This previous post highlighted how the Mexican government (specifically Instituto Mexicano del Seguro Social (IMSS) – the Mexican Social Security Institute) filed a civil action against Stryker Corporation in connection with its 2013 Foreign Corrupt Practices Act enforcement action concerning conduct in, among other countries, Mexico.

As to the Mexico conduct, the SEC found in the enforcement action:

“Between March 2004 and January 2007, Stryker’s wholly-owned subsidiary in Mexico (“Stryker Mexico) made three payments totaling more than $76,000 to foreign officials employed by a Mexican governmental agency (the “Mexican Agency”) responsible for providing social security for government employees. Stryker made these payments to win bids to sell its medical products to certain public hospitals in Mexico. Stryker Mexico earned more than $2.1 million in profits as a result of these illicit payments.  These payments were made at the direction of Stryker Mexico employees, including country level management, and paid to the foreign officials through third party agents. For example, in January 2006, Stryker Mexico learned that the Mexican Agency was threatening to revoke a contract that Stryker Mexico had won to provide knee and hip products to certain public hospitals unless Stryker Mexico paid an employee of the Mexican Agency.  As a result of the demand by the employee of the Mexican Agency, Stryker Mexico directed its outside counsel in Mexico (the “Mexican Law Firm”) to make payment to the employee, on Stryker Mexico’s behalf, in order for Stryker to keep the winning bid.  At Stryker Mexico’s direction, the Mexican Law Firm paid the foreign official approximately $46,000 on behalf of Stryker Mexico and, as a result of this payment, the Mexican Agency did not revoke Stryker Mexico’s status as the winning bidder. The Mexican Law Firm then invoiced Stryker Mexico for $46,000 for purported legal services rendered, even though no such services were provided. Stryker Mexico recorded these improper payments as legitimate legal expenses in its books and records.  Stryker Mexico earned over $1.1 million in illicit profits on this contract alone. Stryker Mexico made two additional payments through intermediaries during the relevant period in much the same fashion, with the purpose of retaining or obtaining business from public hospitals. The additional payments were in excess of $34,000 and earned Stryker illicit profits of nearly $1 million.”

In the civil action, IMSS alleged, under the heading “Effect on IMSS and IMSS’s Damages From The Corporation,” as follows:

“To obtain IMSS contracts, Stryker had to represent that it was complying with all IMSS’ requirements, including that no improper inducements were being made to obtain the contract. Stryker’s false, material statements and omissions to IMSS were fraudulent.

IMSS relied on Stryker’s false, material statements and omissions to consummate business transactions with Stryker.

IMSS’ reliance lasted longer than the bribes themselves. To obtain continued business with IMSS, Stryker had to represent that it had and would comply with Mexican law. Absent the false representations, IMSS would have been legally barred from contracting with Stryker. Therefore, IMSS relied on Stryker’s representations when approving contracts for the purchase of Stryker products well after the expressly illicit conduct […].

Stryker’s unlawful conduct harmed IMSS in numerous ways.

First, Stryker conspired with individual IMSS officials to damage IMSS.

Stryker induced the breach of fiduciary duties owed by IMSS officials as governmental officials and agents, and Stryker participated in, and profited from, those breaches.

Stryker bribed IMSS officials with funds culled from the profit that Stryker was reaping on IMSS contracts Stryker illegally obtained through bribery. The contract price, therefore, was inflated at least by the amount of the bribes. At a minimum, this amount represented economic harm to IMSS.

IMSS was damaged by the modification of IMSS’ purchasing requirements to serve Stryker’s, rather than IMSS’, needs.

Additionally, Stryker’s corrupt practices did violence to IMSS’ contracting process and IMSS’ ability to impartially evaluate potential medical device providers. Because the Stryker contracts were non-competitive as a result of the bribes, IMSS paid an artificially inflated price for the goods and services provided thereunder, resulting in lost opportunities for expenditures of those funds to address Mexican citizens’ healthcare needs in other areas. The effects of these harms have reverberated throughout the organization.

The scope of IMSS’ damages is also demonstrated by the amount of Stryker’s profit. Despite its bribes and other improper payments, Stryker was still able to engender excessive profits.

Pursuant to Mexican and United States law, Stryker’s breaches of the Mexican government procurement procedures voided Stryker’s contracts, and therefore, Stryker should be required to return all proceeds received from IMSS, retaining at most the actual production cost of the equipment it delivered.

Stryker actively concealed its illegal conduct.

Stryker also subverted the fiduciary duties of the IMSS officials responsible for ensuring that IMSS’ procurement procedures were followed. The same officials who should have challenged Stryker’s illegal conduct were the officials who received Stryker’s bribes. As a result, IMSS was unable to bring this lawsuit until the recent change in governmental administration.”

