W. L. MENG, et al.
BERNARD L. SCHWARTZ
and LORAL SPACE AND
et al. Defendants.
) Case No: 1:98CV02859 (RCL)
Plaintiffs, by counsel, respectfully submit this Opposition to Defendant Terrence R. McAuliffe's Motion to Dismiss.
This shareholder derivative action seeks to recover the substantial damage done to Loral Space & Communication Ltd. ("Loral") by its Chairman, Bernard L. Schwartz ("Schwartz"), and others who caused the company to become embroiled in an unlawful scheme to bribe high level government officials, including the President of the United States, in order to obtain favorable treatment for Loral from the United States Government. Part of this favorable treatment included securing a seat on a U.S. Department of Commerce trade mission to China, during which Schwartz negotiated contracts for the launch, in China, of U.S. commercial communications satellites manufactured by Loral. Plaintiffs' Amended Complaint alleges that Schwartz secured this seat in exchange for a $100,000 bribe to the Democratic National Committee ("DNC"), and obtained other substantial favorable treatment for additional bribes totaling $1,460,000.00. See Amended Complaint at paras. 54, 60, 63-64, 72, 108. Plaintiffs' Amended Complaint thus raises breach of fiduciary duty and other claims against Schwartz, including a claim that Schwartz violated the Racketeer Influenced Corrupt Organizations Act ("RICO") by conducting Loral's affairs through a pattern of racketeering activity.
The Amended Complaint also alleges that Defendant Terrence R. McAuliffe, who was and is a top DNC/Clinton-Gore fundraiser, agreed with President Clinton, Hillary Rodham Clinton, Vice-President Albert Gore, Deputy White House Chief of Staff Harold Ickes and DNC Finance Chairman Marvin Rosen, among others, to participate in this scheme to sell seats on taxpayer-financed foreign trade missions and other government services in exchange for campaign contributions to the DNC and other organizations affiliated with the Democratic Party. (1) Id. at paras. 54-57. The Amended Complaint further alleges that Defendant McAuliffe, Harold Ickes, Marvin Rosen, and others also "played central roles in selecting trade mission participants and, on information and belief, securing other favorable treatment from the Clinton Administration for Defendant Loral." Id. at 57. The Amended Complaint thus raises a common law civil conspiracy claim against McAuliffe, as well as a RICO conspiracy claim.
McAuliffe's motion contains two (2) parts. (2) First, McAuliffe summarizes the arguments of the other Defendants in this action and asks that the Court dismiss Plaintiffs' Amended Complaint for these same reasons. Second, McAuliffe presents his own more specific arguments with respect to Plaintiffs' claims against him personally. Plaintiffs will not re-argue against the various arguments of the other Defendants, but instead incorporate their oppositions by reference. Plaintiffs will, however, address McAuliffe's specific arguments concerning Plaintiffs' claims against him.
A. Plaintiffs' Amended Complaint Amply Satisfies the "Notice" Pleading Requirement of Fed.R.Civ.P. 8.
McAuliffe claims that the Amended Complaint contains no factual allegations regarding what role he is alleged to have played in the events that gave rise to Plaintiffs' Amended Complaint. McAuliffe's claim is deceptive. One need look no further than paragraph 57 of the Amended Complaint to see it alleges that McAuliffe agreed to participate in a scheme to sell seats on taxpayer-financed foreign trade missions and other government services in exchange for campaign contributions. See Amended Complaint at para. 57. Plaintiffs' Amended Complaint further alleges that McAuliffe played a central role in selecting trade mission participants and, on information and belief, securing other favorable treatment from the Clinton Administration for Defendant Loral. Id. These acts by McAuliffe in furtherance of the conspiracy demonstrate his agreement to participate in the scheme. Moreover, prominently figured among those selected for participating in the high-profile Commerce Department trade mission to China was Defendant Schwartz, who would go on to become the single largest contributor to the DNC and other organizations affiliated with the Democrats and the Democratic Party. Id. at para. 110.
Importantly, these are not just bald allegations. They are backed by the sworn testimony of Ms. Nolanda Hill, a close confidante and business associate of former Commerce Secretary Ron Brown. At a public hearing before this Court, Ms. Hill testified, under oath, that Brown kept her closely advised about developments at the Commerce Department and The White House, including the scheme to sell seats on trade missions in exchange for campaign contributions. See Excerpts from Transcript of March 23, 1998 Evidentiary Hearing in Judicial Watch, Inc. v. U.S. Department of Commerce, Civil Action No. 95-0133 (RCL) (D. District of Columbia), attached as Exhibit 1 at 20-23, 55-58, 99-100. Ms. Hill specifically identified McAuliffe and DNC finance chairman Marvin Rosen as being highly involved in the scheme to sell seats on trade missions in exchange for campaign contributions:
Q: Okay. Now, in the course of your discussions with Ron, you became aware, did you not, that . . . there were persons associated with the Democratic National Committee that were working with the White House to sell seats on trade missions for campaign contributions? You became aware of that, didn't you?
