirkpatrick, a New

Jersey corporation, which is involved in the business of selling

and brokering aircraft equipment and facilities. At some point

prior to 1978, Carpenter became a major shareholder, Chair-

man of the Board of Directors and Chief Executive Officer of

Kirkpatrick.

In 1978, Carpenter sold all of his stock and equity interest in

Kirkpatrick to Holding. Also in 1978, pursuant to the terms of

a consulting and employment agreement, Carpenter agreed to

remain as Chairman of the Board and Chief Executive Officer

of Kirkpatrick for a period of five years. The stock of Holding

was, at all times relevant to this motion, owned by IDC, a Lux-

embourg corporation.

ETC is a Delaware corporation having its principal place of

business in Pennsylvania and is engaged in the business of

manufacturing and selling aircraft equipment and facilities.

At some point during the period 1980-1981, both ETC and

Kirkpatrick or Kirkpatrick International sought to procure a con-

tract with the Republic of Nigeria to construct an aeromedical

facility at Kaduna Air Force Base in Nigeria and to provide equip-

ment for that facility (the “Nigerian Contract”). In an effort to

obtain the Nigerian Contract, Carpenter negotiated an agree-

ment with Akindele, A Nigerian citizen (the “Akindele Agree-

ment”), whereby Akindele was to act on behalf of certain defen-

dants in seeking to procure the Nigerian Contract. The Akindele

Agreement provided that certain defendants would pay a “com-

mission” to two Panamanian entities controlled by Akindele if

the Nigerian Contract was procured for defendants. The com-

mission was to equal 20% of the Nigerian Contract price; a ma-

jority of the commission was to be paid, in turn, as bribes to of-

ficials of the Nigerian Government for the award of the Nigerian

Contract. During this same period, ETC was negotiating with

Nigerian officials to procure the Nigerian Contract, and at some

point submitted a bid for the Nigerian Contract.

A-43

On March 19, 1982 the Nigerian Contract was awarded to

Kirkpatrick International, a wholly-owned subsidiary of

Kirkpatrick. Payments on the Nigerian Contract by the Nigerian

Government began in September, 1982 and shortly thereafter

defendants’ payments of the agreed upon commissions to the two

Panamanian entities were effected. The alleged commissions were

made on four separate occasions, September 30, 1982, December

21, 1982, February 2, 1983 and August 8, 1983, and totaled ap-

proximately $2 million. ETC alleges Kirkpatrick International

obtained the Nigerian Contract as a result of the commissions

paid or promised as bribes to Nigerian officials who otherwise

would have awarded the Nigerian Contract to ETC.

Carpenter was prosecuted for a violation of the Foreign Cor-

rupt Practices Act of 1977, 15 U.S.C. §§ 78dd-l et seq. (Supp.

V 1981) (“FCPA”).* On October 2, 1985 the United States Attorney

for the District of New Jersey filed in the Carpenter matter an

offer of proof which was signed by Carpenter. This offer of proof

establishes certain facts which include the Akindele Agreements

and the payment of the commission to the two Panamanian en-

tities in connection with the Nigerian Contract. However, the

offer of proof does not establish the payment or promise of bribes

to Nigerian government officials. Kirkpatrick was also prosecuted

for violations of FCPA. Both Carpenter and Kirkpatrick pled guil-

~ ty to violation of FCPA.

On January 6, 1986 at the sentencing of Kirkpatrick, Assis-

tant United States Attorney Steven Levy made the following

representations to the court:

Your Honor, I guess I would also like to say that the

political impact of this case, of this case cannot be

underestimated. ... I can say that the government of Nigeria

as well as the State Department [of the United States} have

shown a vital interest in this case. In fact, the State Depart-

ment has been very concerned about the possible political

‘ This document and a transcript of a sentencing of Kirkpatrick for violation

of FCPA were submitted by ETC in opposition to defendants’ motions.

A-44

impact upon the government of Nigeria if the Grand Jury

disclosed certain information about who possibly received

the payments which are set forth in the memorandum that

Mr. Carpenter wrote to other senior officers of the

corporation.

I have as attorney for the Government [of the United

States], your Honor, been resisting atieipts by the Nigerian

government to find out this information because I have not

had a disclosure order and the State [D]Jepartment has its

concerns about what would happen if the government of

Nigeria actually knew who was involved in this scheme to

sort of rip off money from this Nigerian contract.

This is not a case where there is not a victim. Shagari,

who was the president of Nigeria at the time of this con-

tract[,] is now under house arrest. Some of these other in-

dividuals{,] and I can name them if the Court is interested,

are very prominent military figures who are still in power

in Nigeria. The Nigerian government would certainly like

to have their names.....

(Transcript of Sentencing of Kirkpatrick, dated January 6, 1986,

p. 9, 1. 21 to p. 10 1. 22) (hereinafter “Levy Representations” )

The views of the United States Department of State, dated

December 10, 1986 (the “State Department Position”) indicate

two positions relevant to this matter:

If the adjudication of this suit were to involve a judicial

inquiry into the motivation of the Government of Nigeria's

decision to award the [Nigerian] contract, the Department

does not believe the act of state doctrine would bar the Court

from adjudicating this dispute.

Apart from the act of state question, however, inquiries

into the motivation and validity of foreign states’ actions

and discovery against foreign government officials may

A-45

seriously affect United States foreign relations. These con-

cerns, in the context of this litigation, counsel that caution

and due regard for foreign sovereign sensibilities be exer-

cised at each relevant stage in the proceedings. Moreover,

the court should endeavor to assure that no unnecessary in-

quiries are made, or allegations tested, during the course

of discovery or trial.

State Department Position, at 2-3 (attached as Appendix A).

The government of “Nigeria was informed not later than the

end of November, 1985 [of the bribery charges with regard to

the Nigerian Contract] as a result of the publicity surrounding

the admissions of guilt [to violations of FCPA] and senteuces with

respect thereto oa behalf of Kirkpatrick and Carpenter...” See

submission, dated August 26, 1986, of counsel to plaintiff.

On July 31, 1986 counsel for ETC forwarded a letter to the

Nigerian Embassy in Washington, D.C. to request a declaration

from the Republic of Nigeria “to the effect that the prosecution

of this civil action in the American Federal Courts will not have

any impact whatsoever on the relations between the Republic

of Nigeria and the United States of America.” The stated pur-

pose of this requested declaration was to nullify the defendants’

“act of state” argument to dismiss ETC’s complaint.

To date, it appears the Republic of Nigeria has not responded

to either the publicity surrounding the FCPA prosecutions or the

July 31 letter not has it taken any action with regard to the allega-

tions surrounding the Nigerian Contract.

III. Discussion

A. Inclusion of Holding and IDC

In its complaint, ETC appears to present two theories sup-

porting the imputation of liability to Holding and IDC for the

alleged wrongful acts of Kirkpatrick and Carpenter: first, that

Carpenter acted as an agent of Holding and IDC when he

negotiated the Akindele Agreement; and second, that Kirkpatrick

A-46

~

was a “mere instrumentality” of Holding and IDC. Holding and

IDC maintain ETC has failed to allege facts showing Holding

and IDC are sufficiently related to, or responsible for, Kirkpatrick

and Carpenter to support the imposition of liability on Holding

and IDC for actions taken by Kirkpatrick and Carpenter. In ad-

dition, Holding and IDC maintain ETC has failed to allege facts

establishing Carpenter acted as an agent, servant or employee

of Holding and IDC during negotiations in connection with the

Nigerian Contract. In support of their position, Holding and IDC

assert that ETC’s pleadings on these issues establish nothing more

than Holding and IDC own Kirkpatrick and that Carpenter

entered into an employment contract with Kirkpatrick and/or

Holding.

