Federal Court in Nevada Allows Ethiopia Bribery Claims to Move Forward
October 23, 2023
“Overview of Addis Ababa” by World Bank Photo Collection
is licensed under CC BY-NC-ND 2.0
In a fascinating decision, the District Court for the District of Nevada (Judge Richard Boulware) recently allowed civil RICO claims to proceed against a Nevada resident based on bribery in Ethiopia, while dismissing claims against Ethiopian government entities under the Foreign Sovereign Immunities Act (FSIA). Fremichael Ghebreyesus v. Federal Democratic Republic of Ethiopia not only applies the Supreme Court’s recent decision in Yegiazaryan v. Smagin (2023), interpreting civil RICO’s “domestic injury requirement.” It also grapples with interesting questions of forum non conveniens, choice-of-law clauses, foreign judgments, international comity, and foreign sovereign immunity.
The complaint reads like a law school exam. Plaintiff’s father, who was Eritrean, built a successful civil engineering business in Ethiopia. When conflict between Eretria and Ethiopia erupted in 1998, he was forced into exile. Plaintiff’s father and mother transferred the business and their home in Addis Ababa to the defendant Beshah, one of his employees, under an agreement requiring Beshah to transfer the business’s net earnings to their family and to return the assets when circumstances allowed.
Plaintiff’s father returned to Ethiopia in 2012, but Beshah refused to surrender the business or home. Although Ethiopia’s Committee of Eritrean’s Property Reallocation confirmed the family’s ownership, Beshah successfully challenged that decision in Ethiopian courts. Plaintiff claims that the court proceedings were a sham and that defendant bribed officials in Ethiopia’s Ministry of Foreign Affairs and in Addis Ababa as part of his scheme to steal the family’s property.
Plaintiff became a U.S. citizen in 2001 and lives in Minnesota. In 2021, he brought suit in federal District Court for the District of Columbia, on behalf of himself, his mother, and his father’s estate. The complaint alleged a taking in violation of international law by the Ethiopian government, breach of contract by Beshah, violations of civil RICO by all defendants, and a RICO conspiracy among all defendants. The court transferred the case to the District of Nevada, where Beshah now lives, under 28 U.S.C. § 1404. Beshah moved to dismiss on a host of grounds, while the Ethiopian government defendants primarily claimed immunity from suit under the FSIA.
The federal Racketeer Influenced Corrupt Organizations Act (RICO) makes it a criminal offense to engage in a pattern of racketeering activity in connection with an enterprise or to conspire to do so. Racketeering activity consists of certain, listed offenses under federal and state law. RICO also provides a civil cause of action for treble damages to anyone “injured in his business or property” by a violation of RICO’s criminal provisions. In RJR Nabisco, Inc. v. European Community (2016), the U.S. Supreme Court held that RICO’s criminal provisions apply extraterritorially to the same extent as RICO’s predicate acts but that RICO’s civil cause of action requires “domestic injury” to business or property. In Yegiazaryan v. Smagin (2023), the Supreme Court adopted a contextual approach to the domestic injury requirement that examines all the surrounding circumstances.
In this case, the district court held that plaintiff sufficiently alleged domestic injury. Although the business and home at issue are in Ethiopia, their agreement with Beshah entitles them to the net earnings of the business, which are allegedly in Beshah’s bank accounts in the United States. Plaintiff is also a U.S. citizen and resident, and Beshah’s alleged bribes to Ethiopian officials were paid from U.S. bank accounts. Taken together, these facts were enough to establish domestic injury. It is worth noting that these allegations would also have established domestic injury under the narrower residency test that the Supreme Court rejected in Yegiazaryanbecause plaintiff lives in the United States.
The federal Foreign Corrupt Practices Act (FCPA) prohibits bribery of foreign officials by U.S. residents, among others, but the FCPA is not a predicate offense under RICO. The Travel Act, 18 U.S.C. § 1952, is a predicate offense, however, and it prohibits use of the mails or any facility of interstate or foreign commerce to carry on unlawful activity, including bribery in violation of federal law such as the FCPA. By allegedly wiring money from the United States to bribe Ethiopian officials from 2013 to 2019, therefore, the court found that Beshah could have engaged in a pattern of racketeering activity under RICO.
The court went on to find that the complaint sufficiently alleged the necessary connection with an enterprise, participation in that enterprise, and effect on interstate commerce, as well as a conspiracy to violate RICO.
Beshah moved to dismiss the breach of contract claim under Nevada’s six-year statute of limitation. But the district court rejected this defense relying on the contract’s choice-of-law clause. The clause provided that the “[a]greement shall be governed by the Civil Code of 1960 and other relevant laws of Ethiopia,” which has a ten-year statute of limitations.
