IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA



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W. L. MENG, et al.
   Plaintiffs,

   vs.

BERNARD L. SCHWARTZ
and LORAL SPACE AND
COMMUNICATIONS, LTD.,
 et al.    Defendants.
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)   Case No: 1:98CV02859 (RCL)
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PLAINTIFFS' OPPOSITION TO DEFENDANT JOHN HUANG'S

MOTION TO DISMISS



Plaintiffs, by counsel, respectfully submit this Opposition to Defendant John Huang's Motion to Dismiss. (1)

MEMORANDUM OF LAW

I. Introduction.

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 a scheme to bribe high level government officials, including the President of the United States, in order to obtain favorable treatment 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 alleges that Defendant John Huang, "who was Deputy Assistant Secretary for International Economic Policy at the Commerce Department before transferring to the D[emocratic] N[ational] C[ommittee], also agreed to participate in the scheme and, with the assistance of other Commerce Department officials . . . participated in planning and implementing the Commerce Department's trade mission to China and other countries." Amended Complaint at para. 58. The Amended Complaint thus raises a common law civil conspiracy claim against Huang, as well as a RICO conspiracy claim.

Huang's motion is based in large part on a fundamental misunderstanding -- or misrepresentation -- of Plaintiffs' claims. Plaintiffs do not claim that Huang participated in the operation or management of Loral in a manner that violated 18 U.S.C. 1962(c) of RICO. Rather, Plaintiffs claim that Huang conspired with others in violation of 18 U.S.C. 1962(d) of RICO. Because Plaintiffs' Amended Complaint properly pleads a RICO conspiracy, Huang's motion to dismiss must be denied. In addition, Huang's motion to dismiss also must be denied because, as set forth below and in Plaintiffs' Opposition to Motion to Dismiss of Federal Defendants Gore, Berger, Herman, Ickes, and Moss, the United States cannot substitute itself for Huang in this action.

II. Discussion.

A. Plaintiffs Do Not Assert a 1962(c) Claim Against Huang.

Huang 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 claim against Huang under 18 U.S.C. 1962(d), not 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) (emphasis added).

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 Huang participated in the operation or management of Loral. Rather, they only alleged that Huang conspired with others, including Loral Chairman and CEO Bernard L. Schwartz, to violation Section 1962(c).

Huang can point to no case holding that such a claim is improper, because there is none. In fact, in Salinas v. United States, 522 U.S. 52 (1997), the U.S. Supreme Court made clear that, 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, 522 U.S. at 65; see also BCCI Holdings (Luxembourg), S.A. v. Khalil, 56 F. Supp. 2d 14, 114-17 (D.D.C. 1999). Plaintiffs' Amended Complaint clearly pleads that Huang "adopt[ed] the goal of furthering or facilitating" this unlawful scheme and "agree[d] to facilitate . . . the acts leading to the substantive offense," namely by "agree[ing] to participate in the scheme and, with the assistance of other Commerce Department officials . . . participat[ing] in planning and implementing the Commerce Department's trade mission to China." See Salinas, 522 U.S. at 65; Amended Compliant at para. 58. Huang's motion must be denied in this regard.

B. The United States Cannot Be Substituted for Huang.

Huang also alleges that Plaintiffs' claims against him cannot proceed because the United States has attempted to substitute itself for him in this action, in as much as he allegedly was acting within the scope of his employment as an official of the U.S. Department of Commerce. Huang's assertion is disingenuous on it face. Huang only worked at the Commerce Department during part of the unlawful bribery scheme; he went to work for the DNC in approximately December 1995, while the bribery scheme continued unabated. Consequently, Huang's substitution argument must be rejected or, at a minimum, cannot be determined at this time. (2)

Federal employees are not immune from common law tort claims -- like Plaintiffs' RICO conspiracy and common law civil conspiracy claims -- if their alleged misconduct was not properly within the scope of their federal employment. See Haddon v. United States, 68 F.3d 1420, 1422-23 (D.C. Cir. 1995). If they were acting outside the scope of their employment -- as Huang and the other federal officials named in this lawsuit were -- then the United States Government may not substitute itself for them as a party defendant. Id. at 1423.

