United States v. Pangang Grp. Co.

• Decision Date: 26 July 2021
• Docket Number: No. 19-10306,19-10306
• Citation: 6 F.4th 946
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. PANGANG GROUP COMPANY, LTD.; Pangang Group Steel Vanadium & Titanium Company, Ltd.; Pangang Group Titanium Industry Company, Ltd.; Pangang Group International Economic & Trading Company, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

6 F.4th 946

UNITED STATES of America, Plaintiff-Appellee,

v.PANGANG GROUP COMPANY, LTD.; Pangang Group Steel Vanadium & Titanium Company, Ltd.; Pangang Group Titanium Industry Company, Ltd.; Pangang Group International Economic & Trading Company, Defendants-Appellants.

No. 19-10306

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 15, 2020 San Francisco, California

Filed July 26, 2021

John M. Potter (argued), Quinn Emanuel Urquhart & Sullivan LLP, San Francisco, California; Robert P. Feldman and Andrew P. March, Quinn Emanuel Urquhart & Sullivan LLP, Redwood Shores, California; William B. Adams, Quinn Emanuel Urquhart & Sullivan LLP, New York, New York; for Defendants-Appellants.

Matthew M. Yelovich (argued), Assistant United States Attorney; Merry Jean Chan, Chief, Appellate Section, Criminal Division; David L. Anderson, United States Attorney; United States Attorney's Office, San Francisco, California; for Plaintiff-Appellee.

Before: Kim McLane Wardlaw and Daniel P. Collins, Circuit Judges, and Richard K. Eaton,^* Judge.

COLLINS, Circuit Judge:

Defendants-Appellants Pangang Group Company, Ltd. ("PGC"); Pangang Group Steel Vanadium & Titanium Company, Ltd. ("PGSVTC"); Pangang Group Titanium Industry Company, Ltd. ("PGTIC"); and Pangang Group International Economic & Trading Company ("PGIETC") (collectively, "the Pangang Companies") are four affiliated Chinese companies that have been indicted for violating the criminal provisions of the Economic Espionage Act ("EEA"), 18 U.S.C. § 1831 et seq . The Pangang Companies moved to dismiss the indictment, arguing that they are "instrumentalities" of the government of the People's Republic of China ("PRC") and are therefore entitled to sovereign immunity under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1602 et seq . The district court denied the motion on the grounds that, even assuming that the FSIA's immunity provisions extend to criminal cases, the Pangang Companies were not immune in light of the FSIA's commercial activity exception and its waiver exception.

The Pangang Companies have filed this immediate appeal from the denial of their motion to dismiss, and the parties’ briefs in this court sharply disagree as to whether and to what extent the immunity conferred by the FSIA applies in criminal cases. We need not reach these issues, however, because we conclude that, in moving to dismiss the indictment, the Pangang Companies failed to carry their burden to make a prima facie showing that they are instrumentalities of a foreign sovereign within the meaning of the FSIA. We therefore affirm the district court's denial of the motion.

I

A

Because Appellants’ motion to dismiss asserted a facial challenge to the operative indictment, see infra at 13–14, we take the following allegations of the indictment as true for purposes of this appeal. See United States v. Fiander , 547 F.3d 1036, 1041 n.3 (9th Cir. 2008).

Titanium dioxide ("TiO₂") is a white pigment that is used in products "ranging from paints to plastics to paper." As the Chinese economy grew in the 1990s, demand for TiO₂ increased, but no company within China had been able to develop a "clean, efficient" technology for producing it. E.I. du Pont de Nemours & Company ("DuPont") had managed to successfully develop such a process "through intensive research and development over many years," but DuPont was unwilling to sell or license that technology to Chinese companies. DuPont's "chloride-route" TiO₂ production technology included multiple trade secrets that DuPont took extensive efforts to keep confidential.

Because of TiO₂’s importance to manufacturing, officials of the Chinese government decided to task Walter Liew, a U.S. businessman, with obtaining and transferring DuPont's "chloride-route TiO₂ technology" to China through other means. Liew endeavored to do so by "assembl[ing] a team that included former DuPont employees," including one with "detailed knowledge of DuPont's TiO₂ technology" and "expertise in building TiO₂ production lines." As a result of the efforts of Liew and others, certain DuPont trade secrets were unlawfully transferred to the Pangang Companies. In "a line of effort parallel" to Liew's activities, the Pangang Companies also arranged with unknown "computer hackers" to access DuPont computers without authorization and to steal "trade secret information related to the chloride-route production of TiO₂."

B

Liew was ultimately indicted and convicted on multiple federal charges arising from his efforts to obtain DuPont's trade secrets, and he was sentenced to 144 months in prison. See United States v. Liew , 466 F. Supp. 3d 1062, 1063 (N.D. Cal. 2020). In 2012, the Pangang Companies were added as co-defendants in a superseding indictment in Liew's case. The operative pleading against them is the Third Superseding Indictment, which the Government sought and filed in 2016 after Liew had already been tried before a jury and convicted.

