California Here We Come

We’ve said before (here and here) that there’s no private right of action under the FCPA. Which means offenses can be prosecuted only by the U.S. Department of Justice or the Securities and Exchange Commission. The DOJ’s Lay Person’s Guide to the FCPA notes, however, that “[c]onduct that violates the antibribery provisions of the FCPA may also give rise to a private cause of action for treble damages under the Racketeer Influenced and Corrupt Organizations Act (RICO), or to actions under other federal or state laws.” State laws? Those two words can be easy to miss. But they might be important.

The UCL. California, for example, has an Unfair Competition Law. See Bus. & Prof. Code, § 17200 et seq. It prohibits unfair competition, including unlawful, unfair, and fraudulent business acts, and it protects both consumers and competitors. Relevant to this discussion, the UCL “borrows” violations from other laws by making them independently actionable as unfair competitive practices.

Enter the FCPA. California’s UCL was the basis for the suit in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134. The plaintiff, a Korean company acting as a sales agent of Loral Corporation, alleged that Lockheed Martin submitted competing bids to sell military equipment to the Republic of Korea that were tainted by bribery and sexual favors. So in its complaint, the plaintiff “borrowed” a cause of action from the Foreign Corrupt Practices Act. The FCPA prohibits, among other things, the bribing of a foreign government official for the purpose of influencing any act or decision in his official capacity and in violation of a lawful duty, or for the purpose of inducing him to use his official influence to obtain or retain business. See 15 U.S.C. 78dd-2(a)(1)(A), (B).

Lockheed Martin argued in defense that the FCPA “impliedly bars a private action for unfair competition predicated on its violation, because the federal statute does not expressly provide for private enforcement.” But the California court said the “UCL may be predicated on a violation of a statute for which there is no private right of action, unless the predicate statute or the UCL expressly provides otherwise. . . . There is no language in the UCL barring 15 United States Code section 78dd-2 as a predicate for an unfair competition action.” Therefore, the court concluded, a suit under the UCL for violations of the FCPA could proceed. If that reasoning works for California, it might work for other states as well.

Limited but useful remedies. California’s UCL doesn’t get much attention as an FCPA-related cause of action. That’s probably because the remedies available under it exclude compensatory damages. As the court explained in Korea Supply Co. v. Lockheed Martin Corp., “Suits asserting statutory UCL claims are equitable actions. . . . For that reason, compensatory damages are not available in such suits. . . . Instead, successful private UCL plaintiffs are generally limited to injunctive relief and restitution.” But the UCL can still be a potent weapon. Companies can enjoin competitors that obtain contracts or bid for new work using corrupt means.

More state laws? The DOJ’s advice to check state laws for private causes of action for FCPA offenses is prudent after all. But there aren’t many reported cases on this point. If our readers have had any relevant experiences under state laws, we’d like to hear your stories. You can leave anonymous comments by clicking here. Or you can email comments to us here.