JS SERVICE CENTER v. GEN. ELEC. TECHNICAL SERV.

• Decision Date: 17 July 1996
• Docket Number: No. 95 Civ. 3979 (WCC).,95 Civ. 3979 (WCC).
• Citation: 937 F. Supp. 216
• Parties: J.S. SERVICE CENTER CORPORATION and Sercenco, S.A., Plaintiffs, v. GENERAL ELECTRIC TECHNICAL SERVICES COMPANY, INC. and General Electric Company, Defendants.
• Court: U.S. District Court — Southern District of New York

937 F. Supp. 216

J.S. SERVICE CENTER CORPORATION and Sercenco, S.A., Plaintiffs, v. GENERAL ELECTRIC TECHNICAL SERVICES COMPANY, INC. and General Electric Company, Defendants.

No. 95 Civ. 3979 (WCC).

United States District Court, S.D. New York.

July 17, 1996.

Szold & Brandwen, P.C. (Alan G. Blumberg, Joy Feigenbaum, Martin Bienstock, Linda M. Baldwin, of counsel), New York City, for Plaintiffs.

Kellogg, Huber, Hansen, Todd & Evans (Mark C. Hansen, Jeffrey A. Lamken, Neil M. Gorsuch, of counsel), Washington, DC, General Electric Company (E. Scott Gilbert, James DeVine, Eduardo L. Buso, of counsel), New York City, for Defendants.

OPINION AND ORDER

WILLIAM C. CONNER, Senior District Judge.

Plaintiffs J.S. Service Center Corporation and Sercenco, S.A. (collectively, "Sercenco") brought this action against defendants General Electric Technical Services Company, Inc. and General Electric Company (collectively, "GE") asserting claims for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-68; the Foreign Corrupt Practices Act ("FCPA"), 15 U.S.C. § 78dd-2; and New York Penal Law; and asserting claims for breach of contract, tortious interference, prima facie tort, unfair competition, and common law fraud.

GE has moved to dismiss the Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted. For the reasons discussed below, defendants' motion is granted.

BACKGROUND

The following facts are alleged in the Amended Complaint. On July 1, 1987, Sercenco and GE entered into a Service Sales Representative Agreement (the "Contract"), pursuant to which Sercenco was designated as GE's authorized service sales representative for Peru for the period July 1, 1987 through June 30, 1990.¹ Among other things, the Contract contained provisions forbidding violations of anti-bribery laws such as the FCPA and requiring compliance with GE's written policy against bribing foreign officials to procure sales. In 1991, Sercenco was the sole service sales representative in Peru for GE's International Sales and Construction and Engineering Services and for GE's Generation (Utility), Industrial Transportation, Transportation, Power Delivery (Utility) and Environmental Services components. At that time, Sercenco was party to four other contracts with GE, one of which related to services in Peru and one of which related to services in Venezuela. Each of those contracts contained similar anti-bribery provisions.

Sercenco's problems with GE arose out of events relating to a four-year equipment maintenance agreement that Sercenco had entered into in April 1988 (the "1988 Agreement") with Electricidad del Peru, S.A. ("ElectroPeru"), a government-owned electric utility company located in Peru. The 1988 Agreement did not involve the maintenance or servicing of GE products.

According to the Amended Complaint, in 1990 Sercenco was solicited for a $200,000 bribe by an employee of ElectroPeru acting on behalf of Luis Ampuero Salas ("Ampuero"), the prospective general manager of ElectroPeru. After Sercenco refused to pay, Sercenco was approached again by the same employee and was warned that, if it did not reconsider its position, it would face problems with the new administration of ElectroPeru, including a searching investigation of all of Sercenco's transactions with ElectroPeru. Sercenco again refused to comply with the demand, and ElectroPeru retaliated by claiming that Sercenco had overbilled ElectroPeru by more than $1 million on the 1988 Agreement. As a result, over $1 million in invoiced payables to Sercenco were held back while ElectroPeru's auditors reviewed all of Sercenco's dealings with ElectroPeru. After a lengthy dispute over the alleged overbilling, in December 1990, ElectroPeru agreed in writing to reduce its claims for credits against unpaid invoices from over $1 million to about $25,000. However, Ampuero managed to block the payment of Sercenco's invoices notwithstanding the signed settlement agreement.

