Appendix — Lamb v. Philip Morris, Inc.

IN THE SUPREME COURT OF THE UNITED STATES

October Term, 1990

BILLY LAMB and CARMON WILLIS

Petitioners,

VS.

PHILIP MORRIS, INCORPORATED,

and

B.A.T. LNDUSTRIES, PLC.

Respondents

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI

JOHN F. LACKEY

LACKEY & LACKEY

142 North Second Street

Richmond, Kentucky 40475

Telephone (606) 623-1676

Counsel of Record for

Petitioners

APPENDIX

Appendix IL: Opinion of the Sixth Circuit

f

Court of Appeals (Guy, J.); pages la

rh

Appendix II: Opinion of the District Court

cr?

for the Eastern Distric Of Kentucky

w

(Reed, J.); pages lb through 25b.

Appendix III: Opinion of General Counsel

for the Securities Exchange Commission

regarding private rights of action under

APPENDIX I

and > i. _ 7 T -" T 4 Ve a r 7 .

RECOMMENDED FOR FULL TEXT PUBLICATION

See Sixth Circuit Rule 24

No. 89-5960

mr rt "TP ATT OC . 7 at aT DAT ~

NITED ILALES SOURT JT APPEALS

rn TT Cc yT TL T 7T?T

- P i 1E SIXTH LRCULT

. * *x * * * =x

r rT Fr WS 7 A a ir aT ’ ‘, , * a |

BILLY LAMB AND »>ARMON Wl tht hwy j

7 4 P ‘ BE e ON A ¢

Plaintiffs-Appellants, ) ON APPEAL fro

the United

Vv. ) States Distri

,ourt for the

T Cc TN ; iy Qn

PHILLIP MORRIS, INC. and Eastern Distr

r A " TATIT\ITC reo T Cc ' ys

B.A.T. INDUSTRIES, PLC, ) of Kentucky.

Vefendants-Appellees. )

x *x - * x x *

Decided and Filed September De 9

x . - * : = aa

~~ rmrre T , j

Betore KEITH and GUY, Circuit idges; and

BROWN, Senior Circuit lidge

’r*% ; r

s5UY, Circuit Judge In this antitrust actio

plaintiffs Billy Lamb and Carmon Willis appeal

from tne dismissal f heir claims against

4efendants Phillip Morris, Inc hillip Mor-

ot eh 2 Industries, ; wy Py fe

because we find that the act tf state doctrine

No. 89-5960 Lamb v. Phillip Morris

presents no impediment to adjudication of the

plaintiffs’ antitrust claims, we reverse the

district court's dismissal of those claims and

remand them for further consideration. Since

we find that no private right of action is

available under the Foreign Corrupt Practices

Act of 1977 (FCPA), 15 U.S.C. §§78dd-1, 77dd-2,

we affirm the sieminied of the plaintiffs’

FCPA claim.

In accordance with Kerasotes Michigan

Theatres, Inc. v. National Amusements, Inc.,

854 F.2d 135 (6th Cir. 1988), we must accept

as true all factual allegations in the complaint

when reviewing the granting of a Federal Rule

of Civil Procedure 12(b)(6) motion to dismiss.

Id. at 136. Moreover, dismissal under Rule

12(b)(6) is appropriate only "if it is clear

that no relief could be granted under any set

of facts that could be proved consistent with

the allegations.” Hishon v. King & Spalding,

467 U.S. 69, 73 (1984); accord Morgan v.

oe

No. 89-5960 Lamb v. Phillip Morris

Church's Fried Chicken, 829 F.2d 10, 12 (6th

Cig. i967). Therefore, we shall set forth the

facts as alleged in the plaintiffs' complaint.

Plaintiffs Lamb and Willis, along with various

other Kentucky growers, * produce burley tobacco

for use in cigarettes and other tobacco

products. Defendants Phillip Morris and B.A.T.

routinely purchase such tobacco not only from

Kentucky markets serviced by the plaintiffs,

but also from producers in several foreign

countries. Thus, tobacco grown in Kentucky

competes directly with tobacco grown abroad,

“The plaintiffs' complaint requests

certification under Federal Rule of Civil

Procedure 23 of a class encompassing "all

persons who sold burley tobacco grown within

the counties of Scott, Madison, Jessamine,

Bourbon, Fayette, Mercer, Clark, and Woodford

in the State of Kentucky, who consummated such

sales of burley tobacco within the past six (6)

years." As the district court observed in

dismissing the complaint, however, the plaintiffs

never moved for class certification.

-3a-

No. 89-5960 Lamb v. Phillip Morris

and any purchases from foreign suppliers

necessarily reduce the defendants’ purchase

of domestic tobacco.

On May 14, 1982, a Phillip Morris subsidiary

known as C.A. Tabacalera National and a B.A.T.

subsidiary known as C.A. Cigarrera Bigott, SUCS.

entered into a contract with La Fundacion Del

Nino (the Children's Foundation) of Caracas,

Venezuela. The agreement was signed on behalf

of the Children's Foundation by the organizat-

ion's president, the wife of the then President

of Venezuela. Under the terms of the agreement,

the two subsidiaries were to make periodic

donations to the Children's Foundation

totalling approximately $12.5 million dollars.

In exchange, the subsidiaries were to obtain

price controls on Venezuelan tobacco, elimination

of controls on retail cigarette prices in

Venezuela, tax deductions for the donations,

and assurances that existing tax rates

applicable to tobacco companies would not be

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No. 89-5960 Lamb v. Phillip Morris

increased. According to the plaintiffs'

complaint, the defendants have arranged similar

contracts in Argentina, Brazil, Costa Rica,

Mexico, and Nicaragua.

In the plaintiffs’ view, the donations

promised by the defendants’ subsidiaries amount

to unlawful inducements designed and intended

to restrain trade. The plaintiffs assert that

such arrangements result in artificial

depression of tobacco prices to the detriment

of domestic tobacco growers, while ensuring

lucrative retail prices for tobacco products

sold abroad. In this action, the plaintiffs

seek redress in the forms of treble damages

and injunctive relief principally for the

former result - reduction in domestic tobacco

prices.

The plaintiffs filed their complaint alleging

violations of federal antitrust laws on August

21, 1985, in the United States District Court

for the Eastern District of Kentucky. Both

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No. 89-5960 Lamb v. Phillip Morris

defendants promptly moved for dismissal on

several grounds. The plaintiffs then sought

leave to amend their complaint to add a claim

under the FCPA On June 28, 1989, the district

court dismissed the plaintiffs’ antitrust

claims as barred by the act of state doctrine,

and dismissed the FCPA claim as an impermissible

private action. This appeal followed.

The plaintiffs contend that the district

court erroneously abdicated its authority to

consider the antitrust claims asserted in the

complaint by invoking the act of state doctrine.

The plaintiffs further assert that the district

court erred in prohibiting them from pursuing

a private cause of action under the FCPA. We

shall address these two issues individually.

Our review of the district court's ruling on

. the defendants’ Rule 12(b)(6) motion is de novo.

