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The Unnamed Party

Last February, Aluminum Bahrain BSC, or Alba for short, made big headlines by filing an explosive federal lawsuit against Alcoa. Bahrain-owned Alba accused its long-time U.S. supplier of overcharging for raw materials during a 15-year period, and using some of the money to bribe Alba's executives for more contracts. "Defendants? conspiracy," Alba said in a complaint filed in Pittsburgh, "succeeded in exacting hundreds of millions of dollars in over payments, which continue to accumulate to this day. Among other things, Plaintiff seeks damages in excess of $1 billion, including punitive damages, for this massive, outrageous fraud."

Commercial disputes between multinational companies and overseas, government-linked customers are arbitrated in private or settled behind closed doors -- they're rarely decided in open court. And while the public brawl was unusual, what happened next was stranger still.

The Justice Department intervened in the case, asking the court to stay all discovery. It said the facts of Alba's allegations, if true, might violate the Foreign Corrupt Practices Act and mail and wire fraud statutes. Therefore, the DOJ said, it wanted to conduct a criminal investigation into Alcoa and its executives. But it couldn't do that if discovery in the civil suit was steaming ahead. Alcoa, meanwhile, denied all wrongdoing, and neither it nor Alba opposed the government's request. So for nearly a year now, the blockbuster lawsuit has been completely dormant.

Why did the government need to stop the discovery? Why couldn't the DOJ investigate Alba's allegations while the parties continued their battle in civil court? The Justice Department answered those questions in its memo arguing for the stay. The court, as we said, granted the government's request, and the stay remains in effect. Here's some of what the DOJ had to say:

The main prejudice to the United States from allowing a parallel civil matter to proceed is harm to the criminal investigation and potential subsequent prosecution. As a general matter, courts have long recognized that the need to enforce the criminal laws is a compelling factor in considering whether to stay parallel civil proceedings. See, e.g., Campbell v. Eastland, 307 F.2d 478, 487 (5th Cir. 1962) (" Administrative policy gives priority to the public interest in law enforcement."), cert. denied, 371 U.S. 955 (1963)

The civil discovery process can be used by subjects and targets of an investigation to subsume or circumvent the more limited discovery permitted in criminal matters:

[A] stay of discovery is often necessary where liberal discovery rules will allow a litigant to undermine, or gain an unfair advantage in, a potential criminal prosecution which parallels the subject matter of the civil action.

The Federal Rules of Civil Procedure authorize broad discovery of both parties and non-parties. See, e.g., Rule 26(b) ("Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action."). In contrast, discovery under the Federal Rules of Criminal Procedure is circumscribed. Federal Rule of Criminal Procedure 16 generally limits discovery to certain statements of a defendant (Rule 16(a) (1) (A)), a defendant's prior criminal record (Rule 16 (a) (1) (3)), and other information that is "material to the preparation of the defendant's defense or intended for use by the United States as evidence in chief at the trial, or were obtained from or belong to the defendant" (Rule 16(a) (1) (C)).

Moreover, Rule 16(a) (2) expressly precludes discovery of "reports, memoranda or other internal United States documents [and] statements made by United States witnesses or prospective United States witnesses, except as provided in 18 U.S.C. § 3500." The Jencks Act (Section 3500) provides that in criminal cases,the statements of United States witnesses shall not be "the subject of subpoena, discovery, or inspection until said witness has testified on direct examination in the trial of the case." Absent "exceptional circumstances" and a court order, a criminal defendant may not conduct depositions in a criminal case. Fed. R. Crim. P. 15(a). A defendant's obligations to provide discovery to the United States are similarly limited. Fed. R. Crim. p. 16(b). . . .

Additionally, witnesses identified through such civil discovery could be intimidated. See, e.g., Campbell, 307 F.2d at 487. This is of particular concern in FCPA investigations, in which witnesses often reside overseas, where legal protections for witnesses may not be readily available. Thus, commencement of full civil discovery in this case could substantively harm the interests of the United States in investigating and prosecuting the criminal case. De Vita v. Sills, 422 F.2d 1172, 1181 (3d Cir. 1970) (recognizing policy of "preventing defendants in criminal cases from using civil process to obtain information from the government's file which would in the criminal case be privileged.")

Compelling information from potential grand jury and trial witnesses by requiring them to sit for depositions, answer interrogatories or answer requests for admission in the civil action would impede the United States' ability to investigate these matters relating to Alcoa's alleged conduct. In an investigation such as this, numerous witnesses are interviewed whose statements would never be revealed to potential subjects and targets prior to indictment, but for the existence of the civil action. In sum, for all these reasons, the proposed stay is necessary to avoid prejudice to the government's criminal investigation and any potential prosecution.

The public is "an unnamed party in every lawsuit." United States v. Reaves, 636 F.Supp. 1575, 1578 (E.D. Ky. 1986) Here, the Complaint alleges that the defendants arranged for Alcoa, a public corporation, through its affiliates and agents, to make payments in violation of the anti-bribery provisions of the FCPA, among other crimes. The proposed stay enables the government to investigate these charges without potential prejudice to its investigation resulting from civil discovery . . . This would thus enable the government to vindicate the paramount public interest in the enforcement of federal criminal laws and resolution of the federal criminal investigation, should the government's investigation reveal evidence that federal criminal laws were violated. Further, disposition of the criminal action could potentially result in more effective vindication of the public's interest than disposition through a private civil action, particularly given the importance of the government's FCPA enforcement program. . . . Under these circumstances, the public interest is best served by the proposed stay.

(Some footnotes omitted.)

No word yet from the government about the status of its almost year-old criminal investigation. Alba and Alcoa have also been quiet about the civil suit and whether they might settle their differences out of court.

Download Alba's complaint here.

Download the government's memo in support of the stay here.
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Full post as published by The FCPA Blog on January 25, 2009 (boomark / email).