Meng v. Schwartz, Civ. 98-2859(RCL).

• Citation: 116 F.Supp.2d 92
• Decision Date: 25 September 2000
• Docket Number: No. Civ. 98-2859(RCL).,Civ. 98-2859(RCL).
• Parties: W.L. MENG, et al., Plaintiffs, v. Bernard L. SCHWARTZ and Loral Space and Communications, Ltd., et al., Defendants.
• Court: United States District Courts. United States District Court (Columbia)

116 F.Supp.2d 92

W.L. MENG, et al., Plaintiffs, v. Bernard L. SCHWARTZ and Loral Space and Communications, Ltd., et al., Defendants.

No. Civ. 98-2859(RCL).

United States District Court, District of Columbia.

September 25, 2000.

Larry Elliot Klayman, Klayman & Associates, PC, Washington, DC, for plaintiffs.

John Joseph Halloran, Jr., Speiser Krause, Arlington, VA, for Bernard L. Schwartz, defendant.

David Paul Murray, Willkie Farr & Gallagher, Washington, DC, for Loral Space & Comm, defendant.

John Hardin Young, Falls Church, VA, Joseph Eric Sandler, Sandler & Reiff, P.C., Washington, DC, for DNC Serv Corp, dba Democratic National Committee, defendant.

Robert Felix Bauer, Perkins, Coie, LLP, Washington, DC, for Democratic Senatorial Campaign Committee, and Democratic Congressional Campaign Committee, Incorporated, defendant.

David Evan Kendall, Williams & Connolly, Edward Bennett Williams, Washington, DC, for William Jefferson Clinton, and Hillary Rodham Clinton, federal defendants.

Mary Hampton Mason, Department of Justice, Torts Branch, Civil Division, Washington, DC, for Albert Gore, Jr., Harold Ickes, and Alex Herman, Samuel R. Berger, federal defendants.

Stuart Michael Gerson, Epstein, Becker & Green, P.C., Mary Hampton Mason, Washington, DC, for Melissa Moss, federal defendant.

Steven Mark Salky, Zuckerman, Spaeder, Goldstein, Taylor & Kolker, L.L.P., Washington, DC, for Marvin Rosen, federal defendant.

Richard Ben-Veniste, Holly Elizabeth Loiseau, Weil, Gotshal & Manges, L.L.P., Washington, DC, for Terence R. McAuliffe, defendant.

John Christopher Keeney, Jr., Hogan & Hartson, L.L.P., Washington, DC, Ty Cobb, Hogan & Hartson, L.L.P., Denver, CO, for John Huang, defendant.

MEMORANDUM OPINION

LAMBERTH, District Judge.

Now before the Court are several motions to dismiss a derivative suit filed on November 24, 1998 by W.L. Meng, S.S. Jones, Jr., and Roy and Joan Gillison, all shareholders of Loral Space and Communications, Ltd. ("Loral"). The plaintiffs named over fifteen defendants, among them Loral, its CEO Bernard Schwartz, President Clinton, Vice President Gore, and the Democratic National Committee.¹

The plaintiffs allege that Schwartz bribed President Clinton and other government officials with campaign contributions in an effort to secure export licenses for Loral products. The plaintiffs claim that this alleged conduct gives rise to five causes of action: (1) breach of fiduciary duty, (2) negligence, (3) unjust enrichment, (4) civil conspiracy, and (5) civil RICO. The defendants all demur, and ask this Court to dismiss the claims pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the Court dismisses the RICO claim and declines to exercise jurisdiction over the remaining claims.

BACKGROUND

The plaintiffs' allegations in this case chart a course of drama and intrigue. One wonders what proof, if any, may lie behind these charges. But this stage of the proceedings is not designed for determining veracity; rather, it is designed to determine whether the plaintiffs have stated an actionable claim. To do this, the Court must "take as true the material facts alleged in the [plaintiffs'] amended complaint." Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 740, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976). Thus, in recounting as true many of the plaintiffs' allegations, the Court does not suggest that the allegations are indeed true.

Loral is one the world's top manufacturers of satellites. It is currently in the midst of establishing a global cellular telephone network, known as project "Globalstar." The project requires the placement of 56 satellites in low earth orbit. To this end, Bernard Schwartz, Loral's CEO, contracted with several Chinese launch providers while on a trade mission sponsored by the United States Department of Commerce in August 1994.

Before any launch could take place, Loral needed to obtain a suspension of the Foreign Relations Authorization Act of 1990 and 1991, 22 U.S.C. § 2151 et seq. (1994). The Act, enacted in the wake of Tiananmen square, prohibited the export of U.S. satellites intended for launch in China. The Act provides that the suspension may be lifted on a case by case basis if the President determines that it is in the national interest to do so. On February 6, 1996, President Clinton signed a waiver permitting one of Loral's satellites to be exported. The President did so a second time on February 18, 1998.

