On Appeal from the United States District Court for the District of New Jersey, D.C. Civil Action No. 86-0796.
Greenberg and Scirica, Circuit Judges and Pollak, District Judge*fn*
Appellant Environmental Tectonics Corporation International ("ETC"), a Pennsylvania corporation, brought this action to recover damages against several defendants for, inter alia, violations of the federal Racketeering Influenced Corrupt Organizations Acts, 18 U.S.C. §§ 1962-1968, the New Jersey Anti-Racketeering Act, 2C N.J.C.S. § 41-1, and the Robinson-Patman Act, 15 U.S.C. § 13(c). Essentially, ETC claims to have been injured by an apparently successful scheme, allegedly participated in by all of the defendants, to influence the award of a Nigerian defense contract through bribery of Nigerian government officials. The district court concluded that the act of state doctrine barred adjudication of ETC's claims, and dismissed the action in its entirety. In the alternative, the court also ruled on other substantive and procedural issues.
This action arose from the award of a contract by the Federal Republic of Nigeria to defendants W. S. Kirkpatrick & Co. ("Kirkpatrick") and W. S. Kirkpatrick & Co. International ("Kirkpatrick International"), both of which are New Jersey corporations. Kirkpatrick is in the business of selling and brokering aircraft equipment, parts and facilities to airlines and foreign air forces. Kirkpatrick International, its wholly-owned subsidiary, was formed to carry out Kirkpatrick's duties under the contract to be awarded by the Nigerian government. Also named as defendants were Kirkpatrick's parent corporations, DIC (Holding) Inc. ("DIC"), a Delaware Corporation, and International Development Corporation, S.A. ("IDC"), a Luxembourg corporation.
In 1980, when the events alleged in the amended complaint*fn1 began, defendant Harry Carpenter was chairman of Kirkpatrick's board of directors and the company's chief executive officer. In 1980, Carpenter learned that the Nigerian government was interested in purchasing aeromedical equipment, and in constructing and equipping an aeromedical center for the Nigerian Air Force at Kaduna Air Force Base (the "Air Force contract"). Kirkpatrick contracted with defendants Emro Engineering Co., Inc. ("EMRO") and Nautilus Environmedical Systems, Inc. ("Nautilus") to provide engineering, design and related assistance needed to build the proposed facility and to supply the equipment.
Carpenter hired a Nigerian national, defendant Benson ("Tunde") Akindele, to act as Kirkpatrick's local agent in all matters pertaining to the Air Force contract. In or around March of 1981, Carpenter and Nautilus president Ross Saxon*fn2 met with Akindele to discuss their bid strategy. According to a contemporaneous memorandum written by Carpenter, Akindele told Carpenter and Saxon that to secure the bid Kirkpatrick should be prepared to pay a sales commission totalling twenty percent (20%) of the contract price. Most of this commission was to be paid to Nigerian political and military officials.*fn3 Akindele explained that Nigerian officials generally expected such payments from contract bidders, and that American companies often lost Nigerian defense contracts to their European competitors because they failed to make such arrangements.
Through a written agreement with Akindele, Kirkpatrick agreed to pay the commissions to two Panamanian corporations. In May of 1981, these corporations -- which were controlled by Akindele -- were established to receive the commissions and to distribute them to Nigerian officials. On March 19, 1982, the Nigerian Defense Ministry entered into an agreement awarding the Air Force contract to Kirkpatrick International. In September of 1982, the Nigerian government made the first of four contract payments to Kirkpatrick. The remaining payments were made in December of 1982, in February of 1983, and in August of 1983. After each of the four contract payments, the defendants via the United States mails and wire transfers paid a portion of the promised commissions to Akindele's Panamanian corporations, whence the monies were distributed to Nigerian officials. In the end, Kirkpatrick's commission payments to the Panamanian corporations, and thus, to Akindele and various Nigerian officials, totalled over $1.7 million.
In the latter half of 1981 and 1982, while Kirkpatrick was implementing the bid strategy described above, ETC, which is also in the business of selling aeromedical equipment to foreign governments, was preparing its own bid for the Air Force project. ETC submitted its pricing information to the Nigerian government in February of 1981, and it continued in contact with Nigerian military and diplomatic officials throughout the course of that year. ETC's president met with Nigerian officials in Nigeria, and submitted a formal bid for the Air Force contract in December of 1981. ETC submitted its final formal bid in February of 1982, a month before the Nigerian government awarded the contract to Kirkpatrick.