The Federal Employees Liability and Tort Compensation Act of 1988, commonly known as the Westfall Act, was enacted by Congress in response to the Supreme Court's decision in Westfall v. Erwin, 484 U.S. 292 (1988). In Westfall, the Supreme Court held that federal employees enjoyed immunity from suit if their conduct was both within the scope of their employment and discretionary in nature. Westfall, 484 U.S. at 299. The Westfall Act eliminates the "discretionary" requirement (see Haddon, 68 F.3d at 1422-23), and provided that United States be substituted as the sole defendant if the Attorney General certifies that the employee was acting within the scope of employment at the time of the incident giving rise to the action. 28 U.S.C. 2679(d)(1) & (2).

However, the Attorney General's certification, even if bona fide, is not conclusive. As this Court itself has ruled, the Attorney General's certification is subject to de novo review by the courts:

Although a certification by the Attorney General's designee is prima facie evidence that an employee was acting in the scope of his or her employment, the certification, when challenged, is entitled to de novo review by this Court.

Alexander v. Federal Bureau of Investigation, 971 F. Supp. 603, 611 (D.D.C. 1997), citing, Kimbro v. Velten, 30 F.3d 1501, 1509 (D.C. Cir. 1994).

In Kimbro, the Court noted that "the scope question and the merits in these sorts of cases often overlap -- sometimes exactly." Kimbro, 30 F.3d at 1505. It went on to consider the proper procedure for exercising judicial review of the certification. It concluded that district courts should decide the scope of employment question as if it were presented by a summary judgment motion after an opportunity for discovery and an evidentiary hearing. Kimbro, 30 F.3d at 1509. Moreover, and most importantly, the Attorney General's certification is not entitled to "any particular evidentiary weight." Kimbro, 30 F.3d at 1509. Accordingly, in Alexander, this Court held:

Having raised a genuine issue of material fact that the conduct was performed outside the scope of employment, plaintiffs are entitled to discovery before this court reaches the merits of the certification. For this reason, the motion to dismiss for failure to exhaust administrative remedies must be deferred.



Alexander, 971 F. Supp. at 611.

Whether the individual Defendants' conduct was within the scope of their employment is a factual determination to be made under District of Columbia law. Haddon, 68 F.3d at 1423. District of Columbia law looks to the Restatement (Second) of Agency (1957) (the "Restatement") for the applicable standards. Id. citing Mosely v. Second New St. Paul Baptist Church, 534 A.2d 346, 248 n. 4 (D.C. 1987). According to the Restatement:

Conduct of a servant is within the scope of employment if, but only if, (1), it is of the kind he is employed to perform; (2) it occurs substantially within the authorized time and space limits; (3) it is actuated, at least in part, by a purpose to serve the master; and (4) if force is intentionally used by the servant against another, the use of force is not unexpected by the master.



Restatement 228; see also Haddon, 68 F.3d at 1424. Courts most commonly focus on prongs (1) and (3), and the District of Columbia courts and the District of Columbia Circuit have held repeatedly that employer liability is precluded unless every part of the test is passed. See id.

Not all acts an employee undertakes on the employer's premises during business hours are within the scope of the employee's employment. If this were the case, the third prong of the Restatement test would have no meaning, and District of Columbia courts clearly continue to give meaning to this third prong. See District of Columbia v. Coron, 515 A.2d 435, 438 (D.C. 1986) (rejecting a claim that police department is liable for actions of police officers whenever on duty); see also Boykin v. District of Columbia, 484 A.2d 560 (D.C. 1984) (teacher who sexually assaulted a student in the school cafeteria was not acting within the scope of his employment because his conduct was "in no degree committed to further the school's interests."). As the District of Columbia Court of Appeals likewise stated in Penn Central Transportation Co. v. Reddick:

[I]f the employee's departure from his master's business is of such a marked and decided character . . . then the employer is no longer responsible. . . . 'The agent is not then acting within the scope of his authority in the business of the principal, but [acting] in the furtherance of his own [or another's] ends.' This type of departure is a complete abandonment of the master-servant relationship.

