Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-05-07030/USCOURTS-caDC-05-07030-0/pdf.json

Nature of Suit Code: 380
Nature of Suit: Other Personal Property Damage
Cause of Action: 

---

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 5, 2005 Decided July 7, 2006

No. 05-7030

YANG RONG, ET AL.,

APPELLANTS

v.

LIAONING PROVINCE GOVERNMENT,

A SUBDIVISION OF THE PEOPLE’S REPUBLIC OF CHINA,

 A FOREIGN STATE,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 03cv01687)

Bert W. Rein argued the cause for the appellants. Charles

O. Verrill, Jr., John A. Hodges, Thomas W. Queen and M.

Evan Corcoran were on brief.

Craig A. Hoover argued the cause for the appellee.

Jonathan S. Franklin, Christopher T. Handman and Jessica L.

Ellsworth were on brief.

Before: HENDERSON, ROGERS and TATEL, Circuit Judges.

Opinion for the court filed by Circuit Judge HENDERSON.

Concurring opinion filed by Circuit Judge HENDERSON.

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 1 of 17
2

1

In discussing the facts in Part I, “Rong” refers to Yang Rong. In

Part II, however, “Rong” refers to all three appellants. 

2

We take the facts from Rong’s complaint, assume them to be true

and draw all plausible inferences in his favor. Price v. Socialist

People’s Libyan Arab Jamahiriya, 294 F.3d 82, 93 (D.C. Cir. 2002).

KAREN LECRAFT HENDERSON, Circuit Judge: Appellants

Yang Rong, Rhea Yeung and the Broadsino Finance

Company, a limited company controlled by Yang Rong and

incorporated in Hong Kong, appeal the district court’s

dismissal of their complaint brought under the Foreign

Sovereign Immunities Act (FSIA or Act), 28 U.S.C. §§ 1602

et seq., against Liaoning Province (Province), a subdivision of

China, for lack of subject matter jurisdiction. On appeal Yang

Rong,1 a Chinese national and permanent resident of the

United States, and his fellow appellants argue that the district

court erroneously found that the Province’s challenged act

was insulated from suit by sovereign immunity. He claims

jurisdiction exists under the “commercial activity” exception

set out in section 1605(a)(2) of FSIA, which provides that an

action does lie against a foreign state if it is based “upon an

act outside the territory of the United States in connection

with a commercial activity of the foreign state elsewhere and

that act causes a direct effect in the United States.” Id. §

1605(a)(2). We conclude that the “commercial activity”

exception is inapplicable to the Province’s act and that instead

its action was quintessentially sovereign. Accordingly, we

affirm the district court’s dismissal of the complaint.

I. 

In 1991 Rong and the municipality of Shen Yang, a city

in the Liaoning Province in northeast China, entered into a

joint venture for automobile production.2

 The principal

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 2 of 17
3

partners in the venture, called Shen Yang Jin Bei Passenger

Vehicle Manufacturing Company, Ltd. (Shen Yang

Automotive), were the Broadsino Finance Company

(Broadsino), a Hong Kong-incorporated company wholly

owned by Yang Rong, and Jin Bei Automotive Shareholding

Company, Ltd. (Jin Bei Shareholding), a corporation owned

by the Shen Yang municipal government. At the venture’s

inception Jin Bei Shareholding owned 60 per cent of Shen

Yang Automotive, Broadsino owned 25 per cent and another

partner, Hainen Huayin International Trust Investment

Company (Hainen), owned 15 per cent. Broadsino

subsequently acquired Hainen’s shares to effect a 60/40

ownership split in Shen Yang Automotive, that is, Jin Bei

Shareholding had 60 per cent ownership and Broadsino had

40 per cent ownership. Compl. ¶ 19, reprinted in Joint

Appendix (JA) 12. 

