First Investment Corp. of Marshall Islands v. Fujian Mawei Shipbuilding

REVISED JANUARY 17, 2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
December 21, 2012
No. 12-30377 Lyle W. Cayce
Clerk
FIRST INVESTMENT CORPORATION OF THE MARSHALL ISLANDS,
Petitioner-Appellant
v.
FUJIAN MAWEI SHIPBUILDING, LIMITED, erroneously sued as
Fujian Mawei Shipbuilding, Limited of the People’s Republic of China;
FUJIAN SHIPBUILDING INDUSTRY GROUP CORPORATION,
erroneously sued as Fujian Shipbuilding Industry Group Corporation
of the People’s Republic of China; PEOPLE’S REPUBLIC OF CHINA
Respondents-Appellees
Appeal from the United States District Court
for the Eastern District of Louisiana
Before STEWART, Chief Judge, and KING and OWEN, Circuit Judges.
KING, Circuit Judge:
First Investment Corporation of the Marshall Islands appeals a district
court’s decision to deny confirmation of a foreign arbitral award against Fujian
Mawei Shipbuilding Ltd., Fujian Shipbuilding Industry Group Corp., and the
People’s Republic of China. This case requires us to address an issue of first
impression in this circuit: whether a court may dismiss a petition to confirm a
foreign arbitration award for lack of personal jurisdiction under the United
No. 12-30377
Nations Convention on the Recognition and Enforcement of Foreign Arbitral
Awards. For the reasons that follow we conclude that the district court’s
dismissal of the petition on personal jurisdiction grounds was appropriate. We
similarly conclude that the district court properly dismissed the People’s
Republic of China for lack of subject matter jurisdiction. Accordingly, we affirm
the district court’s judgment.1
I. FACTUAL AND PROCEDURAL BACKGROUND
On September 15, 2003, First Investment Corporation of the Marshall
Islands (“First Investment”) entered into a series of shipbuilding contracts with
Fujian Shipbuilding Industry Group Corp. (“FSIGC”) and Fujian Mawei
Shipbuilding Ltd. (“Mawei”). FSIGC and Mawei (collectively, the “Fujian
Entities”) are Chinese companies. FSIGC is a Chinese state-owned entity, and
Mawei is a private corporation of which FSIGC is a majority shareholder.
First Investment alleges that the Fujian Entities breached the contracts
by refusing to honor an option agreement. Pursuant to a contractual arbitration
clause, First Investment gave notice of arbitration to the Fujian Entities on May
3, 2004. An arbitration panel was duly constituted in London on June 18, 2004,
under the rules of the London Maritime Arbitration Association. First
Investment appointed Bruce Harris to the panel, and the Fujian Entities
appointed Wang Sheng Chang. Harris and Wang then selected Professor J.
Martin Hunter to complete the panel.
The arbitration concluded on September 17, 2005, at which time the
arbitrators prepared a draft award in First Investment’s favor. Professor
Hunter expressed his belief that the panel would need to meet to deliberate
before issuing a final award. After receiving a deliberations memorandum from
1
A separate opinion will issue in Covington Marine Corporation, et al. v. Xiamen
Shipbuilding Industry Company, Limited, No. 12-30383, which was consolidated for argument
with the present case.
2
No. 12-30377
Wang, Professor Hunter prepared a first draft of the award, and circulated it to
Wang and Harris. In February 2006, Wang sent Hunter his comments on the
draft award, as well as a dissenting opinion. Professor Hunter again expressed
his belief that in-person discussions would be necessary. Wang replied that he
would agree to a final award by email, but that he would also be available to
meet in London in April 2006. A second draft was then sent by Professor Hunter
on March 25, 2006, to the other arbitrators for signature. Wang did not receive
the second draft and did not respond, having been detained by the People’s
Republic of China (“PRC”) on charges of bribery and secret distribution of state-
owned assets.2 Hunter and Harris nevertheless proceeded to sign the award and
attached Wang’s dissent. The arbitration panel awarded First Investment
approximately $26 million in damages.
First Investment then sought to confirm the award in Xiamen Maritime
Court, in Fujian province, China pursuant to the United Nations Convention on
the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21
U.S.T. 2517, 330 U.N.T.S. 38 (entered into force with respect to the United
States Dec. 29, 1970) (“New York Convention”), implemented in 9 U.S.C. §§ 201,
et seq. First Investment alleges that it encountered numerous difficulties in
attempting to confirm its award. Chinese embassies in London and Athens
refused to authenticate documents necessary for commencement of a
confirmation proceeding in China. On October 23, 2006, First Investment
learned that the PRC had instructed its embassy in Athens not to authenticate
the documents. Although the embassy ultimately did authenticate the
documents, this occurred only after the Greek government interceded and filed
a formal protest. First Investment’s difficulties continued after it commenced
a confirmation and enforcement proceeding in Xiamen on August 1, 2006. First
2
The Fujian Entities represent that Wang has since been convicted and is serving a
five-year prison term.