[2] Whether an agency relationship exists between a parent

corporation and employees a parent corporation and employees

or officers of its subsidiary or whether a subsidiary is an in-

strumentality of the parent is normally a question of fact and

degree. The central factual issue .s control, ie, whether the parent

corporation dominates the activities of the subsidiary. See Japan

Petroleum Co. (Nigeria), Ltd. v. Ashland Oil, Inc., 456 F.Supp.

831, 840-41 (D.Del.1978). Accord, Hoffman v. United Telecom-

munications, Inc., 575 F.Supp. 1463, 1478 (D.Kansas 1983).

[3] In addressing the problem of relationships between parent

and subsidiary corporations, courts have cited the criteria set forth

in Fish v. East, 114 F.2d 177, 191 (10th Cir.1940), to aid in deter-

mining whether a subsidiary is such an instrumentality of the

parent corporation that treating the two as one is warranted. See,

e.g., Steven v. Roscoe Turner Aeronautical Corp., 324 F.2d 157.

161 (7th Cir.1963); Hoffman, 575 FSupp. at 1478; Japan

Petroleum Co., Ltd., 456 F.Supp. at 841. The factors to be ex-

amined include ownership of the subsidiary’s stock, identity of

officers and directors of the corporations, financial arrangements

of the corporations, responsibility over day-to-day operations of

the subsidiary and payment of the subsidiary’s salaries and ex-

penses. These criteria aid the Court in determining whether:

from all the facts and circumstances it is apparent that the

relationship between the parent and subsidiary is so intimate.

the parents control over the subsidiary is so dominating, and

A-47

the business and assets of the two so mingled, that recogni-

tion of the distinct entity would result in an injustice to third-

party persons....

Hoffman, 575 F.Supp. at 1478 (quoting from two other cases).

[4] ETC’s amended complaint alleges (1) that in 1978 Carpenter

entered into an employment contract with Kirkpatrick and/or

Holding; (2) that in 1978 Carpenter sold all of his “major”

shareholdings and equity interest in Kirkpatrick to Holding; and

(3) that various financial aspects of the relationships among the

corporate defendants indicate they are engaged, to some extent,

in a single economic enterprise.’ Although ETC’s pleadings are

not exhaustive, it cannot be said, as a matter of law, the pleadings

fail to allege a relationship among Holding, IDC, Carpenter and

Kirkpatrick sufficient to support of the potential imposition of

liability upon Holding or IDC for wrongful acts committed by

Carpenter and/or Kirkpatrick.

As Holding and IDC point out in their brief, “whether an agen-

cy relationship has been created is a factual question.” (Memoran-

dum of DIC and Holding at 14.) ETC relies on Melikian v. Cor-

radetti, 791 F.2d 274, 282 (3d Cir.1986) which, although ot

directly on point, provides some guidance: “[t he issue of whether

the corporate veil can be pierced is primarily a question of fact.

Plaintiffs have alleged sufficient facts to state a claim and should

be permitted to proceed with discovery to further develop the

factual record.” Accordingly, the ETC pleadings are adequate in

this regard.

B. ETC’s Standing

(5] The Moving Defendants argued that under the facts plead-

ed in ETC’s complaint, ETC lacks standing to bring its antitrust

* Specifically, the amended complaint alleges that Holding is the “manager”

of Kirkpatrick and that Holding has authority over financial aspects of

Kirkpatrick's operations, including payments made in connection with the

Nigerian Contract.

A-48

and RICO claims against them. The Moving Defendants con-

tend ETC’s pleadings fail to establish the requisite injury because

there are insufficient facts pleaded to show ETC would have won

the Nigerian Contract but for the improper actions of the Mov-

ing Defendants. Although the original von plaint may have been

insufficient, the amended complaint pleads ETC’s injury suffi-

ciently to survive these motions to dismiss. The amended com-

plaint alleges ETC was competing with the Moving Defendants

for the Nigerian Contract and “upon information and belief”

but for the alleged improprieties of the Moving Defendants, ETC

would have obtained the Nigerian Contract. (Amended Com-

plaint { 40.) Absent unequivocal evidence that ETC was next

in line to obtain the Nigerian Contract, ETC could not have

pleaded its injury with more particularity. Facts may surface

showing these allegations are untrue; for present purposes,

however, ETC has alleged injury as a result of the actions of the

Moving Defendants and has standing to bring its claims.

C. Pattern Requirement of RICO

RICO prohibits the use or investment of funds in an enter-

prise involved in interstate commerce if the funds are “derived.

directly or iadirectly, from a pattern of racketeering activity... .”

28 U.S.C. § 1962(a). RICO defines a pattern of rucketeering ac-

tivity as requiring “at least two acts of racketeering activity . .

.. 28 USC. § 1961(5).

ETC contends the four separate payments of the commissions

and the further payment of those commissions as bribes constitute

separate acts of racketeering activity to support a finding of the

requisite pattern. The Moving Defendants argue RICO’s “pat-

tern” mandate requires a showing of separate criminal episodes.

Prior to the Supreme Court's decision in Sedima, S.PR.L. v.

Imprex Co., Inc., 473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346

(1985), courts were divided over the proper construction and ap-

plication of RICO’s pattern of racketeering activity requirement.

Some courts held multiple criminal acts in furtherance of a single

criminal scheme constituted the requisite pattern. See, e.g.,

A-49

United States v. Weatherspoon, 581 F.2d 595, 602 (7th Cir.1978)

(each mailing in furtherance of scheme to defraud constitutes

a separate act of racketeering, thereby establishing a pattern).

Other cases held multiple criminal episodes were necessary to

establish the pattern of racketeering activity requirement. See,

e.g., Teleprompter of Erie, Inc. v. City of Erie, 537 F.Supp. 6,

12-13 (W.D.Pa.1981) (series of payments in single bribery scheme

insufficient to establish RICO pattern). .

The Supreme Court's Sedima decision offers some guidance

in resolving the pattern controversy. Quoting from the Senate

Report on RICO, the Court stated: “The infiltration of legitimate

business normally requires more than one ‘racketeering activity’

and the threat of continuing activity to be effective . . . . S.Rep.

No. 91-617 p. 158 (1969).” Sedima, 105 S.Ct. at 3285 n. 14. The

Court’s opinion then referred to another section of RICO pro-

viding that “ ‘criminal conduct forms a pattern if it embraces

criminal acts that have the same or similar purposes, results, par-

ticipants, victims, or methods of commission, or otherwise are

interrelated by distinguishing characteristics and are not isolated

events. 18 U.S.C. § 3575(e). This language may be useful in in-

terpreting other sections of the Act.” Id.