To expand the venture through access to American

capital the partners sought to list Shen Yang Automotive on

the New York Stock Exchange (NYSE). Yang Rong, who

served as Shen Yang Automotive’s chief executive and

manager, incorporated Brilliance Holdings Limited

(Brilliance Holdings) in Bermuda as the financing vehicle to

obtain a listing on the NYSE and transferred his 40 per cent

ownership interest to Brilliance Holdings. Jin Bei

Shareholding also transferred 11 per cent of its interest in

Shen Yang Automotive to Brilliance Holdings, thereby giving

the Bermuda-based company a 51 per cent interest in Shen

Yang Automotive. In return for transferring 11 per cent of its

interest, Jin Bei Shareholding received 21.57 per cent of

Brilliance Holdings stock, thereby reducing Rong’s interest in

Brilliance Holdings to the remaining 78.43 per cent of its

stock. Compl. ¶ 20, JA 12. In registering the stock with the

Securities and Exchange Commission (SEC), preparing the

initial public offering in the United States and listing the stock

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 3 of 17
4

on the NYSE, senior Chinese government officials informed

Rong that a Chinese entity rather than a Hong Kong private

company should be the majority shareholder of the listed

company inasmuch as the U.S. registration and listing would

be the first for a China-based company in 50 years. Rong

understood that the Chinese authorities would be satisfied if

the majority interest in the listed company was held in the

name of a Chinese non-governmental organization (NGO).

1st Am. Compl. ¶ 3, JA 24. Consequently in May 1992,

Broadsino, the People’s Bank of China and other Chinese

governmental entities created the Chinese Financial

Educational Development Foundation (Foundation), an NGO.

Shang Ming, the deputy governor of the People’s Bank of

China (Ming), served as the Foundation’s chairman while

Rong served as vice chairman. 

In September 1992, Broadsino transferred its Brilliance

Holdings stock to the Foundation. Eventually, Rong and

Ming agreed “that the Foundation would hold the shares in

trust for Broadsino, in effect acting as the nominee for

Broadsino,” and that Rong was to have sole authority to

manage, control and administer the Foundation’s equity

interest in Brilliance Holdings. 1st Am. Compl. ¶ 28, JA 32-

33. The transferred Brilliance Holdings shares were held in

the Foundation’s name. As a result of this arrangement, as

well as the sale of 28.75 per cent of Brilliance Holdings

shares in October 2002, the Foundation held 55.88 per cent of

the Brilliance Holdings shares and Jin Bei Shareholding held

15.37 per cent. 1st Am. Compl. ¶ 30, JA 34. At Rong’s

direction, Broadsino paid the costs to register and list the

Brilliance Holdings stock and paid various administrative fees

to the Foundation. He also managed and directed Brilliance

Holdings’ primary holding, Shen Yang Automotive, arranging

with Toyota and General Motors to manufacture automobiles

for those companies. All of Shen Yang Automotive’s

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 4 of 17
5

manufacturing facilities were located in Liaoning Province. 

Meanwhile, in early 2002 the Province formed a

“Working Committee,” headed by the Assistant to the

Governor of the Province. In March 2002 the Working

Committee declared that all equity interests held in the name

of the Foundation, including Rong’s interest in Brilliance

Holdings, were state assets and demanded that he transfer

them to the Province. Compl. ¶ 28–29, JA 14–15. After

Rong refused, the Working Committee informed Rong and

the Brilliance Holdings board of directors that the Foundation

no longer recognized Broadsino’s beneficial interest in

Brilliance Holdings. At the direction of the Province, the

Brilliance Holdings board dismissed Rong as President, CEO

and Director and placed Working Committee members in

those positions and other management positions. In October

2002 the newly installed Brilliance Holdings board ceased

paying Rong a salary, dismissed him as a director the next

month and terminated his contract. The Province also formed

Huachen Automotive Group Holdings Company Limited

(Huachen) and appointed Province officials as officers of the

new company. Approximately two months later Huachen

purchased the Brilliance Holdings shares nominally held by

the Foundation in trust for Broadsino for $18 million, about

six per cent of market price. Huachen and the Brilliance

Holdings board also made a tender offer for the remaining

Brilliance Holdings shares, including those traded on the

NYSE, resulting in the suspension of trading of Brilliance

Holdings shares on the NYSE from December 18 to

December 19, 2002. Compl. ¶ 35, JA 17. 

