Liew v. Official Receiver and Liquidator (Hong Kong)

• Decision Date: 03 September 1982
• Docket Number: Nos. 80-4157,80-4167,s. 80-4157
• Citation: 685 F.2d 1192
• Parties: 11 Fed. R. Evid. Serv. 812 C. K. LIEW, Plaintiff-Appellant, v. OFFICIAL RECEIVER AND LIQUIDATOR (HONG KONG), Intervenor/Plaintiff-Appellee, OFFICIAL RECEIVER AND LIQUIDATOR (HONG KONG), Intervenor/Plaintiff-Cross-Appellant, v. C. K. LIEW, Plaintiff-Cross-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1192

685 F.2d 1192

11 Fed. R. Evid. Serv. 812

C. K. LIEW, Plaintiff-Appellant, v. OFFICIAL RECEIVER AND LIQUIDATOR (HONG KONG), Intervenor/Plaintiff-Appellee, OFFICIAL RECEIVER AND LIQUIDATOR (HONG KONG), Intervenor/Plaintiff-Cross-Appellant, v. C. K. LIEW, Plaintiff-Cross-Appellee.

Nos. 80-4157, 80-4167.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 14, 1981.

Decided Sept. 3, 1982.

Bartholomew Lee, San Francisco, Cal., for Liew.

Paul A. Dezurick, Graham & James, San Francisco, Cal., for Central Banking System.

Appeal from the United States District Court for the Northern District of California.

Before GOODWIN and HUG, Circuit Judges, and KELLAM ^*, District Judge.

HUG, Circuit Judge:

This appeal arises from claims by both C. K. Liew and the Official Receiver and Liquidator (Hong Kong) (hereinafter the "Receiver") to a fund created by the settlement of claims both parties asserted against Central Banking System, Inc. ("CBSI") and Michael Rafton, its chairman. The ultimate question in this litigation is whether one Amos Dawe validly assigned his contract rights against Rafton and CBSI to Liew, or whether those rights passed by operation of law to the Receiver.

In his appeal, Liew contests only the exclusion of evidence of the involvement of the Moscow Norodny Bank in the transactions underlying this litigation. Because the evidence was of little relevance, the trial court's decision to exclude it was not an abuse of discretion. We affirm that ruling.

On cross-appeal, however, the Receiver raises some serious questions concerning the trial court's choice of law decision and its jury instructions. We hold that the court erred in its choice of law determination, and we therefore reverse and remand for a new trial.

I BACKGROUND and FACTS

In 1974, Amos Dawe was the chief executive officer of a group of Asian companies known as the Mosbert Group. Dawe managed the Group's holding company. The relevant companies in the Group were Hong Kong corporations.

In mid-1974, Dawe came to California to investigate the possibility of investing in local banks. He had discussions with Rafton and, on December 16, 1974, he purchased from CBSI over 90 percent of the stock of Peninsula National Bank ("Peninsula"). On June 12, 1975, he also purchased from CBSI over 90 percent of the stock of Tahoe National Bank ("Tahoe") and First National Bank of Fresno ("Fresno").

Dawe also entered into an agreement with Rafton to buy control of CBSI for $1 million. He gave Rafton a $240,000 down payment to cement this "D-R Agreement."

Meanwhile, in the spring of 1975, Dawe met Liew, the managing director of Chuan Hiap Seng ("CHS"), a Singapore company. By the end of August, 1975, Dawe and his Mosbert Group had borrowed approximately.$1.2 million from CHS. Liew gave the CHS board his personal guaranty on those loans.

According to Liew's trial testimony, early in September 1975, he became nervous about the loans to Dawe and demanded more security. As a result, Liew contends, on September 9, 1975, Dawe assigned his rights in the Tahoe and Fresno banks to Liew. Liew described the event of the assignment in some detail, including the redrafting of one document because of improper form.

Dawe, however, told a different story. In testimony corroborated by Mrs. Dawe, he claimed that nothing happened in September to change his relationship with Liew. Instead, Dawe testified that the assignment documents were drawn up later, probably around Christmas, and back-dated in an effort to avoid preference problems in the probable event of bankruptcy. In addition, there was evidence that notice of the purported assignment was not communicated to CBSI, the obligor, until, at the earliest, December 24, 1975.

During the fall of 1975, the Mosbert Group and Dawe suffered financial setbacks that made payment to CBSI on the bank purchases an impossibility. CBSI repossessed the stock, apparently without any setoff for the payments previously made. Dawe left Singapore, taking residence in Bangkok, Thailand. On December 26, 1975, he resigned as a director of the relevant Mosbert Group companies.

In early 1976, the Mosbert Group companies that were connected with Dawe were placed in the Hong Kong equivalent of bankruptcy, and the Receiver was appointed.

Dawe was personally declared bankrupt in Singapore in 1978. His rights against Rafton and CBSI were assigned by the representative of his bankruptcy estate to the Receiver in Hong Kong, who has pursued them in this action.