See, e.g., Peck v. General Motors Corp.,

894 F.2d 844, 846 (6th Cir. 1990).

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ee ee

No. 89-5960 Lamb v. Phillip Morris

o #

"The act of state doctrine in its traditional

formulation precludes the courts of this country

from inquiring into the validity of the public

acts a recognized foreign sovereign power

committed within its own territory."* Banco

Nacional de Cuba v. Sabbatino, 376 U.S. 398,

401 (1964). As the Supreme Court explained in

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

this concept is based on the notion that

"lelvery sovereign State is bound to respect

the independence 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. Id. at 252; see

-the Second Circuit has stated that "‘Ssjlucu

an inquiry is foreclosed...regardless of whether

the foreign government is named as a party to

the suit or whether tthe validity of its actions

are directly challenged in the pleadings."

O.N.E. Shipping Ltd. v. Flota Mercante

Grancolombiana, S.A., 830 F.2d 449, 452 (2d Cir.

1987). cert. denied, 109 S. Cr. 303 (1988).

-Ja-

No. 89-5960 Lamb v. Phillip Morris

also Oetjen v. Central Leather Co., 246 U.S.

297, 303 (1918)(reaffirming Underhill). The

evolution of the act of state doctrine has

revealed that it is not "compelled either by

the inherent nature of sovereign authority

or by some principle of international law.’

Sabbatine, 376 U.S. at 421. Although the test

of the Constitution similarly “does not require

the act of state doctrine,” id. at 423, the

doctrine has "‘constitutional’ underpinnings

..-aris({ing] out of the basic relationships

between branches of government in a system of

separation of powers” and based upon "the

strong sense of the Judicial Branch chat its

engagement in the task of passing on the

/

validity of foreign acts of state may hinder’

the conduct of foreign affairs. Id.; see also

W.S. Kirkpatrick & Co. v. Environmental

Tectonics Corp., Int'l, 1190 S. Ct. 701, 794

(1990). In this respect, "[t]he act of state

doctrine is not a jurisdictional limit on

-Ra-

No. 89-5960 Lamb v. Phillip Morris

courts, but rather is ‘a prudential doctrine

designed to avoid judicial action in sensitive

areas.'"> Liu v. Republic of China, 892 F.2d

1419, 1431 (9th Cir. 1989); accord Riedel v.

Bancam, S.A., 792 F.2d 587, 592 (6th Cir. 1986).

Although the act of state doctrine typically

involves an assessment of "the likely impact

on international relations that would result

from judicial consideration of the foreign

sovereign's act,” Allied Bank Int'l v. Banco

Credito Agricola de Cartago, 757 F.2d 516,

520-21 (2d Cir.), cert. disissed, 473 U.S. 934

(1985), we must initially determine whether

the defendants in this case have established

sRecause the act of state doctrine imposes

no limitations upon the jurisdiction of the

federal courts, "[{a] motion to dismiss based

on the act of state doctrine raises...a Rule

12(b)(6) objection, not a jurisdictional

defect.” Timberlane Lumber Co. v. Bank of

America, N.T. & S.A., 549 F.2d 597, 602

(9th Cir. 1976).

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No. 89-5960 Lamb v. Phillip Morris

the factual predicate for application of the

act of state doctrine.” While act of state

analysis is not generally guided by "an

inflexible and all-encompassing rule," see

Sabbatino, 376 U.S. at 428, the Supreme Court

recently indicated that, as a threshold matter,

"[a]let of state issues only arise when a court

must decide - that is, when the outcome of the

case turns upon - the effect of official action

by 2 foreign sovereign." Kirkpatrick, 110 S.Ct.

at 705 (emphasis omitted). Here, the defendants

have failed to make such a showing.

The defendants view Justice Holmes’ discussion

of the act of state doctrine in American Banana

Co. vv. United Fruit Co., 213 U.S. 347, 357-58

(1909), as supportive of their position that

Guy *

The party moving for the [act of state]

doctrine's application has the burden of proving

that dismissal is an appropriate response to

the circumstances presented in the case.”

Environmental Tectonics v. W.S. Kirkpatrick,

in¢,,.G87 F.2G 1032, 1056 (34 Cit. 19688),

aff'd, 110 S.Ct. 701 (1990).

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No. 89-5960 Lamb v. Phillip Morris

the doctrine may be applied if a legal claim

impugns the motivations of a foreign state.

See also Clayco Petroleum Corp. v. Occidental

Petroleum Corp., 712 F.2d 404, 407-08 (9th Cir.

1983), cert. denied, 464 U.S. 1040 (1984);

Hunt v. Mobil Oil Corp., 550 F.2d 68, 77 (2d

Civ. 21877). a the Supreme Court's

recent decision in Kirkpatrick - a case

involving civil RICO and Robinson-Patman Act

claims relating to a New Jersey corporation's

bribery of Nigerian officials - undercuts their

contention by explicitly eschewing the logic of

American Banana.> The Court explained in

tn the Kirkpatrick Court's estimation,

"American Banana was squarely decided on the

ground (later substantially overruled) that the

antitrust laws had no extraterritorial applic-

ation,” 110 S.Ct. at 705-06 (citation omitted),

and any act of state discussion in American

Banana was nothing more than dictum subsequently

“overcome” by United States v. Sisal Sales Corp.

274 U.S. 268 (1927). See Kirkpatrick, 110 S.Ct.

at 706. The Kirkpatrick Court, in fact, cited

Sisal for the proposition that, "American Banana

notwithstanding, the defendant's actions in

obtaining Mexico's enactment of ‘discriminating

legislation’ could form part of the basis for-

suit under the United States antitrust laws." Id.

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No. 89-5960 Lamb v. Phillip Morris

Kirkpatrick that the act of state doctrine in

its present formulation "does not establish

an exception for cases and controversies that

may embarrass foreign governments, but merely

requires that, in the process of deciding, the

act of foreign sovereigns taken within their

own jurisdiction shall be deemed valid." 110

S.Ct. et 707. In reaching this conclusion and

permitting the plaintiffs’ claims to go forward,

Justice Scalia's opinion for the unanimous Court

held that the act of state doctrine does not

"bar{] a court in the United States from enter-

taining a cause of action that...require([s]

imputing to foreign officials an unlawful

motivation (the obtaining of bribes) in the

performance of...an official act." Id. at 702.

Like the bribes underlying the civil RICO and

Robinson-Patman act claims in Kirkpatrick, the

Payments made by the defendants in this case to

induce favorable action in Venezuela may support

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No. 89-5960 Lamb v. Phillip Morris

the plaintiffs' antitrust claims.° Because the

antitrust claims at issue in this suit merely

call into question the contracting parties'

motivations and the resulting anticompetitive

effects of their agreement, not the validity

of any foreign sovereign act, the district court

erred in applying the act of state doctrine to

dismiss the plaintiffs’ claims. Accordingly,

the order of dismissal is REVERSED insofar as

the antitrust claims are concerned; the claims

shall be REMANDED for further consideration.’

rhe defendants conceded at oral argument that

Kirkpatrick undercut the rationale for the

district court's decision with regard to the

act of state doctrine.