3
No. 12-30377
Investment contends that it was not permitted the assistance of its Chinese
counsel at a hearing on July 13, 2007. In addition, First Investment was denied
the aid of a competent translator, and was instead assigned an interpreter with
no legal experience and a limited legal vocabulary.
On May 11, 2008, the Chinese court issued an order denying enforcement.
The Chinese court determined that the arbitral tribunal was not in accordance
with the agreement signed by the parties, which allegedly required that each
member of the tribunal fully participate in the arbitration proceeding.
Accordingly, the Chinese court held that, because Wang never reviewed the final
draft of the decision, the award could not be confirmed pursuant to Article V of
the New York Convention.
First Investment commenced a second confirmation proceeding on May 27,
2009, this time in the United States District Court for the Eastern District of
Louisiana, against the Fujian Entities, as well as the PRC. The district court
entered a default judgment against the Fujian Entities and the PRC on January
26, 2010, which was vacated on motion for improper service on August 9, 2010.
The district court entered a second default judgment against the Fujian Entities
and the PRC on March 22, 2011. The Fujian Entities filed a motion for
reconsideration on April 15, 2011, and a motion to dismiss or, in the alternative,
to refuse to confirm the arbitral award, on July 12, 2011. The district court
granted Fujian’s motion for reconsideration and vacated the default judgment
against the Fujian Entities on June 28, 2011. The district court also granted the
motion to dismiss for lack of personal jurisdiction on March 12, 2012. In the
same order, the district court dismissed First Investment’s petition against the
PRC for lack of subject matter jurisdiction.
First Investment filed a timely notice of appeal on April 11, 2012.
4
No. 12-30377
II. DISCUSSION
A. Personal Jurisdiction
The district court dismissed First Investment’s petition against the Fujian
Entities for lack of personal jurisdiction. We review de novo a district court’s
determination that it lacks personal jurisdiction. Pervasive Software, Inc. v.
Lexware GmbH & Co. KG, 688 F.3d 214, 219 (5th Cir. 2012). The burden of
establishing jurisdiction rests with the party seeking to invoke the court’s power,
but it need only present prima facie evidence. Seiferth v. Helicopteros Atuneros,
Inc., 472 F.3d 266, 270 (5th Cir. 2006). “In determining whether a prima facie
case exists, this Court must accept as true [the Plaintiff’s] uncontroverted
allegations, and resolve in [its] favor all conflicts between the [jurisdictional]
facts contained in the parties’ affidavits and other documentation.”
Freudensprung v. Offshore Technical Servs., Inc., 379 F.3d 327, 343 (5th Cir.
2004) (alterations in original) (quoting Nuovo Pignone, SpA v. STORMAN ASIA
M/V, 310 F.3d 374, 378 (5th Cir. 2002)) (internal quotation marks omitted).
On appeal, First Investment does not contend that, under a traditional due
process analysis, the district court had personal jurisdiction over the Fujian
Entities. Instead, First Investment argues that the Fujian Entities, as foreign
entities with no contacts in the United States, were not entitled to the
protections of the Fifth Amendment’s Due Process Clause. First Investment
further asserts that personal jurisdiction is not a valid defense under the New
York Convention. Finally, First Investment argues that because the Fujian
Entities were alter egos of the PRC, a foreign state over which personal
jurisdiction was not required, the district court was wrong to dismiss the Fujian
Entities.
We consider each of First Investment’s arguments in turn.
5
No. 12-30377
1. Foreign Entities
First Investment argues that foreign entities that are neither present nor
have property in the United States are not entitled to due process protections.
We find no support for this proposition in current caselaw. The decisions First
Investment relies on are clarified by later circuit decisions or are superseded by
the Supreme Court’s recent decision in Goodyear Dunlop Tires Operations, S.A.
v. Brown, 131 S. Ct. 2846 (2011).
The first case First Investment relies on is People’s Mojahedin
Organization of Iran v. U.S. Department of State, in which the court held that
“[a] foreign entity without property or presence in [the United States] has no
constitutional rights, under the [D]ue [P]rocess [C]lause or otherwise.” 182 F.3d
17, 22 (D.C. Cir. 1999). But that holding was recently clarified by the D.C.
Circuit in GSS Group Ltd. v. National Port Authority, where the court reasoned
that “[w]hen a foreign corporation is summoned into court, it is being forced to
defend itself” and “[i]n opposing personal jurisdiction on due process grounds the
corporation, through its attorney, makes itself present.” 680 F.3d 805, 816 (D.C.
Cir. 2012) (citing Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). Thus,
having “been forced to appear in the United States . . . [the foreign corporation]
is entitled to the protection of the Due Process Clause.” Id. (citing Zadvydas v.
Davis, 533 U.S. 678, 693 (2001)).3 The GSS Group court ultimately did not have
to rely on this reasoning because the Supreme Court had already reaffirmed that
foreign corporations are entitled to due process protections, regardless of
whether they have contacts with the United States. Id. at 816-17 (citing
Goodyear, 131 S. Ct. at 2853).
3
Alternatively, the court reasoned that due process protections might attach because
“when a United States court exercises jurisdiction over a foreign corporate defendant it inflicts
damage on that defendant . . . in the United States.” GSS Grp., 680 F.3d at 816.
