Case 2:08-cv-00299-DWA Document 9-2 Filed …star.worldbank.org/.../files/documents/...Motion_Stay_Mar_20_2008.pdf · the exercise of discretion to stay civil proceedings pending

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF PENNSYLVANIA

ALUMINUM BAHRAIN, B. S.C, : Civ. No. 2: 08-cv-00299-DWA

Plaintiff,

V.

ALCOA, INC., ALCOA WORLD

ALUMINA LLC, WILLIAM RICE,

and VICTOR DAHDALEH,

Defendants.

MEMORANDUM OF LAW IN SUPPORT OF THE UNOPPOSED

MOTION OF THE UNITED STATES TO

INTERVENE AND FOR A STAY OF DISCOVERY

For the United States:

STEVEN A. TYRRELL

Chief, Fraud Section

MARK F. MENDELSOHN

Deputy Chief, Fraud Section

ADAM G. SAFWAT

Trial Attorney, Fraud Section

ANDREW H. WARREN

Trial Attorney

Fraud Section, Criminal Division

U.S. Department of Justice

1400 New York Ave. N.W.

Washington, D.C. 20005

Tel: (202) 353-8609

Case 2:08-cv-00299-DWA Document 9-2 Filed 03/20/2008 Page 1 of 19

PRELIMINARY STATEMENT

The United States respectfully submits this memorandum

of law in support of its unopposed application: (1) to intervene

in this action, pursuant to Fed. R. Civ. P. 24; and (2) to move

for a stay of discovery pending the outcome of an ongoing federal

criminal investigation.

The United States has a direct and substantial interest

in this case, as the subject matter giving rise to this case is

also the subject of an ongoing federal criminal investigation.

Based on the need to avoid prejudice to the criminal

investigation, the United States seeks to intervene in order to

move for a stay of discovery in this action. The United States

proposes to stay all discovery under Federal Rules of Civil

Procedure 26 through 36 and any other applicable rules, for the

duration of the criminal investigation and any resulting

prosecution.

For the reasons set forth more fully below, the United

States respectfully requests that its Application be granted. A

proposed Order is submitted herewith for the Court's

consideration. The plaintiff in this matter, Aluminum Bahrain

B.S.C, Defendant Alcoa, Inc., and Defendants Alcoa, Inc., and

Alcoa World Alumina LLC have represented to the government,

through counsel, that they do not oppose this Application and the

-1-


entry of the proposed Order.'

BACKGROUND

On February 27, 2008, Aluminum Bahrain B.S.C ("Alba")

filed a complaint against Defendant Alcoa, Inc. ("Aloca");

Defendant Alcoa World Alumina LLC ("Alcoa World Alumina"), an

affiliate of Alcoa; Defendant William Rice ("Rice") , a former

Vice President of Marketing of Alcoa World Alumina; and Defendant

Victor Dahdaleh ("Dahdaleh"), an agent of Alcoa and Alcoa World

Alumina. The complaint alleges violations of mail and wire fraud

statutes, 18 U.S.C. § 1341 and 1343; National Stolen Property

Act, 18 U.S.C. § 2314-15; the Foreign Corrupt Practices Act

("FCPA"), 15 U.S.C. § 78dd-2 and § 78dd-3 (anti-bribery

provisions) ; and Interstate and foreign travel or transportation

in aid of racketeering enterprises (the "Travel Act"), 18 U.S.C.

§ 1952. See Exhibit A (Alba Complaint)

Separately, the Fraud Section of the Criminal Division

of the United States Department of Justice has begun a criminal

investigation into whether Alcoa, Inc., its subsidiaries,

affiliates, and their officers, employees, and agents

(collectively, "Alcoa") and other affiliated persons, such as

Victor Dahdaleh, have engaged in conduct with respect to their

'Defendant Victor Dahdaleh is overseas and apparently hasnot been served with the Complaint. The government is unable toconfirm whether Defendant William Rice has been served with thecomplaint. Rice is allegedly an officer of an Alcoa WorldAlumina and Chemicals. Ex. A at 9.