Many courts have relied on footnote 14 of the Sedima opinion

in declining to find a pattern of racketeering activity where the

alleged acts were committed in furtherance of a single fraudulent

scheme posing no threat of continuing activity. See, e.g. Superior

Oil Co. v. Fulmer, 785 F.2d 252, 255-57 (8th Cir.1986) (several

acts of mail and wire fraud in pursuit of single isolated conver-

sion or theft claim fail to establish requisite pattern); Em-

manouilides v. Buckthorn, Ltd., 642 F.Supp. 964, 966

(S.D.N.Y.1986) (several fraudulent mail and wire communications

not a pattern; “rather, they are components of a single activity,

the alleged vessel fraud”); Eastern Corporate Federal C redit

- Union v. Peat, Marwick, Mitchell & Co., 639 F.Supp. 1532, 1534

(D.Mass.1986) (“Ia applying civil RICO, therefore, it is essential

to identify threats of continuing criminal activity, as opposed to

isolated criminal events.”); Temporaries, Inc. v. Maryland Nat1

Bank, 638 FSupp. 118, 124 (D.Md.1986) (“Without an open-ended

series of activities which comprise a continuing scheme, more

ee

A-50

than one scheme should be required to establish a ‘pattern’ of

racketeering activity”)’ Kredietbank, N.V. v. Joyce Morris, Inc..,

No. 84-1903, slip op. at 8 (D.N.J. January 9, 1986) [available on

Westlaw, DCTU database] (“the repetition of an act taken against

a single victim or w< of victims following closely on the heels

of the original wrong, in some circumscribed circumstance. is

completely undimensional. It suggests no expansion, no ongo-

ing design, no continuity, such as was the target of Congress in

RICO”); Allington v. Carpenter, 619 FSupp. 474 (C.D.Cal.1985)

(three acts of wire fraud with single victim and scheme insuffi-

cient to establish pattern); Northern Trust Bank/O’Hare, N.A.

v. Inryco, Inc., 615 FSupp. 828 (N.D.II1.1985) (mailing of sub-

contract and several kickback payments in connection with single

kickback scheme insufficient to establish pattern).

Some of these courts have argued the Congressional intent

behind RICO’s pattern requirement was to reach only multiple

criminal episodes, such an interpretation being “consistent with

the connotation of multiple events implicit in the term ‘pattern. ”

Carpenter, 619 F.Supp. at 478. See also Fulmer, 785 F.2d at

255-57; Inryco, 615 F.Supp. at 831. Other courts have asserted

a RICO pattern may be established by showing the existence of

either (1) more than one unlawful scheme, or (2) “an open-ended

continuous scheme which contains a multiplicity of predicate

acts.” Temporaries, Inc., 638 F.Supp. at 123. See also Eastern Cor-

porate Federal Credit Union, 639 F.Supp. at 1535-36; Krediet-

bank, slip. op. at 7-8.

[6] Identification of such an “open-ended continuous scheme”

requires an assessment of various factors indicative of the scheme’s

“continuity.” Such factors include “the length of the scheme, the

number of predicate acts and the number of victims of such acts.

and the likelihood that the scheme would continue indefinitely.”

Temporaries, Inc., 638 FSupp. at 123,n. 1A. See also, United

States v. lanniello, 808 F.2d 184, 192 (2d Cir.1986) (“when a per-

son commits at least two acts that have the common purpose of

furthering a continuing criminal enterprise [RICO pattern

exists]”).

A-51

[7] The second approach for dealing with RICO’s pattern re-

quirement offers greater flexibility and appears to be more in

line with the Congressional intent behind enactment of RiTO.

Because it is possible a single unlawful “scheme” could involve

sufficient instances of “racketeering activity” amounting to a “pat-

tern” of activity warranting liability under RICO, a blanket rule

that “pattern” requires more than one scheme is unsatisfactory.

An approach looking for either (1) more than one scheme, or (2)

an open-ended scheme, “would prevent the propelling of isolated

schemes of garden variety fraud into the domain of RICO simp-

ly because several interstate phone calls were conducted. But it

will leave intact the broad remedial purposes of RICO in cases

in which Congress intended to provide an extraordinary

remedy — those which evidence a true pattern of racketeering ac-

tivity.” Temporaries, Inc., 638 F.Supp. at 124.’

[8] ETC claims certain defendants engaged in mail and wire

fraud and committed bribery in making the four separate

payments to the Panamanian entities for payment to Nigerian

officials. These four payments, however, were only in furtherance

of the single alleged bribery scheme used to obtain the Nigerian

Contract, a scheme which cannot be said to be ongoing or other-

wise comprising a “multiplicity of predicate acts.” As the cases

cited above establish, such an allegation fails, as a matier of law,

to set forth a pattern of racketeering activity as required by RICO.

{9] The amended complaint alleges, “upon information and

belief ”, certain defendants have engaged in other improper ac-

tions similar to those alleged to have occurred in connection with

the Nigerian Contract. (Amended Complaint { 57.) However,

the allegation is devoid of f2¢™al support and without some such

support cannot establish a RICO “pattern” of racketeering ac-

tivities. RICO is, in essence. a fraud statute, and as Federal Rule

’ Some courts since the Sedima decision have adopted, or favorably referred

to, a broad interpretation of the RICO pattern. See, e.g. R.A.G.S. Couture,

Inc. v. Hyatt, 774 F.2d 1350 (Sth Cir.1985); Systems Research, Inc. v. Random,

Inc., 614 F.Supp. 494 (N.D.111.1985). However, these cases are not controlling,

and, in light of the logical reasoning of the many cases cited above, they are

ultimately unpersuasive.

A-52

of Civil Procedure 9(b) provides, the facts giving rise to allega-

tions of fraud must be pleaded with some degree of particularity.

To hold otherwise would subvert the Congressional intent behind

enactment of RICO; every fraud plaintiff could assert a RICO

claim simply by pleading, upon information and belief, the ex-

istence of another scheme similar to the one truly at issue.

The inherent similarity of a common law fraud action and

a federal RICO action was implicitly recognized by the Third

Circuit in Seville Industrial Me thinery Corp. v. Southmost

Machinery Corp., 742 F.2d 786 (1984), cert. denied, 469 U.S. 1211,

105 S.Ct. 1179, 84 L.Ed.2d 327 (1985). In that case, the Court

reversed a district court dismissal of a RICO complaint. The

plaintiff in the case claimed to have been defrauded by the defen-

dant over a twenty-one month period in connection with the sale

of some 700 pieces of industrial equipment. Plaintiff claimed

defendant had made numerous misrepresentations and omissions

in connection with the sale of the equipment, and that such con-

duct established a pattern of racketeering activity as required

by RICO. The district court dismissed the RICO claim because

“the complaint failed to set forth ‘with even minimal particularity

the details of the alleged fraud or misrepresentation. ” /d. at 791.

The Third Circuit reversed, stating:

The complaint sets forth the nature of the alleged

misrepresentations, and while it does not describe the precise

words used, each allegation of fraud adequately describes

the nature and subject of the alleged misrepresentation. In

sum, we conclude that [plaintiff] has alleged the fraud-based

offenses with sufficient particularity to withstand a motion

to dismiss under Rule 9(b).

Id., (footnote omitted). By contrast, the allegation in paragraph

57 of the amended complaint in this action cannot be said to

“adequately describe the nature and subject” of related racketeer-

ing activities on the party of the defendants.