6
No. 12-30377
First Investment next relies on Al Haramain Islamic Foundation, Inc. v.
U.S. Department of Treasury, 686 F.3d 965 (9th Cir. 2012). There, the court
observed that “many (and likely most) of the designated persons [in this case]
are not United States citizens or entities” and so “[m]any of those persons likely
cannot assert the due process protections that are available to . . . a United
States entity.” Id. at 984 (citing Nat’l Council of Resistance of Iran v. Dep’t of
State, 251 F.3d 192, 201 (D.C. Cir. 2001)). The Al Haramain court did not,
however, discuss the Supreme Court’s decision in Goodyear, which we find
controlling here.
The Goodyear Court addressed whether “foreign subsidiaries of a United
States parent corporation [are] amenable to suit in state court on claims
unrelated to any activity of the subsidiaries in the forum State[.]” 131 S. Ct. at
2850. The Court held that because the district court lacked both specific and
general jurisdiction, the court could not exercise personal jurisdiction over the
subsidiaries. Id. at 2851. By engaging in a minimum contacts analysis where
the foreign entities were not registered in the forum state, did not solicit
business there, and did not design, manufacture, or advertise products in the
forum state, the Court made clear that such foreign corporations could avail
themselves of the protections of the Due Process Clause. Id. at 2852-54; see also
GSS Grp., 680 F.3d at 813 (“Both the Supreme Court and this court have
repeatedly held that foreign corporations may invoke due process protections to
challenge the exercise of personal jurisdiction over them.”).
Thus, there is no basis to conclude that a party’s status as a foreign entity
permits a court to ignore personal jurisdiction or exercise such jurisdiction
without first establishing sufficient contacts between the defendant and the
forum state.
7
No. 12-30377
2. The New York Convention
First Investment next argues that a party against whom confirmation of
a foreign arbitral award is sought under the New York Convention cannot raise
a personal jurisdiction defense. First Investment points out that the New York
Convention expressly provides for seven grounds on which confirmation may be
denied and that personal jurisdiction is not among the listed grounds. First
Investment further observes that an action to confirm an award under the New
York Convention is a summary proceeding that does not impact a defending
party’s rights and thus it is unnecessary for a court to have personal jurisdiction.
We have previously declined to rule on whether dismissal of a confirmation
action would be proper on personal jurisdiction grounds. Gulf Petro Trading Co.
v. Nigerian Nat’l Petrol. Corp., 512 F.3d 742, 753 (5th Cir. 2008) (King, J.). With
the question squarely before us, we hold, in accordance with the decision of every
circuit to have considered this issue, that dismissal of a petition under the New
York Convention for lack of personal jurisdiction is appropriate as a matter of
constitutional due process.
“The New York Convention provides a carefully structured framework for
the review and enforcement of international arbitral awards.” Karaha Bodas Co.
v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274, 287
(5th Cir. 2004). The New York Convention creates two different review regimes
for arbitral awards depending on whether a recognition or enforcement action
is brought in the country in which, or under the law of which, the award was
made or in another country. Gulf Petro Trading Co., 512 F.3d at 746. The first
is deemed to have “primary jurisdiction over the award,” whereas the second has
“secondary jurisdiction.” Id. (citation omitted). A court of primary jurisdiction
is “free to set aside or modify an award in accordance with [the country’s]
domestic arbitral law and its full panoply of express and implied grounds for
relief.” Id. (alteration in original) (quoting Yusuf Ahmed Alghanim & Sons v.
8
No. 12-30377
Toys “R” Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997)). For courts with secondary
jurisdiction “Article V [of the New York Convention] enumerates the [seven]
exclusive grounds on which a court . . . may refuse recognition and enforcement
of an award.” Id. at 747.4 Upon a motion to confirm an arbitral award under the
New York Convention, a court “shall confirm the award unless it finds one of the
grounds for refusal or deferral of recognition or enforcement of the award
specified in the said Convention.” 9 U.S.C. § 207.
4
Article V of the New York Convention provides that:
1. Recognition and enforcement of the award may be refused, at the
request of the party against whom it is invoked, only if that party
furnishes to the competent authority where the recognition and
enforcement is sought, proof that:
(a) The parties to the agreement . . . were, under the law applicable
to them, under some incapacity, or the said agreement is not
valid under the law to which the parties have subjected it or,
failing any indication thereon, under the law of the country where
the award was made; or
(b) The party against whom the award is invoked was not given
proper notice of the appointment of the arbitrator or of the
arbitration proceedings or was otherwise unable to present his
case; or
(c) The award deals with a difference not contemplated by or not
falling within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the submission
to arbitration . . .; or
(d) The composition of the arbitral authority or the arbitral
procedure was not in accordance with the agreement of the
parties, or, failing such agreement, was not in accordance with
the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been
set aside or suspended by a competent authority of the country in
which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused
if the competent authority in the country where recognition and
enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement
by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to
the public policy of that country.