Based on the above allegations, IMSS asserted four claims against Stryker: (i) Inducement of, and Participation in, Breach of Fiduciary Duty; (ii) Fraud; and (iii) Violation of the Law of Acquisitions, Leases and Services of the Public Sector (under Mexican law); and (iv) breach of contract.

Earlier this year, the court granted Stryker’s motion to dismiss based on the application of the doctrine of forum non conveniens (a doctrine that allows a federal court to decline jurisdiction – even though the court may indeed have jurisdiction – if the convenience of the parties and the court and the interests of justice indicate that the action should be tried in another forum).

Recently, IMSS filed a notice of appeal in the Sixth Circuit and its recent appellate brief states in summary fashion:

“The lower court’s dismissal of IMSS’ anti-corruption lawsuit on the basis of forum non conveniens was based on a number of errors.

First, the dismissal contravenes the provisions of the United Nations Convention Against Corruption (the “Convention”), which has been in effect since 2005. The Convention requires the United States to open its courts to State Parties like IMSS to bring civil actions for damages caused by corrupt activities like Stryker’s bribery. The lower court, however, did not even mention the Convention in forum non conveniens analysis and, instead of recognizing Mexico’s rights under the Convention to bring this action, instead dismissed IMSS’ action because the Court believed that Mexico has a greater interest in this action than does the United States. The lower court’s conclusion vitiates the Convention’s requirement that the United States allow actions such as IMSS’ suit against Stryker because, by definition, the Convention only applies to actions brought by foreign State Parties related to corruption in foreign countries, and in all such cases, in the lower court’s view, the victimized nation will have a greater interest than the United States. Moreover, the lower court’s conclusion that Mexico’s policy interests are best served by dismissal ignores Mexico’s own statement (through IMSS) that it wants this lawsuit brought here pursuant to the Convention. When the lower court substituted its own judgment for the that of the Mexican government, it erred and violated both the Convention and principles of international comity. The lower court’s failure to apply the Convention led it to the bizarre conclusion that Mexico’s interests are best served by dismissing Mexico’s lawsuit from its chosen forum in the face of Mexico’s stated opposition to that dismissal.

The lower court’s dismissal of the Convention sets a dangerous precedent that undermines a significant international treaty combating corruption. The lower court’s failure to address the importance of the Convention also undermines the lower court’s own balancing of the forum non conveniens factors. The Convention expressly allows for IMSS’ suit, so the lower court should have granted far more deference to IMSS’ choice than it did. Instead, the lower court expressly afforded “little deference to the Plaintiff’s forum choice.”

In a similar manner, the lower court’s refusal to apply the Convention places State Parties in a dilemma—publicly challenge the competency of the State Party’s own courts (and thereby put at risk the State Party’s entire legal system) or accept a transfer to courts that may be corrupted by a party that has already shown the capacity and predisposition to act corruptly. Although there is no question of the competency of Mexican courts, the entire purpose of the Convention was to establish a framework that avoids such impossible choices.

Second, the lower court erred by not holding Stryker to its burden of proof. Stryker presented no evidence that it would suffer any burden from defending itself here. As a result, Stryker wholly failed to meet its burden to support a dismissal for forum non conveniens. Ignoring the lack of proof led the lower court to adopt a position the United States Supreme Court found “strange” and that the Third Circuit found so “puzzling” that it invoked Alice in Wonderland; that is, that it would have been unduly burdensome for Stryker to defend this action in its hometown and more convenient for Stryker to defend itself in Mexican courts.

Third, the lower court erred when it held that Mexican courts are available simply because Stryker assented to jurisdiction in Mexico, even though it is undisputed that, because of a series of investment treaties between the United States and Mexico, Mexican courts historically will not address claims against foreign parents of Mexican subsidiaries—the claims brought by IMSS.

Fourth, the lower court erred in not properly weighing the public and private interest factors. The lower court’s analysis fails to address the international scope of Stryker’s bribery scheme, which caused United States authorities to initiate multiple actions against Stryker, demonstrating a clear interest of the United State in this matter. Mexico has also directly expressed its interest in this lawsuit—Mexico filed it.

Ultimately, the lower court failed to see that Stryker is forum shopping here, not IMSS. Clearly, Stryker’s goal is not convenience, but inconvenience. Stryker prefers to defend this action where resolution will be delayed the longest and where Stryker can avoid compelling proof of its wrongs.”

The post Appellate Court To Decide If The U.S. Is An Appropriate Forum For The Mexican Government To Sue Stryker For Damages In Connection With A 2013 FCPA Enforcement Action appeared first on FCPA Professor.