389 A.2d 27, 29-30 (D.C. 1979) (citations omitted).

Plaintiffs have compelling evidence that Huang was not working within the scope of his employment at the Commerce Department, but was engaged in unlawful campaign fundraising for President Clinton, Vice-President Gore, and the Democratic Party, including selling seats on Commerce Department trade missions in exchange for campaign contributions. This compelling evidence includes both Huang's repeated invocation of the Fifth Amendment privilege against self-incrimination when deposed about his activities at the Commerce Department in Judicial Watch, Inc. v. U.S. Department of Commerce, Civil Action No. 95-0133 (RCL), as well as admissions from Huang himself during interviews he gave to the FBI. The testimony of Ms. Nolanda Hill at an evidentiary hearing in Judicial Watch, Inc. v. U.S. Department of Commerce, Civil Action No. 95-0133 (RCL), during which she swore, under oath, that former Commerce Secretary Ron Brown admitted to her that Mrs. Clinton placed Huang at the Commerce Department, to facilitate unlawful campaign fundraising schemes, further confirms this point:

Q: And he told you, Secretary Brown, did he not, that John Huang was forced into the Commerce Department by the Hillary Rodham Clinton Arkansas group at the White House? He told you that, didn't he?



A: Yes, sir.



See Excerpt 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 70.

Moreover, U.S. Supreme Court precedent makes clear that, in the civil context, adverse inferences are routinely drawn against witnesses who invoke the Fifth Amendment privilege against self-incrimination. Baxter v. Palmigiano, 425 U.S. 308 (1976); see also Rad Services, Inc. v. Aetna Casualty and Surety Co., 808 F.2d 271, 274-77 (3d Cir. 1986); Rosebud Souix Tribe v. A & P Steel, Inc., 733 F.2d 509, 520-21 (8th Cir. 1984); Brink's Inc. v. City of New York, 717 F.2d 700, 715 (2d Cir. 1983); Data General Corp. v. Grumman Systems Support Corp., 825 F. Supp. 349, 352-53 (D. Mass. 1993). When questioned under oath about his activities at the Commerce Department, Huang repeatedly invoked the Fifth Amendment Privilege against self-incrimination:

Q: Is it not true that Mr. Schwartz on behalf of Loral Corporation was selected for that trade mission on the basis of political contributions to the Democratic National Committee and the Clinton-Gore campaign?



A: Invocation, Your Honor.



See April 15, 1999 Deposition of John Huang in Judicial Watch, Inc. v. U.S. Department of Commerce, Civil Action No. 95-0133 (RCL) (D. District of Columbia), attached as Exhibit 2, at 100-01.

Q: You are aware that Melissa Moss participated in a scheme to sell seats on trade missions at the Commerce Department, correct?



A: I invoke my privilege. . . .



Q: In fact, you heard conversations that Melissa Moss participated in, or she made reference to selling seats on trade missions, correct?



A: I invoke my privilege. . . .



Q: And in fact you saw documents, which evidenced that seats on trade missions were being sold to democratic party and Clinton/Gore donors, did you not?



A: I invoke my privilege. . . .



Q: In fact, Secretary Ronald Brown showed you those documents correct?



A: I invoke my privilege. . . .



Q: And he discussed those documents with you, correct?



A: I invoke my privilege. . . .



Id. at 175-77.

Q: In fact, for all of the . . . Department of Commerce trade missions, names of donors were provided by the Democratic National Committee to the Commerce Department, correct?



A: I invoke my privilege. . . .



Id. at 180-81.

Q: It was you who recommended the inclusion of Bernard Schwartz of Loral Corporation on the trip to China in the fall of 1994, correct?



A: I invoke my privilege. . . .



Q: And you made this recommendation because he had donated several hundred thousand dollars to the Democratic Party and Clinton-Gore campaign, correct?