9
No. 12-30377
Personal jurisdiction is not listed as a ground on which confirmation may
be denied. Nevertheless, the fact that a treaty and its implementing legislation
do not specify that a petition may be dismissed for lack of personal jurisdiction
is not dispositive. No less than subject matter jurisdiction—which is a ground
to deny enforcement under the New York Convention—personal jurisdiction “is
‘an essential element of the jurisdiction of a district . . . court,’ without which the
court is ‘powerless to proceed to an adjudication.’” Ruhrgas AG v. Marathon Oil
Co., 526 U.S. 574, 584 (1999) (quoting Emp’rs Reinsurance Corp. v. Bryant, 299
U.S. 374, 382 (1937)) (omission in original). Personal jurisdiction “represents a
restriction on judicial power . . . as a matter of individual liberty.” Id. at 584
(quoting Ins. Corp. of Ir. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702
(1982)). Requiring a court to have personal jurisdiction over a party as a matter
of constitutional due process “protects an individual’s liberty interest in not
being subject to the binding judgment of a forum with which he has established
no meaningful ‘contacts, ties, or relations.’” ITL Int’l, Inc. v. Constenla, S.A., 669
F.3d 493, 498 (5th Cir. 2012) (quoting Int’l Shoe Co., 326 U.S. at 319). A party’s
contacts with a forum must be sufficient for the party to “reasonably anticipate
being haled into court there.” World-Wide Volkswagen Corp. v. Woodson, 444
U.S. 286, 297 (1980).
Even though the New York Convention does not list personal jurisdiction
as a ground for denying enforcement, the Due Process Clause requires that a
court dismiss an action, on motion, over which it has no personal jurisdiction.
See Pervasive Software, Inc., 688 F.3d at 220-21. Because the New York
Convention, through its implementing legislation, is an exercise of presidential
and congressional power, whereas personal jurisdiction is grounded in
constitutional due process concerns, there can be no question that the
Constitution takes precedence. Amaya v. Stanolind Oil & Gas Co., 158 F.2d 554,
556 (5th Cir. 1947) (“The treaty-making power does not extend ‘[s]o far as to
10
No. 12-30377
authorize what the [C]onstitution forbids.’” (quoting Geofroy v. Riggs, 133 U.S.
258, 267 (1890))). Congress could no more dispense with personal jurisdiction
in an action to confirm a foreign arbitral award than it could under any other
statute. See Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284
F.3d 1114, 1122 (9th Cir. 2002) (citing United States v. Buckland, 277 F.3d 1173,
1179 (9th Cir. 2002) (en banc)) (interpreting statute to require personal
jurisdiction because dispensing with such a requirement would raise question
of statute’s constitutionality). Regardless of Congress’s intent in failing
explicitly to include a personal jurisdiction requirement, a court is not thereby
relieved of its responsibility to enforce those constitutional protections that
guard a party from appearing in a forum with which it has no contacts.
Those circuits that have considered this issue agree. Frontera Res. Azer.
Corp. v. State Oil Co. of Azer. Rep., 582 F.3d 393, 397-98 (2d Cir. 2009)
(confirmation proceeding under New York Convention requires personal or quasi
in rem jurisdiction over parties); Telcordia Tech Inc. v. Telkom SA Ltd., 458 F.3d
172, 178-79 (3d Cir. 2006) (observing that “the New York Convention does not
diminish the Due Process constraints in asserting jurisdiction over a nonresident
alien”); Base Metal Trading, Ltd. v. OJSC “Novokuznetsky Aluminum Factory”,
283 F.3d 208, 212 (4th Cir. 2002) (“[W]hile the [New York] Convention confers
subject matter jurisdiction over actions brought pursuant to the Convention, it
does not confer personal jurisdiction when it would not otherwise exist.”);
Glencore Grain, 284 F.3d at 1121; see also S & Davis Int’l, Inc. v. Republic of
Yemen, 218 F.3d 1292, 1303-05 (11th Cir. 2000); Emp’rs Ins. of Wausau v. Banco
De Seguros Del Estado, 199 F.3d 937, 941-43 & n.1 (7th Cir. 1999) (requiring
personal jurisdiction in dispute arising under Inter-American Convention on
International Commercial Arbitration, but observing that result would be the
same under New York Convention).
11
No. 12-30377
The Glencore Grain court provided the most complete analysis for why
suits under the New York Convention are still constrained by personal
jurisdiction. As here, the plaintiff in that case argued that, because personal
jurisdiction was not listed as one of the New York Convention’s seven defenses
to recognition and enforcement of a foreign arbitral award, dismissal for lack of
personal jurisdiction was improper. 284 F.3d at 1120-21. The court rejected
that argument as misunderstanding a court’s obligation to have jurisdiction over
both the character of the controversy and the parties. Id. at 1121. As the court
explained, jurisdiction over subject matter comes from Article III, Section 2,
Clause 1 of the Constitution, as well as through congressionally-conferred
statutory grants of jurisdiction, while personal jurisdiction is based exclusively
on the Due Process Clause. Id. (quoting Ins. Corp. of Ir., 456 U.S. at 701-02).
Consequently, it was irrelevant that the New York Convention and its
implementing legislation lacked an explicit personal jurisdiction requirement.