Between 1994, when the launch contracts were first signed, and 1998, when the last waiver was signed, Schwartz contributed over $1.4 million of his personal funds to three organizations: the Democratic National Committee, the Democratic Senatorial Campaign Committee, and the Democratic Congressional Campaign Committee. Schwartz was later reimbursed for these expenditures by Loral. The plaintiffs allege that President Clinton and other government officials explicitly agreed to trade export waivers for campaign contributions.

In May 1998, three months after President Clinton signed the second waiver, it was announced that Loral was being investigated by the Department of Justice's Campaign Finance Task Force. Thus began, relatively speaking, a minor political scandal. The Washington Post and the New York Times each covered the emerging story, while various politicians and Schwartz himself made appearances on the Sunday morning talk show circuit. The scandal gradually faded from the headlines until June 1999, when the House Select Committee on U.S. National Security and Military/Commercial Concerns with the People's Republic of China issued the "Cox Report." The report recounted many of Loral's dealings in the satellite industry and made numerous suggestions of impropriety. In response, Loral took out full page ads in several major newspapers denying any wrongdoing.

Unpersuaded by Loral's denials, the plaintiffs brought suit. In their derivative suit, the plaintiffs seek to have Loral compensated for the harms visited on it by Schwartz, President Clinton, the Democratic National Committee, and the other defendants.

ANALYSIS

I. Jurisdiction

The plaintiffs make one federal claim and four state law claims. Section 1331 of title 28 grants this Court jurisdiction over issues of federal law. See 28 U.S.C. § 1331 (1994). Further, section 1367 permits this Court to exercise supplemental jurisdiction over nonfederal claims that are "so related" with the original jurisdiction claim as to be "part of the same case or controversy." See 28 U.S.C. § 1367(a) (1994). As the state law claims alleged in this case are closely intertwined with the federal claim, all claims are properly before the Court.

II. Standard for Dismissal under Rule 12(b)(6)

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a defendant's motion for dismissal may be granted if the plaintiff's claim fails "to state a claim upon which relief can be granted." FedR. Civ.Pro. 12(b)(6). In reviewing a claim, a court should presume the allegations to be true and liberally construe them in favor of the plaintiff. See Phillips v. Bureau of Prisons, 591 F.2d 966, 968 (D.C.Cir.1979) (citing Miree v. DeKalb County, Ga., 433 U.S. 25, 27 n. 2, 97 S.Ct. 2490, 53 L.Ed.2d 557 (1977)). In addition, the plaintiff must be given every favorable inference that may be drawn from his allegations of fact. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). "However, legal conclusions, deductions or opinions couched as factual allegations are not given a presumption of truthfulness." Wiggins v. Hitchens, 853 F.Supp. 505, 508 n. 1 (D.D.C.1994) (citing 2A Moore's Federal Practice, S12.07, at 63 (2d ed.1986) (footnote omitted); Haynesworth v. Miller, 820 F.2d 1245, 1254 (D.C.Cir.1987)). Finally, dismissal is only appropriate if it appears beyond doubt that no set of facts proffered in support of plaintiff's claim would entitle him to relief. See EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624 (D.C.Cir.1997) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)).

III. The Plaintiffs' RICO Claim

The plaintiffs allege that all of the named defendants engaged in a scheme violative of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962 (1994). The defendants argue that, even if RICO violations were committed, the violations were not the proximate cause of the plaintiffs' harm. The Court agrees with the defendants and therefore dismisses the RICO claim.

A. RICO and Proximate Cause

The RICO statute creates a private civil action for a person "injured in his business or property by reason of a violation of [18 U.S.C. § 1962]." 18 U.S.C. § 1964 (1994). To state a valid RICO claim, a plaintiff must allege, inter alia, two or more predicate acts that constitute a "pattern of racketeering activity." 18 U.S.C. § 1961. On its face, the RICO statute does not require proximate causation; that is, the statute does not expressly require the "predicate acts" designated in section 1961 to proximately cause the "injury" designated in section 1962. The United States Supreme Court, however, read such a clause into the statute in Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992).

Holmes involved a stock manipulation scheme used to inflate the price of several stocks. When the scheme was exposed, the stock prices plummeted, eventually requiring the Securities Investor Protection Corporation ("SIPC") to advance $13 million to several broker-dealers who owned large quantities of the stock. The SIPC sued the scheme's perpetrators under RICO. The Supreme Court rejected the suit, finding that there was no "direct relation between the injury asserted and the injurious conduct alleged." Holmes, 503 U.S. at 268, 112 S.Ct. 1311. According to the Supreme Court, cause and effect in the RICO context is not merely a metaphysical connection; rather it is a connection...