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J.S. SERV. CTR. CORP. v. GE TECH. SERVS. CO.

July 17, 1996

J.S. SERVICE CENTER CORPORATION and SERCENCO, S.A., Plaintiffs, against GENERAL ELECTRIC TECHNICAL SERVICES COMPANY, INC. and GENERAL ELECTRIC COMPANY, Defendants.


The opinion of the court was delivered by: CONNER

 Conner, Sr. D.J.:

 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. *fn1" 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.

 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; secretly participating in unlawful procurement practices along with service sales representatives, and dishonest officials and GE employees; and committing fraud on GE customers by deceiving them as to the true price of GE products. Am. Compl. P 11. According to Sercenco, in furtherance of GE's schemes to increase its sales through bribery and extortion, GE attempted to induce and coerce Sercenco into paying an extortionate demand by Ampuero, an official of one of GE's customers in Peru; when Sercenco refused to accede to GE's demand to pay the bribe, GE terminated Sercenco's contractual rights to represent GE before ElectroPeru, the company in Peru that employed Ampuero, and thereafter refused to renew any contract with Sercenco upon expiration; GE terminated Sercenco's rights and refused to renew Sercenco's contracts with the intention of replacing Sercenco with a representative that was not subject to anti-bribery statutes and that GE knew was willing to pay bribes without implicating GE; and GE did in fact replace Sercenco for such purpose and with the intention of encouraging and facilitating the payment of bribes by such representative. Am. Compl. P 12. Sercenco alleges that GE's actions in furtherance of its scheme to increase sales of GE products through bribery, extortion, unlawful and/or fraudulent procurement practices and other fraudulent and unlawful means were violations of RICO, the FCPA, the Travel Act, the Hobbs Act, and the federal mail and wire fraud statutes. Am. Compl. P 13.

 DISCUSSION

 A complaint should not be dismissed under Fed. R. Civ. P. 12(b)(6) unless it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985). On a motion to dismiss, a court must accept all well-pleaded factual allegations in the complaint as true and draw all reasonable inferences in favor of the non-moving party. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). However, the Supreme Court has instructed that we need not "accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286, 92 L. Ed. 2d 209, 106 S. Ct. 2932 (1986). Also, "'baldly conclusory' statements that are unsupported by any factual basis" cannot be relied upon to defeat a motion to dismiss. Haviland v. J. Aron & Co., 796 F. Supp. 95, 97 (S.D.N.Y.), aff'd, 986 F.2d 499 (2d Cir. 1992), cert. denied, 507 U.S. 1051, 123 L. Ed. 2d 650, 113 S. Ct. 1945 (1993). Therefore, we look beyond the conclusory assertions in the complaint and examine the factual basis of plaintiffs' claims.

 I. RICO

 To establish a civil RICO claim, Sercenco must plead (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Sedima, S.P.R.L. v. Imrex, Co., 473 U.S. 479, 496, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985); Moss v. Morgan Stanley Inc., 719 F.2d 5, 17 (2d Cir. 1983), cert. denied, 465 U.S. 1025, 104 S. Ct. 1280, 79 L. Ed. 2d 684 (1984). GE argues that Sercenco's RICO claim must be dismissed because the claimed "enterprises" are not cognizable under RICO and the alleged six-month "scheme" to pressure Sercenco to pay Ampuero's demand cannot meet RICO's "pattern" requirement. In addition, GE argues that Sercenco lacks standing because the alleged injuries suffered by Sercenco were not a direct and proximate result of the predicate acts upon which the RICO claim is based. Because we agree that Sercenco lacks standing to assert a RICO claim based on the allegations in the Amended Complaint, we need not reach GE's arguments that Sercenco has failed to allege an "enterprise" or a "pattern."

 In a "suit on a statute" (i.e., a suit in which the statute itself grants the recovery, creates the jurisdiction, or permits special damages) such as RICO, the plaintiff must show both that he is within the class the statute sought to protect and that the harm done was one that the statute was meant to prevent. Abrahams v. Young & Rubicam Inc., 79 F.3d 234, 237 (2d Cir.), petition for cert. filed, 64 U.S.L.W. 3823 (U.S. May 29, 1996) (No. 95-1932). Under section 1964(c) of RICO, "any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee, except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962." 18 U.S.C.A. § 1964(c) (West Supp. 1996). Section 1962(c) provides in relevant part that "it shall be unlawful for any person . . . associated with any enterprise engaged in . . . interstate or foreign commerce[] to conduct or participate, directly or directly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. . . ." 18 U.S.C. § 1962(c). Furthermore subsection (d) of section 1962 provides that "it shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section." 18 U.S.C.A. § 1962(d) (West Supp. 1996). Acts constituting "racketeering activity" are enumerated in section 1961. See 18 U.S.C.A. § 1961(1) (West Supp. 1996).

 In Sedima, the Supreme Court held that a "plaintiff only has standing [under RICO] if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation." 473 U.S. at 496. That is, "the compensable injury necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern, for the essence of the violation is the commission of those acts in connection with the conduct of an enterprise." Id. at 497. Accordingly, in order to establish standing, Sercenco must show that the damage to its business or property resulted from the alleged ...


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