(10| ETC has had an opportunity to amend its pleadings so

as to make a prima facie showing of the existence of a RICO

A-53

pattern. Because ETC has failed to demonstrate the defendants

or certain of them have engaged in a pattern of racketeering ac-

tivity, the RICO claims must be dismissed.*

D. Act of State

In their Reply Memorandum, the Moving Defendants argue

the act of state doctrine bars judicial determination of ETC’s

claims. Specifically, the Moving Defendants contend that in order

to prove violations of the Robinson-Patman Act, RICO and the

New Jersey Anti-Racketeering Act or any of these statutes, ETC

must establish officials of the Government of Nigeria were paid

or knew they would be paid bribes for awarding the Nigerian

Contract to Kirkpatrick, and that but for the payment of the

bribes, or promise of payment, ETC would have been awarded

the Nigerian Contract. The Moving Defendants argue such proof

requires a judicial investigation into acts of the Government of

Nigeria or would interfere with the conduct of foreign policy by

the Executive Branch of the federal government, either of which

is barred by the act of state doctrine.

The act of state doctrine has been defined as one of judicial

abstention from an inquiry into the validity of an act by a foreign

t within the scope of its sovereignty. Banco Nacional

de Cuba v. Sabbatino, 376 U.S. 398, 416, 84 S.Ct. 923, 934, ll

L.Ed.2d 804 (1964); Williams v. Curtiss-Wright Corp., 694 F.2d

300, 302 (3d Cir.1982); Mannington Mills, Inc. v. Congoleum

Corp., 595 F.2d 1287, 1292 (3d Cir.1979); Timberland Lumber

Co. v. Bank of America, N.T. & S.A., 549 F.2d 597, 607 (9th

Cir.1976), cert. denied, 472 U.S. 1032, 105 S.Ct. 3514, 87 L.Ed.2d

643 (1985). Over the years courts have cited several theoretical

foundations for the act of state doctrine. In an early application,

* Since ETC concedes the provisions of the New Jersey Anti-Racketeering Act

are to be interpreted in the same way their RICO counterpart provisions are

interpreted (Brief of ETC in Opposition to Motions to Dismiss at 16), the New

Jersey Anti-Racketeering claims must also be dismissed for failure to set forth

the requisite “pattern of racketeering activity.”

A-54

the Supreme Court explained the doctrine in Underhill v. Her-

nandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 42 L.Ed. 456 (1897):

Every sovereign State is bound to respect the independence

of every other sovereign State, and the courts of one coun-

try will not sit in judgment on the acts of the government

of another done within its own territory. Redress of

grievances by reason of such acts must be obtained through

the means open to be availed of by sovereign powers as bet-

ween themselves.

This language reflects the Court's deference to the inherent

nature of sovereign authority and principles of international law

upon which the doctrine was traditionally applied. The Third

Circuit similarly opined that an act within the sovereign power

of a foreign state or by its authorized agent within the scope and

authority of the office cannot be questioned or made the sub-

ject of proceedings in our courts. Mannington Mills, 595 F.2d

at 1292.

“The Constitution sought to divide the delegated powers of

the new Federal Government into three defined categories,

Legislative, Executive, and Judicial, to assure, as nearly as possi-

ble, that each branch of government would confine itself to its

assigned responsibility.” INS v. Chadha, 462 U.S. 919, 951, 103

S.Ct. 2764, 2784, 77 L.Ed.2d 317 (1983). It is now also recognized

the foundation of the act of state doctrine is rooted in this

principle — the separation of powers among the several branches

of government. Sabbatino, 376 U.S. at 423, 84 S.Ct. at 937-38:

Curtiss-Wright, 694 F.2d at 303. The separation of powers ra-

tionale is illustrated by the Supreme Court's decision in Banco

Nacional de Cuba v. Sabbatino, supra. Applying the act of state

doctrine, the Court focused on protecting the basic relationships

among branches of government in a system of separation of

powers, and not hindering the executive's conduct of foreign policy

by judicial review of foreign acts. Id., at 423, 84 S.Ct. at 937-38.

The act of state doctrine has also been interpreted through

“notions of comity and a conflict of laws theory that foreign law

A-55

is to be accepted as the rule of decision in passing upon acts oc-

curring within the foreign power's jurisdiction.” Mannington

Mills, 595 F.2d at 1292, citing, Note, Sherman Act Jurisdiction

and the Acts of Foreign Sovereigns, 77 Colum.L.Rev. 1247, 1255

& n. 36 (1977). Thus, the “act of state” .» deemed valid under

the law of the land where it occurred and is applied as the law

of the forum.

(ll, 12] Keeping in mind the multi-faceted reasoning offered

to support the act of state doctrine, a keystone in its application

is the avoidance of “passing on the validity” of acts of foreign

and the avoidance of conduct, which if effected,

“may hinder rather than further this country’s pursuit of goals

both for itself and for the community of nations as a whole in

the international sphere.” Sabbatino, 376 U.S. at 423, 84 S.Ct.

at 938. Therefore, if the inquiry presented for judicial determina-

tion includes the motivation of a sovereign act which would result

in embarrassment to the sovereign or constitute interference in

the conduct of foreign policy of the United States, inquiry is

foreclosed by the act of state doctrine. Clayco Petroleum Corp.

v. Occidental Petroleum Corp., 712 F.2d 404, 407 (9th Cir.1983),

cert. denied, 464 U.S. 1040, 104 S.Ct. 703, 79 L.Ed.2d 168 (1984).

This has been held to be equally true of judicial inquiries which

would impugn or question the nobility of a foreign nation’s

motivations. Timberlane, 549 F.2d at 607.

(13] The act of state doctrine should not be imposed without

due consideration. In determining whether it is applicable, a court

must analyze the precise nature of the «oduct at issue, the af-

fect upon the parties, and the affect upon the internal affairs

of the foreign sovereign and the foreign policy of this country.

See Restatement (2d) of Foreign Relations Law of the United

States § 41, Comment d.

(14] In order for ETC to prevail on its claims under the

Robinson-Patman Act, RICO and the New Jersey Anti-

Racketeering Act, it must be demonstrated the defendants or cer-

tain of them intended to wrongfully influence the decision to

A-56

award the Nigerian Contract by payment of a bribe,’ that the

Government of Nigeria, its officials or other representatives knew

of the offered consideration for awarding the Nigerian Contract

to Kirkpatrick, that the bribe was actually received or anticipated

and that “but for” the payment or anticipation of the payment

of the bribe, ETC would have been awarded the Nigerian Con-

tract. Cf. Radiant Burners v. Peoples Gas Co., 364 U.S. 656, 660,

81 S.Ct. 365, 367, 5 L.Ed.2d 358 (1960); Clayco Petroleum, 712

F.2d at 407; Hunt v. Mobil Oil Corp., 550 F.2d 68, 76 (2d

Cir.1977), cert. denied, 434 U.S. 984, 98 S.Ct. 608, 54 L.Ed.2d

477 (1977); Salerno v. American League of Prof. Baseball Clubs,

429 F.2d 1003, 1004 (2d Cir.1970), cert. denied, 400 U.S. 1001,

91 S.Ct. 462, 27 L.Ed.2d 452 (1971). Resolution of these critical

issues necessarily requires judicial inquiry into the acts of the

Government of Nigeria, its officials or its representatives and,

as well, may affect the conduct of foreign policy of this country.

See Levy Representations and State Department Position. Cases

interpreting the act of state doctrine suggest this is the type of

situation which precludes judicial inquiry.

Review of other decisions on this point begins with Clayco

Petroleum, a case involving a strikingly similar factual situation.