ETC states that it decided to investigate the Nigerian government's award of the Kaduna contract to Kirkpatrick in April of 1983, after learning that its bid had been far lower than Kirkpatrick's. ETC reported its findings to the Nigerian Air Force*fn4 and to the United States Embassy in Lagos, Nigeria. After an investigation by the United States Justice Department, Carpenter and Kirkpatrick each were charged with violating the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-2 (hereinafter "FCPA").
As part of their plea negotiations on the United States charges, Kirkpatrick and Carpenter both agreed to offers of proof which outlined the Air Force contract scheme in its entirety, including Carpenter's hiring of Akindele, and Akindele's control of the Panamanian corporations. Both offers of proof also stated that Akindele and Carpenter agreed that the money paid to the Panamanian corporations as commissions would be distributed to Nigerian political and military officials. Carpenter and Kirkpatrick both pleaded guilty to one FCPA violation, and were eventually sentenced: Carpenter to two hundred hours of community service and a fine of $10,000, and Kirkpatrick to a fine of $75,000, payable over a five-year period.*fn5
ETC filed this action shortly after Kirkpatrick's sentencing. Defendants filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which contended, inter alia, that the plaintiff had failed to allege a "pattern of racketeering activity" as required by the federal and state [Text Deleted by Court Emendation] racketeering statutes. ETC filed an amended complaint that responded to some of the issues raised by the defendants' motion to dismiss, and that added common law counts to ETC's antitrust, RICO, and anti-racketeering counts. ETC also filed an answer to the remainder of the defendants' motion to dismiss.
In their reply to ETC's answer to their motion, defendants moved for dismissal of the action in its entirety on act of state grounds. The district court requested further submissions from the parties in the form of answers to specific questions. The court also requested a Bernstein letter, i.e., an opinion from the State Department on whether the act of state doctrine should be applied in the circumstances presented by this case.*fn6 Legal Adviser Abraham Sofaer responded to the court's request in a letter dated December 10, 1986, which is appended to this opinion. Treating defendants' motion to dismiss as a motion for summary judgment, the district court dismissed the action on act of state grounds. See Environmental Tectonics Cod., International v. W.S. Kirkpatrick & Co., Inc., 659 F. Supp. 1381, 139198 (D.N.J. 1987).
Although the dismissal on act of state grounds embraced ETC's entire claim against all the defendants, the district court went on to rule, in the alternative, on other issues: The court rejected defendants' contention that ETC lacked standing to assert antitrust and RICO claims. The court did, however, dismiss the RICO count for failure to allege a pattern of racketeering activity. For the same reason, the court dismissed the New Jersey Anti-Racketeering count. In addition, the court upheld a magistrate's determination that Carpenter was entitled to decline to answer, on Fifth Amendment grounds, certain questions put to him on deposition. Finally, the court held that ETC's amended complaint adequately stated a case for holding IDC and DIC legally responsible for Kirkpatrick's scheme to obtain the Air Force contract.
ETC appeals from the act of state, [Text Deleted by Court Emendation] racketeering, and Fifth Amendment rulings. The defendants, in addition to urging the correctness of these rulings, have cross-appealed from those alternative rulings that were adverse to them. Since the district court's grant of summary judgment on act of state grounds, if affirmed here, would obviate consideration of all other issues, we turn first to the act of state question.
On review of a district court's grant of summary judgment, we utilize the same standard that the district court was required to apply. See Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3rd Cir. 1987). There is no real disagreement on the facts relevant to the district court's act of state determination. On this appeal, therefore, we are called upon to decide whether the appellees were entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c).