As the Working Committee was executing the takeover,

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 5 of 17
6

3

Although the history of the litigation is not set forth in Rong’s

complaint, Broadsino also brought a lawsuit in Bermuda against

Brilliance Holdings, four Brilliance Holdings board members, the

Foundation and Huachen to block the stock transfer from the

Foundation to Huachen. The Bermuda court refused to enjoin the

transfer and on appeal the Bermuda Supreme Court ruled that

Broadsino “never owned any shares in [Brilliance Holdings]” and

therefore concluded that it was “an abuse of the process of the Court

to pursue a claim that [Broadsino] transferred any shares” in Brilliance

Holdings to the Foundation. Broadsino Fin. Co. v. Brilliance China

Auto. Holdings Ltd. (Sup. Ct. of Berm., Dec. 31, 2003), JA 116. In

2005, the Court of Appeal for Bermuda affirmed, concluding that

Broadsino had no beneficial interest in Brilliance Holdings stock and

the Foundation, by extension, held no Brilliance Holdings stock in

trust for Broadsino. It also found that Brilliance Holdings had paid

Broadsino for the latter’s interest in Shen Yang Automotive. See

Broadsino Fin. Co. v. Brilliance China Auto. Holdings Ltd., (Berm.

Ct. App., Mar. 14, 2005), Appellee’s Br. Addendum 1, 7. 

Rong, acting for Broadsino, sought relief in various courts.3

Broadsino initiated proceedings against the Foundation in the

Beijing Municipal High Court seeking a determination of its

interest in the assets nominally held by the Foundation,

including the Brilliance Holdings stock the Foundation held in

trust, but was rebuffed. 1st Am. Compl ¶ 38, JA 38. Rong

also filed a complaint against the Province in the District of

Columbia district court, challenging the Province’s

“implementation of the scheme to take Plaintiffs’ shares,

other equity interests, and other property and then to maintain

control thereof for its own commercial benefit” under FSIA.

1st Am. Compl. ¶ 14, JA 27. The Province moved to dismiss

for lack of subject matter jurisdiction, asserting that neither

FSIA’s commercial activity exception, 28 U.S.C. §

1605(a)(2), nor its expropriation exception, id. § 1605(a)(3),

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 6 of 17
7

4

The expropriation exception provides in part that a foreign state

may be sued in a U.S. court in a case “in which rights in property

taken in violation of international law are in issue and that property or

any property exchanged for such property is present in the United

States in connection with a commercial activity carried on in the

United States by the foreign state; or that property or any property

exchanged for such property is owned or operated by an agency or

instrumentality of the foreign state and that agency or instrumentality

is engaged in a commercial activity in the United States.” 28 U.S.C.

§ 1605(a)(3).

5

Rong does not appeal the district court’s decision regarding the

expropriation exception. See Appellant’s Br. 2 n.1. 

applied.4 JA 50. The district court agreed, holding that the

Province’s acquisition of the Brilliance Holdings shares was a

sovereign act and the Province was therefore immune from

suit. It dismissed the action under Rule 12(b)(1) of the

Federal Rules of Civil Procedure. Yang Rong et al. v.

Liaoning Provincial Gov’t, 362 F. Supp. 2d 83, 103 (D.D.C.

2005). This appeal followed, in which Rong challenges the

district court’s rejection of the commercial activity

exception.5 

II.

We review de novo a district court order dismissing an

action brought under FSIA on the ground of sovereign

immunity. Gulf Res. Am., Inc. v. Republic of the Congo, 370

F.3d 65, 70 (D.C. Cir. 2004). FSIA is “the sole basis for

obtaining jurisdiction over a foreign state in our courts.”

Peterson v. Royal Kingdom of Saudi Arabia, 332 F. Supp. 2d

189, 195 (D.D.C. 2004) (quoting Argentine Republic v.

Amerada Hess Shipping Corp., 488 U.S. 428, 434 (1989)); see

also Foremost-McKesson, Inc. v. Islamic Republic of Iran,

905 F.2d 438, 443 (D.C. Cir. 1990). A foreign state is

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 7 of 17
8

immune from suit in the United States unless its challenged

action comes within one of the exceptions enumerated in the

Act. See 28 U.S.C. § 1604. “If the defendant challenges only

the legal sufficiency of the plaintiff’s jurisdictional

allegations, then the district court should take the plaintiff’s

factual allegations as true and determine whether they bring

the case within any of the exceptions to immunity invoked by

the plaintiff.” Mwani v. bin Laden, 417 F.3d 1, 15 (D.C. Cir.