In Clayco, an oil company sued one of its competitors under the

Robinson-Patman Act and other antitrust laws alleging its com-

petitor had made secret payments to an official of Umm Al

Qaywayn” in order to obtain an offshore oil concessio: . The trial

court granted defendant’s motion to dismiss on the ground the

action was precluded by the act of state doctrine.

* Decree number 38, dated November 22, 1975, of the Federal Military Govern-

ment of the Republic of Nigeria lists certain prohibited corrupt practices together

with the punishment for such corruption. Included within this statute is a pro-

hibition of an individual in the employ of the government receiving or soliciting

money for the showing of a favor such as the award of a contract. Decree number

38, Part I.

” The Clayco Petroleum court noted the government of Umm Al Qaywayn is

a foreign sovereign for purposes of the act of state doctrine. Clayco Petroleum,

712 F.2d at 405 n. 1.

A-57

The Ninth Circuit found the actions complained of to be within

the purview of the act of state doctrine because the sovereign

activity effectuated “public” rather than private interests." Clayco

Petroleum, 712 F.2d at 406. In making the public versus private

interest distinction, the court noted “[t]his case differs from those

relied upon by [plaintiff], in which sovereign activity merely

formed the background to the dispute or in which the only

governmental actions were the neutral application of the laws.” Id.

The actions which form the basis of ETC’s complaint are

analogous to those the Clayco court found to effect a public in-

terest. Specifically the awarding of the Nigerian Contract by the

Ministry of Defense is a decision which may only be made by

the Government of Nigeria, its officials or representatives. Similar-

ly, the offshore oil concession in Clayco was granted by the

Government of Umm Al Qaywayn, its officials (the Petroleum

Minister), or its representatives.

ETC’s characterization of the act in question, as non-public

or commercial, is unfounded. Whether it is the purpose or the

nature of the act which determines commercial versus sovereign

status, the award of the Nigerian Contract by the Government

of Nigeria is a sovereign act. For purposes of applying the act

of state doctrine to the present facts, the distinctions between

the grant of an oil lease and the award of a military contract

are not persuasive.

(15] Although ETC has suggested it is not in fact complaining

of the actions of the Nigerian Government, its officials or

representatives, and does not characterize the Government of the

Republic of Nigeria or any of its agents as “co-conspirators”, an

indispensible ingredient of ETC’s cause of action requires

establishing the involvement of the Government of Nigeria, its

officials or representatives in corrupt activities which violate

“ The distinction between situations ia which a government acts in a commer-

cial rather than a public capacity, the “commercial exception” has not been

accepted by a majority of the Supreme Court. See Alfred Dunhill of London,

inc. v. Republic of Cuba, 425 U.S. 682, 695-706, 96 S.Ct. 1854, 1861-1867, 45

L.Ed.2d 301 (1976) (White, J., joined by three other Justices).

A-59

motivation, rather than the validity, of the questioned activities.

In support of this proposition, plaintiff cites Williams v. Curtiss-

Wright Corp., supra, the Third Circuit's most recent decision in

this area. The facts in Curtiss-Wright, however, are distinguishable

and do not preclude application of the doctrine in this case.

The parties in Curtiss-Wright were competitors in the sale of

used jet engines, parts and accessories to foreign governments.

Plaintiff charged defendant with antitrust and other related state

law violations. Specifically, plaintiff alleged defendant

monopolized the market and engaged in the common law torts

of disparagement, unfair competition, and interference with pro-

spective economic advantage, all of which prevented plaintiff

from competing in the worldwide market of reconditioned parts

for aircraft engines. Curtiss-Wright, 694 F.2d at 301. The com-

plaint regarded the foreign governments, not as participants in

the wrongdoing against plaintiff, but as co-v‘ *t.ms of the alleg-

ed antitrust activity of plaintiff corporation. Accordingly, the

thrust of plaintiff's challenges were the anti-competitive effects

of the Curtiss-Wright activities and not the validity or motiva-

tion of the conduct of foreign governments. Resolution of plain-

tiff’s claims did not require inquiry into the motivation of foreign

governments. Id. at 303-304.

In contrast to the allegations of the complaint in Curtiss-

Wright, the amended complaint filed by ETC alleges by necessary

implication the involvement by high Nigerian Government of-

ficials in the corrupt practices and requires the motivation of these

government officials, if not the government as an entity, be ex-

amined in order for ETC to prevail on its claims. ETC alleges

Akindele acted as the local agent in Nigeria for certain of the

defendants in order to secure the Nigerian Contract. As a result

of Akindele’s efforts the Nigerian Contract was negotiated at a

rate which was allegedly twenty percent higher than would be

expected in order to provide defendants with the capital to pay

the commissions/bribes. In substance, the negotiations and con-

sequent award of the Nigerian Contract, as alleged in the amend-

ed complaint, were the result of the Nigerian Government or

certain Nigerian officials participating fully in the scheme and

4.50

igreeing to pay an increased price in Or

he bribes for various Nigeri governmentai-political a!

iitary-rigures

Although the decision in Hunt v. Mobil ¢ il Corp., supra, cot

erned claims based upon expropriation, the judicial examina

tion of which is traditionally recognized as barred by the act of

state doctrine (such circumstances are not present in ETC’s alleged

complaint), Hunt is nevertheless instructive in the weighing pro

cess used to determine whether the act of state doctrine is to be

applicable. In Hunt it was claimed but for an alleged conspiracy

he business of the plaintiff would have continued to thrive. The

Second Circuit agreed with the District Court that such allega

tions “necessarily would require a wholesale examination of Li

byan policy — how did it treat other companies, what pr¢ woked

its ‘displeasure, how far could concessions by Hunt appease Aresi

lent al-Oadhafi.” Hunt, 550 F.2d at 75

Similarly, in this case, in addition to proving the bribe wa

n fact paid to or anticipated by Nigerian officials, inquiry would

have to be had as to the effect of the payment or promise of pa)

ment of such a bribe, whether in fact the payment or anticipa

tion by Nigerian officials, inquiry would have to be had as t

the effect of the payment or promise of payment of such a bribe

vhether in fact the payment or anticipation of the bribe caused

the award of the Nigerian Contract to Kirkpatrick Internationa:

und whether ETC could have obtained the contract had the bribe

t been paid or anticipated Inquiry into the motivation of the

Nigerian government, to the extent antic ipetes in Hunt, appear

to be necessarv for resolution of this case

16] In certain situations. the act of state doctrine has bee!

limited to discretionary, not ministerial acts of a foreign gover!

ment. For example, in Mannington Mills the issue presented t

the Third Circuit was the issuance of a patent by a foreign govern

ment. This action was regarded by the Third Circuit as minister

; , ; J ~ ‘ : .

Sage international, Lid. 0. _@dadtia rage 4 Ff

24 (E..D.Mich.1931 the court sougnt t listing nha mickDack tuat

A-61

or an insignificant act of the sovereign. The granting of patents

per se was found not to be within the purview of the act of state

doctrine since it is not the type of sovereign activity that would

cause substantial concern to the executive or legislative branches

of our government.” Accordingly, there was no reason to bar the

suit because of foreign policy concerns. Mannington Mills, 595

F 2d at 1294. In this same vein, the Supreme Court decision in

Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S.