In reaching this conclusion, the court did not address whether Ethiopia views statutes of limitations as substantive or procedural. This omission is surprising because most U.S. courts rely on this distinction when interpreting ambiguous choice-of-law clauses. As John Coyle explains in his Primer on Choice-of-Law Clauses:
When a clause selects the “laws” of a state . . . does that clause select the statute of limitations of that state or not? Most courts have answered that question by looking to how the chosen jurisdiction classifies statutes of limitation. Florida, for example, has held that statutes of limitations are substantive. When a choice-of-law clause selects the law of Florida, therefore, it is generally interpreted to select that state’s statutes of limitation. New York, by comparison, has held that statutes of limitations are procedural. When a choice-of-law clause selects the law of New York, it is generally interpreted not to select that state’s statutes of limitation.
Since there is nothing in the opinion that addresses the substantive/procedural distinction, it is not clear why, precisely, the court concluded that this particular choice-of-law clause should be read to select Ethiopia’s ten-year statute of limitations. Even if Nevada’s six-year limitations period properly applies, however, it may be subject to equitable tolling, an issue the plaintiff raised but which the court found unnecessary to address.
Forum Non Conveniens
The federal doctrine of forum non conveniens allows a federal court to dismiss a case if it finds that there is an adequate alternative forum and that the balance of private and public interests favors dismissal. Although the district court did not address the plaintiff’s argument that Ethiopian courts are not an adequate forum, it nevertheless denied the motion to dismiss.
The deference to a plaintiff’s choice of forum varies depending on whether the plaintiff is from the United States or not. Here, the court noted, that plaintiff is a U.S. citizen. In fact, the degree of deference turns not on citizenship but on residency, but plaintiff is a U.S. resident too and so entitled to substantial deference.
Turning to the private and public interest factors, the court found that litigating in Nevada would not be inconvenient for Beshah, who asked that the case be transferred there from DC. Much of the alleged conduct occurred in the United States, and Beshah did not identify any witnesses that he would have to bring from Ethiopia. As for the public interest factors, the court noted that the United States has a strong interest in resolving a suit between two of its residents involving alleged violations of federal law.
Foreign Judgments and International Comity
Beshah also argued that all the claims against him should be dismissed as res judicata based on final court judgments in Ethiopia. The district court treated this as a question of international comity and applied the multifactor test adopted by the Ninth Circuit in Mujica v. Airscan, Inc. (2014). This was an error.
Mujica’s doctrine of foreign relations abstention allows courts in the Ninth Circuit to dismiss claims on the ground that they should be heard in foreign court based on a weighing of U.S. interests, foreign government interests, and the adequacy of the alternative forum. Maggie Gardner and I have argued in an amicus brief to the Eighth Circuit that this abstention doctrine violates Supreme Court precedent, but for now it is binding in the Ninth Circuit, which includes Nevada. The problem with the district court’s analysis is that Mujica is an abstention doctrine with no application to foreign judgments.
Under Erie, the recognition and enforcement of foreign judgments is governed by state law. Nevada has adopted the 2005 Uniform Foreign-Country Money Judgments Recognition Act, which provides for recognition of foreign country judgments subject to certain exceptions. Among those is an exception that the party resisting recognition was denied due process in the specific foreign proceeding. According to the allegations in the complaint, that is precisely what happened here. Although the district court seems to have reached the right result on this question, its application of Mujica to the recognition of foreign judgments is troubling.
Foreign Sovereign Immunities Act
The FSIA provides that foreign governments and their agencies and instrumentalities are immune from suit in federal and state courts unless an exception to immunity applies. Plaintiff invoked the FSIA’s commercial activity exception and its expropriation exception, but the district court rejected both arguments.
With respect to the commercial activity exception, the district court found that the payment of bribes, by itself, was not a commercial activity.
Turning to the expropriation exception, the court held that plaintiffs had not adequately alleged a taking in violation of international law. “[M]any, if not all the facts Plaintiffs allege in support of this conclusion are founded in Plaintiffs’ disagreement with different aspects of legal proceedings decided against them,” the court noted. “Rather than pointing to facts that demonstrate clear judicial injustice or discrimination, Plaintiffs ask the Court to determine that various procedural and legal determinations made by the Ethiopian courts were arbitrary or irrational.” This seems right. Although “denial of justice” is a violation of customary international law and can be part of an expropriation claim, the standard for denial of justice is high. Moreover, as the district court noted, the Supreme Court in Bolivarian Republic of Venezuela v. Helmerich & Payne Int’l Drilling Co.(2017) adopted a heightened pleading standard for expropriation claims under the FSIA, which plaintiffs’ allegations do not seem to satisfy.
It is rare for one case to raise so many interesting questions. Except for the choice-of-law clause and foreign judgments issues, on which he was likely led astray by the parties’ briefs, the judge did an excellent job with each of them. For fans of transnational litigation, Fremichael Ghebreyesus v. Federal Democratic Republic of Ethiopia is an “intellectual feast.”