2005) (quoting Kilburn v. Socialist People’s Libyan Arab

Jamahiriya, 376 F.3d 1123, 1127 (D.C. Cir. 2004)). If a

foreign state “argues that even if taken as true, the [plaintiff’s]

allegations are insufficient to come within the commercial

activity exception[, t]his amounts to a challenge to the legal

sufficiency of the allegations.” Id. “[J]urisdiction will not

obtain,” and the court may dismiss a complaint on that basis,

“if the cause of action is based on a sovereign activity.”

Millen Indus., Inc. v. Coordination Council for N. Am. Affairs,

855 F.2d 879, 885 (D.C. Cir. 1988). 

FSIA’s commercial activity exception provides that a

foreign state is not immune from suit in a U.S. court if its

challenged act is “based upon a commercial activity carried

on in the United States by the foreign state; or upon an act

performed in the United States in connection with a

commercial activity of the foreign state elsewhere; or upon an

act outside the territory of the United States in connection

with a commercial activity of the foreign state elsewhere and

that act causes a direct effect in the United States.” 28 U.S.C.

§ 1605(a)(2). In determining whether the “commercial

activity” exception applies, the court looks to the character of

the foreign state’s exercise of power rather than its effects.

See Saudi Arabia v. Nelson, 507 U.S. 349, 360 (1993)

(foreign state engages in commercial activity if it exercises

“only those powers that can also be exercised by private

citizens” as opposed to those “powers peculiar to sovereigns”)

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 8 of 17
9

(quotations omitted); Republic of Argentina v. Weltover, 504

U.S. 607, 614 (1992) (sovereign engages in commercial

activity if it acts “not as a regulator of a market, but in the

manner of a private player within it”; issue is whether “the

particular actions that the foreign state performs (whatever the

motive behind them) are the type of actions by which a party

engages in trade and traffic or commerce”) (emphasis in

original) (quotations omitted).

Here Rong claims that the Province’s “implementation of

the scheme to take Plaintiff’s shares, other equity interests,

and other property and then to maintain control thereof for its

own commercial benefit,” 1st Am. Compl. ¶ 14, JA 27, was

“commercial activity” under the third clause of 28 U.S.C. §

1605(a)(2), that is, an act “outside the territory of the United

States in connection with a commercial activity of the foreign

state elsewhere and that act causes a direct effect in the United

States.” In Weltover, the United States Supreme Court

declared that the analysis of the third clause of section

1605(a)(2) proceeds in three parts: 1) the lawsuit must be

based upon an act that took place outside the territory of the

United States; 2) the act must have been taken in connection

with a commercial activity, and 3) the act must have caused a

direct effect in the United States. Weltover, 504 U.S. at 611.

Here there is no dispute that the act took place outside the

U.S. The questions in dispute are (1) whether the Province’s

act was done “in connection with a commercial activity” in

China, and (2) if so, whether it caused a “direct effect in the

United States.” Because we answer the first question in the

negative, we do not reach the second.

In Weltover, the Argentine government had issued bonds,

or “Bonods,” which provided for repayment in U.S. dollars

and permitted the bondholder to specify one of four cities,

including New York City, as the location where payment was

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 9 of 17
10

to be made on the date the bonds matured. When the maturity

date arrived, Argentina was unable to meet its obligations and

attempted to reschedule the payments unilaterally. Several

bondholders balked, demanding full payment in U.S. dollars

and naming New York City as the place of payment. When

Argentina failed to make the payments, the bondholders sued,

asserting subject matter jurisdiction under the commercial

activity exception of section 1605(a)(2) of FSIA. The

Supreme Court agreed with the bondholders, concluding that

Argentina’s issuance of a “garden-variety” debt instrument

was indistinguishable from the actions of a private party

engaged in commerce. In issuing the Bonods Argentina was

participating in the market as a private actor, not as a

sovereign. Because that act underlay the bondholders’ claims

and the nonpayment of bonds to be paid in New York City

had a direct effect in the United States, the third clause of

section 1605(a)(2) applied and Argentina could be sued in

federal court under FSIA. Weltover, 504 U.S. at 612–17.