Id. (“We hold that neither the [New York] Convention nor its implementing
legislation removed the district courts’ obligation to find jurisdiction over the
defendant in suits to confirm arbitration awards.”).
We are not persuaded that First Investment’s argument that a party’s
“substantive rights” are unaffected by a confirmation proceeding overcomes the
constitutional concerns here implicated. First Investment contends that because
it is only seeking to confirm an award, not enforce it, the Fujian Entities’ rights
are not implicated, and dismissal on personal jurisdiction grounds is improper.
First Investment misunderstands the significance of confirming an award.
Before the New York Convention, a party seeking to enforce an arbitration
award outside the jurisdiction in which it was rendered might have to petition
a domestic court for permission. Oriental Commercial & Shipping Co., (U.K.) v.
Rosseel, N.V., 769 F. Supp. 514, 516 (S.D.N.Y. 1991). With the advent of the
New York Convention, a party may now directly seek enforcement in a foreign
12
No. 12-30377
jurisdiction by applying for an enforcement order by that jurisdiction’s courts.
Id. But this has also opened the door to a party wholly avoiding the New York
Convention by converting the confirmation of an award into a court judgment
that may be enforced abroad as a foreign judgment. Id. at 516 n.3; see also
Waterside Ocean Navigation Co. v. Int’l Navigation, Ltd., 737 F.2d 150, 154 (2d
Cir. 1984) (“[W]e have held that the [New York] Convention applies only to the
enforcement of a foreign arbitral award and not to the enforcement of foreign
judgments confirming foreign arbitral awards.” (citation and internal quotation
marks omitted)).
Accordingly, although confirming an award may be a “summary
proceeding,” it is inaccurate to say that a party’s rights are not affected.
Confirming an award makes it enforceable in the jurisdiction in which it was
confirmed. Confirmation may result in a party losing the opportunity to raise
defenses to enforcement that it might have raised at the confirmation stage. See
Ocean Warehousing B.V. v. Baron Metals & Alloys, Inc., 157 F. Supp. 2d 245,
249-51 & n.8 (S.D.N.Y. 2001) (holding foreign court judgment confirming arbitral
award enforceable although doing so might preclude party from raising defenses
to confirmation it could have previously raised under New York Convention).
Confirming an award also makes it possible that a party, armed with a court
judgment, will seek to enforce the award as a foreign judgment elsewhere. This
may, for example, permit a party to circumvent the New York Convention’s
three-year statute of limitations. See Seetransport Wiking Trader
Schiffahrtsgesellschaft MBH & Co., Kommanditgesellschaft v. Navimpex
Centrala Navala, 29 F.3d 79, 80-82 (2d Cir. 1994) (holding that decree by foreign
court rejecting application to annul an arbitral award was an enforceable foreign
judgment even where statute of limitations for enforcing award under New York
Convention had run). It may also permit an enforcing party to entirely avoid the
New York Convention’s Article V defenses. Ocean Warehousing B.V., 157 F.
13No. 12-30377
Supp. 2d at 249 (“The Convention defenses simply do not apply to [a state law]
proceeding seeking recognition and enforcement of a foreign judgment, even if
that judgment was based on a foreign arbitral award.”); cf. Schlumberger Tech.
Corp. v. United States, 195 F.3d 216, 220 (5th Cir. 1999) (noting that “defenses
to confirming a foreign arbitral award are broader than those available when
enforcing domestic judgments under full faith and credit”).5
First Investment is thus incorrect that a confirmation proceeding does not
affect a party’s rights. Moreover, even if we agreed with First Investment’s
argument, this would do nothing to alleviate the constitutional protections that
enable a party to defend itself against being called into court in a jurisdiction
with which the party has no contacts.6
5
Tellingly, counsel for First Investment was exceedingly hesitant at oral argument to
explain why First Investment opted to bring only a confirmation action in the United States.
Counsel repeatedly declined to answer why First Investment initiated a confirmation
proceeding in the United States, as opposed to the United Kingdom, where the arbitration took
place and where the Fujian Entities presumably had property, notwithstanding First
Investment’s assertion that establishing an alter ego relationship with the PRC would allow
First Investment to seize China’s ocean-going vessels or touring pandas.
6
We also reject any argument that the Fujian Entities were on notice that they might
be haled into court in the United States, having willingly submitted to arbitration in the
United Kingdom. The D.C. Circuit considered, and rejected, a similar argument in Creighton
Ltd. v. Government of the State of Qatar, 181 F.3d 118 (D.C. Cir. 1999). There, a contractor
sought to enforce an arbitration award against Qatar and argued that, by agreeing to arbitrate
in France, a party to the New York Convention, Qatar impliedly waived its sovereign
immunity and any due process objections related to personal jurisdiction. Id. at 122, 125. The
court disagreed and held that a party’s agreement to arbitration in a jurisdiction could only be
understood as waiving jurisdictional arguments for that jurisdiction. Id. at 126. As that court
observed by analogy to the Full Faith and Credit Clause:
It is implausible that a defendant in Connecticut who agreed to arbitrate . . . in
New York, and thereby implicitly waived any objection to personal
jurisdiction . . . in New York . . ., also waived its objection to personal
jurisdiction in such an action brought in California merely because the [F]ull
[F]aith and [C]redit [C]lause would make a valid New York judgment
enforceable in the courts of California.