-2-


commercial relationship with Alba in alleged violation of various

criminal laws, including the FCPA, and the mail and wire fraud

statutes.

The Alba complaint alleges numerous facts which, if

true, could be relevant to the government's criminal

investigation and a potential criminal trial. The facts alleged

in Alba's complaint are summarized as follows. Alba, a

Eahrainian company, is one of the world's largest aluminum

smelters. Ex. A, ¶J 3,4, 13. Alcoa is the world's largest

supplier of alumina, the principal raw input for aluminum. See

http://www.alcoa.com/alumina/en/home.asio. Alcoa and its

affiliates are presently and have been for decades Alba's

principal suppliers of alumina. Ex. A, ¶ 15. Alcoa World

Alumina and Chemicals ("AWAC") is an unincorporated joint venture

between Alcoa and Alumina Limited, an Australian company that is

managed and/or controlled by Alcoa. Ex. A, ¶J 10-11. AWAC,

Alcoa's vehicle for the alumina business, operates through

various "Enterprise Companies," including Alcoa of Australia

Limited ("Alcoa Australia") . Ex. A, ¶ 12.

In 1990, Alba and Alcoa Australia entered into a ten-

year contract ("the 1990 Contract") , subsequently amended to

extend through 2004, under which Alba purchased alumina from

Defendant Alcoa. Ex. A, ¶ 24. Under the terms of the 1990

Contract, the parties negotiated the price of 40% of the supply

-3-


of alumina ("the Market Tonnage") . Ex. A, ¶ 31. From 1993 to

1995, Alcoa Australia assigned the supply responsibility for the

Market Tonnage to a Singaporean company named Kwinalum Trading

Pte Limited, a wholly-owned subsidiary of Alumet Limited, a

company incorporated in the British Virgin Islands controlled by

Dahdaleh. Ex. A, ¶J 33-34. In 1996, Alba and Alcoa Australia

amended the 1990 Contract such that Alcoa Australia would provide

the Market Tonnage to Alba from 1997 through 2000. Ex. A, ¶ 39.

Alcoa Australia assigned supply responsibility for part of the

Market Tonnage to Alumet Asia Pte Limited, another company

controlled by Dahdaleh. Ex. A, ¶j 40, 41, 44.

In 2001, Alba and Alcoa Australia amended the 1990

Contract to extend its term through 2003. Ex. A, ¶ 50. This

extension was proposed by Defendant Rice on behalf of Alcoa World

Alumina and executed by David Dabney, an agent of Dadco Australia

Pty Limited, a company founded by Dahdaleh and Dahdaleh's

brother. Ex. A, ¶J 34, 51, 54. In 2003, the 1990 Contract was

extended through 2004. Ex. A, ¶ 60. In 2005, Alba entered into

an agreement with AA Alumina & Chemicals SA ("AAAC-3"), a company

allegedly controlled by Dahdaleh ("the 2005 Contract"). Ex. A,

¶j 64-65. Alba currently purchases alumina from AAAC-3 pursuant

to the 2005 Contract. Ex. A, ¶ 64.

Alba alleges that from 1993 through the present,

Defendants caused the Market Tonnage to be assigned to Dahdaleh-

-4-


controlled entities for the purpose of facilitating bribes to

Alba officials that resulted in Alba paying excessive prices for

alumina. Ex. A, ¶j 33, 40, 53. Alba further alleges that

Defendants defrauded Alba into entering the 2005 Contract on

unfavorable terms in order to acquire a controlling stake in Alba

through bribery and/or extortion. Ex. A, ¶ 66. specifically,

Rice and Dahdaleh (among others) represented Alcoa in

negotiations in 2003 between Alcoa and the Government of Bahrain

regarding the sale of 26% of Alba to Alcoa or an Alcoa affiliate,

and Alba alleges that Rice and Dahdaleh were in contact with

officers of Alba and the Government of Eahrain who were paid

bribes during the course of these negotiations in order to

pressure the Government of Eahrain to consummate the transaction.