In rejecting the district court's invocation

of the act of state doctrine, we do not pass

judgment on whether the plaintiffs have set forth

viable antitrust claims. The defendants inter-

posed several alternative justifications for

Gismissal that the district cort has not yet

addressed. The defendants are free to raise

these arguments to support a subsequent motion

for dismissal or summary judgment following

remand.

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No. 89-5960 Lamb v. Phillip Morris

ee an

Although the Foreign Corrupt Practices act

was enacted more than a decade ase.” the

question of whether an implied private right of

action exists under the FCPA apparently is one

of first impression at the federal appellate

level.” Thus, we must analyze the FCPA, which

generally forbids issuers of registered saieien

ities and other "domestic concerns" (as well

Sthe FCPA, initially enacted in 1977,- See

Pub. L. No. 95-213, §$§103(a), 104, 91 Stat. 1494,

1495-98 (1977), has since been reenacted and

amended by the Omnibus Trade and Competitiveness

Act of 1988, Pub. L. No. 100-418, §§5003(a),

5003(c), 102 Stat. 1107, 1415-24 (1988)(codified

at 15 U.S.C. §§78dd-l1, 78dd-2).

The Ninth Circuit has applied the act of

State doctrine to bar a private plaintiff's claim

under the FCPA. See Clayco, 712 F.2d at 408-09.

Clayco, however, offers no guidance on the

issue before us. Additionally, at least one

district court has referred to the issue without

resolving it. See, e.g., Instituto Nacional de

Comercializacion Agricola (Indeca) v.

Continental Illinois Nat'l Bank and Trust Co.,

576 F.Supp. 985, 990 & n.4(N.D.I11. 1983).

-l4a-

.

_

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>> > * — *

“4 Pil Se an? As - a a _"

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’

No. 89-5960 Lamb v. Phillip Morris

as their agents) to endeavor to influence

foreign officials by offering, promising, or

giving "anything of value," see 15 U.S.C.

§§78dd-l(a), 78dd-2(a), to ascertain whether

the plaintiffs may assert a private cause of

action. The Supreme Court recently explained

that:

In determining whether to infer a

private cause of action from a federal

Statute, our focal point is Congress’

intent in enacting the statute. As

guides for discerning that intent,

we have relied on the four factors set

out in Cort v. Ash, 422 U.S. 66,78

(1975), along with other tools of

statutory construction. Our focus on

congressional intent does not mean that

we require evidence that Members of

Congress, in enacting the statute,

actually had in mind the creation of a

private cause of action....The intent

of Congress remains the ultimate issue,

however, and “unless this congressional

intent can be inferred from the language

of the statute, the statutory structure,

Or some other source, the essential

predicate for implication of a private

remedy simply does not exist.”

Thompson v. Thompson, 484 U.S. 174, 179 (1988)

(citations omitted). Thus, as Thompson makes

|

clear, our central focus is on congressional

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No. 89-5960 Lamb v. Phillip Morris

intent, see also Karahalios v. National Fed'n

of Fed. Employees, Local 1263, 109 S.Ct. 1282,

1286 (1989), “with an eye toward” the four

Cort factors: (1) whether the plaintiffsS are

among “the class for whose especial benefit"

the statute was enacted; (2) whether the

legislative history suggests congressional

intent to prescribe or proscribe a private

cause of action; (3) whether "implying such a

remedy for the plaintiff would be ‘consistent

with the underlying purposes of the legislative

scheme'"; and (4) whether the cause of action

is "'one traditionally relegated to state law,

in an area basically the concern of States,

so that it would be inappropriate to infer a

cause of action. See Chairez v. United States

I.N.S., 790 F.2d 544, 546 (6th Cir. 1986)

(quoting Cort, 422 U.S. at 78).

A. “Especial Beneficiaries"

The defendants contend, and we agree, that the

FCPA was designed with the assistance of the

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No. 89-5960 Lamb v. Phillip Morris

Securities and Exchange Commission (SEC) to

aid federal law enforcement agencies in curbing

bribes of foreign officials. According to the

Senate report regarding the FCPA, the Senate

Committee on Banking, Housing and Urban Affairs

initially “ordered reported a bill, S.3664,

which incorporated the SEC's recommendations

and a direct prohibition against the payment

of overseas bribes by any U.S. business concern. (9

0g 3664, which the committee did not order

reported until the end of the 94th Congress in

1976, never became law. However, "[iJ]n the

first session of the 95th Congress,...Senator

Proxmire introduced an exact replica of S.3664

»-»-aS $.305 on January 18, 1977, and the bill

was again referred to the Senate Banking

Committee." Lewis v. Sporck, 612 F.Supp. 1316,

1329 (N.D. Cal. 1985). On May 2, 1977, the

committee reported out S.305, [which] passed

the Senate on May 5, 1977." Id. at 1329-30

(citations omitted). Following a conference to

resolve differences between S.305 and a

corresponding House bill, both the Senate and

the House passed a compromise bill in December

1977 and the President signed the compromise

bill into law soon thereafter. See id. at 1330.

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No. 89-5960 Lamb v. Phillip Morris

S.Rep.No. 114, 95th Cong., lst Sess. 2,

reprinted in 1977 U.S. Code Cong. & Admin.

News 4098, 4099. As the Senate report indicates,

the resulting enactment of the FCPA represents

a legislative endeavor to promote confidence in

international trading relationships and domestic

markets; see id. at 3, 1977 U.S. Code Cong. &

Admin. News at 4100-01; the authorization of

stringent criminal penalties amplifies the

foreign policy and law enforcement consider-

ations underlying the FCPA. See, e.g., 15 U.S.C.

§78dd-2(g). The House Conference report refers

to the "jurisdictional, enforcement, and

diplomatic difficulties" of broadening the

FCPA'’s reach see H.R. Conf. Rep. No. 831,

95th Cong., lst Sess. 14, reprinted in 197

U.S. Code Cong. & Admin. News 4121, 4126,

thereby addressing concerns typically of special

interest to law enforcement officials. In

light of these comments and the general tenor

of the FCPA itself, which requires the Attorney

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No. 89-5960 Lamb v. Phillip Morris

General to participate actively in encouraging

and supervising compliance with the Act, **

see, e.g., 15 U.S.C. §§78dd-l(e), 78dd-2(f),

we find that the FCPA was primarily designed

to protect the integrity of American foreign

policy and domestic markets, rather than to

prevent the use of foreign resources to reduce

production costs. The plaintiffs, as

competitors of foreign tobacco growers and

suppliers of the defendants, cannot claim the

Status of intended beneficiaries of the

congressional enactment under scrutiny.

B. Congressional Intent Concerning Private

Rights of Action

Despite the paucity of authority in the

legislative history for their position, the

Llane Ninth Circuit has noted that, in

practice, "[{t]he Justice Department and the

SEC share enforcement responsibilities under

the FCPA. They coordinate enforcement of the

Act with the State Department, recognizing

the potential foreign policy problems of these

actions." Clayco, 712 F.2d at 409 (footnote

omitted).

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No. 89-5960 Lamb v. Phillip Morris

plaintiffs assert that Congress fully intended

to permit private rights of action under the

FCPA. We disagree. The plaintiffs have

identified only one reference in a House report

to a private right of action: "The committee

intends that courts shall recognize a private

cause of action based on this legislation,

as they have in cases involving other provisions

of the Securities Exchange Act, on behalf of

persons who suffer injury as a result of

prohibited corporate bribery.” H.R. Rep. No.

