Intercontinental Industries v. Wuhan State Owned Industrial

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 19, 2015
• Docket: 13-56136
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION AUG 19 2015

MOLLY C. DWYER, CLERK UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

INTERCONTINENTAL INDUSTRIES No. 13-56136 CORPORATION, D.C. No. 2:10-cv-04174-JAK-E Plaintiff - Appellant, Central District of California, Los Angeles v.

WUHAN STATE OWNED ORDER INDUSTRIAL HOLDINGS CO., LTD., et al.,

Defendants - Appellees.

Before: W. FLETCHER, PAEZ, and BERZON, Circuit Judges.

Appellees’ Motion for Clarification or, in the Alternative, Petition for

Limited Rehearing is GRANTED. Page 5 of the Memorandum, filed on July 27,

2015, is amended as follows: Change

judicial discovery.> to

request for jurisdictional discovery.> An amended Memorandum is filed

concurrently with this order.

No further petitions for rehearing may be filed. FILED NOT FOR PUBLICATION AUG 19 2015

MOLLY C. DWYER, CLERK UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS

INTERCONTINENTAL INDUSTRIES No. 13-56136 CORPORATION, D.C. No. 2:10-cv-04174-JAK-E Plaintiff - Appellant,

v. AMENDED MEMORANDUM*

WUHAN STATE OWNED INDUSTRIAL HOLDINGS CO., LTD., et al.,

Appeal from the United States District Court for the Central District of California John A. Kronstadt, District Judge, Presiding

Argued and Submitted July 8, 2015 Pasadena, California

Plaintiff Intercontinental Industries Corporation brought this action against

Defendants Wuhan State Owned Industrial Holdings Company and Hubei Province

Government in the Central District of California, alleging fraud, RICO violations,

* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36-3. cancellation of contract due to fraud and duress, and breach of contract. Plaintiff

appeals the district court’s judgment dismissing Plaintiff’s First Amended

Complaint (“FAC”) for lack of subject matter jurisdiction and venue, and denying

Plaintiff’s requests for leave to amend and to pursue jurisdictional discovery.

Specifically, Plaintiff argues that (1) the district court had subject matter

jurisdiction pursuant to the commercial activity exception of the Foreign Sovereign

Immunities Act (“FSIA”), 28 U.S.C. § 1605(a)(2); and (2) the forum selection

clause that the district court enforced, which named Chinese courts as the exclusive

venue for all litigation arising from the contract, was invalid.

We have jurisdiction under 28 U.S.C. § 1291, and we reverse and remand

for further proceedings consistent with this disposition.

1. We review de novo a dismissal for lack of jurisdiction under the

FSIA. See Terenkian v. Republic of Iraq, 694 F.3d 1122, 1132 (9th Cir. 2012).

The denial of a party’s request for leave to amend or to pursue jurisdictional

discovery is reviewed for abuse of discretion. William O. Gilley Enters., Inc. v.

Atl. Richfield Co., 588 F.3d 659, 669 & n.8 (9th Cir. 2009); Harris Rutsky & Co.

Ins. Servs., Inc. v. Bell & Clements Ltd., 328 F.3d 1122, 1135 (9th Cir. 2003). The

parties agree that Defendants are foreign state entities and presumptively entitled to

2 sovereign immunity, so the only issue is whether the FSIA’s commercial activity

exception applies.

The only prong of the FSIA commercial activity exception that Plaintiff

argues is the third, “direct effects” exception, which applies to acts connected to

commercial activity that “cause[] a direct effect in the United States.” See 28

U.S.C. § 1605(a)(2). But Plaintiff’s FAC does not allege any “direct effect”

sufficient under the FSIA. Plaintiff has alleged significant general damages, but

financial loss to a United States-based entity in itself is not “sufficient to constitute

a ‘direct effect.’” Adler v. Fed. Republic of Nigeria, 107 F.3d 720, 726-27 (9th Cir.

1997). Without more, Plaintiff’s FAC fails on sovereign immunity grounds.