Id.
14
No. 12-30377
3. Alter Ego Theory
First Investment’s final argument against dismissal of the Fujian Entities
for lack of personal jurisdiction is that the Fujian Entities were alter egos of the
PRC. First Investment contends that because a court need not establish
personal jurisdiction over a foreign sovereign, it was also error to dismiss that
foreign sovereign’s alter egos for lack of jurisdiction. As did the district court,
we assume, without deciding, that a foreign sovereign cannot raise a personal
jurisdiction defense as it is not a “person” under the Due Process Clause. Price
v. Socialist People’s Libyan Arab Jamahiriya, 294 F.3d 82, 96-97 (D.C. Cir. 2002)
(reasoning that foreign states, like States of the Union, are not “persons” under
the Fifth Amendment); see also Frontera Res. Azer. Corp., 582 F.3d at 399
(adopting reasoning in Price). Accordingly, if First Investment successfully
establishes that either of the Fujian Entities were alter egos of the PRC then it
would be improper for the district court to dismiss that party for lack of personal
jurisdiction.
First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462
U.S. 611 (1983) (“Bancec”) “remains the seminal case on the circumstance under
which American courts may disregard the separate status of instrumentalities
created by foreign governments.” Walter Fuller Aircraft Sales, Inc. v. Republic
of Philippines, 965 F.2d 1375, 1381 (5th Cir. 1992) (King, J.); see also GSS Grp.,
680 F.3d at 816 (“Bancec is the exclusive means for determining whether a
foreign, state-owned corporation is a ‘person’ for Fifth Amendment purposes.”).
Under Bancec, “duly created instrumentalities of a foreign state are to be
accorded a presumption of independent status.” 462 U.S. at 627. “A plaintiff can
over come [sic] that presumption, however, in certain circumstances by
demonstrating that the instrumentality is the agent or alter ego of the foreign
state.” Dale v. Colagiovanni, 443 F.3d 425, 429 (5th Cir. 2006). While not
establishing any “mechanical formula,” the Bancec Court did list a non-
15
No. 12-30377
exhaustive list of factors to consider in determining whether the presumption in
favor of an entity’s separate juridical identity had been overcome. 462 U.S. at
633. “[W]e look to the ownership and management structure of the
instrumentality, paying particularly close attention to whether the government
is involved in day-to-day operations, as well as the extent to which the agent
holds itself out to be acting on behalf of the government.” Walter Fuller, 965
F.2d at 1382 (citing Hester Int’l Corp. v. Federal Republic of Nigeria, 879 F.2d
170, 178, 181 (5th Cir. 1989)).7 Finally, we consider the equitable principles
discussed in Bancec, “particularly the principle of disregarding the corporate
form in instances where respecting it would lead to injustice.” Id. First
Investment argues that the district court did not sufficiently heed Bancec’s
instruction that an instrumentality should not be considered a separate legal
7
Subsequently, this court has also instructed district courts to consider “those factors
normally explored in the context of parent-subsidiary alter ego claims.” Bridas S.A.P.I.C. v.
Gov’t of Turkm., 345 F.3d 347, 360 n.11 (5th Cir. 2003) (“Bridas I”). These include whether:
(1) the parent and subsidiary have common stock ownership; (2) the parent and
subsidiary have common directors or officers; (3) the parent and subsidiary have
common business departments; (4) the parent and subsidiary file consolidated
financial statements; (5) the parent finances the subsidiary; (6) the parent
caused the incorporation of the subsidiary; (7) the subsidiary operated with
grossly inadequate capital; (8) the parent pays salaries and other expenses of
subsidiary; (9) the subsidiary receives no business except that given by the
parent; (10) the parent uses the subsidiary’s property as its own; (11) the daily
operations of the two corporations are not kept separate; (12) the subsidiary
does not observe corporate formalities.
Id.
A court can also consider “(1) whether the directors of the ‘subsidiary’ act in the primary
and independent interest of the ‘parent,’; (2) whether others pay or guarantee debts of the
dominated corporation; and (3) whether the alleged dominator deals with the dominated
corporation at arms length.” Id. Finally, a court can also consider:
(1) whether state statutes and case law view the entity as an arm of the state;
(2) the source of the entity’s funding; (3) the entity’s degree of local autonomy;
(4) whether the entity is concerned primarily with local, as opposed to statewide,
problems; (5) whether the entity has the authority to sue and be sued in its own
name; and (6) whether the entity has the right to hold and use property.
Id.