640, 95th Cong., lst sess. 10 (1977). Unlike

the House, the Senate initially included a

provision that expressly conferred a private

right of action under the FCPA on competitors.

See S$.3379, 94th Cong., 2d Sess. §10, 122 Cong.

Rec. 12,605, 12,607 (1976). Significantly,

the Senate committee deleted that provision.

See S.Rep. No. 1031, 94th Cong., 2d Sess. 13

(1976). The availability of a private right

of action apparently was never resolved (or

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No. 89-5960 Lamb v. Phillip Morris

perhaps even raised) at the conference that

ultimately produced the compromise bill passed

by both houses and signed into law; neither

the FCPA as enacted nor the conference report

mentions such a cause of action. See 15 U.S.C.

§§78dd-1, 78dd-2; H.R. Conf. Rep. No. 831,

95th Cong., lst Sess., reprinted in 1977 U.S.

Code Cong. & Admin. News 4121. Because the

conference report accompanying the final

legislative compromise makes no mention of a

private right of action, we infer that Congress

intended no such result. ‘* Accordingly, we

12 ; ;

In this regard, we reject the suggestion in

Jacobs v. Pabst Brewing Co., 549 F.Supp. 1050,

1062 (D.Del. 1982), that the comment in the

House report suggesting the existence of a

private right of action trumps contrary state-

ments by two conferees, thereby giving rise to

a private cause of action. This sort of reason-

ing illustrates the problematic nature of

divining the true purpose of a conference

committee by delving into reports on bills that

were discussed at length and modified in

conference.

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No. 89-5960 Lamb v. Phillip Morris

Accordingly, we reject the plaintiffs’ assertion

that one isolated comment in an earlier House

report mandates recognition of a private right

of action.!?

C. Consistency with the Legislative Scheme

Recognition of the plaintiffs’ proposed

private right of action, in our view, would

directly contravene the carefully tailored

FCPA scheme presently in place. Congress

recently expanded the Attorney General's

responsibilities to include facilitating

compliance with the FCPA. See 15 U.S.C.

§§78dd-l(e), 78dd-2(f). Specifically, the

Attorney General must "establish a procedure

to provide responses to specific inquiries"

by issuers of securities and other domestic

L3 speaking only for myself, if writing on

a clean slate, I would never infer a private

right of action where the legislation itself is

Silent in that regard. If the courts stopped

filling these legislative gaps, Congress would

soon stop leaving this question unresolved.

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No. 89-5960 Lamb v. Phillip Morris

concerns regarding “conformance of their conduct

with the Department of Justice's [FCPA]

enforcement policy...." 15 U.S.C. §§78dd-i(e)(1),

78dd-2(f£)(1). Moreover, the Attorney General

must furnish "timely guidance concerning the

Department of Justice's [{FCPA] enforcement

policy...to potential exporters and small

businesses that are unable to obtain specialized

counsel on issues pertaining to [FCPA] provisions."

15 U.S.C. §§78dd-l(e)(4), 73dd-2(£)(4).

Because this legislative action clearly evinces

a preference for compliance in lieu of prosec-

ution, the introduction of private plaintiffs

interested solely in post-violation enforcement,

rather than pre-violation compliance, most

assuredly would hinder congressional efforts

to protect companies and their emplovees

concerned about FCPA liability.

D. Alternative Avenues of Redress

Regulation of bribery directed at foreign

officials cannot be characterized as a matter

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No. 89-5960 Lamb v. Phillip Morris

traditionally relegated to state control.

In this respect, implying a private right of

action under the FCPA - a statutory scheme

aimed at activities ordinarily undertaken

abroad - would not intrude upon matters of state

concern. Nevertheless, the international

reach of federal antitrust laws dilutes the

plaintiffs' assertion that a private cause of

action under the FCPA constitutes the only

viable mechanism for redressing anticompetitive

behavior on a global scale. See Continental

Ore Co. v. Union Carbide & Carbon Corp., 3/70 U.S.

690, 704 (1962); see also Matsushita Elec.

Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.

574, 582 n.6 (1986) ("The Sherman Act does

reach conduct outside our borders, but only

when the conduct has an effect on American

commerce."). Because the potential for

recovery under federal antitrust laws in this

case belies the plaintiffs’ contention that an

implied private right of action under the FCPA

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®

) — a a ae ae

No. 89-5960 Lamb v. Phillip Morris

is imperative, we attach no significance to

the absence of state laws proscribing bribery

of foreign officials. More importantly, since

none of the Cort factors supports the plaintiffs’

private right of action theory, we AFFIRM the

district court's dismissal of the FCPA claim.

AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED.

-25a-

APPENDIX II

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

CIVIL ACTION NO. 85-340

BILLY LAMB, ET AL., PLAINTIFFS,

VS. ORDER AND JUDGMENT

PHILLIP MORRIS, INC., ET AL., DEFENDANTS.

a ae oe oe oe

In accordance with the Memorandum

Opinion entered on the same date herewith,

IT IS HEREBY ORDERED AND ADJUDGED, as

follows:

hs The motion of defendant Phillip Morris,

Ind., to dismiss this action under FRCivP 12(b)(1)

and (6) is GRANTED.

2. The motion of defendant B.A.T. Industres,

PLC, to dismiss this action under FRCivP 12(b)(1),

(2) and (6) is GRANTED.

3. This action is barred by the act of

State doctrine and the Foreign Corrupt Practices

Act of 1977.

=the

4. Plaintiffs shall have NO RECOVERY

from the defendants.

5. This action is DISMISSED and STRICKEN

from the docket.

6. There being no just reason for delay,

this is a FINAL and APPEALABLE Order and

Judgment.

This 28th day of June, 1989.

Copies to:

John F. Lackey

Robert M. Watt, III

Abe Krash

James Park, Jr.

-2bd-

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

CIVIL ACTION NO. 85-340

BILLY LAMB, ET AL., ETC., PLAINTIFFS,

VS. MEMORANDUM OPINION

PHILLIP MORRIS, INC., ET AL., DEFENDANTS.

bs INTRODUCTION

Plaintiffs, three purported tobacco

growers in the Eastern District of Kentucky,

bring this antitrust action under the Sherman

Antitrust Act, as amended (15 U.S.C. §l, et

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seq.), the Clayton act, as amended L5

§12, et seq.), and the Robinson-Patman Act, as

amended (15 U.S.C. §13 et seq.)

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foreign Corrupt Practices act of 19

§$§78dd-l and 78dd-2). Plaintiffs allege that

jurisdiction and venue are vested in this court

_—

Although plaintiffs have filed no written

motion to certify this matter as a class action,

pursuant to FRCP 23(a) and (b), within the body

of their complaint, plaintiffs state that they

bring this action on their own behalf and that

of all burley tobacco growers in eight central

Kentucky counties (Scott, Madison, Jessamine,

Bourbon, Fayette, Mercer, Ciark, and Woodford)

within the Eastern District of Kentucky, who

have sold burley tobacco within the past six

(6) years.