Ex. A, ¶j 67-75. The allegations in Alba's Complaint implicate

facts and conduct that fall within the scope of the criminal

investigation.

ARGUMENT

I. THE UNITED STATES SHOULD BE PERMITTED

TO INTERVENE IN THIS ACTION

The Government seeks to intervene in this action

pursuant to Federal Rule of Civil Procedure 24, either as of

right under Rule 24 (a) (2), or, in the alternative, permissively

under Rule 24 (b) (2) . Courts generally "have allowed the

government to intervene in civil actions--especially when the

-5-


government wishes to do so for the limited purpose of moving to

stay discovery." Twenty First Century Corp. v. LaBianca, 801 F.

Supp. 1007, 1009 (E.D.N.Y. 1992). In particular, "[tihe

government has a discernible interest in intervening in order to

prevent discovery in a civil case from being used to circumvent

the more limited scope of discovery in the [parallel] criminal

matter." SEC v. Chestman, 861 F.2d 49, 50 (2d Cir. 1988); see

also First Merchants Enter., Inc. v. Shannon, 1989 WL 25214, at

*2 (S.D.N.Y. Mar. 16, 1989) (permitting intervention "where the

government contends that an ongoing criminal investigation would

be prejudiced were certain civil discovery concerning the same

facts and circumstances to proceed")

Rule 24(a) (2) provides for intervention as of right

"when the applicant claims an interest relating to the property

or transaction which is the subject of the action" and the

applicant is situated such that "the disposition of the action

may as a practical matter impair or impede the applicant's

ability to protect that interest." Fed. R. Civ. P. 24(a) (2).

The United States indisputably has a direct and substantial

interest in the subject matter of this action, because, as

described above, the criminal investigation concerns the same

business practices, contracts, and allegedly improper payments at

issue in this civil action. Chestman, 861 F.2d at 50 (noting

that allowing intervention as of right would not constitute abuse

-6-


of discretion even where the Government sought to intervene

"solely for the purpose of seeking a stay of discovery")

In the alternative, permissive intervention is

appropriate "when the applicant's claim or defense and the main

action have a question of law or fact in common." Fed. R. Civ.

p. 24(b) (2) . Again, as the criminal investigation arises out of

the same facts and circumstances on which the claims in this

civil action are based, the determination of potential liability

against possible subjects of the investigation, particularly if

they are charged with crimes as a result of the investigation,

will turn on the same essential factual questions at issue in

this civil action. Therefore, the Government's application

readily satisfies the standard for permissive intervention under

Rule 24(b) (2) . See SEC v. Downe, No. 92-CV-4092 (P1(L), 1993 WL

22126, at *11 (S.D.N.Y. Jan. 25, 1993); First Merchants, 1989 WL

25214, at *2.

II. THE UNITED STATES' APPLICATION FOR A

TEMPORARY STAY SHOULD BE GRANTED

"The power to stay proceedings is incidental to the

power inherent in every court to control the disposition of the

cases on its docket with economy of time and effort for itself,

for counsel, and for litigants." Landis v. North Am. Co., 299

U.S. 248, 254-55 (1936) . The authority to stay civil proceedings

during the pendency of a criminal prosecution is well-

-7-


established. See Rad Servs. Inc. v. Aetna Casualty & Sur. Co.,

808 F.2d 271, 279 n.3 (3d Cir. 1986) ("We have in the past upheld

the exercise of discretion to stay civil proceedings pending

ongoing criminal litigation.") (citations omitted) . Courts

routinely grant applications by the United States to stay

parallel civil proceedings in order to protect a pending criminal

prosecution, "sometimes at the request of the prosecution .

[silometimes at the request of the defense." United States v.