A: Yes, sir.
Q: And one of these persons was Terry McAuliffe; correct?
A: Well, he was the -- he was the -- an important fundraiser for the party.
Q: And he was instrumental, based on your discussions with Ron, in working with the White House and coordinating the sale of seats on trade missions; correct?
A: He was certainly highly involved, according to Ron. . . .
Q: And another person who was highly involved from the DNC in coordinating the sale of seats on trade missions for campaign contributions was Marvin Rosen; correct?
A: I understood from Ron that that was correct.
Id. at 99-100 (emphasis added).
Under Fed.R.Civ.P. 8(a), a complaint must give the opposing party "fair notice of what the plaintiff's claims are and the grounds upon which it rests." Rochon v. FBI, 691 F. Supp. 1548, 1564 (D.D.C. 1988), quoting, Conley v. Gibson, 355 U.S. 41, 48 (1957). "As long as the complaint meets this general rule, and the allegations are not subject to a 'heightened pleading standard,' the complaint adequately states a claim even if it does not detail allegations that go to the precise elements of the claim charged" Rochon, 691 F. Supp. at 1564 (citations omitted). There is no "heightened pleading standard" here. Plaintiffs' Amended Complaint thus satisfies the "fair notice" provision of Fed.R.Civ.P. 8(a).
McAuliffe makes the sweeping assertion that "'[a] complaint which consists of conclusory allegations unsupported by factual assertions fails even the liberal standard of Rule 12(b)(6).'" See Memo at 7. In making this assertion, McAuliffe relies on the decision of the U.S. Court of Appeals for the Second Circuit ("Second Circuit") in De Jesus v. Sears, Roebuck & Co, Inc., 87 F.3d 65 (2d Cir. 1996). However, De Jesus is entirely inapplicable to this case, and McAuliffe's citation to it is wholly unwarranted.
De Jesus concerned fraud-based RICO allegations against a corporation and a request to "pierce the corporate veil." In finding the plaintiff's conclusory allegations insufficient in De Jesus, the Second Circuit explicitly limited its ruling to fraud-based RICO allegations: "[C]onclusory allegations of participation in a fraudulent scheme. . . .will not withstand a Rule 12(b)(6) motion to dismiss[.]" De Jesus, 87 F.3d at 70 (emphasis added). Clearly, "allegations of non-fraud based predicate acts [of a RICO conspiracy] need only comply with Rule 8(a) and contain a 'short and plain statement' showing the pleader is entitled to relief." See Colony at Holbrook, Inc. v. Strata G.C., Inc., 928 F. Supp. 1224, 1234 (E.D.N.Y. 1996) (emphasis added). Here, Plaintiffs have neither impliedly nor expressly alleged a fraudulent RICO scheme. Therefore, De Jesus is inapplicable, and Plaintiffs need only provide a "short and plain statement of the claim," which they clearly have done. See Fed.R.Civ.P. 8(a).
McAuliffe also relies on Moore v. Johnson, 826 F. Supp. 1106 (W.D. Mich. 1993). But if the facts in De Jesus are inapplicable to the case at bar, then McAuliffe's bizarre citation to Moore flies in the face reason. Moore dealt with a female plaintiff who sued a male defendant for allegedly infecting her with the HIV virus after a consensual sexual act, and in so doing, intentionally inflicting emotional distress on the plaintiff's infant daughter intentionally. By no stretch of the imagination can these facts be harmonized or analogized to the case at bar. "[P]roper analogy," as the Moore court put it, is the bedrock foundation of sound legal argument. Moore, 826 F. Supp. at 1109. In any event, the Moore court clearly dismissed the plaintiff's claims on substantive grounds, not because of any alleged failure to satisfy Rule 8.