Plaintiffs state that the amount of their

injury is unknown; however, they seek, inter

alia, treble damages of $60 Million, injunctive

relief, and an order barring the defendants

from using the Panama Canal.

This matter is before tt

motions of defendants Philli;

("Phillip Morris") and B.A.T.

("B.A.T.") to dismiss this action.

defendants Phillip Morris and

nie

— —_ .

advanced some common resons for dismissal,

B.A.T. also submits reasons for dismissal that

are independent of the grounds for dismissal

urged by Phillip Morris. These pending motions

to dismiss have been fully briefed, heard in

open court, and are ripe for consideration.

II. OPERATIVE FACTS

Plaintiffs generally allege that on or

about May 14, 1982, subsidiaries of defendants

herein entered into a contract in Venezuela

which violated the foregoing antitrust laws of

the United States. More specifically, plaintiffs

allege that C.A. Tabacalera National ("CATANA"),

a subsidiary of Phillip MOrris, and C.A. Cagarrera

Bigott, SUCS, ("“Bigott"™), a subsidiary of B.A.T.,

entered into a contract with La Fundacion Del

Nino (Children's Foundation) of Caracas,

Venezuela (ostensibly a private charitable

Organization that engages in educational and

other philanthropic activities on behalf of

children who live in the tobacco-growing regions

in Venezuela and is headed by the wife of the

then president of Venezuela), which provided

that these two subsidiaries would make periodic

"donations" in the amount of approximately $12.5

Million to the Children's Foundation in exchange

for the following consideration by the government

of Venezuela: (1) price controls on tobacco

grown in Venezuela; (2) no price controls

concerning the retail prices the tobacco

companies could charge for cigarettes; (3) the

amount of the "donations" made to the Children's

Foundation would be deductible from the gross

income of the tobacco companies; and (4) the

tax rates in effect at the time the tobacco

companies entered into this contract with the

Children's Foundation (May 14, 1982) would remain

unchanged. Plaintiffs allege that this agreement

between these tobacco companies and the

Children's Foundation violated the antitrust

laws of the United States because it had an

adverse impact on plaintiffs’ ability to sell

athe

their burley tobacco on the tobacco markets in

central Kentucky.

In sum, the gravamen of the complaint is

that by virtue of the tobacco companies’ contract

with the Children's Foundation in Venezuela,

the defendants were able to meet their demand

for tobacco by importing increased quantities

of less expensive tobacco from Venezuela,

thereby reducing the amount of domestic tobacco

purchased by the defendants, such as the burley

tobacco grown by the plaintiffs, which, due to

this decreased demand, ultimately had the

effect of lowering the price plaintiffs could

obtain for their tobacco on the tobacco markets

in central Kentucky.

III. THE MOTIONS TO DISMISS

A. Phillip Morris

Defendant Phillip Morris has moved to

dismiss this action for the following reasons:

(1) the complaint is barred bv the "act of

State" doctrine; (2) there is no subject’ matter

jurisdiction; (3) plaintiffs lack standing to

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maintain this action; (4) the complaint fails

to state a claim for which relief can be granted

under the Noerr-Pennington doctrine, and (5) the

complaint violates the pleading requirements of

Rules 8 and 9 of the Federal Rules of Civil

Procedure.

B. B.A.T. Industries, Inc.

Defendant B.A.T. has moved to dismiss

this action for the following reasons: (1)

lack of subject matter jurisdiction; (2) lack

of personal jurisdiction over it; (7?) improper

venue; and (4) the complaint fails to state a

claim for which relief can be granted.

Additionally, in connection with its contention

that the complaint should be dismissed for lack

of personal jurisdiction, B.A.T. has also moved

to quash service of process on it.

IV. APPLICABLE LAW

A. The “Act of State”

Doctrine

The court shall begin its analysis of this

motion to dismiss by reviewing the act of

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state doctrine. Plaintiffs allege that

defendants violated the antitrust laws by

inducing the Children’s Foundation to induce

in turn the Venezuelan government to adopt the

foregoing price controls on its tobacco.

Defendants assert that even assuming the truth

of this allegation, this claim is barred by the

act of state doctrine. The history of this

doctrine is found in Kalamazoo Spice Extraction

Co. v. The Provisional Military Government of

Socialist Ethopia, 729 F.2d 422 (6th Cir. 1984),

as follows:

The act of state doctrine is

an exception to the general rule that

a court of the United States, where

appropriate jurisdictional standards

are met, will decide cases before it

by choosing the rules appropriate fo

decision from among various sources

law, including international law.

First National City v. Banco Nacional

on come, 606 0.5. 139, 163, FZ 3.Ct.

1808, 1811, 32 L.Ed.2d 466 (1972). The

roots of the doctrine can be traced to

Underhill v. Hernandez, 168 U.S. 50,

18 S.Ct. 83, 42 L.Ed. 456 (1897) where

the Supreme Court held:

oo =.

rh

Every Sovereign state is bound

respect the independence of eve

other sovereign state, and the

courts of one country will not sit

in judgment on the acts of the

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government of another done within

its own territory. Redress of

grievances by reason of such acts

must be obtained through means

open to be availed of by sovereign

powers as between themselves.

Thus, the Supreme Court's decision in

Underhill was a recognition that generally

the courts of one nation will not sit in

judgment on the acts of another nation

when those acts occur within the latter's

borders.

Kalamazoo, 729 F.2d at 424.

This doctrine was revisited in Hunt v.

Mobil Oil Corp., 550 F.2d 68 (2nd Cir. 1977).

Hunt, an independent oil company, brought an

action against the seven major oil companies

for their alleged violations of the Sherman

Antitrust Act and the Wilson Tariff Act after

Hunt's oil-producing properties were nationalized

by Libya on June 11, 1973. Hunt's theory

was that the defendants combined and conspired

to preserve the competitive advantage of Persian

Gulf crude oil over that of Libyan crude oil,

which prevented him from successfully dealing

with the Libyan government, which ultimately

resulted in his oil-producing nroperties being

—

confiscated and nationalized by Libya.

In relying on the act of state doctrine,

the district court dismissed one of the

conspiracy counts. On appeal, the Second

Circuit traced the history of this doctrine

and held that Hunt's claim was non-justiciable,

as follows:

...-We conclude that the political

act complained of here was clearly

within the act of state doctrine and

that since the disputed pleadings

inevitably call for a judgment on the

sovereign acts of Libya the claim is

non-justiciable.

Hunt, 550 F.2d at 73.

In reaching this conclusion, the Hunt

court reviewed how the doctrine had changed

Ssinced its inception in Underhill. The Hunt

court noted that the district court relied

heavily on American Banana v. United Fruit Co.,

213 U.S. 347 (1909), wherein the plaintiff sued

for treble damages under the Sherman Act,

alleging that his banana plantation had been

confiscated by the Costa Rican government,

which had acted at the defendant's instigation

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,

in furtherance of anti-competitive behavior.

The American Banana Court held that since

the seized plantation was within the de facto

jurisdiction of Costa Rica, its seizure by

that state was an act of sovereign power which

would not be litigated in a court in the

United States.