682, 96 S.Ct. 1854, 48 L.Ed.2d 301 (1976) is recognized to stand

for a commercial exception te the act of state doctrine. See n.

ll, supra. This exception in essence acknowledges that when a

government acts in a commercial mode it is not acting as a

sovereign and therefore the doctrine is inapplicable.

(17,18] Clayco Petroleum is also significant because the Court

distinguished application of FCPA and indicated the FCPA is not

an exception to the act of state doctrine. Clayco Petroleum in-

dicates FCPA was intended to stop bribery and noted both the

Justice Department and the Securities and Exchange Commis-

siom share enforcement responsibilities under PCPA. The opinion

noted that any governmental enforcement represents a judgment

of the Executive Branch on the wisdom of bringing a proceeding

in light of the exigencies of foreign affairs. Act of state concerns

are thus inapplicable, to the extent of a FCPA prosecution, since

the purpose of the doctrine is to prevent the judiciary from in-

terfering with the conduct of foreign affairs. Calyco Petroleum,

719 F.2d at 408-409, citing, Sabbatino, 476 U.S. at 423, 84 S.Ct.

at 937-38: Timberlane, 549 F.2d at 605. Clayco Petroleum also

suggests it is the screening of governmental proceedings, with state

department consultation, which distinguishes FCPA enforcement

from private suits. In private suits, the act of state doctrine re-

mains necessary to protect proper conduct of national foreign

policy. Id. 712 F.2d at 409.

(19] Significantly, prosecution was had against both Carpenter

and Kirkpatrick. The offer of proof executed by Carpenter is

® It is noted Mannington Mills did not create an exception to the act of state

doctrine based on the ministerial-discretionary dichotomy. See Curtiss-Wright,

694 F.2d at 303.

4-62

carefully worded and does not estabiish any bribes were in fact

paid to a member of the Nigerian Government although it ade-

quately sets forth the requirements to establish Carpenter intend-

ed such action to take place Thus, a violation of FCPA

demonstrated. Likewise, the transcript with regard to the senten-

cing of Kirkpatrick for the violation of FCPA sets forth the con-

cern of the United States Government and the lack of a disclosure

order from the State Department with regard to the allegations

of bribery concerning the Nigerian Contract. Read together, these

documents indicate a conscious decision on behalf of the Ex-

ecutive Branch through the Department of State for a limited

prosecution under FCPA (limited in the amount of disclosure of

facts) and the efforts of the Government in resisting attempts by

the Nigerian Government in discovering information with regard

to what Carpenter knew of the payment of the bribes.”

(20,21) In light of the State Department Position, ETC has sug

gested application of a form of the so-called “Bernstein” excep

tion to the act of state doctrine.* The State Department Position

* In addition to all of the allegations in the amended complaint which allege

by necessity Nigerian Government involvement, Article XX of the Nigerian Con

tract provides that “(t}his Agreement shall be governed, interpreted and con

trolled by the laws of the Federal Republic of Nigeria " In Article XXI

of the Nigerian Contract provides for disputes “to be submitted to an Arbitra

tion Court convened under the rules as provide under the Arbitration Laws

of Nigeria ” To date, the government of the Republic of Nigeria has not

taken anv steps to repudiate the acts of its governmental officials. This inaction

is significant

It has been noted in two decisions that unreputed acts of a foreign govern

ment can be scrutinized if they resulted from corruption of government officials

Sage Intern, 534 F Supp. at 910; Dominicus Americana Bohio v. Gulf & Western

Industries, Inc., 473 F.Supp. 680, 690 (S.D.N.Y.1979). Sage relies upon Gulf <

Western and Gulf & Western cites Hunt, 550 F.2d at 79 as authority for this

staternent. However, Hunt specifically states: “This appeal therefore is not the

proper vehicle for consideration of international commercial bribe: sofat

as it affects the act of state doctrine” /d

=

* In First National City Bank ». Banco Nacional de Cuba, 406 U.S. 759, 768

92 S.Ct. 1808, 1813-14, 32 L.Ed.2d 466 (1972) (Brennan, ]., dissenting) rend

denied, 409 U.S. 897, 93 S.Ct. 92, 34 L.Ed.2d 155 (1972) a plurality of the

Supreme Court adopted the “Bernstein” exception. “|W lhere the Executive

footnote continued

A-63

indicates: “As the Department understands the allegations in the

instant suit, the validity of the Nigerian Government's decision

to award the contract in question is not in question.” Additionally,

the State Department states that judicial inquiry into “motiva-

tions of the Government of Nigeria’s decision to award the

(Nigerian Contract” would not be precluded by the act of state

doctrine. The State Department Position, however, goes on to note

inquiries into the motivation and validity of actions by foreign

states and discovery against foreign government officials may

seriously affect United States foreign relations. (Appendix A). As

such the State Department fails to clearly “sign off” on the ap-

plication of the act of state doctrine in this case.

The State Department opines that:

inquiries into the motivation and validity of foreign states

actions and discovery against foreign government officials

may seriously affect United States foreign relations. These

concerns, in the context of this litigation, counsel that cau-

tion and due regard for foreign sovereign sensibilities be ex-

ercised at each relevant stage in the proceedings. Moreover,

the court should endeavor to assure that no unnecessary in-

quiries are made, or allegations tested during the course of

discovery or trial.

(Appendix A, emphasis added). It is significant that in light of

this caution. this court is urged “to assure that no unnecessary

inquiries are made, or allegations, tested during the course of

discovery or trial.” * Id.

Branch, charged as it is with primary responsibility for the conduct of foreign

affairs, expressly represents to the Court that application of the act of state doc-

trine would not advance the interests of American foreign policy, that doctrine

should not be applied by the courts.” /d

* For example, a consideration of this concern of the State Department clearly

would have to include the issuance of a subpoena for records in Nigeria. Since

such an action may well affect the foreign relations of this country, a court

must weigh the interests of this country and Nigeria before issuing such a sub-

poena. A court must give “deference to the determination by the Executive

Branch — the arm of the government charged with primary responsit ility for

(footnote continued )

A-64

[22] The overview and judgments of this court, as urged by

the State Department, may well have a significant impact on the

foreign affairs on this country — an area of decision-making the

Constitution largely commits to the discretion of the Executive.

Before launching investigations on foreign soil, or of foreign na-

tionals, or of matters implicating international diplomacy, the

Executive has the option to weigh the implications of such con-

duct on the overall foreign policy of this country. This obviously

will not happen in the scenario suggested by the State Depart-

ment Position.

[23] Equally important to this court's determination of whether

the parties to this matter are making unnecessary inquiries or

testing unnecessary theories is whether there is any risk to na-

tional security. The Executive Branch must make the decisions

as to whether disclosure of facts will have any ramification as

well as on diplomatic relations. In this regard, as noted earlier,

Carpenter's offer of proof upon which his criminal conviction

for violating FCPA is based is carefully and narrowly worded.

It cannot be said such careful wording is without intent or

significance. See, the Levy Representations.

The significance of the impact of this case on the Government

of Nigeria (see the Levy Representations) and on the conduct of

this country’s foreign policy (see the State Department Position)

is obvious. The suggestion of the State Department that this court

conduct the litigation with an eye to foreign policy concerns is

not appropriate. Such a precedent poses a serious threat to the

authority of the Executive Branch to conduct foreign policy.”

formulating and effectuating foreign policy — that the adverse diplomatic conse-

quences of the discovery request would be outweighed by the benefits of disclosure.”