Finally, McAuliffe also relies on Abbasi v. Herzfeld & Rubin, P.C., 863 F. Supp. 144 (S.D.N.Y. 1994) for the proposition that "conclusory allegations that fail to give defendant notice of the material elements of a claim are insufficient. . . ." Abbasi, 863 F. Supp. at 146. As in Moore, the Court in Abbasi dismissed the plaintiff's claims on substantive legal grounds, not for any alleged failure to satisfy Rule 8. Specifically, the plaintiff sought relief under the Americans with Disabilities Act ("ADA"), yet failed to allege that he suffered from a disability, thus failing to invoke the ADA. Abbasi, 863 F. Supp. at 146. By contrast, and as set forth below, Plaintiffs' Amended Complaint explicitly pleads factual allegations that satisfy every element of the common law civil conspiracy and RICO conspiracy claims that Plaintiffs raise against McAuliffe. His motion to dismiss must be denied in this regard.
B. Plaintiffs Have Amply Pled a Common Law Civil Conspiracy Claim Against McAuliffe.
To state a claim for common law civil conspiracy, a plaintiff must allege the following elements: (1) an agreement between two or more persons; (2) to participate in an unlawful act, or a lawful act in an unlawful manner; (3) an injury caused by an unlawful, overt act performed by one of the parties to the agreement; (4) which overt act was done pursuant to and in furtherance of the common scheme; and (5) causing injury and damages. Halberstam v. Welch, 705 F.2d 472, 477 (D.C. Cir. 1983). "Proof of a tacit, as opposed to explicit, understanding is sufficient to show agreement." Id. Indeed, the U.S. Court of Appeals for the District of Columbia Circuit has held:
An express agreement among all conspirators is not necessary. "A plaintiff . . . need not prove that each participant in a conspiracy knew the 'exact limits of the illegal plan or the identity of all participants therein.'" The conspirators "must share the general conspiratorial objective, but they need not know all the details of the plan . . . or possess the same motives." Thus, to "demonstrate the existence of a conspiratorial agreement, it simply must be shown that there was 'a single plan, the essential nature and general scope of which [were] known to each person who is to be held responsible for its consequences.'"
Hobson v. Wilson, 737 F.2d 1, 51-52 (D.C. Cir. 1984), cert denied, 470 U.S. 1084 (1985) (citations omitted).
Moreover, a conspirator can be held liable where the conspirator himself has performed any act that causes an injury: "It is only where means are employed, or purposes are accomplished, which are themselves tortious, that the conspirators who have not acted, but have promoted the act will be held liable." Halberstam, 705 F.2d at 477, quoting, W. Prosser, Law of Torts, § 46, at 293 (4th ed. 1971). Once the conspiracy has been formed, all of its members are liable for injuries caused by acts pursuant to, or in furtherance of, the conspiracy. Halberstam, 705 F.2d at 481. A conspirator need not participate actively or benefit from the wrongful action in order to be found liable. Id. He need not even have planned or known about the injurious action, so long as the purpose of the tortious action was to advance the overall object of the conspiracy. Id.
McAuliffe does not claim that Plaintiffs have failed to allege a tacit or express agreement to participate in an unlawful act, or a lawful act in an unlawful manner, or that Loral suffered an injury. Rather, McAuliffe's only argument is that Plaintiffs allegedly failed to plead any underlying tortious action.
Clearly, this is not the case. The actionable underlying torts alleged by Plaintiffs are the breach of fiduciary duty and negligence claims asserted against Schwartz which caused Loral to become embroiled in a scheme to bribe the President of the United States, among others. Simply put, the gravamen of Plaintiffs' conspiracy claim is that Defendants, including McAuliffe, agreed to participate in this unlawful bribery scheme, and that Schwartz committed repeated, overt tortious acts in furtherance of the scheme by making payments in excess of $1,460,000, to the DNC and other organizations affiliated with the Democrats and the Democratic Party in exchange for taxpayer-financed government services and other favorable treatment for Loral. In doing so, Schwartz breached fiduciary and other duties he owed to Loral and its shareholders, and caused substantial damage to Loral's good name, reputation, and business interests. Moreover, Schwartz allegedly used assets of Loral to reimburse him for his unlawful contributions and to provide a source of funds for further unlawful contributions. These allegations amply and obviously state a claim for common law civil conspiracy, which McAuliffe furthered. Hobson, 737 F.2d at 51-52; Halberstam, 705 F.2d at 477, 481. For this and other reasons, McAuliffe's motion must be denied.
C. Plaintiffs Have Amply Pled a RICO Conspiracy Claim Against McAuliffe.
Like Defendant John Huang, McAuliffe argues that Plaintiff's RICO claim against him allegedly is barred by the U.S. Supreme Court's decision in Reves v. Ernst & Young, 507 U.S. 170 (1993). However, Plaintiffs' Amended Complaint clearly alleges a RICO conspiracy claim against McAuliffe under 18 U.S.C. § 1962(d), not a RICO claim under 18 U.S.C. § 1962(c), and the U.S. Supreme Court's decision in Reves concerned § 1962(c) claims only.