ETC's challenge to the district court's grant of summary judgment raises important issues about the proper application of the act of state doctrine. The doctrine is the judiciary's institutional response to the foreign relations tensions that can be generated when a judgment on a foreign state's regulation of its internal affairs. Under the doctrine, the courts of this country will refrain from judging the validity of a foreign state's governmental acts in regard to matters within that country's borders. See Restatement (Revised) of Foreign Relations Law of the United States § 469 (1986). The party moving for the doctrine's application has the burden of proving that dismissal is an appropriate response to the circumstances presented in the case. See Alfred Dunhill of London, Inc. v. Cuba, 425 U.S. 682, 694, 48 L. Ed. 2d 301, 96 S. Ct. 1854 (1976); Williams v. Curtiss-Wright, 694 F.2d 300, 303 n.4 (3rd Cir. 1982).
Although earlier formulations of the doctrine were grounded in notions of comity among sister states,*fn7 the core concern of modern act of state jurisprudence is preserving the separation of powers between the federal judiciary and the political branches of our government -- especially, the executive branch, where primary responsibility for the conduct of foreign affairs is lodged. As explained by the Supreme Court in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 11 L. Ed. 2d 804, 84 S. Ct. 923 (1964), the doctrine "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." Id. at 423. Thus, courts are required to decline to exercise jurisdiction over cases that may embarrass or impede the political branches of government in their conduct of foreign affairs. See First Nat. City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 765-68, 32 L. Ed. 2d 466, 92 S. Ct. 1808 (1972) (hereinafter "Citibank").
Sensitively applied, the doctrine can prevent judicial entanglement in international conflicts that are more appropriately resolved through political channels. Individual litigants and the enlargement of national policies pay a price, however, for this institutional self-discipline -- its application in effect means that "on occasion individual litigants may have to forgo decisions on the merits of their claims because the involvement of the courts in such a decision might frustrate the conduct of the Nation's foreign policy." Citibank, 406 U.S. at 769 (opinion of Rehnquist, J.). For this reason, the Supreme Court has not laid down rigid rules to govern the doctrine's application, but leaves it to the lower courts to determine whether a conflict between the judicial and political branches exists in a particular case. See id. at 775-76 (Powell, J. concurring); Mannington Mills v. Congoleum Corp., 595 F.2d 1287, 1293 (3rd Cir. 1979) (courts should analyze the nature of the questioned conduct and the effect upon the parties in addition to appraising the sovereign's role).
The main issue raised by ETC's appeal involves the proper application of the doctrine when a litigant invokes the doctrine as a defense to a suit for damage or injury stemming from a course of events that included some acts by officials of a foreign government. Sabbatino and the Supreme Court's other modern act of state cases have focused on state expropriations of private property, the clearest example of a political act that, to paraphrase Justice Harlan, touches on the nerves of the international community. See Sabbatino, 376 U.S. at 428. This has, however, left a broad range of governmental conduct -- e.g., court decisions; the granting of a license, patent, or some other state monopoly; or, as in this case, the award of a construction or procurement contract -- for lower courts to consider.
The appellant has advanced several objections to the district court's act of state determination. Two of these objections lack merit. First, we agree with the district court's conclusion that the award of a military procurement contract can be, in certain circumstances, a sufficiently formal expression of a government's public interests to trigger application of the doctrine. It is true that certain governmentally authorized acts, such as the award of a patent or the acts of a bankruptcy trustee, are considered so routine as to be not of substantial concern to the political branches in their conduct of foreign policy. See Remington Rand Corp. v. Business Systems, Inc., 830 F.2d 1260, 1265 (3rd Cir. 1987); Mannington Mills, 595 F.2d at 1294. But the award of a major defense contract generally does not result from a near-mechanical exercise of narrowly-defined governmental discretion. The award of a military contract, particularly one for a major project, is usually influenced by national security considerations -- considerations that are far from routine.