Kordel, 397 U.S. 1, 12 n.27 (1970) (citing cases); also Walsh

Sec., Inc. v. Cristo Property Mgmt., Ltd., 7 F.Supp.2d 523, 529

(D.N.J. 1998); SEC v. Control Metals Corp., 57 F.R.D. 56, 58

(S.D.N.Y. 1972) (granting stay of SEC enforcement action pending

District of Columbia grand jury investigation)

Courts have found a stay to be warranted even when the

criminal case is still in the pre-indictment stage. See Board of

Governors of Fed. Reserve Sys. v. Pharaon, 140 F.R.D. 634, 641

(S.D.N.Y. 1991) (staying Federal Reserve enforcement action

pending state grand jury investigation); United States v. Hugo

Key & Son, Inc., 672 F.Supp. 656, 658-59 (D.R.I. 1987) (staying

civil action by Department of Justice Environmental Enforcement

Section for six months pending criminal investigation by

Environmental Crimes section)

Additionally, the identity of the issues involved and

their overlap are key considerations in the stay analysis. See

-8-


Peden v. United States, 512 F.2d 1099, 1103-04 (Ct. Cl.

1975) (observing that "deferrable civil proceedings {mayj

constitute improper interference with the criminal proceedings if

they churn over the same evidentiary material"); Walsh Sec., 7

F.Supp.2d at 526-27 ("The similarity of issues has been termed

the most important issue at the threshold in determining whether

or not to grant a stay.") (quotes omitted) ; Integrated Generics,

Inc. v. Bowen, 678 F.Supp. 1004, 1009 (E.D.N.Y. 1988) (stay of

civil proceedings is particularly appropriate where facts

critical to both proceedings are closely related or identical)

A. Weighing the Relevant Factors Favors

Granting the Proposed Stay

Courts balance competing interests in deciding whether

a stay of civil discovery is appropriate, including: (1)

prejudice to the Government's interest in connection with ongoing

criminal prosecutions and investigations; (2) prejudice to the

interests of the civil parties in prompt resolution of their

disputes; (3) the interests of parties not represented in the

civil proceedings; (4) the courts' interests in judicial economy

and the efficient use of resources; and (5) the public interests

involved in both criminal and civil proceedings. SEC v.

Beacon Hill, No. 02-8855 (LAK), 2003 WL 554618, at *1 (S.D.N.Y.

Feb. 27, 2003) (listing factors) (citing Trustees of Plumbers &

Pipefitters Nat'l Pension Fund v. Transworld Mechanical, Inc.,

-9-


886 F.Supp. 1134, 1139 (S.D.N.Y. 1995)); Volmar Distribs., Inc.

v. New York Post Co., Inc., 152 F.R.D. 36, 39 (S.D.N.Y. 1993).

Here, these factors favor granting the proposed stay.

1. The Proposed Stay Would Prevent Prejudice to theCriminal Prosecution

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. , 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 liberaldiscovery rules will allow a litigant to undermine, orgain an unfair advantage in, a potential criminalprosecution which parallels the subject matter of thecivil action.

Downe, 1993 WL 22126, at *12; see also Beacon Hill, 2003 WL

554618, at *1 ("The principal concern with respect to prejudicing

the government's criminal investigation is that its targets might

abuse civil discovery to circumvent limitations on discovery in

-10-


criminal cases.") (citing Downe); Founding Church of Scientology

v. Kelley, 77 F.R.D. 378, 380 (D.D.C. 1977) ("[A] litigant should

not be allowed to make use of the liberal discovery procedures

applicable to a civil suit to avoid the restrictions on criminal

discovery and, thereby, obtain documents [and testimony] he might

otherwise not be entitled to for use in his criminal suit.").

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,

-11-


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).

Notwithstanding that a criminal trial is not pending,

the same concerns regarding ongoing civil discovery are present

when a parallel criminal investigation is in the pre-indictment

stage. Potential hostile witnesses, subjects and targets could

attempt to tailor around discovery obtained through the civil

discovery process their statements to investigators or their

testimony before a grand jury. Such discovery might reveal what

other witnesses have said about the role of potential subjects

and/or targets in the alleged acts being investigated. Should an

indictment issue, any potential targets would also be able to

tailor their defenses to information received through civil

discovery. 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-12-


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.