We conclude, however, that the district court abused its discretion when it

denied Plaintiff’s request for an opportunity to seek to amend the FAC to allege

facts that could place the case within the commercial activity exception. As a

general rule, courts should provide an opportunity to amend if a plaintiff could

allege additional facts that would save the complaint from dismissal. See Petersen

v. Boeing Co., 715 F.3d 276, 280 (9th Cir. 2013) (per curiam). If, as Plaintiff

argues here, Defendants’ conduct directly resulted in the loss of revenue from

existing contracts with United States-based customers, then the “direct effects”

prong of the commercial activity exception likely applies. See § 1605(a)(2)

3 (establishing an exception to sovereign immunity in cases based upon acts outside

the United States that “cause[] a direct effect in the United States”); Terenkian, 694

F.3d at 1139 (discussing Cruise Connections Charter Mgmt. 1, LP v. Att’y Gen. of

Can., 600 F.3d 661 (D.C. Cir. 2010)). Although Plaintiff’s counsel was not aware

of any particular contacts at the time of the hearing on the motion to dismiss, there

were, assertedly, reasons for that lack of information, including the Defendants’

control of Plaintiff’s records. Given the basis for Defendants’ jurisdictional

challenge, Plaintiff’s request for an opportunity to seek to amend was reasonable,

and the district court should have granted it.

2. Concerns of undue delay and prejudice do not override the general

rule favoring amendment. Although Plaintiff had amended the complaint once¯to

add defendants and claims related to those defendants¯the district court had never

before dismissed the case based on the adequacy of the allegations in the FAC.

Moreover, remand will not preclude Defendants from raising another jurisdictional

challenge to Plaintiff’s amended complaint. Accordingly, we remand the case to

the district court with instructions to grant an opportunity to amend so that Plaintiff

can attempt to plead facts establishing subject matter jurisdiction under the “direct

effects” prong of the commercial activity exception.

4 3. Although Plaintiff failed to invoke the first prong of the FSIA’s

commercial activity exception before the district court, Plaintiff did brief the issue

on appeal. Because it was not raised in the district court, we decline to address

Plaintiff’s argument that Defendants carried on commercial activity in the United

States. See § 1605(a)(2). However, on remand, if Plaintiff alleges facts under that

prong, the district court may consider that prong’s applicability in the first

instance.

4. Plaintiff’s claim that Defendants may possess the documents needed

to show that the commercial activity exception applies is sufficient to warrant

consideration of a narrowly tailored request for jurisdictional discovery. See Am.

W. Airlines, Inc. v. GPA Grp., Ltd., 877 F.2d 793, 801 (9th Cir. 1989). Plaintiff

may renew its discovery request on remand.

5. We review the district court’s decision to enforce a forum selection

clause for abuse of discretion. See N. Cal. Dist. Council of Laborers v. Pittsburg-

Des Moines Steel Co., 69 F.3d 1034, 1036 n.3 (9th Cir. 1995). A forum selection

clause is invalid if “the inclusion of the clause in the agreement was the product of

fraud.” Richards v. Lloyd’s of London, 135 F.3d 1289, 1294 (9th Cir. 1998) (citing

M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12, 15 (1972)). Here, the FAC

plainly alleged a fraudulent enterprise that extended to the inclusion of the forum

5 selection clause. Specifically, the FAC alleged that Xiansheng Li falsely told

Plaintiff, on behalf of Defendants, that the relevant Chinese authorities would

approve and protect Plaintiff’s investment, and would help to resolve disputes in

Plaintiff’s favor. The district court erred in enforcing the 2005 forum selection

clause despite these allegations of fraud. Because Plaintiff created a “factual

contest” as to whether it consented to the 2005 forum selection clause in reliance

on Defendants’ fraudulent assurances, we reverse the district court’s ruling and

remand with instructions to determine whether Defendants induced Plaintiff’s

assent to the forum selection clause through fraud. See Petersen, 715 F.3d at 280-

83.

REVERSED and REMANDED.