Orient Mineral Co. v. Bank of China

• Decision Date: 24 October 2007
• Docket Number: No. 05-4220.,No. 05-4037.,No. 05-4048.,05-4037.,05-4048.,05-4220.
• Citation: 506 F.3d 980
• Parties: ORIENT MINERAL COMPANY, a Nevada corporation; Wil-Bao Mineral Co., a limited liability company formed under the laws of the People's Republic of China, Plaintiffs-Appellants, Cross-Appellees, v. BANK OF CHINA, a foreign banking institution doing business in the United States, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

506 F.3d 980

ORIENT MINERAL COMPANY, a Nevada corporation; Wil-Bao Mineral Co., a limited liability company formed under the laws of the People's Republic of China, Plaintiffs-Appellants, Cross-Appellees, v. BANK OF CHINA, a foreign banking institution doing business in the United States, Defendant-Appellee, Cross-Appellant.

No. 05-4037.

No. 05-4048.

No. 05-4220.

United States Court of Appeals, Tenth Circuit.

October 24, 2007.

Robert W. Ludwig, Jr., Ludwig & Robinson, P.L.L.C., Washington, D.C. (Allan O. Walsh, McKay, Burton & Thurman, Salt Lake City, UT, with him on the briefs) for Plaintiff-Appellants-Cross-Appellees Orient Mineral Company and Wil-Bao Mineral Company.

Christopher Brady, Butzel Long, a Professional Corporation, New York, NY, (Orlee Goldfeld, Butzel Long, a Professional Corporation, New York, NY, and Arthur B. Berger, Ray Quinney & Nebeker, Salt Lake City, UT, with him on the briefs) for Defendant-Appellee-Cross-Appellant Bank of China.

Before KELLY and EBEL, Circuit Judges, and MURGUIA,^* District Judge.

EBEL, Circuit Judge.

These appeals require this court to determine, among other things, the extent to which investors in Chinese gold mines can sue the Bank of China (the "Bank") in an American court. Because the Bank was owned and operated by the People's Republic of China, an American court's subject matter jurisdiction must be found under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1602-11. The FSIA provides that a foreign sovereign is generally immune from suit in the United States. See id. § 1604. The FSIA's commercial activity exceptions, however, permit a foreign sovereign to be sued in a court within the United States, to the same extent as any private individual, when the sovereign is engaged in commercial activity that has a sufficient nexus to the United States. See id. § 1605(a)(2). In this case, while the Bank is generally engaged in commercial activity, we conclude, with one exception, that the Bank's specific commercial activity underlying Plaintiffs' claims does not have a sufficient nexus to the United States. As to the one exception, we agree with the district court that it had subject matter jurisdiction to consider Plaintiffs' claims to the extent they are based upon the Bank's transfer of $400,000 to a bank in Utah. We, therefore, AFFIRM the district court's jurisdictional rulings. We further AFFIRM the district court's ruling for the Bank on the merits of the claims over which it had jurisdiction. But we REVERSE the district court's dismissal of the Bank's counterclaim and REMAND the counterclaim to the district court for further proceedings.

I. BACKGROUND¹

Following a bench trial, the district court made these factual findings:

Plaintiff Orient Mineral Company ("Orient Mineral") is a Nevada corporation. Art Wilson was chairman of Orient Mineral's board of directors.

Wilson met Yue Xiaoqun, also known as David Yue ("Yue"), a Chinese citizen, in 1994 while Yue was in the United States working for the China Foreign Development Company. Yue became a director and shareholder in Orient Mineral. And he interested Wilson in investing in Chinese gold mines.

In 1995, Wilson, aided by Yue, formed Plaintiff Wil-Bao Mineral Company, Ltd. ("Wil-Bao"), a joint venture created under Chinese law by Orient Mineral and a Chinese entity, Jiaocun Gold Company ("Jiaocun Gold"). Jiaocun Gold was wholly owned by the municipality of Jiaocun, China. Wil-Bao's purpose was to acquire gold mining properties in China's Henan province and then mine, mill and sell the gold extracted from these mines. Wil-Bao was headquartered in Lingbao, China.²

Wil-Bao's seven-member board of directors included four individuals associated with Orient Mineral: Wilson (chairman), Yue, F. Thomas Eck, III, Orient Mineral's president and general counsel, and John H. Mahan; and three members associated with Jiaocun Gold. Yue became Wil-Bao's general manager and John Zhang, who was Yue's brother-in-law, became Wil-Bao's finance manager.

Wil-Bao was to have registered capital of $3 million.³ Of that amount, Orient Mineral was to contribute $2.1 million — $1 million in cash and $1.1 million in mining equipment. Jiaocun Gold would contribute the right to use two existing mine sites and other fixed assets, worth a total of $900,000. As it turned out, Jiaocun Gold did not own the rights to any mines and ultimately contributed nothing to the joint venture.

