(CN) - A U.K. arbitrator should determine whether an Alcoa agent bribed Bahrain's government, costing the nation's principal aluminum smelter $1 billion, a federal judge ruled.
Aluminum Bahrain, or Alba, sued
Alcoa World Alumina in 2008, alleging violations of federal anti-racketeering law, fraud and other charges.
Four years later, Senior U.S. District Judge Donetta Ambrose in Pittsburgh refused
to dismiss claims against Alcoa; its affiliate, Alcoa World Alumina; its vice president of marketing, William Rice; and its agent Victor Dahdaleh, a Canadian citizen who lives in London.
A case statement that Ambrose quoted previously says that the defendants bribed people with "power to influence the decision-making process and ensure that Alba continued to deal with defendants and overpay for alumina," a raw material necessary for the production of aluminum.
The scheme allegedly caused Alba to overpay more than $400 million for alumina.
Ambrose also noted that "Alba has made detailed allegations that Dahdaleh acted in concert with others for the purpose of defrauding Alba out of hundreds of millions of dollars."
Indeed, Dahdaleh allegedly convinced Alba since 1990 to deal with his offshore shell companies as affiliates of Alcoa, but their "true purpose and role" was to buy alumina from Alcoa at market rates and then resell the product to Alba at inflated prices, a case statement says.
Dahdaleh also used his companies to funnel bribes to the Bahraini government and Alba's senior officials, according to the case statement.
Ambrose ultimately stayed discovery in the Pennsylvania case until a U.K. trial involving similar facts against Dahdaleh resolved in December 2013.
Dahdaleh then moved to dismiss Alba's claims or to stay and compel arbitration in the U.K.
Ambrose granted the motion on April 28, finding that Dahdaleh is an agent who may enforce arbitration agreements Alba signed with Alcoa in 1990 and a Dahdaleh firm in 2005.
"Throughout its amended complaint, Alba calls Mr. Dahdaleh Alcoa's agent," Ambrose wrote. "Alba's RICO case statement reiterates: 'Throughout the conspiracy, defendants falsely represented to Alba that the Dahdaleh-owned shell companies were legitimate businesses that were controlled by, affiliated with, and authorized to act on behalf of Alcoa and its subsidiaries.' Alba cannot retreat from its own pleadings. I am not persuaded that Alba's use of the term 'agent' in reference to Mr. Dahdaleh was merely a synonym for 'criminal accomplice' or 'coconspirator.'"
The judge later added: "Even if Alba did not know until 2007 that the affiliate it contracted with in 2005 was controlled by Mr. Dahdaleh, I find there is an 'obvious and close nexus' between the non-signatory and the contracting parties because Mr. Dahdaleh previously had participated in negotiations between Alba and Alcoa, Alba knew Mr. Dahdaleh 'as a legitimate agent of or consultant to Alcoa,' and Alba believed it had contracted with Alcoa affiliates under the 1990 contracts, including the assignments, and the 2005 agreement."
Alba's claim that this an atypical RICO case against organized crime also failed.
"Alba does not allege that Mr. Dahdaleh and his co-conspirators used traditional organized crime techniques of violence and intimidation to further its illegal business interests," Ambrose wrote. "Although this case has triggered criminal investigations within several countries, I disagree that the international context of this case demonstrates that it is the 'exceptional' RICO case targeting organized crime."
Despite policy concerns about Alba's ability to exercise its RICO rights in England, the court refused to invalidate the arbitration agreements.
Alcoa reportedly netted $23 billion in revenue last year, and this year's first-quarter sales totaled $5.5 billion.