The parties here do not agree on the conduct of the

Province that forms the basis of Rong’s suit. Rong focuses on

the Province’s activities in toto—including Shen Yang City’s

initial participation in the Shen Yang Automotive joint

venture, the Working Committee’s establishment of Huachen,

the transfer of Brilliance Holdings shares from the Foundation

to Huachen and Huachen’s tender offer for the outstanding

publicly traded Brilliance Holdings shares—and claims they

are the acts of a private player participating in the

marketplace. The Province, on the other hand, focuses on

Rong’s allegation that his property “was wrongfully taken . . .

by the Liaoning Provincial Government”; the Province asserts

Rong accuses it of expropriating Broadsino’s equity interest

in Brilliance Holdings and expropriation is a quintessential

governmental act. Appellee’s Br. 17–18 (citing 1st Am.

Compl. ¶¶ 1, 37, 53, JA 23, 37, 43). According to the

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 10 of 17
11

Province, any act it committed after it gained control of the

Foundation and the Brilliance Holdings shares—including the

transfer of those shares to Huachen—relates to the ultimate

disposition of the already expropriated assets; those acts, the

Province continues, cannot transform the initial expropriation

into commercial activity. Id. 22–23. Rong contends that the

Working Committee was formed to take over Brilliance

Holdings through the Foundation; that act, maintains the

Province, forms the basis of the complaint and is one that can

be performed only by a state as sovereign.

It may be true that in some respects the Working

Committee’s takeover of the Foundation and its ownership of

the Brilliance Holdings shares seem commercial—for

example, removing Yang Rong from the Brilliance Holdings

board and placing Working Committee officials in those same

positions. But all of these acts flow from the Working

Committee’s “state assets” declaration—an act that can be

taken only by a sovereign. Rong is correct that this case has

some similarity to Foremost-McKesson, supra, where we

found the Republic of Iran’s takeover of a dairy business

commercial, in part because there was “no indication that Iran

nationalized Pak Dairy by taking it over through a process of

law,” no formal declaration by the government of Iran that a

takeover was to occur and no “statutory restrictions or

governmental decrees or directives” referring to the takeover.

Foremost-McKesson, 905 F.2d at 449–50. In ForemostMcKesson, however, the plaintiff and various

instrumentalities of Iran entered into a formal contract for an

agreed-upon venture; the commercial activity there was the

sovereign instrumentalities’ use of their “majority position to

lock the appellee out of the management of the dairy and to

deny the appellee its share of the company’s earnings.” Id. at

439. We affirmed the district court’s conclusion that those

allegations “sound[ed] in the nature of a corporate dispute

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 11 of 17
12

between majority and minority shareholders”—allegations of

breach of contract and of the directors’ duty of care, with the

only distinction being that the majority shares were held by

the Iranian government and its subsidiaries rather than by a

private party. Id. at 449–50. Here, by contrast, there was no

contractual relationship between Yang Rong and the Province

regarding the Foundation. The Province did not assume

control over Brilliance Holdings by purchasing the majority

of Brilliance Holdings’ stock from Broadsino, as a private

party would; instead, it declared the Brilliance Holdings

shares held by the Foundation to be state assets and claimed

them as does a sovereign. A private party in the market could

not have done what the Province did here—form a committee

whose goal, as Rong’s complaint describes it, was to “assume

and exercise control over the Foundation and to acquire from

it the Brilliance Holdings shares that it held in trust for

Broadsino” by “advis[ing] Yang Rong that all equity interests

held in the name of the Foundation . . . were state assets and

demand[ing] that they be transferred to the [Province].” 1st

Am. Compl. ¶ 35, JA 36. These acts, initiated by the

Assistant Governor of the Province and put into effect by the

Working Committee, constituted a quintessentially sovereign

act, not a corporate takeover. 