II PROCEDURAL HISTORY

In August, 1976, Liew filed an action against Rafton and CBSI in the United States District Court for the Northern District of California. He claimed that as Dawe's assignee, he was entitled to recover damages under a variety of theories as a result of the disintegration of the bank sales and the D-R Agreement.

In February, 1978, the Receiver intervened, alleging that the assignment to Liew was invalid, and that Dawe's financial transactions were carried out in his capacity as an officer of the Mosbert Group, so that any recovery from CBSI and Rafton should go to the Receiver rather than to Liew.

In January, 1980, Liew and the Receiver accepted $750,000 as full and complete settlement of their claims. Dawe received $25,000, and the remainder went to the court pending resolution of the claims presented by Liew and the Receiver.

The parties stipulated that of the $725,000 remaining, $240,000 was received from Rafton as settlement of claims arising from the D-R Agreement (the "Rafton fund") and $485,000 came from CBSI to resolve claims arising from the aborted bank sales (the "CBSI fund"). A jury trial was conducted before a federal magistrate.

The jury found that the Receiver was entitled to the $240,000 Rafton fund and found that, of the $485,000 CBSI fund, Liew was entitled to $350,000 and the Receiver to $135,000. Liew appeals the award of the $240,000 Rafton fund to the Receiver. The Receiver cross-appeals the award of $350,000 of the CBSI fund to Liew.

III LIEW'S APPEAL

A. Exclusion of Evidence Concerning the Soviet Bank

Liew bases his appeal solely on the contention that he was prejudiced by the trial court's exclusion of the evidence concerning involvement of the Moscow Norodny Bank. Liew sought to characterize the transactions underlying this litigation as an attempted Soviet infiltration of the American banking system. His objective was to establish the equitable affirmative defense of unclean hands against the Receiver.

Liew was unable, however, to connect the Receiver with the alleged unclean hands in the underlying transactions. As a result, the trial court granted the Receiver's motion to strike Liew's unclean hands defense. Liew did not oppose that motion. Now, however, he appeals the exclusion of evidence proffered to support the stricken affirmative defense.

Liew makes no persuasive argument that the order striking the defense was erroneous, and we find no reason to disturb that order. With Liew's allegations of unclean hands no longer at issue, the proffered evidence on the Moscow Norodny Bank's role in the transactions is of minimal, if any, relevance. Federal Rule of Evidence 403 requires the trial court to balance the probative value of proffered evidence against its potential prejudicial impact. The court here did the balancing, and excluded the evidence.

A trial court has very broad discretion in applying Rule 403 and, absent abuse, the exercise of its discretion will not be disturbed on appeal. United States v. Martin, 599 F.2d 880, 889 (9th Cir.), cert. denied, 441 U.S. 962, 99 S.Ct. 2407, 60 L.Ed.2d 1067 (1979). There was no abuse here. The award of the $240,000 Rafton fund to the Receiver for damages arising out of the D-R Agreement is affirmed.

IV RECEIVER'S CROSS-APPEAL

A. Choice of Law

The major issue raised in the Receiver's cross-appeal is whether the trial court made the proper choice of law in evaluating the validity of the assignment from Dawe to Liew.

During the pretrial proceedings, Liew moved for an order that the law of California be applied to the assignment transaction. The Receiver opposed the motion, contending that the law of Singapore was applicable. The trial court ruled on the question in an opinion and order concluding that the law of California governed the assignment between Dawe and Liew. Before trial, the Receiver sought reconsideration of this order and submitted additional points and authorities. The trial court reconsidered the matter and affirmed the order.

The choice between conflicting laws affecting issues in litigation is an area that has intrigued scholars for years. Numerous competing theories have been advanced. ¹ A district court in a diversity case must apply the same choice of law analysis that would be applied by state courts in the jurisdiction in which the district court is situated. Klaxon Company v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); Strassberg v. New England Mutual Life Insurance Co., 575 F.2d 1262, 1263 (9th Cir. 1978).

This action was brought in the district court in California and we look to the choice of law rules applied in that state. The approach that has been adopted in California is the "governmental interest" analysis. Offshore Rental Co. v. Continental Oil Co., 22 Cal.3d 157, 583 P.2d 721, 148 Cal.Rptr. 867 (1978); Bernhard v. Harrah's Club, 16 Cal.3d 313, 546 P.2d 719, 128 Cal.Rptr. 215, cert. denied, 429 U.S. 859, 97 S.Ct. 159, 50 L.Ed.2d 136 (1976); Cable v. Sahara Tahoe Corporation, 93 Cal.App.3d 384, 155 Cal.Rptr. 770 (1979). The "governmental interest" analysis was first comprehensively developed by Professor Brainerd Currie, ² who, in turn, recognized the major contribution of the opinions of Justice Traynor, former Chief Justice of the California Supreme Court, to his analysis. ³ The California courts have thus been in the forefront of the development of the ...