Orion Tire Corp. v. Goodyear Tire & Rubber Co.

Decision Date12 February 2001
Docket NumberNo. 99-56639,PLAINTIFFS-APPELLANTS,DEFENDANTS-APPELLEES,99-56639
Citation268 F.3d 1133
Parties(9th Cir. 2001) ORION TIRE CORPORATION, A CALIFORNIA CORPORATION; CHINA TIRE HOLDINGS LIMITED, A BERMUDA CORPORATION,, v. GOODYEAR TIRE & RUBBER COMPANY, INC.; GOODYEAR INTERNATIONAL CORPORATION,
CourtU.S. Court of Appeals — Ninth Circuit

Roger E. Zuckerman, Zuckerman, Spaeder, Goldstein, Taylor & Kolker, Washington, D.C., Peter J. McNulty, Law Offices of Peter J. McNulty, Bel Air, CA, Fred M. Isaacs, Follansbee & Associates, Wilsonville, OR, for the plaintiffs-appellants.

Charles A. Gilman, Cahill Gordon & Reindel, New York, New York and David T. Biderman, Perkins Coie, Santa Monica, California, for the defendants-appellees.

Appeal from the United States District Court for the Central District of California; David O. Carter, District Judge, Presiding. D.C. No. CV-95-00221-DOC.

Before: Beezer, T.G. Nelson and Berzon, Circuit Judges.

Berzon, Circuit Judge:

Orion Tire Corp. ("Orion") and China Tire Holdings Ltd. ("CTHL") appeal the district court's (i) dismissal of CTHL's RICO claim for failure to state a claim under Chinese law; (ii) dismissal of CTHL's trade libel and defamation claims on grounds of forum non conveniens; and (iii) grant of summary judgment to defendants on Orion's claims of trade libel and intentional interference with prospective economic advantage. We affirm in part, reverse in part, and remand.

Facts and Procedural History

Plaintiffs-Appellants Orion, a California corporation, and CTHL, a Bermuda corporation with headquarters in Hong Kong sought to enter into a joint venture with the Chinese government ("China") to produce automobile tires at a factory in Dalian, China. After China awarded the joint venture to Defendant-Appellee Goodyear Tire and Rubber Co. ("Goodyear"), Orion and CTHL filed a complaint in the United States District Court for the Central District of California, alleging thirteen claims under state and federal law. Goodyear moved to dismiss for, among other grounds, failure to state a claim. The district court granted in part and denied in part the defendants' motion.

The district court determined that California law governed Orion's state claims and that Chinese law governed CTHL's state claims and federal RICO claim. Having so determined, the district court dismissed Orion's state claims and RICO claim without prejudice, for failure to state a claim, but dismissed with prejudice, for failure to state a claim under Chinese law, CTHL's claims for tortious interference with prospective economic advantage (claim 2), tortious interference with contractual relationship (claim 4), conspiracy to induce breach of contract (claim 6) and RICO (claim 13).

Orion and CTHL filed an amended complaint asserting six causes of action, all under California state law. Orion did not replead its RICO cause of action. Goodyear moved to dismiss all six claims for failure to state a claim. The district court granted in part and denied in part Goodyear's motion, dismissing Orion's claim of tortious interference with contract, after determining that Orion had no agreements legally enforceable under Chinese law.1

Two and one-half years later, Goodyear moved for summary judgment, arguing (i) that Orion lacked standing to bring its claims, because its predecessor in interest had not properly assigned the claims to Orion, and (ii) that CTHL's remaining claim, for trade libel/defamation, should be dismissed on forum non conveniens grounds. The district court granted Goodyear's motion on both grounds and entered final judgment in Goodyear's favor. Plaintiffs-Appellants timely appealed, challenging both aspects of the summary judgment order as well as the district court's dismissal of CTHL's RICO claim for failure to state a claim under Chinese law.

While this appeal was pending, CTHL filed a duplicative action in the United States District Court for the Northern District of Ohio. That court dismissed CTHL's complaint, holding that CTHL's claims were barred by claim preclusion. China Tire Holdings Ltd. v. Goodyear Tire & Rubber Co., 91 F. Supp. 2d 1106 (N.D. Ohio 2000). The Ohio District Court also remarked that were it not required to dismiss on claim preclusion grounds, it "would adopt the [California] district court's reasoning and independently dismiss the plaintiff's claims on the ground of forum non conveniens." China Tire, 91 F. Supp. 2d at 1111 n.4.