United States v. Davis, 767 F.2d 1025, 1035 (2d Cir. 1985) (citations omitted)

This is not what is suggested by the terms of the State Department Position.

" No individual who is responsible for or knowledgeable of this nation’s foreign

policy or security will be in a position to know of the pretrial and trial deci-

sions and evaluate their impact on foreign policy. Moreover, even if such per-

son were available to the court, counselling the court for or against such deci-

sions would pose serious problems of, at the least, an appearance of impropriety

(footnote continued )

A-65

Article III courts must “ ‘carefully abstain from exercising any

that is not strictly judicial in its character, and which is

not clearly confided to [them] by the Constitution.’ ” Muskrat

». United States, 219 U.S. 346, 355, 31 S.Ct. 250, 253, 55 L.Ed.

246 (1911) (citation omitted). The essence of judicial power is the

resolution of cases or controversies. Id. at 356, 31 S.Ct. at 253.

There is a notable absence of Constitutional authority for a court

to assume responsibility for the conduct of a segment of foreign

policy, which is what the State Department suggests.

Neither Congress nor the Executive may vest in or assign to

judges holding office under Article III powers beyond those clearly

confined to them by the Constitution. Nor may courts exercise

such powers if granted or delegated. See Buckley v. Valeo, 424

US. 1, 123, 96 S.Ct. 612, 684, 46 L.Ed.2d 659 (1976); Muskrat.

219 US. at 356, 31 S.Ct. at 253-54; Ex Parte Siebold, 100 US

(10 Otto) 371, 398, 25 L.Ed. 717 (1879).

There are foreign policy considerations involved in ETC’s pro-

ving its cause of action. Proof by ETC requires, as mentioned,

establishment of corruption by high Nigerian Government and

military officials and necessarily implies a criticism of the

Republic of Nigeria with regard to its failure to date to take ac-

tion against government officials involved and/or other individuals

involved. The July 31 letter from counsel to ETC to the Republic

of Nigeria requesting a declaration of approval with regard to

this civil litigation, even if a Nigerian response is forthcoming,

is not dispositive of the issues. Indeed, it is the conduct of foreign

policy by the Executive and Legislative Branches of this Govern-

ment which must be controlling.

(24,25) ETC’s amended complaint is aimed at alleged antitrust

and RICO violations of defendants which require inquir) into

Moreover, such a procedure (although not explicitly suggested by the State

Department) would bring the basic separation of powers rule into question

“If there is a principle in our Constitution, indeed in any free Constitution

more sacred than another, it is that which separates the Legislative, Executive

and Judicial powers.” | Annals of Congress 581, (quoted in Myers « United

States. 272 US. 52, 116, 47 S.Ct 91 25. 71 L.Ed. 160 (1926))

A-66

the actions, conduct and motivation of the Republic of Nigeria

and its agents. Although “[t]he act of state doctrine should not

be applied to thwart legitimate American regulatory goals in the

absence of a showing that adjudication may hinder international

relations|, |” Curtiss-Wright, 694 F.2d at 304 (citation omitted),

I am satisfied the Moving Defendants have established" the ac-

tions, conduct and motivation of the Republic of Nigeria and

its agents are“ . basic and fundamental to the alleged antitrust

(.RICO and other] behavior and [are] more than merely

peripheral to the overall [alleged] illegal course of conduct.” Man-

nington Mills, 595 F.2d at 1293. Moreover, the suggestion of the

State Department is neither practical nor constitutional. The mo-

tion to dismiss because of the act of state doctrine is granted.

E. Appeals of Magistrate's Orders

|. Standard of Review

(26) Also before the Court are three appeals of orders entered

by Magistrate Hedges, two of which are discovery related and

the third sustains Carpenter's claim of privilege against self-

incrimination which defendant asserted at his deposition. In con-

sidering each of the three appeals, the Court must apply the stan-

dard of review of a magistrate’s order as set forth at 28 U.S.C.

§ 636(b)(1)(A), Fed.R.Civ.P. 72(a), and Rule 40(A) of the Local

Rules of the United States District Court for the District of New

Jersey. The Third Circuit has held a magistrate’s order can be

set aside only if it is found to be clearly erroneous or contrary

to law. Cipollone v. Liggett Group, Inc., 785 F.2d 1108, 1113 (3d

Cir. 1985), cert. denied, _ U.S. __, 107 S.Ct. 907, 93 L.Ed.2d

857 (1987).

(27) “A finding is ‘clearly erroneous’ when, although there is

evidence to support it, the reviewing court on the entire record

is left with the definite and firm conviction that a mistake has

* It is the burden of the Moving Defendants to establish the applicability of

the act of state doctrine. Curtiss-Wright, 694 F.2d at 303 n. 4, citing Alfred

Dunhill of London, Inc. o. Republic of Cuba, 425 US. 682. 684. 96 S.Ct. 1854

1856, 48 L.Ed. 2d WI (1976)

4-67

been committed.” Agricultural Services Assn., Inc. v. Ferry-Morse

Seed Co.. 551 F.2d 1057, 1071 (6th Cir.1977) quoting United States

v. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 541-42, 92 L.Ed

746 (1948). Several courts have also held that a magistrate’s order

in a discovery dispute is subject to great deference and will only

be reversed if found to be an abuse of discretion. See Detection

Systems, Inc. v. Pittway Corp., 96 F.R.D. 152, 154 (W.D.N.Y.1982);

Empire Volkswagen Inc. v. World-Wide Volkswagen Corp., 95

F.R.D. 398, 399 (S.D.N.Y.1982), affd 814 F.2d 90 (2d Cir.1987

2. Appeal from the May 30, 1986 Order

ETC appeals from an order entered by Magistrate Hedges on

May 30, 1986 ®, which stayed plaintiff's discovery pending disposi-

tion of the motions to dismiss.

(28.29] The court converted the defendants’ motion to dismiss

into a summary judgment motion only on the limited question

of the applicability of the act of state doctrine because of the

additional submissions. In response, ETC filed the instant ap-

peal on the incorrect assumption that additional discovery on

the act of state is necessitated. Accordingly, ETC appeals on the

ground that the magistrate’s order is “an abuse of discretion and

contrary to law” (ETC’s Notice of Appeal) because ETC is

deprived of conducting discovery which may produce facts rele-

vant to the act of state issue. However, applicability of the act

of state doctrine (see Section D) is purely a legal question, the

resolution of which requires no further factual development. Fur-

thermore, additional discovery is inconsistent with the conclu-

sions regarding the act of state doctrine. The taking of discovery

by ETC would necessarily involve inquiry intg the action of the

Nigerian Government and its officials

* This appeal was not filed within the time limit prescribed by Local Rule

40(D)(4)(a). however, due to the somewhat confusing circumstances surroun

ding these motions, it shall be considered. The Affidavit of Alan A. Turner dated

September 10, 1986, and the Mernorandum of Law in Support of the Notice

of Appeal subr itted in connection with this motion detail the facts regarding

these circumstances

A-68

Applying the limited standard of review mentioned previous-

ly, ETC has not demonstrated the magistrate’s order is clearly

erroneous or contrary to law. Only after the court posed ques-

tions to counsel regarding the act of state question did ETC seek

further discovery which was unnecessary for the motion. At the

present juncture, additional discovery is contrary to the applica-

tion of the act of state doctrine. Accordingly, the magistrate's order

is affirmed.

