for a commercial exception to the act of state doctrine. See n. 11, 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.
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 indicates FCPA was intended to stop bribery and noted both the Justice Department and the Securities and Exchange Commission share enforcement responsibilities under FCPA. 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 interfering with the conduct of foreign affairs. Clayco Petroleum, 712 F.2d at 408-409, citing, Sabbatino, 476 U.S. at 423; 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 remains necessary to protect proper conduct of national foreign policy. Id. 712 F.2d at 409.
Significantly, prosecution was had against both Carpenter and Kirkpatrick. The offer of proof executed by Carpenter is carefully worded and does not establish any bribes were in fact paid to a member of the Nigerian Government although it adequately sets forth the requirements to establish Carpenter intended such action to take place. Thus, a violation of FCPA was demonstrated. Likewise, the transcript with regard to the sentencing of Kirkpatrick for the violation of FCPA sets forth the concern 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 Executive 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.
In light of the State Department Position, ETC has suggested application of a form of the so-called "Bernstein" exception to the act of state doctrine.
The State Department Position 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 "motivations of the Government of Nigeria's decision to award the [Nigerian C]ontract" 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 application 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 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.
(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."
The overview and judgments of this court, as urged by the State Department, may well have a significant impact on the foreign affairs of 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 nationals, or of matters implicating international diplomacy, the Executive has the option to weigh the implications of such conduct on the overall foreign policy of this country. This obviously will not happen in the scenario suggested by the State Department Position.
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 national security. The Executive Branch must make the decisions as to whether disclosure of facts will have any ramification on disclosure of intelligence sources 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.
Article III courts must "'carefully abstain from exercising any power that is not strictly judicial in its character, and which is not clearly confided to [them] by the Constitution.'" Muskrat v. United States, 219 U.S. 346, 355, 55 L. Ed. 246, 31 S. Ct. 250 (1911) (citation omitted). The essence of judicial power is the resolution of cases or controversies. Id. at 356. 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 U.S. 1, 123, 46 L. Ed. 2d 659, 96 S. Ct. 612 (1976); Muskrat, 219 U.S. at 356; Ex Parte Siebold, 100 U.S. 371, 398, 25 L. Ed. 717 (1879).
There are foreign policy considerations involved in ETC's proving 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 action 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 Government which must be controlling.
ETC's amended complaint is aimed at alleged antitrust and RICO violations of defendants which require inquiry into the actions, conduct and motivation of the Republic of Nigeria and its agents. Although "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[,]" Curtiss-Wright, 694 F.2d at 304 (citation omitted), I am satisfied the Moving Defendants have established
the actions, 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." Mannington Mills, 595 F.2d at 1293. Moreover, the suggestion of the State Department is neither practical nor constitutional. The motion to dismiss because of the act of state doctrine is granted.
E. Appeals of Magistrate's Orders
1. Standard of Review
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 considering each of the three appeals, the Court must apply the standard 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. 1986), cert. denied, 479 U.S. 1043, 107 S. Ct. 907, 93 L. Ed. 2d 857 (1987).
"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 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, 92 L. Ed. 746, 68 S. Ct. 525 (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), aff'd 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 disposition of the motions to dismiss.
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 appeal 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 relevant 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. Furthermore, additional discovery is inconsistent with the conclusions regarding the act of state doctrine. The taking of discovery by ETC would necessarily involve inquiry into the action of the Nigerian Government and its officials.
Applying the limited standard of review mentioned previously, ETC has not demonstrated the magistrate's order is clearly erroneous or contrary to law. Only after the court posed questions 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 application of the act of state doctrine. Accordingly, the magistrate's order is affirmed.