2. The Proposed Stay Minimizes Prejudice to CivilParties

The proposed stay of discovery is designed to balance

the need to protect the integrity of the criminal investigation

and potential prosecution and the desire to minimize the

possibility of undue prejudice or hardship to the litigants in

the civil action. In this case, neither party has expended any

-13-


resources to date in the civil action, provided any confidential

information through discovery, or taken any position in the

litigation. Moreover, neither the plaintiff nor Defendants

Alcoa, Inc., and Alcoa World Alumina LLC object to the stay.

3. Judicial Economy Is Served by the Proposed Stay

Granting precedence to criminal matters often leads to

a more efficient use of judicial resources when civil and

criminal proceedings overlap because a criminal case may bring

issues into focus and resolve disputed issues. United States

v. Mellon Bank, N.A., 545 F.2d 869, 873 (3d Cir. 1976) (noting

that "resolution of the criminal case [may] moot, clarify, or

otherwise affect various contentions" in the civil action) ; Brock

v. Tolkow, 109 F.R.D. 116, 120 (E.D.N.Y. 1985) (finding that

"resolution of the criminal case might reduce the scope of

discovery in the civil case and otherwise simplify the issues")

In this instance, because the factual allegations are numerous

and potentially complex, investigation by the government may

define, moot and/or clarify the issues relevant to the civil

action through possible dispositions of the criminal

investigation or potential trial. This refinement of the issues

may spur settlement discussions. See Plumbers Fund, 886 F.Supp.

at 1140 (noting that "resolution of the criminal case may

increase the possibility of settlement in the civil case due to

the high standard of proof required in a criminal prosecution.").

-14-


Additionally, the Court would not be put in the position of

having to resolve disputes, manage foreign discovery and

extensive depositions, rule on motions, conduct proceedings and

undertake all the myriad tasks required for the management of a

complex civil case if the criminal investigation could promote a

more effective resolution of the civil case. For all these

reasons, the interest of judicial economy would be served by the

proposed stay.

4. The Public Interest Benefits from the ProposedStay

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, as

noted above. 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

-15-


disposition through a private civil action, particularly given

the importance of the government's FCPA enforcement program. Cf.

Volmar, 152 F.R.D. at 40 ("The public certainly has an interest

in the preservation of the integrity of competitive markets.

However, the ongoing criminal investigation serves to advance

those same interests."); Plumbers Fund, 886 F.Supp. at 1140

("Because of the overlapping issues in the criminal and civil

cases, the criminal prosecution will serve to advance the public

interests at stake here."). Under these circumstances, the

public interest is best served by the proposed stay.

-16-


CONCLUSION

For the foregoing reasons, the United States

respectfully requests that the Court grant its motion to

intervene and for a stay of discovery pending the outcome of an

ongoing federal criminal investigation.

Respectfully submitted,

STEVEN A. TYRRELL

Chief, Fraud Section

BY: 5/ Adam Safwat

Adam G. Safwat, Trial Attorney

Fraud Section, Criminal Division


1400 New York Ave. N.W.

Washington, D.C. 20005

Tel: (202) 353-8609

Dated: March 20, 2008

-17-


CERTIFICATE OF SERVICE

I hereby certify that on March 20, 2008, I filed a copy ofthe foregoing via the Court's Electronic Filing System, and thatnotice of this filing will be sent via e-mail to all parties whohave entered appearances by operation of the Court's electronicfiling system. In addition, I served courtesy copies via e-mailto counsel for the Alcoa defendants and counsel for theplaintiff.

/s/ Adam Safwat

Adam G. Safwat, Trial Attorney



Documents

Case 2:08-cv-00299-DWA Document 9-2 Filed …star.worldbank.org/.../files/documents/...Motion_Stay_Mar_20_2008.pdf · the exercise of discretion to stay civil proceedings pending