3. Appeal of the July 16, 1986 Order

[30] During his June 30, 1986 deposition Carpenter asserted

his privilege against self-incrimination and refused to answer cer-

tain questions. Magistrate Hedges sustained Carpenter's claim

of privilege in a Letter-Order and Opinion, dated July 16, 1986

This appeal followed.”

Prior to his deposition, Carpenter submitted an affidavit (the

“Carpenter Aff.”) setting forth his reasons for fearing criminal

prosecution in Nigeria and detailing the factual bases for asser-

tion of the privilege. As discussed earlier in this opinion, defen-

dants Kirkpatrick and Carpenter both pled guilty to violations

of the FCPA in connection with the Nigerian Contract. Accor-

ding to Akindele, Carpenter's plea and sentencing were receiv-

ing considerable media coverage and were “front page news” in

Nigeria. Apparently, local news coverage of Carpenter's plea and

sentencing were subsequently reported by Nigerian newspapers

(Carpenter Aff., 42) Akindele also told Carpenter of certain

Nigerian government officials’ desire to prosecute Carpenter in

connection with the Nigerian Contract. (Jd. at § 3) Akindele fur.

ther warned Carpenter not to travel to Nigeria and to exercise

extreme care in travelling in Europe or Africa because there was

a risk he would be taken by force to Nigeria. (Jd. at ¢ 4)

In January, 1986, Carpenter's attorney was informed by a

United States Government official that “the Nigerians wanted

* Disposition of the appeal was postponed until oral argument and decision

on the motion to dismiss

‘ 7 " \

| ~ Vive |

: a e Tro! inte! va cCiaye : ‘ {

aT TT eT ’ aS cy br yenerl iva ‘ aT e~ > > ‘Tra 1

t the Nigerian interest ice ha t 2 ,

ta g (arpentel rirti Amenament

yr > H ar. " ' + . : a” - + + "4 7

att Cuyt appuct ik DUeCiiiK a7 | Iteu

f)) } ’ . ’ 4 ; Tt. J ~ , :

rest iT i] as Lit ZA * it.i 2 ‘ rianag afi 1eTe :

ibpoenaed to appear Defore a federal grand jul vnc!

. ber ¥ ' Your" ¥ : ry) } seria ¥ ’ ’ r " " ‘

liga yg an aliegea Zul mugging pirat pera

’ .

/ : : : +

‘ ene4;rit t the Lrish Republican AI mn ireia

tent t nvoke the Fitth Amendment was & wl lete

iva Vas granted lil nit tT tive ‘ ’ tect

| -_ ’

} ePcjut : Cen

. > ¥ : . >? >

: iva : I | \ |

‘ arg : eT t that re ) 4 Try vTa > > :

- iT re TY *)| —. > : ’ re . 4 ; ‘ ;

rive with the Fifth \ eT i. 4 ; 4 ‘ \ ;

> ’ .

rcuit found “Flanagan s tear ot elg en

’ : ’ ry ret Té : ~ ’ V ;

, > > : ;

a hs ; a MA :

| ” . en x

tne ractol etal rianaga i

ene tf the risk b ing af , . —_

: 7 : , _ _

‘ c% ’ rei¢g!i aw nuit ‘ en |

ai acts il estiol vhether the testn ’ ‘ ‘

VeTTITTN -* saek ext] vere : : whether the te ‘

: : ; ; ; | : ‘ ;

AC 11S osed id : ih bs : a Mia

2 nsideredc these tactor;rs as a ea to ' ent

7 thy 7 4 ‘ : ‘ 4

.

ii ae | } i Ts rive few? art 4 , , | ;

iment + availanbie to Larpenter DecauM ‘ iS airea

: J . , : af . aart } re « : | pt Pract 4 \ :

:

,? eTT re I if 1} : ite¢ thy ey terw. : : ‘ " ’ rs if : :

7 7

; | \ te] at . | i te 1 . ' 1

’ ’ ’ rent : :

A-70

The Fifth Amendment guarantees every person freedom from

self-incrimination and protects a witness against providing

testimony “leading to the inflictions of penalties affixed to

criminal acts.” Kastigar v. United States, 406 U.S. 441, 453. 92

S.Ct. 1653, 1661, 32 L.Ed.2d 212 (1972) reh’g denied, 408 U.S.

931, 92 S.Ct. 2478, 33 L.Ed.2d 345 (1972) (citations omitted).

The protection is available where the testimony “would furnish

a link in the chain of evidence needed to prosecute” the witness

for a crime, provided “the witness has reasonable cause to ap-

prehend danger from a direct answer.” Hoffman v. United States.

341 U.S. 479, 486, 71 S.Ct. 814, 818, 95 L.Ed. 1118 (1951). Con-

sideration of ETC’s arguments necessitate a review of the stan-

dard for invoking claims of the Fifth Amendment privilege.

The extent to which the Fifth Amendment privilege may pro-

perly be asserted on the grounds of potential prosecution in

foreign countries is unclear. United States v. Kowalchuk. No.

77-118, slip op. (E.D.Pa. Oct. 20, 1978)." There is, however. agree-

ment that the Fifth Amendment only protects against real and

substantial threats of incrimination, not speculative or theoretical

possibilities. Zicaredi v. New Jersey Investigation Commission.

406 U.S. 472, 478, 92 S.Ct. 1670, 1675, 32 L.Ed.2d 234 (1972).

In assessing the severity of threat, one court has found there to

be a

common theme to all of the reported cases in that questions

relating directly to criminal activities in foreign countries

pose a more serious threat of incrimination than do ques-

tions about events and activities within this country hav-

ing only direct and remote connection to foreign culpability.

Kowalchuk, slip op. at 4, citing In re Parker, 411 F.2d 1067 (10th

Cir.1969), vacated as moot, Parker v. United States. 397 US. 96,

90 S.Ct. 819, 25 L.Ed.2d 81 (1970); In re Cardassi. 351 F.Supp.

1080 (D.Conn.1972).

" This unreported decision was included in Carpenter's opposition to the ap

peal and was therefore available to all counsel

A.71

ETC contends the Fifth Amendment protection is not availabi

to Carpenter in light of Carpenters previous plea of guilty t

violation of the FCPA. This argument is not persuasive tor tw

reasons. First. there would be no need to depose Carpenter 1

the information sought had been disclosed in connection w ith

Carpenter's earlier prosecution. It is logical then to assume th«

requested information goes bevond the investigation under the

FCPA. Therefore, Carpenter may invoke the Fifth Amendment

to avoid further incrimination. Second, case law supports pro

tection of Carpenter's testimony because prior disclosure is not

held to be a waiver of the pris ilege United States v. Yurnasovw h

580 F.2d 1212. 1218-1220 (3d Cir.1978

The initial statement is incriminating, a subsequent stat

nent on the same subject would necessarily be further in

criminating because the second statement would corroborate

the earlier statement, making it more difficult for the witnes:

to discount the earlier statement and hence increasing the

langer of conviction

Carter-Wallace. Inc. v. Hartz Mountain Industries, in 55

F.Supp. 45, 49 (S.D.N.1 1982) quoting E.F. Hutton © ‘

lupiter Development Corp., 91 F.R.D. 110, Llo (5 D.N.Y.198!

31] ETC also challenges Car

This text is long and has been trimmed here. Open the source document for the complete record.