3. Appeal of the July 16, 1986 Order
During his June 30, 1986 deposition Carpenter asserted his privilege against self-incrimination and refused to answer certain 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 assertion of the privilege. As discussed earlier in this 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 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., para. 2) Akindele also told Carpenter of certain Nigerian government officials' desire to prosecute Carpenter in connection with the Nigerian Contract. (Id. at § 3) Akindele further 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. (Id. at para. 4)
In January, 1986, Carpenter's attorney was informed by a United States Government official that "the Nigerians wanted to get [Carpenter] to Nigeria." (Id. at para. 5) This information, which originally came from Interpol, was relayed to Carpenter. (Id. at para. 5) Carpenter has since been again warned not to travel abroad "and that the Nigerian interest in [his] case has not abated." (Id. at para. 6)
In sustaining Carpenter's Fifth Amendment privilege, Magistrate Hedges applied the guidelines set forth in United States v. Flanagan, 691 F.2d 116 (2d Cir. 1982). In Flanagan, defendant was subpoenaed to appear before a federal grand jury which was investigating an alleged gun-smuggling conspiracy in operation for the benefit of the Irish Republican Army in Ireland. After his intent to invoke the Fifth Amendment was known, defendant Flanagan was granted immunity from the use of his testimony against him in any subsequent criminal proceeding. Id. at 119.
Flanagan's motion to quash the subpoena was based in part on the argument that because the grant of immunity would not protect him from prosecution in foreign countries, a protection coexistive with the Fifth Amendment privilege. Although the Second circuit found "Flanagan's fear of foreign prosecution, viewed objectively, [to be] remote and speculative rather than real, reasonable, or substantial" id. at 122, the court's discussion of factors to be considered in making such a ruling is helpful.
Among the factors detained in Flanagan are the "reality or remoteness of the risks of incrimination under foreign law" id., the existence of foreign laws authorizing prosecution of the criminal acts in question, whether the testimony may enable the foreign government to seek extradition, and whether the testimony is likely to be disclosed. Id. at 120-23. In his decision, Magistrate Hedges considered these factors as applied to Carpenter and concluded the privilege should be upheld.
On appeal, ETC contends the protection afforded by the Fifth Amendment is not available to Carpenter because he has already pled guilty to a violation of the Foreign Corrupt Practices Act. Furthermore, ETC disputes the existence of a real threat of prosecution. Alternatively, ETC suggests the testimony should be taken under a protective order.
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, 32 L. Ed. 2d 212, 92 S. Ct. 1653 (1972) reh'g denied, 408 U.S. 931, 33 L. Ed. 2d 345, 92 S. Ct. 2478 (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 apprehend danger from a direct answer." Hoffman v. United States, 341 U.S. 479, 486, 95 L. Ed. 1118, 71 S. Ct. 814 (1951). Consideration of ETC's arguments necessitate a review of the standard for invoking claims of the Fifth Amendment privilege.
The extent to which the Fifth Amendment privilege may properly 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, agreement that the Fifth Amendment only protects against real and substantial threats of incrimination, not speculative or theoretical possibilities. Zicarelli v. New Jersey Investigation Commission, 406 U.S. 472, 478, 32 L. Ed. 2d 234, 92 S. Ct. 1670 (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 questions about events and activities within this country having 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 U.S. 96, 25 L. Ed. 2d 81, 90 S. Ct. 819 (1970); In re Cardassi, 351 F. Supp. 1080 (D. Conn. 1972).
ETC contends the Fifth Amendment protection is not available to Carpenter in light of Carpenter's previous plea of guilty to violation of the FCPA. This argument is not persuasive for two reasons. First, there would be no need to depose Carpenter if the information sought had been disclosed in connection with Carpenter's earlier prosecution. It is logical then to assume the requested information goes beyond the investigation under the FCPA. Therefore, Carpenter may invoke the Fifth Amendment to avoid further incrimination. Second, case law supports protection of Carpenter's testimony because prior disclosure is not held to be a waiver of the privilege. United States v. Yurasovich, 580 F.2d 1212, 1218-1220 (3d Cir. 1978).
The initial statement is incriminating, a subsequent statement on the same subject would necessarily be further incriminating because the second statement would corroborate the earlier statement, making it more difficult for the witness to discount the earlier statement and hence increasing the danger of conviction.