16
No. 12-30377
entity when doing so would result in fraud or injustice. First Investment further
contends that the district court improperly emphasized the need for a foreign
state to exercise control over an instrumentality’s daily activities without fully
considering the totality of the circumstances. Applying the considerations in
Bancec to each of the Fujian Entities we conclude that the district court did not
err in determining that First Investment has not overcome the presumption in
favor of FSIGC and Mawei’s separate juridical identity.
i. FSIGC
The district court considered declarations by Wang Darong and Lin Jiang,
each a partner in a separate Chinese law firm. The Wang and Lin declarations
established that FSIGC was wholly-owned by the PRC, and that a branch of the
PRC appoints FSIGC’s board of directors and senior management personnel, and
exercises the rights of a shareholder. The Wang and Lin declarations also
conceded, however, that FSIGC possessed operational and managerial authority.
The district court also considered the declaration of the vice-director of FSIGC’s
legal department, who stated that FSIGC’s employees were paid by FSIGC, not
the PRC; FSIGC filed independent financial statements; the PRC did not provide
any funding apart from that raised by selling shares; FSIGC’s directors acted in
the best interest of the company; FSIGC was responsible for its own debts, which
were not paid or guaranteed by the PRC; FSIGC dealt with the PRC in arm’s-
length transactions; and FSIGC managed its own daily operations apart from
the PRC.
There is no question that this evidence, considered alone, would not satisfy
Bancec’s standard for finding an alter ego relationship between a foreign state
and its instrumentality. As we have previously determined, the mere fact that
a government owns 100% of a company’s stock is not sufficient to establish
control. Id. at 1382 & n.11. The declarations also provide no indication that
FSIGC’s officers were acting in the PRC’s interests and controlling FSIGC’s day-
17
No. 12-30377
to-day operations on the PRC’s behalf. Nor do the declarations evidence any
injustice that would flow from respecting FSIGC’s corporate form.
First Investment’s only argument in response is that the district court did
not consider the declaration of Evan Breibart. That declaration shows that First
Investment encountered many obstacles in confirming its arbitral award in
China. These include the PRC’s London and Athens embassies following the
PRC’s instructions not to authenticate documents necessary to initiate a
confirmation proceeding in China. A formal protest by the Greek Deputy
Foreign Minister led to the documents being authenticated, but delays
continued. Following commencement of the confirmation proceeding in China,
First Investment’s attorney and interpreter, as well as an employee of the Greek
consulate, were denied entry into the hearing without explanation. First
Investment was instead provided with a student interpreter from a local
university who could not provide an adequate interpretation of the hearing.
Finally, Wang, whose declaration First Investment submitted to the district
court, later stated that he would be moving to China’s Fujian province, and that,
as a result, it would be “inconvenient for him if the declaration was used in an
enforcement proceeding against PRC state owned assets.” Nearly all the
Chinese experts First Investment has approached since then have refused to
provide a declaration in First Investment’s support for fear of negative
repercussions by the PRC.
Whatever this evidence says about the PRC’s hostility towards foreign
entities, it does not demonstrate the level of control necessary to overcome the
presumption in favor of FSIGC’s separate identity. The Breibart declaration
does not show that the PRC exercised control over FSIGC. None of the
allegations even relate to FSIGC’s management, but instead relate to actions by
the PRC’s embassies and courts. First Investment’s allegations fall far short of
the type of control necessary to establish an alter ego relationship. See, e.g.,
18
No. 12-30377
Bridas S.A.P.I.C. v. Government of Turkmenistan, 447 F.3d 411, 419-20 (5th Cir.
2006) (“Bridas II”) (alter ego relationship established where government
manipulated undercapitalized corporation to repudiate contract, paid arbitration
costs, diverted corporation’s revenues into state oil and gas fund, and changed
law to prevent seizure of corporation’s assets); S & Davis Int’l, Inc., 218 F.3d at
1299-300 (corporation was alter ego of government ministry where corporation
was wholly owned by government, ministry ordered corporation to breach
contract, and ministry failed to submit evidence that corporation was
independent entity, including papers of incorporation, status of employees as
public or private servants, or separation of assets).
Nor has First Investment presented equitable considerations sufficient to
disregard FSIGC’s corporate identity. For First Investment to meet this prong
it is not sufficient for it merely to point out an injustice that would result from
an adverse decision. Rather, First Investment must show how the PRC
manipulated FSIGC’s corporate form to perpetuate a fraud or injustice. See
Bridas II, 447 F.3d at 417 (imposition of export ban was exercise of sovereign
powers that may have constituted a wrong to plaintiff, but “was not a wrong
based on misuse of the corporate organizational form”). Here, First Investment
has failed to show that the PRC used FSIGC’s corporate form to manipulate
circumstances in such a way as to do something it otherwise would not have
been able to do. First Investment has also not shown that the PRC is shielding
FSIGC from an adverse arbitral award because the real burden of such an award
would fall on the PRC. The only evidence First Investment puts forward is that
the PRC is FSIGC’s sole shareholder. As already stated, this is insufficient to
establish an alter ego relationship. Hester, 879 F.2d at 181. Were we to accept
First Investment’s argument we would effectively wipe out the presumption of
separateness. Following First Investment’s logic, anytime a foreign sovereign
owned the majority of shares in a company, and took any action that assisted
19
No. 12-30377
that company, it would provide grounds for ignoring that company’s separate
juridical identity. See id. (describing 100% ownership and appointment of board
of directors as characteristics of a “typical government instrumentality”).