A: I invoke my privilege. . . .



Id. at 197-98.

Q: Do you have knowledge as to whether or not the president knew that Bernard Schwartz was being taken on that trade mission to China . . . in exchange for his campaign contributions to the Democratic Party?



A: . . . I invoke my privilege. . . .



Q: Do you have knowledge as to whether or not Hillary Clinton personally approved of the inclusion of Bernard Schwartz of Loral Corporation on the trade mission to China in the fall of 1994 in exchange for his campaign contributions to the Democratic Party?



A: I invoke my privilege. . . .



Q: Same question as to Alexis Herman.



A: I invoke my privilege. . . .



Q: Same question with regard to Harold Ickes.



A: I invoke my privilege. . . .



Q: Same question with regard to Terry McAuliffe.



A: I invoke my privilege. . . .



Q: Same question with regard to Marvin Rosen.

A: I invoke my privilege. . . .



Id. at 198-99.



Q: Have you ever discussed the trade mission to China in the fall of 1994 with Bernard Schwartz?



A: I invoke my privilege. . . .



Q: With anyone from Loral Corporation?



A: I invoke my privilege. . . .



Q: Same question with regard to any participant on that trade mission to China.



A: Same. I invoke my privilege. . . .



Id. at 200-01. Clearly, Plaintiffs are entitled to strong adverse factual inferences that Huang was selling seats on Commerce Department trade missions in exchange for campaign contributions while at the Commerce Department, not pursuing any interests of the United States Government.

Moreover, according to FBI 302 interviews of Huang, which were recently made public by the U.S. House of Representatives Committee on Government Reform, Huang spent a substantial amount of his time at the Commerce Department fundraising for the Democrats and the Democratic Party. In fact, the FBI even labeled one section of its "302" interview reports, "HUANG'S FUNDRAISING AT THE COMMERCE DEPARTMENT." See FBI 302's, attached as Exhibit 3, at DOJ-H00073. According to the 302's:

In light of this compelling evidence that Huang was not acting in furtherance of the United States' interest while working at the Commerce Department, but was pursuing the partisan, political interest of President Clinton, Vice-President Gore and the Democratic Party, the Attorney General's certification must be rejected, or, at a minimum, discovery must be allowed before the Court considers the certification. Kimbro v. Velten, 30 F.3d at 1509; Alexander, 971 F. Supp. at 611

III. Conclusion.

For the foregoing substantial reasons, and for the substantial reasons set forth in Plaintiffs' oppositions to all of the Defendants' motions to dismiss, Huang's motion to dismiss must be denied.

Respectfully submitted,



JUDICIAL WATCH, INC.







_____________________________

Larry Klayman, Esq.

D.C. Bar No. 334581







______________________________

Paul J. Orfanedes, Esq.

D.C. Bar No. 429716

Suite 725

501 School Street, S.W.

Washington, DC 20024

(202) 646-5172



Attorneys for Plaintiffs

CERTIFICATE OF SERVICE



I hereby certify that on January 26, 2000 a true and correct copy of the foregoing PLAINTIFFS' OPPOSITION TO DEFENDANT JOHN HUANG'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.

SPEISER KRAUSE

2 Grand Central Tower

34th Floor

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.

Trial Attorney

Torts Branch, Civil Division

P.O. Box 7146

Ben Franklin Station

Washington, DC 20044-7146

Attorneys for Defendants William Jefferson Clinton and Hillary Rodham

Clinton:



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.

Suite 700

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

Suite 700

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. Huang incorporates by reference into his motion the Memorandum of Points and Authorities submitted by the Clinton Justice Department on behalf of federal officials and former federal official named as Defendants in this action. Plaintiffs likewise incorporate by reference the arguments presented in their opposition to the Clinton Justice Department's motion to dismiss.

2. The Clinton Justice Department has not even raised this argument on behalf of Huang. It has raised it, however, on behalf of Defendants Gore, Sandy Berger, Alexis Herman, Harold Ickes, and Melissa Moss.