Section 1962(c) makes it unlawful to conduct or participate in the affairs of an enterprise through a pattern of racketeering activity. See 18 U.S.C. § 1962(c). Section 1962(d), by contrast, makes it unlawful for any person to conspire to violate Sections 1962(a), (b), or (c). See 18 U.S.C. § 1962(d).
In Reeves, the U.S. Supreme Court held that "'to conduct or participate, directly or indirectly, in the conduct of [an] enterprise's affairs,' 1962(c), one must participate in the operation or management of the enterprise itself." 507 U.S. at 185. Clearly, this decision on its face relates to Section 1962(c) only. Plaintiffs do not allege that McAuliffe participated in the operation or management of Loral. They do allege that McAuliffe conspired with others, including Loral Chairman and CEO Bernard L. Schwartz, to violate Section 1962(c). McAuliffe can point to no case holding that such a claim is improper, because there is none. McAuliffe's motion must be denied in this regard as well.
Moreover, to be liable under Section 1962(d):
A conspirator must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive [RICO] offense, but it suffices that he adopt the goal of furthering or facilitating the [RICO] endeavor. He may do so in any number of ways short of agreeing to undertake all of the acts necessary for the crime's completion. One can be a conspirator by agreeing to facilitate only some of the acts leading to the substantive offense. . . . It makes no difference that the substantive offence under subsection (c) requires two or more predicate acts. The interplay between subsections (c) and (d) does not permit us to excuse from the reach of the conspiracy provision an actor who does not himself commit or agree to commit the two or more predicate acts requisite to the underlying offense.
Salinas v. United States, 522 U.S. 52, 65 (1997); see also BCCI Holdings (Luxembourg), S.A. v. Khalil, 56 F. Supp. 2d 14, 114-17 (D.D.C. 1999). A conspirator remains a party to the conspiracy unless and until he admits his participation to the authorities or communicates his abandonment in a matter reasonably calculated to reach his co-conspirators. Khalil, 56 F. Supp.2d at 115.
In light of this recent U.S. Supreme Court precedent, McAuliffe's claim that Plaintiffs' Amended Complaint does not allege facts showing that he personally engaged in a pattern of racketeering activity is plainly irrelevant. The law does not require that such facts be pled in order to state a claim against a RICO co-conspirator. Likewise, McAuliffe's final claim -- that Plaintiffs' Amended Complaint does not allege that he personally agreed to commit two or more predicate acts -- is also irrelevant. Again, the law does not require that such facts be pled in order to state a claim against a RICO co-conspirator. (3) All Plaintiffs are required to plead is that McAuliffe "adopt[ed] the goal of furthering or facilitating the [RICO] endeavor" (Salinas, 522 U.S. at 65), and the Amended Complaint clearly alleges McAuliffe not only agreed to participate in the unlawful scheme to sell seats on Commerce Department trade missions in exchange for campaign contributions to the DNC, but that he also "played a central role in selecting trade mission participants and, on information and belief, securing other favorable treatment from the Clinton Administration for Defendant Loral." See Amended Complaint at para. 57. McAuliffe's motion to dismiss must be denied for this reason as well.
For the foregoing substantial reasons, and for the substantial reasons set forth in Plaintiffs' oppositions to all of the Defendants' motions to dismiss, McAuliffe's motion to dismiss must be denied.
JUDICIAL WATCH, INC.
Larry Klayman, Esq.
D.C. Bar No. 334581
Paul J. Orfanedes, Esq.
D.C. Bar No. 429716
501 School Street, S.W.
Washington, DC 20024
Attorneys for Plaintiffs
I hereby certify that on January 26, 2000 a true and correct copy of the foregoing PLAINTIFFS' OPPOSITION TO DEFENDANT TERRENCE R. MCAULIFFE'S MOTION TO DISMISS was served, via first class U.S. mail, postage prepaid, on the following:
Attorneys for Defendant Bernard L. Schwartz:
John J. Halloran, Esq.
2 Grand Central Tower
140 East 45th Street
New York, NY 10017
Elkan Abramowitz, Esq.
Richard D. Weinberg, Esq.
MORVILLO, ABRAMOWITZ, GRAND,
IASON & SILVERBERG, P.C.
565 Fifth Avenue
New York, NY 10017
Attorneys for Defendant Loral Space and Communications Ltd.:
Richard L. Posen, Esq.
David P. Murray, Esq.
Jeanne Luboja, Esq.
WILLKIE FARR & GALLAGHER
787 Seventh Avenue
New York, New York 10019-6099
Theodore C. Whitehouse, Esq.