American Banana also held that because

the acts complained of occurred outside of the

United States, they were beyond the jurisdict-

ional scope of the Sherman Act. This portion

of American Banana has since been eroded by

Continental Ore Co. v. Union Carbide & Carbon

Corp., 370 U.S. 690 (1962); However, the Hunt

court held that neither Continental Ore nor

United States v. Sisal Sales Corp., 274 U.S.

268 (1927), sought to discard entirely the act

of state doctrine on which American Banana rests.

The Second Circuit also considered Hunt's

contention that the act of state doctrine was

not applicable because he did not challenge

the actions of the Libyan government; instead,

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he was only challenging the defendants'

alleged unlawful actions which he asserted

brought about the nationalization of his oil

properties. In analyzing this argument, the

Hunt court noted the following:

Hunt's complaint does not name

Libya as a defendant or in any way

suggest that it is a co-conspirator of

the named defendants. Nonetheless

Judge Weinfeld reasoned that the

combination or conspiracy charged did

not of itself cause the damage

complained of but rather that the

damage resulted from the action of

Libya in cutting back Hunt's production,

shutting off its oil and finally

nationalizing its properties. Thus

he found that Hunt would be required to

establish that but for the conspiracy

Libya would not have committed any of

these aggressive actions. This he

decided would require judicial inquiry

into "acts and conduct of Libyan

officials, Libyan affairs and Libyan

policies with respect to plaintiff's

as well as other oil producers and

the underlying reasons for the Libyan

government's actions." 410 F.Supp. at

24. He concluded that this inquiry was

foreclosed under the act of state doctrine.

Hunt, 550 F.2d at 72. In rejecting Hunt's

argument that the act of state doctrine was

not applicable, the Hunt court stated, as

follows:

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Hunt,

..-It is well established that a

private plaintiff who seeks damages in

an antitrust action must allege and

establish that his business or property

was injured as a direct result of the

Sherman Act violation. Radiant Burners,

Inc. v. Peoples Gas Light & Coke Co.,

364 U.S. 656, 660, 81 S.Ct. 365, 5 L.Ed.2d

358 (1961); Salerno v. American League

of Professional Baseball Clubs, 429 F2d

1003, 1004 (2d Cir. 1970), cert. denied,

400 U.S. 1001, 91 S.Ct. 462, 27 L.Bd.2d

452 (1971).

Appellants do not deny, as they

cannot, this proposition of law. Instead

they argue that while Hunt must prove a

causal connection between Libya's

nationalization and the conspiracy charged

this has been sufficiently pleaded and

somehow shields the third claim from

dismissal prior to trial. However,

appellants admit that antitrust liability

cannot be attributed to the defendants

unless Hunt can prove that but for their

combination or conspiracy Libya would

not have moved against it. Since this

nexus is at the heart of the claim we do

not understand how Judge Weinfeld could

have erred in anticipating that the

doctrine of act of state was inescapably

raised by the pleadings and thus was a

major issue appropriately considered on

the motion to dismiss.

950 F.2d at 76.

In affirming the trial court's dismissal

of this conspiracy count, the Hunt court also

looked to the following teachings:

Hunt,

that

Mr. Justice Harlan, in analyzing

the act of state doctrine in Banco

Nacional de Cuba v. Sabbatino, supra,

370 Csbe« GC Shade BS Bebe SE Fate

observed:

It arises out of the basic relation-

ships between branches of government

in a system of separation of powers.

It concerns the competency of

dissimilar institutions to make and

implement particular kinds of decisions

in the area of international relations.

The doctrine as formulated in past

decisions 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.

The Dunhill majority has reiterated this

view:

The major underpinning of the act

of state doctrine is the policy of

foreclosing court adjudications

involving the legality of acts of

foreign states on their own soil

that might embarrass the Executive

Branch of our Government in the

conduct of our foreign relations.

Alfred Dunhill of London v. Republic of

Cuba, supra, 96 S.Ct. at 1863.

550 F2d at 77.

Defendant Phillip Morris also submits

the present action is controlled by

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Occidental Petroleum Corp. v. Buttes Gas &

Lil Co., 331 F.Supp. 92 (C.D. Cal. 1971),

aff‘d., 461 F.2d 1261 (9th Cir. 1972), cert.

denied, 409 U.S. 950 (1972), wherein the

plaintiffs alleged that the defendants had

incited the governments of Sharjah, Iran, and

Great Britian to interfere with the plaintiffs

oil concession off the coast of the Trucial

States. Plaintiffs asserted that the act of

State doctrine was not applicable because they

were not attacking the validity of the acts of

these foreign governments, but rather only the

"defendants' conduct in ‘catalyzing’ those

acts." 331 F.Supp. at 110. The Occidental

court found no merit in this argument, as

follows:

..--Because a private antitrust cl im

requires proof of damage resulting

from forbidden conduct, (citations

omitted) plaintiffs necessarily ask

this court to "sit in judgment” upon

the sovereign acts pleaded, whether or

not the countries involved are considered

co-conspirators. That is, to establish

their claim as pleaded plaintiffs must

prove, inter alia, that Sharjah issued

a fraudulent territorial waters decree,

and that Iran laid claim to the island

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of Abu Musa at the behest of the

defendants. Plaintiffs say they

Stand ready to prove the former

allegation by use of “internal

documents.” But such inquiries by

this court into the authenticity and

motivation of the acts of foreign

sovereigns would be the very sources

of diplomatic friction and complication

that the act of state doctrine aims to

avert.

The Hunt plaintiffs also argued that the

act of state doctrine was not applicable

because (1) they were not questioning the

validity of the acts of the foreign government

and (2) the foreign government was not a named

defendant. However, the Hunt court, just like

the Occidental court, found this position

untenable.

Additionally, Phillip Morris reli2s on

Clayco Petroleum Corp. v. Occidental Petroleum

Corp., 712 F2d 404 (9tn Cir. 1983), cert. denied,

464 U.S. 1040 (1984), wherein plaintiff alleged

that Occidental had violated the antiturst laws

by bribing the officials of Umm Al Qaywayn to

secure an off-shore oil concession. In

affirming the trial court's dismissal of the

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action based on the act of state doctrine,

the Ninth Circuit noted the potential for

interference with our foreign relations if

plaintiffs’ claim were to be adjudicated, as

follows:

---iIn this case however, the very

existence of plaintiffs’ claim depends

upon establishing that the motivation

for the sovereign act was bribery,

thus embarrassment would result from

adjudication.

This circuit's decisions have

Similarly limited inquiry which would

“impugn or question the nobility of

a foreign nations’ motivation.”

Timberland, 549 F.2d at 607. In Buttes,

the trial court, in an opinion adopted

by this court, held judicial scrutiny

of the motivation for foreign sovereign

acts to be precluded by the act of

State doctrine, noting that it has

traditionally barred antitrust claims

based on the defendant's alleged

inducement of foreign sovereign action.

333 F.Supp. at 110 (citing American

Banana Co. v. United Fruit, 213 U.S. 347,

29 @.Gt. Sil, 53 L.-EG. 826 (1909)

Clayco, 712 F.2d at 407-408.

