Gushi Bros. Co. v. Bank of Guam

• Decision Date: 07 July 1994
• Docket Number: No. 93-16133,93-16133
• Citation: 28 F.3d 1535
• Parties: GUSHI BROTHERS COMPANY; Chuji G. Chutaro; Beverly L. Chutaro, Plaintiffs-Appellees, v. BANK OF GUAM, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1535

28 F.3d 1535

GUSHI BROTHERS COMPANY; Chuji G. Chutaro; Beverly L Chutaro, Plaintiffs-Appellees, v. BANK OF GUAM, Defendant-Appellant.

No. 93-16133.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 13, 1994.

Decided July 7, 1994.

Mark E. Cowan and Anita P. Arriola, Arriola, Cowan & Bordallo, Agana, GU, for defendant-appellant.

Douglas F. Cushnie, Saipan CNMI, for plaintiffs-appellees.

Appeal from the United States District Court for the District of the Commonwealth of the Northern Mariana Islands.

Before: FARRIS, BEEZER and RYMER, Circuit Judges.

Opinion by Judge BEEZER.

BEEZER, Circuit Judge:

The Bank of Guam ("Bank") challenges the district court's denial of its motion for judgment as a matter of law or, alternatively, a new trial pursuant to Fed.R.Civ.P. 50(b) as to Gushi Brothers' ("the Chutaros") claim for violation of the Bank Holding Company Act, 12 U.S.C. Secs. 1971-1978. ¹ The Bank contends that the court used an improper legal standard and that there was insufficient evidence to support the verdict in the Chutaros' favor. The Bank also challenges the district court's exclusion of the deposition of its branch manager, Droteo Espangel, who died prior to trial. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291. Because we conclude that the district court lacked subject matter jurisdiction over this claim, we do not address the merits of the Bank's appeal. We remand with instructions to the district court to vacate the judgment and the resulting award of costs and fees.

I

Gushi Brothers is a proprietorship registered in the Republic of the Marshall Islands. Gushi Brothers is primarily engaged in wholesale and retail sales and is owned and managed by Chuji and Beverly Chutaro. The Chutaros maintained a commercial account under the Gushi Brothers trade name at the Majuro branch of the Bank of Guam, after the Bank assumed Bank of America's operations in the Marshall Islands in 1981. The Bank, organized under Guam law, was the only commercial banking facility operating in Majuro.

In August 1986, investigators alerted Bank officers in Guam to the fact that the Chutaros' account was overdrawn ² by approximately $500,000. On August 24, the Bank's president, Leon Guerrero, and its general counsel, Arriola, appeared at the Chutaros' residence in Majuro. According to Mrs. Chutaro's testimony at trial, Leon Guerrero, through intimidation, required the Chutaros to execute a promissory note for $506,169.82 payable in sixty days. The note was secured by real and personal property located in the Republic of the Marshall Islands. The parties at trial identified revenue from sales by Gushi Brothers as the contemplated source of repayment for the loan.

Relations between the Chutaros and the Bank deteriorated in the ensuing months. Mrs. Chutaro testified that the Bank refused to honor those checks most urgently requiring clearance per her request. The Bank also unilaterally drew funds from a Gushi Brothers account as payment for its legal fees and loan installments, causing several checks to be returned for insufficient funds. The Chutaros subsequently opened an account at the newly-established Bank of the Marshall Islands, a local, non-FDIC-insured entity. Citing difficulties meeting their obligations, the Chutaros wrote to the Bank seeking an extension of the loan. By a letter dated September 22 sent from the Bank's headquarters in Agana, Guam, Leon Guerrero rejected the Chutaros' offer to renegotiate the note and added: "We also learned that you have opened an account with another bank. This account must be closed immediately. All deposits must be made to our bank."

On November 10, 1988, the Chutaros filed this action on behalf of themselves and Gushi Brothers, alleging, inter alia, violation of Sec. 1972(1) ³ of the Bank Holding Company Act. Finding that the Bank violated the Act, the jury awarded the Chutaros $50,000. This sum was trebled pursuant to 12 U.S.C. Sec. 1975. ⁴ The district court entered Judgment on February 26, 1993. The Bank moved for judgment as a matter of law or, alternatively, for a new trial. The court denied relief as to the Bank Holding Company Act claim and entered an amended Judgment, including an award of attorney's fees of $30,472.72 and costs of $820.90 on May 20, 1993. The Bank timely appealed.

While the appeal was pending, we, by order, requested counsel to address whether Congress intended to extend the reach of the Bank Holding Company Act antitying provisions to transactions occurring wholly within the Republic of the Marshall Islands and, thus, whether the district court had subject matter jurisdiction over the Chutaros' claim. Through argument and supplemental authority, the parties disputed whether the Chutaros' claim arose exclusively out of the Bank's operations within the Republic of the Marshall Islands. They also disputed whether the antitying provisions of the Bank Holding Company Act apply of their own force to the Republic of the Marshall Islands and whether the statute or its legislative history reveals an express Congressional intent to apply the Act to the Republic of the Marshall Islands.

