The opinion of the court was delivered by: LECHNER
The motions were filed by defendants pursuant to Federal Rule of Civil Procedure 12(b)(6). With the exception of the act of state portion of these motions, it is assumed for the sole purpose of the disposition of these motions the facts alleged in the amended 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). Accordingly, 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 opportunity to respond. This opinion also addresses plaintiff's appeal of three orders entered by Magistrate Hedges.
ETC filed a three count complaint naming the following defendants: W.S. Kirkpatrick & Co., Inc. ("Kirkpatrick") (erroneously named as W.S. Kirkpatrick, Inc.); Development International Corporation ("DIC"); DIC (Holding) Inc. ("Holding"); IDC International S.A. Luxembourg; Harry G. Carpenter ("Carpenter"); and Benson "Tunde" Akindele ("Akindele"). The complaint alleged that defendants' tactics in obtaining a contract with the government of Nigeria violated sections of the Racketeer Influenced and Corrupt Organizations Act ("RICO") (18 U.S.C. § 1962, et seq.), the New Jersey Anti-Racketeering Act (§ 2C:41-2, et seq.) and the Robinson-Patman Act (15 U.S.C. § 13(c) et seq.).
ETC filed an amended complaint which added new counts and more specifically alleged certain aspects of its original complaint. The amended complaint added the following defendants: John M. Krankel; W.S. Kirkpatrick & Co. International ("Kirkpatrick International"); International Development Corporation, 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".
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, Chairman 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 Luxembourg 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 contract with the Republic of Nigeria to construct an aeromedical facility at Kaduna Air Force Base in Nigeria and to provide equipment for that facility (the "Nigerian Contract"). In an effort to obtain the Nigerian Contract, Carpenter negotiated an agreement with Akindele, a Nigerian citizen (the "Akindele Agreement"), whereby Akindele was to act on behalf of certain defendants in seeking to procure the Nigerian Contract. The Akindele Agreement provided that certain defendants would pay a "commission" to two Panamanian entities controlled by Akindele if the Nigerian Contract was procured for defendants. The commission was to equal 20 % of the Nigerian Contract price; a majority of the commission was to be paid, in turn, as bribes to officials 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.
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 approximately $ 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.
On January 6, 1986 at the sentencing of Kirkpatrick, Assistant 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 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 I have not had a disclosure order and the State Department 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 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, inquires 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.
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 sentences with respect thereto on 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 purpose 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 nor has it taken any action with regard to the allegations surrounding the Nigerian Contract.
A. Inclusion of Holding and IDC
In its complaint, ETC appears to present two theories supporting 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 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 addition, 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.
Whether an agency relationship exists between a parent corporation and employees or officers of its subsidiary or whether a subsidiary is an instrumentality of the parent is normally a question of fact and degree. The central factual issue is control, i.e., 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 Telecommunications, Inc., 575 F. Supp. 1463, 1478 (D. Kansas 1983).
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 determining 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 F. Supp. at 1478; Japan Petroleum Co., Ltd., 456 F. Supp. at 841. The factors to be examined 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 expenses. 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 the business and assets of the two so mingled, that recognition of the distinct entity would result in an injustice to third-party persons. . . .
Hoffman, 575 F. Supp. at 1478 (quoting from two other cases).
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 the potential imposition of liability upon Holding or IDC for wrongful acts committed by Carpenter and/or Kirkpatrick.
The Moving Defendants argue that under the facts pleaded in ETC's complaint, ETC lacks standing to bring its antitrust and RICO claims against them. The Moving Defendants contend 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 Moving Defendants. Although the original complaint may have been insufficient, the amended complaint pleads ETC's injury sufficiently to survive these motions to dismiss. The amended complaint 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 Complaint para. 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 enterprise involved in interstate commerce if the funds are "derived, directly or indirectly, from a pattern of racketeering activity. . . ." 28 U.S.C. § 1962(a). RICO defines a pattern of racketeering activity as requiring "at least two acts of racketeering activity. . . ." 28 U.S.C. § 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 "pattern" mandate requires a showing of separate criminal episodes.
Prior to the Supreme Court's decision in Sedima, S.P.R.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 application 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., 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 providing that "'criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, 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 interpreting 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 conversion or theft claim fail to establish requisite pattern); Emmanouilides 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 Credit Union v. Peat, Marwick, Mitchell & Co., 639 F. Supp. 1532, 1534 (D. Mass. 1986) ("In applying civil RICO, therefore, it is essential to identify threats of continuing criminal activity, as opposed to isolated criminal events."); Temporaries, Inc. v. Maryland Nat'l Bank, 638 F. Supp. 118, 124 (D. Md. 1986) ("Without an open-ended series of activities which comprise a continuing scheme, more 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 set of victims following closely on the heels of the original wrong, in some circumscribed circumstance, is completely unidimensional. It suggests no expansion, no ongoing design, no continuity, such as was the ...