PITTSBURGH (CN) – Bahrain’s principal aluminum smelter can advance a $1 billion complaint that its supplier bribed government officials to artificially inflate prices, a federal judge ruled.
With a trio of rulings last week, U.S. District Judge Donetta Ambrose refused to dismiss claims against Alcoa; its affiliate, Alcoa World Alumina; its vice president of marketing, William Rice; and its agent Victor Dahdaleh.
Aluminum Bahrain, or Alba, filed the complaint in 2008, alleging violations of federal anti-racketeering law, conspiracy to violate RICO, fraud and civil conspiracy to defraud.
Alcoa had claimed that the complaint inappropriately alleged an “essentially foreign” enterprise, but Ambrose disagreed.
“Alba clearly alleges that Alcoa controlled Alcoa of Australia, being that it was a 60% shareholder,” he wrote. “Further, it is unquestioned that all of the alumina in the alleged scheme was supplied by Alcoa of Australia.”
The decision, which is the longest of the three at 15 pages, says Alcoa faces claims of having “knowingly directed the negotiation and signature of two contracts – one with Alba and the other with Dahdaleh – for the sale of the same quantity of alumina.”
Rice’s initials allegedly appear on a secret 2002 distribution agreement with two companies that sold alumina to the Dahdaleh-owned shell companies. Alba says the co-conspirators knew these companies would resell those products to it at substantially higher prices.
Ambrose quotes from a case statement that says: “Defendants paid the bribes to individuals who exercised the power to influence the decision-making process and ensure that Alba continued to deal with defendants and overpay for alumina. Defendants intended for the payments to induce the officials to misuse their authority to direct business to Alcoa at inflated prices, and to obtain an improper advantage by practically eliminating competition for Alba’s alumina supply.”
With these claims, “Alba has exhaustively alleged that the defendants’ fraudulent scheme caused it to enter into commercially unreasonable alumina purchase agreements that resulted in overpayments to Defendants in excess of $400 million,” the judge wrote.
Ambrose also found that Alba alleged sufficient racketeering activity to survive Rice’s motion to dismiss.
The complaint accuses the vice president of extending Alcoa’s contract with Alba in 2001, “knowing the relationship was changing because Dahdaleh was being inserted as an intermediary for the purpose of funneling bribes and artificially increasing prices.”
Of the seven alleged instances of mail and wire fraud that Alba recounts, four specifically mention Rice, and identify the time, place and substance of the alleged fraud,” according to the ruling.
“Alba also provides details of numerous, specific transactions detailing the transport and receipt of fraudulently obtained money either by, or at the direction of Rice or his co-conspirators,” Ambrose wrote.
The other Alcoa agent, Dandaleh, tried to fight Alba’s claims by pointing to his Canadian citizenship and European residency.
After applying the absent co-conspirator doctrine, however, Ambrose said the complaint sufficiently alleges “that Dahdaleh was an active and key participant … [and] that he was handsomely compensated for his participation.”
“Given Dahdaleh’s alleged knowing and purposeful involvement with the Alcoa defendants, who are located in Pennsylvania, and who operated the enterprise out of Pennsylvania, I find that hailing him into court in this district will not offend traditional notions of fair play and substantial justice either,” the decision states.
Ambrose also rejected claims that the complaint was “fatally flawed” because it sought an extraterritorial application.
Alba’s amended complaint is “replete with allegations that Dahdaleh fraudulently misrepresented the legitimacy of his companies, their affiliations with Alcoa, and that they were created solely for the purpose of enacting a bribery scheme,” Ambrose wrote.
“Again, Alba has made detailed allegations that Dahdaleh acted in concert with others for the purpose of defrauding Alba out of hundreds of millions of dollars through a scheme of bribery and sham operations,” she added.