Nor is the PRC committing a fraud against First Investment. Although
the PRC may have delayed initiation of the confirmation proceeding, First
Investment ultimately did bring such an action in China. Moreover, the Chinese
court provided a reasoned opinion that denied enforcement on the ground that
the panel’s third arbitrator did not approve the final draft.
Accordingly, the district court correctly concluded that there did not exist
an alter ego relationship between FSIGC and the PRC, and properly dismissed
FSIGC for lack of personal jurisdiction.
ii. Mawei
Evidence of the PRC’s control over Mawei is even more attenuated than
that over FSIGC and is also dependent on there being an alter ego relationship
between FSIGC and the PRC. The aforementioned Wang and Lin declarations
only show that FSIGC directly owns 56.21% of Mawei’s total share capital.
FSIGC also effectuated Mawei’s reconstruction and the two companies share
senior management personnel. Just as the PRC’s 100% ownership of FSIGC is
insufficient to establish the necessary degree of control under Bancec, so too is
FSIGC’s majority share ownership of Mawei not enough to demonstrate that the
PRC, through FSIGC, controlled Mawei and create an alter ego relationship. See
Walter Fuller, 965 F.2d at 1382 & n.11. For reasons already discussed, First
Investment has also not shown that the PRC manipulated Mawei’s corporate
form to commit a fraud or injustice. As with FSIGC, the district court did not err
in dismissing Mawei for lack of personal jurisdiction after concluding that there
was no alter ego relationship between Mawei and the PRC.8
8
The district court also denied jurisdictional discovery because First Investment failed
to allege facts that, if true, would establish jurisdiction. First Investment does not raise this
20
No. 12-30377
B. Subject Matter Jurisdiction
Pursuant to the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C.
§ 1604, a “foreign state shall be immune from the jurisdiction of the courts of the
United States and of the States” unless one of several statutorily defined
exceptions applies. The district court correctly recognized, and the parties do not
dispute, that the only potentially applicable exception is § 1605(a)(6)’s
arbitration exception. Under that provision, foreign states are considered to
have waived their sovereign immunity in cases
to enforce an agreement made by the foreign state with or for the
benefit of a private party to submit to arbitration all or any
differences which have arisen or which may arise between the
parties with respect to a defined legal relationship, whether
contractual or not, concerning a subject matter capable of
settlement by arbitration under the laws of the United States, or to
confirm an award made pursuant to such an agreement to
arbitrate . . . .
28 U.S.C. § 1605(a)(6).
The PRC was not, however, a party to the arbitration agreement between
First Investment and the Fujian Entities. The district court thus considered
whether the PRC could be bound to the arbitration agreement through the
Fujian Entities. For the same reasons it concluded that the Fujian Entities were
not alter egos of the PRC, the district court concluded that the PRC could not be
bound to the agreement. Accordingly, the district court held that the arbitration
exception in § 1605(a)(6) did not apply and that it lacked subject matter
jurisdiction over First Investment’s petition against the PRC.
issue on appeal. Accordingly, we need not consider it. We only note, in passing, that even were
we to consider the district court’s discovery rulings we would find no error. A district court’s
discovery rulings are reviewed for abuse of discretion. Moore v. Willis Indep. Sch. Dist., 233
F.3d 871, 876 (5th Cir. 2000). The allegations discussed above fall far short of the “specific
facts” we have required for allowing discovery into a foreign sovereign’s activities. Arriba Ltd.
v. Petroleos Mexicanos, 962 F.2d 528, 537 n.17 (5th Cir. 1992).
21
No. 12-30377
We review a district court’s dismissal for lack of subject matter jurisdiction
de novo. Choice Inc. of Tex. v. Greenstein, 691 F.3d 710, 714 (5th Cir. 2012).
First Investment raises subject matter jurisdiction as an issue on appeal, but
does not further discuss it. Nevertheless, we understand First Investment’s
argument on subject matter jurisdiction to be identical to its personal
jurisdiction argument. Thus, if First Investment can establish an alter ego
relationship between the Fujian Entities and the PRC then the PRC can be
bound to the arbitration agreement to which the Fujian Entities are a party. See
Bridas II, 447 F.3d at 413, 415 (corporation that was foreign state’s alter ego
could bind non-signatory foreign state to arbitration agreement).
As discussed, supra, First Investment cannot meet Bancec’s standard for
establishing an alter ego relationship. Having raised no other ground on which
to find subject matter jurisdiction over the PRC, this conclusion is fatal to First
Investment’s petition. Accordingly, we affirm the district court’s dismissal of the
PRC for lack of subject matter jurisdiction.9
III. CONCLUSION
For the foregoing reasons, the district court’s judgment is AFFIRMED in
all respects.
9
Because we affirm the district court’s decision that First Investment has failed to
establish an alter ego relationship between the Fujian Entities and the PRC we do not reach
the Fujian Entities’ arguments that we should dismiss First Investment’s appeal for
insufficient briefing or because consideration of an alter ego theory is inappropriate at a
confirmation proceeding.
22