In the spring of 1991, in a move to increase the pressure on Sercenco, Ampuero began lodging fabricated complaints to GE about the quality of service that Sercenco was providing to ElectroPeru. Sercenco and GE conducted numerous telephone conversations and meetings from the spring of 1991 to August 1991 to discuss these complaints. Sercenco informed GE of the demand to pay a bribe to Ampuero, and the great financial pressure Ampuero was exerting on Sercenco to pay the bribe by blocking the payment of Sercenco's invoices. Sercenco underscored the facts that it had done nothing wrong and that Ampuero had demanded a bribe and was merely trying to pressure Sercenco by making untrue allegations about Sercenco to GE. GE repeatedly instructed Sercenco to "resolve" the problem without involving GE, allegedly so that GE could obtain additional contracts for sales of its products to ElectroPeru. Sercenco argues that GE communicated to Sercenco, in so many words, that it had better acquiesce to Ampuero's demand for payment in order to preserve ElectroPeru as a customer of GE products.

Concerned about whether ElectroPeru would continue to purchase parts from GE through Sercenco, GE wrote a letter to Ampuero expressing concern about the "contractual difficulties" between Sercenco and ElectroPeru. Ampuero responded that ElectroPeru would not accept any services or supply from Sercenco during the pendency of their contractual dispute. Sercenco alleges that this dialogue between GE and Ampuero was staged in order to put pressure on Sercenco to pay Ampuero's extortionate demand. GE then issued a letter to Sercenco, dated September 13, 1991, which instructed Sercenco to terminate any commercial activity on behalf of GE with ElectroPeru, due to the ongoing contractual dispute between ElectroPeru and Sercenco, unless and until the matter was "satisfactorily resolved." Sercenco interpreted this correspondence as a statement to Sercenco that it would have to pay the bribe that Ampuero demanded if it wanted to retain its position as GE's service sales representative and retain the ElectroPeru account. GE then advised Ampuero by letter dated September 20, 1991 that it had suspended the Contract with Sercenco relating to the furnishing of equipment and services to ElectroPeru. Ampuero distributed copies of this letter to many government entities that were clients or potential clients of Sercenco allegedly in an attempt to damage Sercenco's business and reputation. Finally, on January 7, 1992, GE sent a letter to Sercenco indicating that GE had decided not to renew the Contract which had expired by its own terms on December 31, 1991, as well as three other agreements relating to services provided in Peru and one other agreement relating to services provided in Venezuela. Sercenco's pleas for reconsideration fell on deaf ears; GE replaced Sercenco with an affiliate of Sumitomo as its service sales representative in Peru. Sercenco alleges that GE selected Sumitomo because GE knew that Sumitomo, a Japanese company not subject to the provisions of the FCPA, had a history of paying bribes to officials of government-owned or government-controlled companies in exchange for contracts, and would continue doing so.

Ultimately, Sercenco commenced a suit against ElectroPeru for all sums due under the 1988 Agreement. While the litigation was pending, for reasons unrelated to the dispute between Sercenco and ElectroPeru, Ampuero was suspended in July 1993 and eventually discharged on November 1, 1993. On July 15, 1994, the Supreme Court of Peru affirmed the lower court judgments in favor of Sercenco against ElectroPeru modifying them to a judgment in favor of Sercenco and against ElectroPeru in the aggregate amount of over $9 million.

According to Sercenco, the pressure that GE exerted on it with respect to Ampuero's demand to pay him a bribe is just one example of GE's unlawful contract procurement practice. Sercenco alleges that GE's practice of condoning and facilitating the payment of bribes by sales representatives extends beyond Peru and Latin America. Sercenco identifies two high profile incidents, one in Israel where GE pleaded guilty to felony counts for violation of the FCPA based on unlawful payments to foreign officials in connection with defense contracts, and one in Korea where it was reported that GE made payments through a retired South Korean general to pay off Korean officials in return for contract awards. Sercenco alleges that it sustained monetary damage as the direct and proximate result of GE's practice of (1) obtaining contracts for sales of GE products through unlawful means, including bribery, extortion, and other fraudulent procurement practices; (2) insisting upon having distributors and sales representatives who would cooperate with them in such unlawful activities; (3) at times conspiring with dishonest officials and representatives of defendants' customers who engaged in such unlawful acts to coerce defendants' distributors and sales representatives to engage in such unlawful acts; and (4) replacing Sercenco with Sumitomo as its sales representative. Am.Compl. ¶ 97.

In sum, Sercenco alleges that GE engaged in various schemes effectuated through the use of the United States mails and interstate and foreign wires and by travel in interstate and/or foreign commerce to obtain and maintain contracts for the sale of its products in Latin America and throughout the world by misrepresenting its strict adherence to, and its requirement that sales representatives adhere to, anti-bribery statutes; inducing sales representatives to enter into contracts to market GE products and then coercing them into violating anti-bribery statutes while insulating GE from liability; replacing service sales representatives that were unwilling to pay bribes with representatives that GE knew had previously paid bribes and were willing to continue doing so;...