Discussion
A. Preclusion

Goodyear contends, as an initial matter, that CTHL's appeal should be barred by claim preclusion based on the Ohio judgment.2 Goodyear's argument reflects a basic misunderstanding of the doctrine of claim preclusion.

The doctrine of claim preclusion establishes that"an adverse judgment from which no appeal has been taken is res judicata and bars any future action on the same claim." Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 399 n.4 (1981) (emphasis added). The direct appeal of a judgment that predates the judgment asserted to have claim preclusive effect is not a "future action" in this sense. See Flood v. Harrington, 532 F.2d 1248, 1250 (9th Cir. 1976) (holding that a decision entered after the judgment on appeal "can scarcely constitute a bar to the instant action, decided below on an earlier date"); cf. Alpha Epsilon Phi Tau Chapter Housing Ass'n v. City of Berkeley, 114 F.3d 840, 843 n.3 (9th Cir. 1997) (holding that an intervening state court decision according res judicata effect to the decision presently on appeal does not divest this court of jurisdiction). Thus, the doctrine of res judicata does not operate to bar direct review of a district court judgment, even if that judgment has been accorded res judicata effect by other courts since it was entered. Flood, 532 F.2d at 1250.

Indeed, Goodyear's argument turns res judicata on its head. The doctrine is founded on the principle that "[a] judgment merely voidable because based upon an erroneous view of the law is not open to collateral attack, but can be corrected only by a direct review and not by bringing another action upon the same cause." Federated, 452 U.S. at 398 (emphasis added). To permit another action upon the same cause to displace the direct review of the first judgment would be to invert the doctrine's precepts. It is therefore no wonder that, as far as we can ascertain, there is no case in which res judicata has been applied as Goodyear proposes.

Reed v. Allen, 286 U.S. 191 (1932), cited by Goodyear, is not to the contrary. The petitioner in Reed obtained an equity judgment against Allen respecting the right to collect rents from a property, which Allen appealed. During the pendency of that appeal, Reed brought an action in ejectment with respect to the property, which he won because the second court accorded res judicata effect to the first judgment. Allen did not appeal the second unfavorable judgment, but prevailed in his appeal on the first. Allen then brought a third action seeking to eject Reed from the property.

The Supreme Court held that this third action -- in essence a collateral attack on the second judgment -- was barred by res judicata. Reed offers no solace to Goodyear, as we are not here confronted with a third action, but with an appeal from the judgment in the first. Rather, Reed supports our understanding of res judicata: Far from suggesting that the appeals court that heard Allen's appeal of the first judgment ought to have rejected that appeal based on the "res judicata" effect of the second judgment, the Court in Reed appears to have assumed the contrary -- that is, that the reversal of the first judgment was within the power of the appeals court. 3

B. CTHL's RICO claim

The district court determined that Chinese law governed CTHL's state law causes of action and federal RICO claim, and dismissed those claims for failure to state a claim under Chinese law. CTHL contends that the district court erred with respect to the RICO claim. We agree, and vacate the dismissal with prejudice and remand with instructions to (i) permit CTHL to amend its RICO claim, and (ii) determine whether the claim, as amended, supports the extraterritorial application of RICO under our caselaw.

The district court's choice of law analysis was proper with respect to the general question whether the law of California or China governed the dispute between CTHL and Goodyear. Where a federal statute is involved, however, a choice of law analysis does not apply in the first instance. The initial question, rather, is whether Congress intended the statute in question to apply to conduct occurring outside the United States. This is a question of statutory interpretation, see Equal Employment Opportunity Comm'n v. Arabian American Oil Co., 499 U.S. 244, 247 (1991), not a question of choice of law. The district court therefore erred in dismissing CTHL's RICO claim with prejudice, without making the appropriate statutory inquiry.

Goodyear argues that even if the district court erred in failing to consider the statutory question, we should affirm dismissal of the RICO claim because amendment would be futile. Because of the manner in which it viewed the matter, the district court did not inquire into the futility of amendment, instead dismissing without providing leave to amend. CTHL's Reply Brief represents that CTHL could amend its complaint to allege facts that would state a RICO cause of action both substantively and with regard to the requisite connection to the United States delineated in applicable cases. See Butte Mining PLC v. Smith, 76 F.3d 287, 291-92 (9th Cir. 1996) (holding that RICO did not apply to allegations of conduct in United States that was "merely preparatory" to the predicate acts of fraud, where it was undisputed that the fraud itself occurred entirely outside the United States); cf. Republic of the Philippines v. Marcos, 862 F.2d 1355, 1358-59 (9th Cir. 1988) ...

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