DISCUSSION

In analyzing the merits of the action

sub judice, the court is guided by the

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teachings of Hunt v. Mobil Oil Corp., supra,

Occidental Petroleum Corp. v. Buttes Gas &

Oil Co., supra, and Clayco Petroleum Corp. v.

Occidental Petroleum Corp., supra. The elements

common to all three of these cases are that

(1) the plaintiffs were not questioning the

validity of the acts of the foreign government,

and (2) the foreign government was not a named

defendant. In each of these actions, the court

declined to inquire into the respective acts

of these foreign governments, relying on the

act of state doctrine.

As in Hunt, Occidental Petroleum, and

Clayco, plaintiffs herein ask this court to

examine a policy decision of a foreign sovereign

(i.e., the decision of the Venezuelan government

to impose price controls on tobacco). The

Clayco court noted that the reasons that the

government officials of Umm Al Qaywayn awarded

the off-shore oil concession to Occidental

Petroleum were not merely the background of

that action, but rather they were the core of

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plaintiffs' claim. The same rationale applies

to the present action. The actions of the

Venezuelan government in imposing price controls

on tobacco are not merely the backdrop of this

case, they are the foundation of this action.

Plaintiffs herein would not have filed this

action had Venezuela not imposed price controls

on tobacco.

Therefore, the courtis of the opinion that

based on controlling precedent, the act of

State doctrine bars this court from inquiring

into the reasons underlying the decision of

the government of Venezuela to impose price

controls on tobacco grown in Venezuela.

B. The Foreign Corrupt Practices ACt of 1977

Plaintiffs' complaint has been amended

to add a claim that defendants’ actions violated

the Foreign Corrupt Practices Act of 1977 (FCPA).

Both defendants submit that the amended complaint

notwithstanding, this action should still be

dismissed. Defendants contend that a private

Party is not authorized to bring an action

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under FCPA and that only the government is

authorized to seek redress for violations of

the FCPA. The remedies for violations thereof

are fines imposed after one is convicted in

a criminal proceedings. Additionally, the

FCPA provides that the United States Attorney

General may bring a civil action to enjoin

violations.

In short, the gist of defendants' argument

is that a private party has no standing to

bring a claim under the #FCPA. This position

is borne out by the Ninth Circuit's explanation

of this act in Clayco Petroleum Corp. v.

Occidental Petroleum Corp., supra, as follows:

The FCPA prohibits bribery of a

foreign official for the purpose of

obtaining or retaining business. 15

U.S.C. §§78dd-1, 78dd-2. The Act

provides for severe criminal penalties

including fines and imprisonment.

15 U.S.C. §§ 78dd-2(b), 78ff. In

addition, the Attorney General may

bring a civil action to enjoin impending

violations. 15 U.S.C. §78dd-2(c).

Clayco, 712 F.2d at 408.

The Clayco court further elaborated that:

The Justice Department and the

SEC share enforcement responsibilities

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under the FCPA. They coordinate

enforcement of the Act with the

State Department, recognizing the

potential foreign policy problems

of these actions.

Clayco, 712 F.2d at 409.

In the final analysis, the Clayco court

concluded, as follows:

Here, however, we are faced with

a private lawsuit, rather than a public

enforcement action. It is the screening

of governmental proceedings, with

State Department consultation, which

distinguishes FCPA enforcement from

private suits.

DISCUSSION

Although plaintiffs contend that the

issue of whether a private plaintiff can bring

a cause of action under the FCPA is an open

question, Clayco teaches otherwise. It is

crystal clear from Clayco that an action under

the FCPA can only be maintained by the government.

In terms of criminal proceedings, the Justice

Department and the Securities and Exchange

Commission share enforcement responsibilities

of the FCPA; additionally, the Attorney General

can bring a civil action to enjoin violations

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of the FCPA. Accordingly, the court must

conclude that plaintiffs have no standing to

bring this action under the FCPA.

In rebutting defendants’ motions to

dismiss this action based on the act of state

doctrine, plaintiffs refer the court to

Timberline Lumber Co. v. Bank of America, N.T.

& S.A., 549 F.2d 597 (9th Cir. 1977),

International Association of Machinists v. OPEC,

649 F.2d 1354 (9th Cir. 1981), and Williams

v. Curtiss-Wright Corp., 694 F.2d 300 (3rd Cir.

1982), which plaintiffs assert are “three recent

seminal cases” on the act of state doctrine.

The court can only address this contention

by observing that both Clayco, supra (a 1983

9th Circuit case), and Kalamazoo Spice, supra

(a 1984 64th Circuit case), were rendered

subsequent to the foregoing authorities relied

on by plaintiffs. In fact, the primary authority

of Kalamazoo Spice seems to be the last word

from the Sixth Circuit on the act of state

doctrine.

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Therefore, the court finds no merit in

plaintiffs’ argument that the act of state

doctrine should not apply to this action.

C. The Foreign Trade Antitrust Improvements

Act of 1982

Due to the fact that this act was passed

on October 8, 1982, subsequent to May 14, 1982,

the date the contract about which plaintiffs

complain was executed, the parties are in

disagreement as to whether this act is applicable

to this action. Plaintiffs maintain that it

should not be given retroactive application,

and the defendants argue that the act is

applicable herein because it merely clarified

existing law.

However, inasmuch as the court has

determined that this action is barred by the

act of state doctrine and the Foreign Corrupt

Practices Act of 1977, the court need not

address this issue or any other remaining

issues.

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CONCLUSION

In light of the foregoing authorities,

the court must conclude that this action is

barred by the act of state doctrine. Plaintiffs

want this court to scrutinize the policy

decision of Venezuela to impose price controls

on its domestic tobacco; however, inquiry

into such a policy decision is exactly what

the act of state doctrine was designed to

prevent.

Furthermore, a private plaintiff has no

Standing to bring this action under the

Foreign Corrupt Practices Act of 1977.

An Order and Judgment in accordance with

this Memorandum Opinion will be entered on the

same date herewith.

This 28th day of June, 1989.

SCOTT REED, SENIOR JUDGE

Copies to:

John Lackey

Robert Watt III

Abe Krash

James Park

APPENDIX III

80,804 New SEC Rulings 770 9-6-78

Corrupt Practices Act

[% 81,701] Opinion of Office of the General

Counsel on the Existence of a Private Right

of Action Under the Foreign Corrupt Practices

Act of 1977.

Letter from Frederick B. Wade, Special

Counsel, Office of the General Counsel to

Mr. Raymond Garcia, Emergency Committee for

American Trade, Washington, D.C. May 16, 1978.

Opinion of Special Counsel in full text.

Foreign Corrupt Practices Act - Private

Right of Action. - “Private enforcement” of

the Foreign Corrupt —r Act would

provide "a necessary supplement" to enforcement

actions brought by either the SEC or the

Department of Justice and the implication of

a private right of action under the Act would

be appropriate, in the view of Special Counsel

for the SEC's Office of General Counsel.

See 4 23,631, "Exchange Act - Registration

Reports” division, Volume 2.

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[Opinion of Counsel]

This is in response to your letter, dated

March ?, 1978, concerning the Commission's

release, entitled "Notification of Enactment

of Foreign Corrupt Practices Act of 1977."

