Included in our 2008 FCPA Enforcement Index among FCPA-related private litigation was a suit called Argo-Tech Corp v. Yamada Corp. We first mentioned it in May 2008 (here). Argo-Tech is a Cleveland, Ohio-based aviation fuel-related equipment manufacturer. It filed suit in the U.S. federal district court in Cleveland against Japan-based defense equipment trader Yamada Corp. and its U.S. subsidiary, claiming Yamada’s involvement in a bribery case violated their contract, which therefore should be terminated. At the time of our first post about the case, we didn’t have access to the pleadings. We’ve now seen the suit, and here are some details:
Argo-Tech alleges, among other things, that:
- The distributorship agreement requires Yamada to “ensure that its personnel fully understand the United States Foreign Corrupt Practices Act and any similar local laws as well as Argo-Tech’s policy against giving bribes, kickbacks or any benefits to customer personnel or anyone else (other than normal wages paid full-time sales employees), with respect to business with customers. [Yamada] agrees to obey the letter and spirit of such laws and policies and to provide regular acknowledgements of such compliance as requested. It will also take all steps necessary to ensure compliance by its owners, managers, employees, agents and affiliates and will cooperate fully in any investigation audit of such compliance conducted by or at the request of Argo-Tech. . . .”
- Yamada paid about $900,000 to the Japan – U.S. Center for Peace and Cultural Exchange in an attempt to have Yamada serve as a subcontractor in a project to remove poison gas shells left in Fukuoka Prefecture by the former Japanese military.
- The money came from a slush fund held in a number of bank accounts managed by Yamada’s U.S. subsidiary, Yamada International Corp.
- $400,000 of that money ended up in a bank account of Motonoba Miyazaki, a Yamada executive who has been arrested on suspicion of embezzlement and bribery.
- Japanese prosecutors are looking into the payment as part of their expanding investigation into Miyazaki and former Vice Defense Minister Takemasa Moriya, who has been arrested on suspicion of receiving bribes.
- In December 2007, General Electric suspended its agreements with Yamada as the representative for the sale of the C-X engine — the next-generation cargo transport aircraft.
In reply, Yamada denied most of the allegations. It says in 1990 it helped Argo-Tech raise $150 million in financing and invested tens of millions of dollars in the company. In return, it says, it was given a 50-year contract to distribute Argo-Tech’s products. The agreement doesn’t expire until 2044. But, it says, in 2007 Eaton Corporation bought Argo-Tech and set out to consolidate distribution rights of Argo-Tech’s products. When a former employee of Yamada was named in a bribery story, it says, “Eaton seized upon the allegations in an attempt to terminate the agreement . . . .”
Private parties such as Argo-Tech have no right of action under the Foreign Corrupt Practices Act (see our post here). Only the Justice Department and the Securities and Exchange Commission can enforce the FCPA. Private claims asserting facts that, if true, would violate the antibribery provisions are usually based on the Racketeer Influenced and Corrupt Organizations Act (RICO), common-law fraud, breach of fiduciary duty or, as in this case, breach of contract.
According to the docket, the case is still in discovery and the parties have not had settlement talks.