Jinro America v. Secure Investments

• Decision Date: 14 September 2001
• Docket Number: PLAINTIFFS-APPELLANTS,DEFENDANTS-APPELLEES,No. 99-16133,99-16133
• Parties: (9th Cir. 2001) JINRO AMERICA INC., A WASHINGTON CORPORATION; JR INTERNATIONAL CORPORATION, A KOREAN CORPORATION,v. SECURE INVESTMENTS, INC., AN ARIZONA CORPORATION; BRIAN BISHOP, AN INDIVIDUAL; BURNETT WATKINS, AN INDIVIDUAL; BISHOP, MRS., INDIVIDUALLY; WATKINS, MRS., INDIVIDUALLY; BRIAN W. BISHOP INC., AN ARIZONA CORPORATION, DBA COBBI INTERNATIONAL FOOD PRODUCTS; LANDMARK FORWARD COMPANIES, INC.,
• Court: U.S. Court of Appeals — Ninth Circuit

Page 993

266 F.3d 993 (9th Cir. 2001)

JINRO AMERICA INC., A WASHINGTON CORPORATION; JR INTERNATIONAL CORPORATION, A KOREAN CORPORATION, PLAINTIFFS-APPELLANTS v. SECURE INVESTMENTS, INC., AN ARIZONA CORPORATION; BRIAN BISHOP, AN INDIVIDUAL; BURNETT WATKINS, AN INDIVIDUAL; BISHOP, MRS., INDIVIDUALLY; WATKINS, MRS., INDIVIDUALLY; BRIAN W. BISHOP INC., AN ARIZONA CORPORATION, DBA COBBI INTERNATIONAL FOOD PRODUCTS; LANDMARK FORWARD COMPANIES, INC., DEFENDANTS-APPELLEES

No. 99-16133

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted November 16, 2000

Filed September 14, 2001

NOTE: SEE AMENDED ORDER OF DECEMBER 5, 2001 AT 272 F.3d 1289.

[Copyrighted Material Omitted]

Dale A. Danneman and Susan M. Freeman, Lewis and Roca Llp, Phoenix, Arizona, for the plaintiffs-appellants.

Ronald J. Ellett, P.C., Phoenix, Arizona, for defendant-appellee Landmark Forwarding Companies, Inc.

Thaine M. Crown, Jr., Phoenix, Arizona, for defendants-appellees Cobbi International Food Products, Brian Bishop and Patricia Bishop.

Appeal from the United States District Court for the District of Arizona Owen M. Panner, Senior District Judge, Presiding D.C. No. CV-95-01787-OMP

Before: J. Clifford Wallace, Raymond C. Fisher and Johnnie B. Rawlinson, Circuit Judges.

Opinion by Judge FISHER; Concurrence by Judge WALLACE

Fisher, Circuit Judge

OVERVIEW

This case arises out of a business deal ostensibly for the international trade of frozen chicken. Appellants are JR International Corp. ("JRI"), a South Korean corporation, and its wholly owned subsidiary, Jinro America, Inc. ("JAI"), which we shall collectively refer to as "Jinro" or"the Jinro Group." ¹ Appellees are defendants Brian Bishop, COBBI International Food Products ("COBBI"), Landmark Forwarding Company ("Landmark"), Burnett Watkins and Secure Investments, Inc. ("Secure"), whom we shall collectively refer to as the "defendants."

When the parties' deal unraveled, Jinro sued the defendants to recover millions of dollars for breach of contract, fraud and racketeering, but were met with the defendants' claim that the transaction was a sham. The defendants argued that the chicken deal was designed to cover up a high-risk investment program that circumvented Korea's currency regulations. After the district court bifurcated the trial to address the sham contract allegation in phase one, a jury agreed with defendants' characterization of the transaction, whereupon the district court sua sponte entered summary judgment against Jinro on all its claims. Although Jinro raises several issues on appeal, which we shall address, we conclude the most significant is its contention that the phase one trial was prejudicially infected by ethnically biased, "xenophobic" expert testimony. We agree that this objectionable testimony was completely improper, and accordingly reverse the judgment against Appellants.

JURISDICTION

The district court had diversity jurisdiction under 28 U.S.C. §§ 1332. Appellants are South Korean and Washington corporations. Appellees are Arizona corporations and residents. The amount in controversy exceeds $75,000. We have jurisdiction under 28 U.S.C. §§ 1291.

I. BACKGROUND

This case involves a lengthy, complicated and disputed factual background. We begin by introducing the parties and then relate their differing versions of the events.

A. The Parties

The Jinro Group is a Korean consortium comprised of nine companies, each specializing in different markets ranging from construction to food and beverages. Jinro International, a member of the Jinro Group, is involved in international trade in at least 78 countries. In 1994 and 1995, JRI traded in commodities including sugar, fish meal, cotton, cement, zinc, yarn and ball bearings. JRI's sales from international trade in those years totaled roughly $140 million. The agreement we are concerned with here would have marked JRI's initial entry into the trade of frozen chicken. JRI has wholly-owned subsidiary companies around the world, including Hong Kong, Japan and the United States, which is home to Jinro America.