Despite Rong’s argument that the Province’s use of the

Brilliance Holdings shares after expropriating them

independently establishes jurisdiction, the Province’s

subsequent acts of forming Huachen and transferring the

Brilliance Holdings shares to Huachen did not transform the

Province’s expropriation into commercial activity. As the

district court pointed out, Rong’s complaint alleges that by the

time of the stock transfer to Huachen, the Province had

already wrested control of the shares; Huachen was not

established until six months after the shares belonged to the

Province. Yang Rong, 362 F. Supp. 2d at 97 (citing Compl. ¶¶

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 12 of 17
13

35, 37). Neither Yang Rong’s refusal to comply with the

Working Committee’s demand to transfer the Brilliance

Holdings shares nor the Province’s subsequent transfer of

them to Huachen at a “firesale” price makes the Province’s

expropriation commercial activity. If Rong’s interpretation of

commercial activity were correct, then almost any subsequent

disposition of expropriated property could allow the sovereign

to be haled into a federal court under FSIA. Such a result is

inconsistent with our precedent, the decisions of other circuits

and the Act’s purpose. See Price v. Socialist People’s Libyan

Arab Jamahiriya, 294 F.3d 82, 87–88 (D.C. Cir. 2002) (under

“restrictive” theory of sovereign immunity, FSIA presumes

preclusion of suit against foreign state subject to “discrete and

limited exceptions”); Jungquist v. Sheikh Sultan Bin Khalifa

Al Nahyan, 115 F.3d 1020, 1030 (D.C. Cir. 1997) (plaintiffs’

attempt to bring suit against sovereign on basis sovereign

acted commercially “confuse[s] general activity related to the

claim with the specific activity upon which the claim is

based”); Garb v. Republic of Poland, 440 F.3d 579, 587 (2d

Cir. 2006) (“subsequent commercial transactions involving

expropriated property do not give rise to subject matter

jurisdiction over claims arising from the original

expropriation”); Beg v. Islamic Republic of Pakistan, 353 F.3d

1323, 1326–27 (11th Cir. 2003) (same); De Letelier v.

Republic of Chile, 748 F.2d 790, 796 (2d Cir. 1984) (FSIA’s

legislative history makes clear courts should not deem activity

commercial simply because aspects of activity are

commercial). But see Siderman de Blake v. Republic of

Argentina, 965 F.2d 699, 708–11 (9th Cir. 1992) (Argentina’s

expropriation of hotel was commercial because government

generated revenue from American tourists and paid for

advertising in the United States). 

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 13 of 17
14

For the foregoing reasons, the district court’s dismissal of

the complaint for lack of subject matter jurisdiction is

affirmed.

So ordered. 

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 14 of 17
KAREN LECRAFT HENDERSON, Circuit Judge, concurring:

While not necessary to our holding, see Cicippio v. Islamic

Republic of Iran, 30 F.3d 164, 168-69 (D.C. Cir. 1994), cert.

denied, 513 U.S. 1078 (1995), I believe that the district court

can be affirmed just as soundly on the ground that the

Province’s activity had no direct effect in this country within the

meaning of the third clause of section 1605(a)(2) of FSIA. Rong

claims that the Working Committee’s taking of Brilliance

Holdings stock, his removal from executive and management

positions in Brilliance Holdings and the suspension of trading of

Brilliance Holdings shares on the NYSE deprived him of

financial assets, compensation, dividends and corporate control

and thus had a direct effect in the U.S. A mere financial loss by

a resident of the United States does not constitute a “direct

effect” in the United States. Zedan v. Kingdom of Saudi Arabia,

849 F.2d 1511, 1514 (D.C. Cir. 1988) (plaintiff’s presence in

U.S. was not direct effect because “financial hardship

fortuitously suffered in the United States is not a direct effect of

Saudi Arabia’s failure to honor a contract in Saudi Arabia”)

(emphasis in original); see also Soudavar v. Islamic Republic of

Iran, 67 F. App’x. 618, 619 (D.C. Cir. June 10, 2003)

(unpublished judgment). Unlike the allegations of direct effect

in Foremost-McKesson—not merely nonpayment but also

cessation of the “flow of capital, management personnel,

engineering data, machinery, equipment, materials and

packaging” between Iran and the United States, see ForemostMcKesson, 905 F.2d at 451—here the direct effect involves only

the monetary loss of a Chinese national resident in the U.S. In

addition, Broadsino’s status as a foreign corporation does alter

the no “direct effect” determination. See Stena Rederi AB v.