Orient Mineral convinced R. Ellsworth McKee, a United States citizen from Tennessee, to fund this joint venture. McKee was chairman of the board for McKee Foods Corporation ("McKee Foods"). He was initially leery of this investment opportunity because he was unfamiliar with China and this opportunity involved a fairly risky gold mining venture.⁴ McKee eventually agreed to invest $3 million, but only under certain terms and conditions designed to protect McKee's investment.

Those conditions included treating most of McKee's $3 million investment as a loan to Orient Mineral for Wil-Bao's benefit.⁵ Moreover, Orient Mineral agreed with McKee to place Preston Jones on Orient Mineral's board of directors, replacing Mahan. Jones was McKee Foods' "director of corporate tax" and he also handled R. Ellsworth McKee's personal finances. Orient Mineral further agreed to give Jones "total control of the funds for Orient Mineral Company," appoint Jones to the Wil-Bao board of directors, and require Jones' authorization for all Wil-Bao expenditures over $25,000, "at least until such time as all loan funds had been repaid to Mr. McKee."

The next challenge was to get McKee's $3 million to China in a form that Wil-Bao could use. For this, the group turned to the Bank of China. The Bank is organized and exists under the laws of the People's Republic of China, has its principal office in Beijing, and operates a "sub-branch" in Lingbao, as well as a branch bank in New York City. At the time, the Bank was wholly owned and operated by the People's Republic of China.

Yue, who was in China acting as Wil-Bao's general manager, had already made several inquiries at the Bank's Lingbao sub-branch, asking, for instance, whether Wil-Bao could bring equipment, purchased abroad, into China, and about Wil-Bao's ability to convert its profits from the local Chinese currency "to foreign exchange to be remitted abroad." In May 1996, at Wilson's request, Yue arranged with the Bank's Lingbao sub-branch for a "temporary special holding account" to which Orient Mineral could wire the $3 million it had obtained from McKee. Also at Wilson's request, Yue asked for and received a letter from the Bank, dated May 14, 1996, which provided:

Dear Mr. Yue Xiaoqun:

Our bank already received your application on May 14, 1996, and we agree to establish in our bank a temporary U.S. Dollar account at the request of your honorable company (Sino-U.S. Joint Venture Henan Wil-Bao Metal Smelting Company, Ltd.). We now advise the relevant particulars as follows:

Account name: ORIENT MINERAL CO.

Account number: 14833

Bank opening the account: Lingbao City Subbranch, Henan

Provincial Branch

Bank of China

After the funds are transferred, our bank will be responsible for safekeeping these funds. Further, Mr. Yue Xiaocun [sic] must bring to our bank the business license of ORIENT MINERAL CO., the company chop,⁶ and a company authorization letter, and go through the formalities, so that the funds can be used in the joint venture in accord with arrangements made by the representative of the American party.

(Footnote added.) This letter was written in Chinese and addressed to Yue.

Yue sent to Wilson, in Nevada, the Bank's letter, along with Yue's rough English explanation of the document. Wilson then had a friend who operated a Chinese restaurant translate the letter for him.

In preparation for the transfer of funds to China and pursuant to its agreement with McKee, Orient Mineral's Board of Directors, on May 16, 1996, passed a resolution that, among other things, provided that "Preston Jones shall be the sole and exclusive person to act on behalf of Orient Mineral Co. with respect to the disposition of all funds deposited in the Bank of China, Lingbao Branch of the HeNan Province." The resolution further provided that "the Board of Directors and Orient Mineral Co. shall hold the Bank of China harmless from all claims or liabilities of any kind whatsoever, provided the directions of Preston Jones are followed by said Bank of China." This resolution had the appearance of a formal corporate document, impressed with Orient Mineral's corporate seal, signed by Orient Mineral's president, and attested to by its acting corporate secretary. Further,

[a]ccompanying Orient Mineral's Board Resolution was a letter dated May 16, 1996, and also signed by Eck as Orient Mineral's President. This letter was on Orient Mineral's letterhead and bore the impression of its corporate seal. It was addressed to the Bank of China and enclosed the May 16th Board Resolution, which it characterized as authorizing Preston Jones as Orient Mineral's sole and exclusive agent to approve, direct, or otherwise designate the funds on deposit with the Bank pursuant to a wire transfer from McKee. The letter further stated that the May 16th Board Resolution was confirmed and ratified in all respects and that Preston Jones shall have full and complete authority with regard to the disposition of said funds.

On May 21, 1996, Plaintiffs initiated a wire transfer of $3 million from McKee's bank in the United States to the Bank's sub-branch in Lingbao. Jones, Wilson and Eck then traveled to China, where Yue met them and acted as their interpreter.

In keeping with promises made to McKee, the Wil-Bao Board of Directors met in China on May 24, 1996, and adopted a resolution that provided that, until Wil-Bao repaid McKee in full, "Preston Jones shall be appointed as the director of Wil-Bao responsible for the management of the financial affairs...