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A corporation’s guilty plea for bribing a foreign official does not bar a subsequent malpractice action against the lawyer who allegedly advised that the bribery would not violate federal law, the 2nd U.S. Circuit Court of Appeals has ruled. Reinstating a dismissed claim against attorney Phillippe S.E. Schrieber, Judge Robert D. Sack said the company’s guilty plea does not prevent it from claiming that it was the victim of malpractice in relying on the attorney’s advice. Schrieber is accused of malpractice for advice he allegedly gave to directors of Saybolt North America, Inc., a New Jersey-based commodities testing company that sought to acquire land in the Panama Canal Zone for an office and laboratory. With a Panamanian official requiring a $50,000 bribe to allow the purchase to be completed, Schrieber allegedly told Saybolt chief executive officer David H. Mead and the directors in 1995 that the payment of the bribe would be illegal for Saybolt North America, but not for an affiliate of the company’s parent, the Netherlands-based Saybolt International. Evidence of the bribe was uncovered during a search of the company’s offices in 1996. Mead was indicted in New Jersey in 1998 under the Foreign Corrupt Practices Act (FCPA) and similar charges were levied against the company in Boston. While the company pleaded guilty and agreed to cooperate with the government, Mead fought the charges. He was convicted despite arguing that Schrieber had led him to believe that the bribe payment could be legally made. The lawsuit against Schrieber charged that his advice on the legality of the payment ended up costing the company more than $4 million in criminal fines. Schrieber argued the company’s guilty plea should have collaterally barred from bringing an action for malpractice. And Mead’s defense at his criminal trial should have the same effect, he argued. In June 2001, Southern District of New York Judge Jed S. Rakoff agreed and granted summary judgment for Schrieber on all claims. The judge said that since Saybolt did “plead guilty and admit its criminal intent, it is bound by those admissions, and therefore cannot now contend either that it relied on Schrieber’s alleged advice or that that advice, even if erroneous … proximately caused whatever damages … were incurred by Saybolt.” Similarly, the judge also found that the issue of whether Schrieber had misled the company on the law had been “squarely put before, and rejected by, the jury that convicted Mead.” But writing for the 2nd Circuit in Saybolt International v. Schrieber, 01-7811, Judge Sack said that in pleading guilty, Saybolt North America admitted to the six elements required for a conviction under the Foreign Corrupt Practices Act. However, Sack said, the company “did not admit that at the time of the criminal act it knew that the act of arranging, rather than paying, such a bribe was criminal.” “Knowledge by a defendant that it is violating the FCPA — that it is committing all the elements of an FCPA violation — is not itself an element of the FCPA crime,” he said. “Saybolt North America did not, therefore, by pleading guilty, preclude an assertion in a subsequent civil action — the case at bar — that it did not know it was violating the FCPA at the time of the violation.” One of the elements of the offense under the act is that the defendant must act “corruptly” in offering the bribe. And in examining the meaning of the word, Sack said, the 2nd Circuit concluded that “corruptly” as used in the FCPA “signifies, in addition to the element of ‘general intent’ present in most criminal statutes, a bad or wrongful purpose and an intent to influence a foreign official to misuse his official position.” The judge said further: “But there is nothing in that word or any thing else in the FCPA that indicates that the government must establish that the defendant in fact knew that his or her conduct violated the FCPA to be guilty of such a violation.” The case was remanded, he said, to allow the plaintiffs “to attempt to establish what the district court identified as its claim: that the defendant advised Saybolt North America that a bribe payment by a foreign affiliate might be legal, but failed to advise Saybolt North America that any involvement by Saybolt North America or its officers in arranging the affiliate’s payment could result in criminal liability.” In deciding that Mead’s trial did not act as a bar on the malpractice action, Judge Sack said the defendants had not shown that Saybolt North America was in “privity” with Mead because it did not establish as a matter of law that “Mead was vested with the authority to represent Saybolt North America during his trial or that Saybolt North America exercised actual control over the presentation of Mead’s case.” The court declined to address a request by the law firm Schrieber was affiliated with, co-defendant Walter, Conston, Alexander & Green, to uphold Judge Rakoff’s decision on the alternative grounds that Schrieber was not acting on behalf of the firm when he advised Saybolt. Senior Judge Roger J. Miner and Southern District Judge Richard M. Berman, sitting by designation, joined in the opinion. Norris D. Wolff and Edward P. Grosz of Kleinberg, Kaplan, Wolff & Cohen represented the plaintiff shareholders. Daniel E. Reynolds and John S. Siffert of Lankler Siffert & Wohl represented Schrieber. David N. Ellenhorn, Margaret A. Dale and Caroline S. Press of Solomon, Zauderer, Ellenhorn, Frischer & Sharp represented Walter, Conston, Alexander & Green.

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