II

We have consistently treated the question of whether Congress intended to exercise the full scope of its prescriptive jurisdiction as a question of subject matter jurisdiction. See, e.g., SEC v. United Fin. Group, Inc., 474 F.2d 354, 356-57 (9th Cir.1973). The question of subject matter jurisdiction may be raised by any party, or by motion of the court, at any time, including on appeal. Gregorian v. Izvestia, 871 F.2d 1515, 1526 n. 8 (9th Cir.1988), cert. denied, 493 U.S. 891, 110 S.Ct. 237, 107 L.Ed.2d 188 (1989). We review de novo the district court's exercise of subject matter jurisdiction. Kruso v. Int'l Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989).

III

The Chutaros contend that, regardless of the rules governing the application of federal law to the Republic of the Marshall Islands, sufficient actionable conduct occurred within the territory of the United States to invoke the district court's jurisdiction. They underscore the fact that the Bank is chartered under Guam law, has its headquarters there and, as a member of the Federal Reserve System, is subject generally to extensive Congressional regulation.

Questions involving the reach of Congress' prescriptive jurisdiction are not implicated when the conduct sought to be regulated occurs within the United States. Environmental Defense Fund, Inc. v. Massey, 986 F.2d 528, 531 (D.C.Cir.1993). We look to the conduct proscribed by the particular legislation and to the impact of the conduct within the United States. United Financial Group, 474 F.2d at 356-57. Conduct occurring within the United States which, standing alone, is merely preparatory or incidental to the proscribed conduct does not confer federal court jurisdiction. Id.; see also Subafilms, Ltd. v. MGM-Pathe Comm. Co., 24 F.3d 1088, 1090-95 (9th Cir.1994) (en banc) (the mere authorization within the United States of extraterritorial acts of infringement does not state a violation of the Copyright Act, 17 U.S.C. Sec. 101 et seq. (1988)).

The factors cited by the Chutaros for the proposition that actionable conduct did not occur exclusively in the Republic of the Marshall Islands are inapposite. Section 1972(1) of the Bank Holding Company Act proscribes certain anticompetitive tying arrangements, reciprocal agreements and exclusive dealing contracts. See, e.g., Bruce v. First Fed. Sav. and Loan Ass'n of Conroe, Inc., 837 F.2d 712, 715 (5th Cir.1988). The conduct supporting the Chutaros' claim stemmed from the Bank's extension of credit, memorialized in the promissory note executed on August 25, 1986 (the tying product under their theory) and from the condition, conveyed in the September 22 letter, that the Chutaros close their account at the Bank of the Marshall Islands (the tied product or the exclusive dealing condition). It is undisputed that the execution of the loan agreement, promissory note and security agreement, as well as the preliminary discussions between the Chutaros and Bank president Leon Guerrero, took place exclusively in Majuro, in the Republic of the Marshall Islands, in August 1986. The demand conveyed in the September 22 letter, moreover, affected only the Chutaros' relations with an entirely local bank. That the letter may have been sent from the Bank's headquarters in Agana, Guam is merely incidental to any allegedly actionable conduct.

IV

Having determined that the banking transactions occurred exclusively within the Republic of the Marshall Islands, we next consider the conditions upon which the antitying provisions of the Bank Holding Company Act could be said to apply to the Republic of the Marshall Islands.

A

The Republic of the Marshall Islands is a former administrative district of the Trust Territory of the Pacific Islands ("Trust Territory"). As a district of the Trust Territory, the Marshall Islands, as they were then known, were administered pursuant to a Trusteeship Agreement ("Agreement") entered into between the United Nations Security Council and the United States. ⁵ Porter v. United States, 496 F.2d 583, 587 (Ct.Cl.1974), cert. denied, 420 U.S. 1004, 95 S.Ct. 1446, 43 L.Ed.2d 761 (1975); See Trusteeship Agreement for the Former Japanese Mandated Islands, art. 6.1, July 18, 1947, United Nations-United States, 61 Stat. 3301, T.I.A.S. No. 1665. As presently constituted, the Republic of the Marshall Islands is "a fully independent, sovereign nation[ ]." Temengil v. Trust Territory of the Pacific Islands, 881 F.2d 647, 650 (9th Cir.1989), cert. denied, 496 U.S. 925, 110 S.Ct. 2617, 110 L.Ed.2d 638 (1990). Section 121 of the Compact of Free Association, which currently governs relations between the United States and the Republic of the Marshall Islands, acknowledges the Republic's plenary control over the conduct of its foreign affairs, including "commercial, diplomatic,...