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NOT FOR PUBLICATION AUG 19 2015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NOT FOR PUBLICATION AUG 19 2015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