Brian Bishop is an Arizona-based businessman, with experience in commodities trading and the international food industry. In April 1994, he formed COBBI (which stands for Corporate Offices of Brian Bishop, Inc.) and Landmark Forwarding Company, in order to enter into the chicken trading agreement with Jinro. He claims Jinro, another company, Fool Valley, and his company Landmark, actually used the chicken trading contract as a cover up for their real agreement: a joint venture to invest in a highly risky "roll program," the nature of which we shall explain later. According to Bishop, Jinro needed the chicken deal to provide a legitimate face for the transaction, because Jinro's activity in the roll program would have been forbidden by Korean law.

Burnett Watkins was an associate of Bishop's and the owner and President of Secure Investments, Inc., an Arizona corporation. As part of the agreement between Bishop and Jinro, Secure was supposed to supply $10 million in United States Treasury notes as collateral to be held in a blocked account for the benefit of Jinro.

B. The Joint Program Agreement -Jinro's Story

On November 16, 1994, Jinro, COBBI and Landmark entered into a written contract for the buying and selling of frozen chicken. The "Joint Program Agreement" ("JPA") was a relatively simple contract. It recited that COBBI and Landmark were experts in trading frozen chicken, and that they desired financing of this trade. It stated that JRI and JAI were capable of financing commodity and futures trading and willing to enter into an agreement with COBBI and Landmark for that purpose.

Under the terms of the JPA, the parties envisioned the buying and selling of chicken in large amounts, with Jinro serving as an intermediary and making its profit from the difference in price. Basically, Landmark would buy chicken in large volumes at extremely low prices and sell it to Jinro. Jinro, in turn, would immediately sell it to COBBI, which had already secured sales orders for the chicken at a higher price --chicken arbitrage, in essence. Jinro agreed under the JPA to advance Landmark $10 million to cover part of the shipment of product in the twelfth month of the JPA, which was a year-long agreement. As collateral for the advance, Landmark agreed to assign to Jinro $10 million of Treasury securities, which were to be held in a blocked account under Jinro's name at an investment house called Saratoga Investments, Inc.

As months went by, no chicken was bought or sold. Bishop repeatedly communicated with Jinro, offering excuses for the delay. He gave various explanations, usually involving technical difficulties in obtaining letters of credit, but he always stated that the deal was on track and that he had buyers and sellers lined up. No chicken having been bought or sold by June 1995, Jinro finally declared Bishop and his companies in default on the contract and demanded repayment of its advance.

Jinro filed suit in August 1995 to prohibit transfer of the Treasury collateral Bishop and Watkins had placed at Saratoga Investments in Jinro's name. Ultimately, after filing a receivership action, Jinro learned there were no Treasury securities on hold for it at Saratoga. Jinro then amended its complaint to include racketeering and various fraud claims. Watkins, who had given Jinro documentation regarding the securities, including the identifying (or "CUSIP") numbers of the Treasury notes, and his company Secure Investments were included as conspirators in the fraud. Furthermore, Jinro learned that Watkins was an undisclosed principal of Saratoga Investments.

Jinro argues it entered into a valid, written agreement for the international buying and selling of chicken, and that defendants Bishop and Watkins defrauded it out of its initial $10 million advance.

C. The Roll Program -Bishop's Story

The defendants tell a different story. Bishop contends JRI approached him with a request to help it invest money in the United States in a high-risk, high-yield type of investment scheme known as a "roll program." Defendants describe the "roll program" as a highly speculative investment plan involving the trade of credit and commercial paper issued by foreign state banks. According to Bishop, Jinro introduced the concept to him and asked if he would be willing to form a company that would enter into a joint venture with Jinro to pursue such an investment program. Jinro's representatives promised substantial profits and explained that, because Jinro's participation in such a deal was contrary to Korean laws, they needed an American company to effectuate the transaction. Bishop says he then found people who knew about such a transaction who helped him set it up. He formed his companies, COBBI and Landmark, at Jinro's request so that the companies could enter into a legal trade agreement as a cover for the parties' underlying activity. According to Bishop, Jinro instructed him never to use the words "roll program" in his correspondence with the company. After entering into the agreement, he continually updated Jinro with phony chicken orders and problems so the company would have seemingly legitimate documentation to prove the validity of the chicken trading contract. Bishop argues Jinro wanted to avoid Korean law, which strictly regulates the investment of funds originating in Korea, and, to that end, engaged him to set up the cover transaction, the JPA.

Disappointed by the profits from the roll program, Jinro decided to sue to recover its initial $10 million investment, treating the chicken deal as though it were a legitimate agreement.

II. DISCUSSION

The central issues on appeal, though informed by this factual background, stem from the trial itself. Jinro appeals the district court's decision to bifurcate the trial as well as its decision to allow the defendants to introduce extrinsic evidence regarding...