Environmental Tectonics v. W.S. Kirkpatrick, Inc., s. 87-5328

Citation847 F.2d 1052
Decision Date09 May 1988
Docket Number87-5546,Nos. 87-5328,s. 87-5328
Parties, 1988-1 Trade Cases 67,994, RICO Bus.Disp.Guide 6938, 25 Fed. R. Evid. Serv. 1021 ENVIRONMENTAL TECTONICS, v. W.S. KIRKPATRICK, INC., Development International Corporation, Dic (Holding) Inc., IDC International S.A. Luxembourg, Harry G. Carpenter c/o W.S. Kirkpatrick, Inc. and Benson "Tunde" Akindele John M. Krankel, Emro Engineering Co., Inc. Robert W. Ruppert c/o Emro Engineering Co., Inc., Ross E. Saxon c/o Nautilus Environmental Systems, Inc. & R.H. Edwards. Appeal of ENVIRONMENTAL TECTONICS CORPORATION INTERNATIONAL. Appeal of W.S. KIRKPATRICK & CO., INC., W.S. Kirkpatrick & Co., International and D.I.C. (Holding) Inc.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Thomas H. Sear (argued), Rhonda D. Orin, Spengler, Carlson, Gubar, Brodsky & Frischling, New York City, for appellees-cross-appellants, W.S. Kirkpatrick & Co., Inc., et al.

Thomas B. Rutter (argued), Rutter, Turner & Stein, Philadelphia, Pa., for appellant-cross-appellee, Environmental Tectonics Intern., Inc.

Theodore V. Wells, Jr., Robert L. Krakower (argued), Lowenstein, Sandler, Kohl, Fisher & Boylan, Roseland, N.J., for appellee-cross-appellant, Harry G. Carpenter.

Before GREENBERG and SCIRICA, Circuit Judges and POLLAK, District Judge. *

OPINION OF THE COURT

LOUIS H. POLLAK, District Judge:

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. Secs. 1962-1968, the New Jersey Anti-Racketeering Act, 2C N.J.C.S. Sec. 41-1 et seq., and the Robinson-Patman Act, 15 U.S.C. Sec. 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.

I.

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 1 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 2 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. 3 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 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 4 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. Sec. 78dd-2 (hereinafter "FCPA").

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.

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. 5

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 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 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.

                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. 6   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 Corp., International v. W.S. Kirkpatrick & Co., Inc., 659 F.Supp. 1381, 1391-98 (D.N.J.1987)
                

ETC appeals from the act of state, racketeering, and Fifth Amendment rulings. The defendants, in addition to urging the correctness of these rulings, have cross-appealed from those alternative...

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