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MENG v. SCHWARTZ

September 25, 2000

W.L. MENG, ET AL., PLAINTIFFS,
V.
BERNARD L. SCHWARTZ AND LORAL SPACE AND COMMUNICATIONS, LTD., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Lamberth, District Judge.

MEMORANDUM OPINION

Now before the Court are several motions to dismiss a derivative suit filed on November 24, 1998 by W.L. Meng, S.S. Jones, Jr., and Roy and Joan Gillison, all shareholders of Loral Space and Communications, Ltd, ("Loral"). The plaintiffs named over fifteen defendants, among them Loral, its CEO Bernard Schwartz, President Clinton, Vice President Gore, and the Democratic National Committee.*fn1

The plaintiffs allege that Schwartz bribed President Clinton and other government officials with campaign contributions in an effort to secure export licenses for Loral products. The plaintiffs claim that this alleged conduct gives rise to five causes of action: (1) breach of fiduciary duty, (2) negligence, (3) unjust enrichment, (4) civil conspiracy, and (5) civil RICO. The defendants all demur, and ask this Court to dismiss the claims pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the Court dismisses the RICO claim and declines to exercise jurisdiction over the remaining claims.

BACKGROUND

The plaintiffs' allegations in this case chart a course of drama and intrigue. One wonders what proof, if any, may lie behind these charges. But this stage of the proceedings is not designed for determining veracity; rather, it is designed to determine whether the plaintiffs have stated an actionable claim. To do this, the Court must "take as true the material facts alleged in the [plaintiffs'] amended complaint." Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 740, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976). Thus, in recounting as true many of the plaintiffs' allegations, the Court does not suggest that the allegations are indeed true.

Loral is one the world's top manufacturers of satellites. It is currently in the midst of establishing a global cellular telephone network, known as project "Globalstar." The project requires the placement of 56 satellites in low earth orbit. To this end, Bernard Schwartz, Loral's CEO, contracted with several Chinese launch providers while on a trade mission sponsored by the United States Department of Commerce in August 1994.

Before any launch could take place, Loral needed to obtain a suspension of the Foreign Relations Authorization Act of 1990 and 1991, 22 U.S.C. § 2151 et seq. (1994). The Act, enacted in the wake of Tiananmen square, prohibited the export of U.S. satellites intended for launch in China. The Act provides that the suspension may be lifted on a case by case basis if the President determines that it is in the national interest to do so. On February 6, 1996, President Clinton signed a waiver permitting one of Loral's satellites to be exported. The President did so a second time on February 18, 1998.

Between 1994, when the launch contracts were first signed, and 1998, when the last waiver was signed, Schwartz contributed over $1.4 million of his personal funds to three organizations: the Democratic National Committee, the Democratic Senatorial Campaign Committee, and the Democratic Congressional Campaign Committee. Schwartz was later reimbursed for these expenditures by Loral. The plaintiffs allege that President Clinton and other government officials explicitly agreed to trade export waivers for campaign contributions.

In May 1998, three months after President Clinton signed the second waiver, it was announced that Loral was being investigated by the Department of Justice's Campaign Finance Task Force. Thus began, relatively speaking, a minor political scandal. The Washington Post and the New York Times each covered the emerging story, while various politicians and Schwartz himself made appearances on the Sunday morning talk show circuit. The scandal gradually faded from the headlines until June 1999, when the House Select Committee on U.S. National Security and Military/Commercial Concerns with the People's Republic of China issued the "Cox Report." The report recounted many of Loral's dealings in the satellite industry and made numerous suggestions of impropriety. In response, Loral took out full page ads in several major newspapers denying any wrongdoing.

Unpersuaded by Loral's denials, the plaintiffs brought suit. In their derivative suit, the plaintiffs seek to have Loral compensated for the harms visited on it by Schwartz, President Clinton, the Democratic National Committee, and the other defendants.

ANALYSIS

I. Jurisdiction

The plaintiffs make one federal claim and four state law claims. Section 1331 of title 28 grants this Court jurisdiction over issues of federal law. See 28 U.S.C. § 1331 (1994). Further, section 1367 permits this Court to exercise supplemental jurisdiction over nonfederal claims that are "so related" with the original jurisdiction claim as to be "part of the same case or controversy." See 28 U.S.C. § 1367(a) (1994). As the state law ...


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