We also agree with the district court that the so-called "commercial" exception to the act of state doctrine -- an exception endorsed by a plurality of the Supreme Court but neither acquiesced in nor rejected by a majority, see Alfred Dunhill of London v. Cuba, 425 U.S. 682, 48 L. Ed. 2d 301, 96 S. Ct. 1854 (1976) -- has no application to this case.*fn8 Under the commercial exception's terms, a court would not abstain from deciding a case involving the purely commercial act of a sovereign or one of its instrumentalities. See Dunhill, 425 U.S. at 695 (plurality opinion of White, J.). To determine whether an act is purely commercial in character, a court looks not to the purpose of the act but to its nature, i.e., whether the activity is of the type that an individual would carry on for profit. Cf. Letelier v. Republic of Chile, 748 F.2d 790, 797 (2nd Cir. 1984) (applying the Foreign Sovereign Immunity Act's definition of "commercial"), cert. denied 471 U.S. 1125, 86 L. Ed. 2d 273, 105 S. Ct. 2656 (1985); Texas Trading v. Federal Republic of Nigeria, 647 F.2d 300, 310 (2nd Cir. 1981) (same), cert. denied 454 U.S. 1148, 71 L. Ed. 2d 301, 102 S. Ct. 1012 (1982). While the act of contracting will in many circumstances be properly characterized as commercial conduct, the decision to award a defense contract to one bidder or another is by its very nature governmental. See Curtiss-Wright, 694 F.2d at 302.
We part company with the district court, however, on the remainder of its act of state analysis. The district court employed a formulation of the doctrine that barred the adjudication of ETC's claims "if the inquiry presented for judicial determination includes the motivation of a sovereign act which would result in embarrassment to the sovereign or constitute interference in the conduct of the foreign policy of the United States." ETC, 659 F. Supp. at 1392-93. The court found that adjudication of ETC's claims would lead inevitably to an examination of the Nigerian government's motives in awarding the Nigerian contract to Kirkpatrick. Because the district court was convinced that such a finding would be interpreted as criticism of the Nigerian Government, it concluded that this case presents the type of situation which precludes judicial inquiry. See id. at 1393.
In reaching its conclusion, the district court relied primarily on the interpretation of the act of state doctrine advanced in a Ninth Circuit case, Clayco Petroleum v. Occidental Petroleum, 712 F.2d 404 (9th Cir.), cert. denied 464 U.S. 1040, 79 L. Ed. 2d 168, 104 S. Ct. 703 (1984). In Clayco, the plaintiff and the defendant, Occidental Petroleum, were in competition for an off-shore oil concession offered by Um Al Quywayn. Clayco alleged that it was first offered the concession, but that Um Al Quywayn's oil minister awarded Occidental the contract after Occidental paid the minister and his son over $400,000 in bribes. After the media discovered and reported the bribery scheme, the SEC brought an action against Occidental that charged violations of the Securities Exchange Act of 1934, based on the allegedly illegal payments. Occidental agreed to a permanent injunction, and to an internal review of its bidding practices. Clayco brought suit after the report prepared pursuant to that review revealed that illegal payments had in fact been made. See Clayco, 712 F.2d at 405-06. The district court dismissed Clayco's lawsuit on act of state grounds.
In a per curiam opinion, the Ninth Circuit affirmed the dismissal, concluding that the act of state doctrine barred adjudication of Clayco's claims. Although calling for a "flexible" approach to the doctrine's application, the court expressed its unwillingness to permit judicial inquiry into the motivation behind Um Al Quywayn's award of the concession. Since a determination that bribery had in fact occurred would "impugn or question the nobility of a foreign nation's motivation," and since "the very existence of plaintiffs' claim depends upon establishing that the motivation for the sovereign act was bribery," the court concluded that the executive's conduct of foreign affairs was sure to be embarrassed by such a proceeding. See Clayco, 712 F.2d at 407.
Clayco's expansive application of the act of state doctrine seems at variance with the principle which has guided this court, that the doctrine "is not lightly to be imposed . . . ."*fn9 Mannington Mills, 595 F.2d at 1293. In Mannington Mills, the plaintiff claimed that defendant Congoleum violated the antitrust laws by using patents it allegedly procured by fraud to restrict the plaintiff's trade abroad. In bringing its suit, plaintiff did not ask the court to declare the foreign patents invalid. Instead, Mannington argued that its action was concerned only with proving Congoleum's violations of United States trade regulations. See Mannington Mills, 595 F.2d at 1290-91.
In Mannington Mills this court held, through Judge Weis, that the act of state doctrine did not bar adjudication of the plaintiff's claims. The court focused on the nature of the questioned conduct -- the grant of a patent, an essentially routine act that raised no serious foreign policy concerns. See id. at 1294. But implicit in the opinion was an unwillingness to allow litigants to shield themselves from the consequences of ...