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Court In FCPA-Related Civil Claim – Causation Matters

Judicial Decision

Several prior posts (herehere, here and here) have focused on basic causation issues in connection with many Foreign Corrupt Practices Act enforcement actions.

The lack of causation between an alleged bribe payment and any alleged business obtained or retained may not be a legal defense because the FCPA’s anti-bribery provisions prohibit the offer, payment, promise to pay or authorization of the payment of money or anything of value.  Indeed, several FCPA enforcement actions have alleged unsuccessful bribery attempts in which no business was actually obtained or retained.

Nevertheless, causation ought to be relevant when calculating FCPA settlement amounts, specifically disgorgement. However, the prevailing enforcement theory often seems to be that because Company A made improper payments to allegedly obtain or retain Contract A then all of Company A’s net profits associated with Contract A are subject to disgorgement.

Call it the “but for” theory. “But for” the alleged improper payments, Company A would not have obtained or retained the business.

However, this basic enforcement theory ignores the fact that Company A (as is often the case in FCPA enforcement actions) is generally viewed as selling the best product for the best price and because of this probably would have obtained or retained the business in the absence of any alleged improper payments. In addition, certain FCPA enforcement actions have been based on allegations that the “bribe” payments simply facilitated the company receiving what it was legitimately owed (see here) or that “bribe” payments actually benefited a foreign country (see here).

This previous post highlighted an interesting civil case involving the Government of Bermuda which filed a civil complaint against Lahey Clinic Inc. (a non-profit academic medical center incorporated in Massachusetts) alleging various bribery related offenses. As stated in this recent court opinion:

“This case involves an alleged conspiracy between Lahey and Dr. Ewart Brown (“Brown”). Brown is the former Premier of Bermuda, a longstanding Member of Bermuda’s Parliament, and the owner of two private health clinics in Bermuda. Bermuda alleges that Lahey paid Brown bribes disguised as “consulting fees,” gave him discounts on medical equipment and services, and made political donations to his campaign, in return for which Brown ensured Lahey: 1) “made millions of dollars reading and interpreting medically unnecessary MRI and CT scans performed at Brown’s clinics”; 2) “received preferential treatment when bidding on healthcare contracts issued by the Bermudian Government”; and 3) “obtained privileged access to Bermudian patients that it could service at its facilities in Massachusetts and in Bermuda.”

The court granted Lahey’s motion to dismiss RICO and related counts largely because the alleged schemes did not cause injury to U.S. business or property of Bermuda. In one of the schemes, Bermuda alleged that payments for certain services were made “from and/or through Bermuda’s bank accounts, or those of ist agents, in the United States” and thus in the words of the court “the domestic aspect of the injury requirement is met as to these services.”

However, in the words of the court (internal citations omitted):

“Bermuda faces a different standing problem, however, as to this scheme. Bermuda claims that it was injured by paying for “overseas services in the United States tainted by bribes.” Bermuda’s allegations boil down to the following assertion: because Lahey potentially obtained a greater opportunity to service Bermudian residents by becoming a preferred provider through bribery, paying Lahey for even medically necessary services is inherently injurious to Bermuda. Such injury is insufficient to establish standing under RICO. “[T]he requirement of injury in one’s ‘business or property’ limits the availability of RICO’s civil remedies to those who have suffered injury in fact.” This means that to have standing, it must be the case that a plaintiff’s injury “fairly can be traced to the challenged action and is likely to be redressed by a favorable decision.”  Civil RICO injuries are further limited by statute: “All civil RICO injuries are, by the terms of the statute itself, economic losses of one kind or another. A plaintiff bringing a civil RICO claim . . . cannot, for example, recover for ‘personal injuries.’” Furthermore, any “recoverable damages” under § 1962(c) must “flow from the commission of the predicate acts.” Although at the pleading stage of a RICO case, “general factual allegations of injury resulting from the defendant’s conduct may suffice,” Bermuda fails to meet this basic showing that the preferred provider scheme led to an economic injury. As a preferred provider, Lahey provided “medically necessary services not available in Bermuda” to Bermudians traveling abroad. Bermuda does not allege that Bermuda paid more for Lahey’s services than it would have with another provider, that Bermudian patients received lower-quality services, or that Bermuda paid for any services for which it would not have paid otherwise. Bermuda’s own involvement in the claims adjudication process further illustrates that Lahey’s provision of these services did not injure Bermuda economically. Bermuda “negotiate[d] agreements for covered services and established rates with overseas providers,” and each claim for services was adjudicated “pursuant to policies set by the Bermudian Government” by Bermuda’s claims processing agents who “specialize in cost containment.” While this case might be different if brought by a plaintiff who could allege competitive injury as a result of this scheme, such as by Lahey’s U.S. competitors, Bermuda simply does not allege that it suffered costs it would not have otherwise incurred.

Thus, Bermuda does not have standing, because it has not shown that it suffered any injury to business or property as a result of the alleged preferred provider scheme. As a result, Bermuda’s RICO claims as to the preferred provider scheme must be dismissed.”

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