The indictment charges the Pangang Companies with one count of conspiring to commit economic espionage for the benefit of a foreign government or instrumentality in violation of 18 U.S.C. § 1831(a)(5) and one count of attempting to commit such economic espionage in violation of § 1831(a)(4). As to the first count, the indictment alleges that the Pangang Companies conspired with Liew and others, inter alia , to steal DuPont trade secrets in violation of § 1831(a)(1) ; to copy and convey such trade secrets without authorization in violation of § 1831(a)(2) ; and to receive, buy, and possess such trade secrets, knowing they had been obtained without authorization, in violation of § 1831(a)(3). The second count alleges that the Pangang Companies attempted to commit the same three offenses that were the objects of the conspiracy. Under the terms of the statute, the offenses must have been committed with knowledge that they "will benefit any foreign government, foreign instrumentality, or foreign agent." Id . § 1831(a). The indictment alleges that this requirement is satisfied because the charged offenses "would benefit a foreign government, namely the PRC, and foreign instrumentalities, namely [PGC], PGSVTC, [PGTIC], and P[G]IETC."

C

After the Pangang Companies were named as co-defendants in 2012, they repeatedly and successfully argued that the Government's efforts to serve summonses on the indictment were inadequate under Federal Rule of Criminal Procedure 4. Partly in response to the district court's rulings in this case, Rule 4 was formally amended, effective December 1, 2016, so as to clarify the requirements for serving foreign organizational defendants. See In re Pangang Grp. Co. , 901 F.3d 1046, 1050–53 (9th Cir. 2018). The Government thereafter again attempted service, and the district court upheld that service as valid under the amended rule. Id . at 1054. We denied the Pangang Companies’ ensuing mandamus petition, concluding that, in light of the amendments to Rule 4, "the district court did not err, let alone clearly err, in denying the Pangang Companies’ motion to quash service." Id . at 1060.

The Pangang Companies pleaded not guilty in September 2018, and the following July they moved to dismiss the indictment for lack of jurisdiction and for failure to state an offense. See Fed. R. Crim. P. 12(b)(2), (3)(B)(v). In contesting the court's subject matter jurisdiction, the Pangang Companies asserted that (1) under the allegations of the operative indictment, they were all "instrumentalities" of the PRC for purposes of the FSIA; (2) the FSIA's general rule that instrumentalities of a foreign sovereign are "immune from the jurisdiction of the courts of the United States and of the States," 28 U.S.C. § 1604, applies in criminal cases; and (3) the FSIA's exceptions to that immunity apply only in civil cases. After briefing and argument, the district court denied the motion.

For purposes of its ruling, the district court assumed that the indictment's allegation that the Pangang Companies were "foreign instrumentalit[ies]" under the EEA, 18 U.S.C. § 1839(1), was sufficient to establish that they were also "agenc[ies] or instrumentalit[ies] of a foreign state" entitled to immunity under the FSIA, 28 U.S.C. § 1603(a). The court noted that there were some differences between the FSIA's definition of that latter phrase and the EEA's definition of a "foreign instrumentality," but the court concluded that those differences were "not material." The court extensively surveyed the caselaw addressing whether the FSIA applies to criminal cases, but it ultimately concluded that it did not need to definitively resolve this issue. Even "assuming the FSIA applies in criminal cases," the court explained, "its exceptions apply as well." Turning to the specific exceptions invoked by the Government in opposing the motion to dismiss, the court held that the Pangang Companies’ conduct fell within the commercial activity exception, see 28 U.S.C. § 1605(a)(2), and that their litigation conduct triggered the waiver exception, id . § 1605(a)(1).

The Pangang Companies timely filed a notice of appeal.

II

The Government challenges our appellate jurisdiction over the district court's order, but we conclude that its objections lack merit.

"[W]e have long held that ‘an order denying immunity under the FSIA is appealable under the collateral order doctrine.’ " Gupta v. Thai Airways Int'l, Ltd. , 487 F.3d 759, 763 (9th Cir. 2007) (quoting Compañía Mexicana de Aviación, S.A. v. U.S. Dist. Ct. , 859 F.2d 1354, 1358 (9th Cir.1988) ); accord Terenkian v. Republic of Iraq , 694 F.3d 1122, 1130 (9th Cir. 2012) ; cf . Republic of Argentina v. Weltover, Inc. , 504 U.S. 607, 610, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992) (addressing the merits of an interlocutory appeal in an FSIA case in which appellate jurisdiction below rested on the collateral order doctrine).¹ The Government argues that a different rule should apply in the criminal context, but we disagree. Even assuming that...