ALM Properties, Inc.
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No Sure Thing
Defendants facing racketeering claims with an international twist have been quick to cite the U.S. Supreme Court's 2010 decision in Morrison v. National Australia Bank, which sharply curtailed the international application of U.S. securities laws. And Morrison has indeed offered a lifeline to some defendants in Racketeer Influenced and Corrupt Organizations Act cases whose alleged wrongdoing took place overseas. But, as Alcoa Inc. recently learned, the ruling is no silver bullet.
In June, U.S. District Judge Donetta Ambrose in Pittsburgh refused to dismiss a four-year-old civil RICO case brought by Bahrain Aluminum B.S.C. (Alba) against Alcoa. Alba accused the aluminum giant of bribing senior Alba officials and members of the Bahraini government in an (unsuccessful) attempt to induce the smaller target company to cede a controlling interest to Alcoa. The litigation had been stayed for three years pending the outcome of a federal probe, but in November, Alcoa's lawyers at Cravath, Swaine & Moore and K&L Gates persuaded Ambrose to lift the stay so that they could finally move to dismiss the case. The results weren't quite what the lawyers had in mind.
Alcoa and two codefendantsWilliam Rice, Alcoa's former marketing executive (now V.P. of mining at Alcoa World Alumina and Chemicals) and accused briber Victor Dahdaleh, the Canadian billionaire metals magnatefiled motions to dismiss that were centered around Morrison's holding on extraterritoriality. The defense lawyers emphasized the foreign flavor of the alleged bribery scheme.
As they wrote in their motion to dismiss: "The enterprise Alba pleads is foreign: A foreign actor (Victor Dahdaleh) using foreign entities (his various companies) allegedly overcharged a foreign alumina smelter (Alba) to fund bribes to foreign officials (the former CEO of Alba and certain members of the Bahraini government) and kept the remaining profit from those overcharges to line his own pockets." The defendants also maintained that the complaint was factually insufficient and that Alba failed to make a case for fraud or conspiracy.
The judge didn't buy the defendants' invocations of Morrison or their attacks on Alba's pleadings. In a trio of rulings dealing with each of the defendants' motions, Ambrose held that Alba sufficiently alleged in its complaint that the "nerve-center" of the alleged schemethe coordinating, planning, and decision makingwas in Alcoa's Pittsburgh headquarters, making the claims domestic in nature.
"The control of the enterprise, the decision making vital to the sustainability of the enterprise, came from Pittsburgh," Ambrose wrote. The judge also found that the complaint sufficiently alleged that the defendants intended to commit fraud and conspired to bribe Alba and Bahraini officials.
Alcoa counsel Evan Chesler of Cravath and David McClenahan of K&L Gates didn't respond to requests for comment. Neither did Allen & Overy's Michael Feldberg, who represents Dahdaleh, or Richard Beizer of Crowell & Moring, who represents Rice. Alba's lead lawyer, Mark MacDougall of Akin Gump Strauss Hauer & Feld, also declined to comment.
The Alcoa decision comes just a month after a federal judge in Manhattan came to a similar conclusion in Chevron Corporation's civil RICO case against Steven Donziger, the plaintiffs lawyer representing Ecuadorians who accuse it of contaminating the Lago Agrio region of the Amazon River basin. In that case, U.S. District Judge Lewis Kaplan held that the locus of the alleged racketeering was in the United States, rendering Morrison inapplicable.
Yet, Alcoa vowed to press on with its defense. "A decision on a motion to dismiss is not a ruling on the merits of the case, and we look forward to presenting the facts relating to Alba's allegations and to vigorously defending our position as this litigation unfolds," a company spokeswoman said in an e-mailed statement. Alcoa also said that it is continuing to cooperate with the government's investigation. (No charges have yet been filed.)