Your letter questions a portion of the release,

which states:

"The legislative history of the Act

***contemplates that private rights of

action properly could be implied under

the Act on behalf of persons who suffer

injury as a result of prohibited

corporate bribery."

Whether there should be an implied private

right of action under the Foreign Corrupt

Practices Act, of course, is ultimately a

question that the courts will decide. The

determination of that question will require

a comprehensive review of the legislative

history of the Act, and a consideration of

securities Exchange Act Release No. 14478

(Feb. 16, 1978); 14 SEC Docket 180 (Feb. 28, 1978);

43 Fed. Reg. 7752 (Feb. 24, 1978).

-2¢c-

the applicable rules of law governing the

weight that courts may give to various sources

of legislative history.

It is significant, in this regard, that a

bill introduced by Senator Frank Church during

the 94th Congress, S. 3379, "included two

provisions creating new private rights of

action for persons injured by the payment of

bribes." One of those provisions, which would

have created an express right of action on

behalf of shareholders, was deleted because the

Senate Committee on Banking, Housing and Urban

Affiars believed the proposal "would have

duplicated and possibly confused existing

remedies available to shareholders.’

25, Rep. No. 94-1031, 94th Cong., 2d Sess.

12 (1976).

Std. at 12-13. The use of the word,

"duplicated," is a strong indication that the

Committee believed it was unnecessary expressly

to provide for a private right of action on

behalf of shareholders.

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The Committee also "found merit” in the second

provision, which would have created an express

“private cause of action for any person who

could establish actual damage to his business

resulting from illegal payments made by a

competitor,” but deleted that proposal on the

ground that, as drafted, it “created

ambiguities." The Committee added that its

decisions were not intended to have *any

effect on existing law concerning private causes

of action under the present federal securities

laws, under which the courts had provided

for implied causes of action under a number

of statutory provisions.

An implied private right of action was

advocated, prior to enactment of the legislation,

during the hearings held by the Subcommittee

on Consumer Protection and Finance of the

Tv

House Committee on /Jnterstate and Foreign

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Commerce.° In this regard, the Association

of the Bar of the City of New York submitted

a report to the Subcommittee stating the

Association's view that the legislation, if

enacted, would be available to “private

plaintiffs in implicit actions * * aul

In addition, the Chairman of the Commission,

Harold M. Williams, declared both in his

testimony,° and in his prepared statement,”

that "this legislation would furnish the

Commission and private plaintiffs * * * with

potent new tools to employ against those who

persist in concealing from the investing public

°see Subcommittee on Consumer Protection

and Finance of the House Committee on Interstate

and Foreign Commerce, Hearings Concerning the

Unlawful Corporate Payments Act of 1977, 95th

Cong., lst Sess. (1977).

"td. at 88.

Std. at 198.

"ha. at 219.

-5c-

the manner in which corporate funds have been

utilized" (emphasis supplied). *° Thereafter,

the House report concerning the proposed

legislation (H.R. 3815) stated.

"The Committee intends that the

courts shall recognize a private cause

of action based on this legislation, as

they have in cases involving other

provisions of the Securities Exchange

Act, on behalf of persons who suffer

injury as a result of prohibited

corporate bribery. The recognition

of such a private cause would enhance

the deterrent effect of this legislation

and provide a necessary supplement to

the enforcement efforts of the, ¢ommission

and the Department of Justice.

L075 this regard, the Supreme Court has

recognized that the views of an administrative

agency are entitled to particular weight where,

as here, “the administrators participated in

drafting [the legislation] and directly made

known their views to Congress in committee

hearings.” Zuber v. Allen, 395 U.S. 168,

192 (1969); See United States v. American

Trucking Associations, Inc., 310 U.S. 534, 549

(1940),

LliiR. Rep. No. 95-640, 95th Cong., lst

Sess. 10 (1977). The word, “persons,” is broad

enough to encompass an implied cause of action

on behalf of both shareholders and competitors

of the corporation that may suffer injury as

a result of prohibited corporate bribery.

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The Report of the Conference Committee,

which was established to reconcile the

differences between the House and Senate versions

of the legislation, indicates that the

prohibitations against foreign corporate

bribery contained in the Foreign Corrupt

Practices Act consist, for the most part, of

“the identical provisions of both * *" the

Senate and House bills. /* None of the changes

ag-~eed to by the members of the Conference

Committee reflect any disagreement with the

position of the House that there should be an

implied private right of action. *? Accordingly,

the failure of the Conference Committee either

to address this issue, or explicitly to

retract the statement contained in the House

Report, is a strong indication that that

Statement reflects the intent of the Congress

concerning private rights of action.

2a oR. Rep. No. 95-831, 95th Cong., lst

Sess. 11-13 (1977).

L3r4.

-7J¢c-

Your letter quotes Senator John G. Tower

and Congressman Samuel L. Devine as stating, in

substance, that the Conference Committee did

not intend to create an implied private right

of action. Although Senator Tower and

Congressman Devine were both members of the

Conference Committee, the probative value of

their statements is diminished, in my view,

by the fact that they did not persuade the

conferees to reflect their views in the

Conference Report. In fact, the statement of

Senator Tower makes clear that neither he,

nor any other member of the Conference Committee,

raised the question with the other conferees,

despite their opportunity to do so. He states,

in this regard, that that “question was not

considered * * * during the conference * * *,"

Thus, there is nothing to indicate that the

Statements of Senator Tower and Congressman

Devine reflect anything more than their own

personal views.

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The commission's view that private rights

of action are contemplated by the Foreign

Corrupt Practices Act also finds support in

a number of Supreme Court decisions concerning

the weight to be given to various sources of

legislative history. It has long been

established, for example, that congressional

debates, prior to the passage of legislation,

are “not entitled to the same weight as * * *

carefully considered committee reports * * +e

In addition, it is a settled rule of statutory

construction that "[{i]t is the sponsors [of

legislation] that * * * [the courts] look to

when the meaning of the statutory words is in

doubt .“?>?

M4 ec, e.G. United States v. United Auto

Workers, 352 U.S. 567, 585-586, rehearing denied,

353 U.S. 943 (1957); see also United States v.

Wrightwood Dairy Co., 315 U.S. 110, 125 (1942).

lo See, e.g., National Labor Relations

Board v. Fruit & Vegetable Packers & Warehouse-

men, 377 U.S. 58, 66 (1964).

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And, it bears emphasis, in this context, that

the Supreme Court has declared that legislators

with minority views “cannot put words into the

months of the majority and thus, indirectly,

amend a b111,"*°

Neither Senator Tower nor Congressman

Devine were sponsors of the proposed bills that

were reported by the committees of the Senate

and the House responsible for consideration of

the legislation. In fact, Congressman Devine

joined in a minority report concerning the

House version of the bill that expressed strong

opposition to certain features of the measure,

including the approach that the majority of

the Committee had adopted with re-

lOnastro Plastics Corp. v. National Labor

Relations Board, 350 U.S. 270, 288, rehearing

denied, 351 U.S. 980 (1956).

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Federal Securities Law Reports q 81,701

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