Intercontinental Industries v. Wuhan State Owned Industrial ( 2015 )


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  •                                                                            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    NOT FOR PUBLICATION                            AUG 19 2015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  to  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    NOT FOR PUBLICATION                             AUG 19 2015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
    FOR THE NINTH CIRCUIT
    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.,
    Defendants - Appellees.
    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
    Before: W. FLETCHER, PAEZ, and BERZON, Circuit Judges.
    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.
    6