WILLKIE FARR & GALLAGHER
Three Lafayette Center
1155 21st Street, N.W.
Washington, DC 20036-3384
Attorneys for Defendant Democratic National Committee:
Joseph E. Sandler, Esq.
SANDLER & REIF, P.C.
6 E Street, S.E.
Washington, DC 20003
Attorneys for Defendants Democratic Senatorial Campaign Committee
and Democratic Congressional Campaign Committee:
Robert F. Bauer, Esq.
Marc E. Elias, Esq
Andrea Anderson, Esq.
Brian G. Svoboda, Esq.
PERKINS COIE, LLP
607 Fourteenth Street, N.W.
Washington, DC 20005-2011
Attorneys for Defendants Albert Gore, Sandy Berger, Alexis Herman,
Harold Ickes and Melissa Moss:
Mary Hampton Mason, Esq.
Torts Branch, Civil Division
P.O. Box 7146
Ben Franklin Station
Washington, DC 20044-7146
Attorneys for Defendants William Jefferson Clinton and Hillary Rodham
David E. Kendall, Esq.
Nicole K. Seligman, Esq.
Julie C. Hilden, Esq.
WILLIAMS & CONNOLLY
725 12th Street, N.W.
Washington, DC 20005
Attorneys for Defendant Melissa Moss (co-counsel):
Stuart M. Gerson, Esq.
EPSTEIN, BECKER & GREEN, P.C.
1227 25th Street, N.W.
Washington, DC 20037-1156
Attorneys for Defendant Marvin Rosen:
Steven M. Salky, Esq.
Hillary A. Davidson,.Esq.
ZUCKERMAN, SPAEDER, GOLDSTEIN,
TAYLOR & KOLKER, L.L.P.
1201 Connecticut Avenue, N.W.
Washington, DC 20036
Attorneys for Terrence R. McAuliffe:
Richard Ben-Veniste, Esq.
WEIL, GOTSHAL & MANGES, LLP
1615 L Street, N.W.
Washington, DC 20036-5610
Attorneys for Defendant John Huang:
John C. Keeney, Jr., Esq.
Ty Cobb, Esq.
HOGAN & HARTSON, LLP
555 l3th Street, N.W.
Washington, DC 20004-1109
Paul J. Orfanedes
1. McAuliffe is not new to campaign finance scandals. He may also be indicted for his
role in an apparent kick-back scheme in which a Teamsters official diverted union funds to the
Democratic Party in exchange for donations to Teamsters President Ron Carey's 1996 re-election
campaign. See Jerry Seper, "Teamster scandal's scope widens," The Washington Times, November
29, 1999, attached as Exhibit 1.
2. With a single, minor exception, McAuliffe's motion to dismiss is nearly identical to
Defendant Marvin Rosen's motion to dismiss. Accordingly, with the exception of addressing this one
minor difference, Plaintiffs' opposition to McAuliffe's motion to dismiss is substantially similar to
their opposition to Rosen's motion to dismiss.
3. In this regard, McAuliffe's reliance on Committee to Defend the United States
Constitution v. Moon, 776 F. Supp. 568 (D.D.C. 1991) is entirely misplaced, both because Supreme
Court precedent makes clear that a RICO conspiracy claim does not require co-conspirators to have
engaged personally in two (2) or more predicate acts of racketeering activity and because the plaintiff
in Moon did not, apparently, even assert a RICO conspiracy claim.
1. McAuliffe is not new to campaign finance scandals. He may also be indicted for his role in an apparent kick-back scheme in which a Teamsters official diverted union funds to the Democratic Party in exchange for donations to Teamsters President Ron Carey's 1996 re-election campaign. See Jerry Seper, "Teamster scandal's scope widens," The Washington Times, November 29, 1999, attached as Exhibit 1.
2. With a single, minor exception, McAuliffe's motion to dismiss is nearly identical to Defendant Marvin Rosen's motion to dismiss. Accordingly, with the exception of addressing this one minor difference, Plaintiffs' opposition to McAuliffe's motion to dismiss is substantially similar to their opposition to Rosen's motion to dismiss.
3. In this regard, McAuliffe's reliance on Committee to Defend the United States Constitution v. Moon, 776 F. Supp. 568 (D.D.C. 1991) is entirely misplaced, both because Supreme Court precedent makes clear that a RICO conspiracy claim does not require co-conspirators to have engaged personally in two (2) or more predicate acts of racketeering activity and because the plaintiff in Moon did not, apparently, even assert a RICO conspiracy claim.