This recent post highlighted Ericsson’s $97 million “ripple” for resolving a civil claim arising out of its 2019 Foreign Corrupt Practices Act enforcement action. Certain commentators have asked whether follow-on civil litigation from commercial competitors will become a “new” trend in the aftermath of FCPA enforcement matters.
Answer: the trend is not “new” – it has been happening for years in connection with certain FCPA enforcement actions or FCPA scrutiny.
One of the earlier cases in this area was Korea Supply Co. v. Lockheed Martin Corp. which resulted in a 2003 decision by the California Supreme Court (29 Cal. 4th 1134). As stated in the California Supreme Court’s opinion:
“This case addresses what claims and remedies may be pursued by a plaintiff who alleges a lost business opportunity due to the unfair practices of a competitor. The Republic of Korea wished to purchase military equipment known as synthetic aperture radar (SAR) systems and solicited competing bids from manufacturers, including Loral Corporation (Loral) and MacDonald, Dettwiler, and Associates Ltd. (MacDonald Dettwiler). Plaintiff Korea Supply Company (KSC) represented MacDonald Dettwiler in the negotiations for the contract and stood to receive a commission of over $ 30 million if MacDonald Dettwiler’s bid was accepted. Ultimately, the contract was awarded to Loral (now Lockheed Martin Tactical Systems, Inc.). KSC contends that even though MacDonald Dettwiler’s bid was lower and its equipment superior, it was not awarded the contract because Loral and its agent had offered bribes and sexual favors to key Korean officials. KSC instituted the present action asserting claims under both California’s unfair competition law and the tort of interference with prospective economic advantage.”
Among the questions presented to the court was “whether, to state a claim for interference with prospective economic advantage, a plaintiff must allege that the defendant specifically intended to interfere with the plaintiff’s prospective economic advantage.”
The court concluded “that a plaintiff need not plead that the defendant acted with the specific intent to interfere with the plaintiff’s business expectancy in order to state a claim for this tort.” The court stated:
“the tort of intentional interference with prospective economic advantage does not require a plaintiff to plead that the defendant acted with the specific intent, or purpose, of disrupting the plaintiff’s prospective economic advantage. Instead, to satisfy the intent requirement for this tort, it is sufficient to plead that the defendant knew that the interference was certain or substantially certain to occur as a result.”
According to the court:
“Here, KSC has clearly satisfied the independent wrongfulness requirement. In its complaint, KSC alleged that defendant Kim, as an agent for Loral, engaged in bribery and offered sexual favors to key Korean officials in order to obtain the contract from the Republic of Korea. Under the Foreign Corrupt Practices Act, it is unlawful to pay or offer money or anything of value to a foreign official for the purposes of influencing any act or decision of the foreign official, or to induce the foreign official to use his or her influence with a foreign government to affect or influence any act or decision of the government. In addition, the complaint alleges that the commissions paid by Loral to Kim exceeded the maximum allowable amounts established by the Foreign Corrupt Practices Act. The complaint thus clearly alleges that defendants engaged in unlawful behavior in order to secure the SAR contract. KSC has, therefore, sufficiently alleged that defendants’ acts, in addition to interfering with KSC’s business expectancy, were wrongful in and of themselves.”
[Note: the FCPA does not address maximum commission amounts].
Numerous other civil actions have been related to FCPA enforcement actions or FCPA scrutiny and set forth below is a representative sample.
For instance, Aluminum Bahrain BSC (“Alba”) (one of the largest aluminum smelters in the world owned by, among others, the government of Bahrain) filed a civil lawsuit against Alcoa Inc. (the world’s leading producer of primary aluminum products) and others alleging RICO violations. The complaint alleged that certain Alcoa entities and their agents engaged in a conspiracy over a 15 year period to defraud Alba and specifically alleged the defendants: (i) illegally bribed officials of the government of Bahrain and (or) officers of Alba in order to force Alba to purchase alumina at excessively high prices; (ii) illegally bribed officials of the government of Bahrain and (or) officers of Alba and issued threats in order to pressure Alba to enter into an agreement by which Alcoa would purchase an equity interest in Alba; and (iii) assigned portions of existing supply contracts between Alcoa and Alba for the sole purpose of facilitating alleged bribes and unlawful commissions. (See here for Alcoa’s $384 million FCPA enforcement action in 2014). After the judge denied the defendants’ motion to dismiss, Aloca agreed to settle the case by paying Alba approximately $85 million and the action represented the “first time that a foreign-owned corporation has successfully sued a U.S. company in a federal court to recover losses suffered due to allegations of corrupt activity.”
As the following cases demonstrate, FCPA-related civil litigation often involves other causes of action as well.
After Innospec resolved an FCPA enforcement action in 2010 (see here), NewMarket Corp. (a competitor company) learned of Innospec’s conduct from the DOJ and SEC resolution documents including the allegation that Innospec’s bribe payments in Iraq ensured that a field test of a competitor’s product failed. Based on Innospec’s acknowledgment of this conduct in resolving the enforcement action, the competitor filed a civil case against Innospec alleging violations of the Robinson-Patman Act, the Virginia Antitrust Act, and the Virginia Business Conspiracy Act. Innospec agreed to resolve the case by agreeing to pay NewMarket approximately $45 million.
In the aftermath of various FCPA enforcement actions alleging bribery and corruption at Venezuela’s national oil company Petroleos de Venezuela, S.A. (“PDVSA”), Harvest Natural Resources Inc. alleged that various former high-ranking PDVSA officials and others “conspired to force American companies to pay-to-play in Venezuela’s oil and gas industry.” In filing a lawsuit asserting violations of RICO, the Sherman Act, the Robinson Patman Act, and the Texas Free Enterprise and Antitrust Act, Harvest alleged: “because Harvest and its business partners refused four separate $10 million bribe demands solicited by the Defendants, Venezuela’s Ministerio del Poder Popular de Petroleo y Mineria withheld final approval for Harvest to sell its Venezuelan energy assets to two different buyers in 2013 and 2014 (first for $725 million and then for $400 million). As a result, Harvest was forced to sell the same assets for approximately $255 million, at a loss of $470 million, and unexpectedly to cease doing business and wind up its affairs.”
After Medical products company Misonix disclosed FCPA scrutiny related to “the business practices of [an] independent Chinese entity that previously distributed its products in China,” the former Chinese distributor filed a lawsuit against Misonix and certain officers and directors alleging that the company improperly terminated its contract. The civil complaint sought “various remedies, including compensatory and punitive damages, specific performance and preliminary and post judgment injunctive relief, asserts various causes of action, including breach of contract, unfair competition, tortious interference with contract, fraudulent inducement, and conversion.”