Comision de Contratos del Comite Ejecutivo General del

Sindicato Revolucionario de Trabajadores Petroleros de la

Republicana Mexicana, 923 F.2d 380, 390 (5th Cir. 1991)

(foreign corporation’s monetary loss in U.S. insufficient for

direct effect in United States under section 1605(a)(2)).

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 15 of 17
2

As to his other claims of direct effect, Rong argues that the

direct effect in Foremost-McKesson—i.e., the interference with

the plaintiff’s right to participate in management and as an

active investor and the illegal installation of new directors by the

foreign sovereign—is on all fours with the direct effect here.

McKesson, however, was an American corporation while

Broadsino is incorporated under the laws of Hong Kong. See

Foremost-McKesson, 905 F.2d at 441; see also Int’l Hous. Ltd.

v. Rafidain Bank Iraq, 893 F.2d 8, 11 (2d Cir. 1989) (“The fact

that some or all of IHL’s principals or officers may be United

States citizens does not outweigh the facts that they organized

the company outside the United States and that its losses in the

instant transaction thus occurred elsewhere.”) Weltover is not

to the contrary. Weltover, 504 U.S. at 619 (U.S. was “place of

performance for Argentina’s ultimate contractual obligations”;

rescheduling of obligations therefore had direct effect in U.S.

because “[m]oney that was supposed to have been delivered to

a New York bank for deposit was not forthcoming”); see also

Walpex Trading Co. v. Yacimientos Petroliferos Fiscales

Bolivianos, 712 F. Supp. 383, 389-90 (S.D.N.Y. 1989) (direct

effect in United States found when commercial activity of

Bolivian government’s instrumentality occurred outside U.S.

because contract was to be performed primarily in United States

and foreign buyer utilized U.S. banking resources to facilitate

payment). In the Second Circuit’s Weltover decision

(unanimously affirmed by the Supreme Court), the court

declared that courts “often look to the place where legally

significant acts giving rise to the claim occurred” to determine

the location of a “direct effect.” Weltover, Inc. v. Argentina, 941

F.2d 145, 152 (2d Cir. 1991); see also United World Trade, Inc.

v. Mangyshlakneft Oil Prod. Ass’n, 33 F.3d 1232, 1239 (10th

Cir. 1994), cert. denied, 513 U.S. 1112 (1995) (rejecting

American citizen’s claim that his lost profits caused by foreign

state’s alleged breach of oil contract entered into by parties in

Moscow specifying delivery of oil to Sicily with payment in

Paris constituted direct effect under section 1605(a)(2):

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 16 of 17
3

“[a]ppellant would have us interpret § 1605(a)(2) in a manner

that would give the district courts jurisdiction over virtually any

suit arising out of an overseas transaction in which an American

citizen claims to have suffered a loss from the acts of a foreign

state. We think that the language of § 1605(a)(2) limiting

jurisdiction to cases where there is a ‘direct effect’ in the United

States makes it unlikely that this was Congress’ intent”)

(emphasis in original); cf. I.T. Consultants, Inc. v. Islamic

Republic of Pakistan, 351 F.3d 1184, 1190 (D.C. Cir. 2003)

(Pakistan’s failure to meet payment obligation under contract

providing for payment in Virginia had direct effect in U.S.

because “the involvement of a U.S. bank was immediate and

unavoidable”). Neither Rong’s monetary loss nor his loss of

control over Brilliance Holdings caused the necessary direct

effect in the U.S. to allow him to sue the Liaoning Province.

Zedan, 849 F.2d at 1515 (injury suffered in foreign country that

has “eventual” effect in U.S. does not constitute direct effect).

Nor is the loss allegedly suffered by third-party investors in the

United States as a result of the one-day suspension of trading on

the NYSE sufficient to establish a direct effect. See Corzo v.

Banco Central de Reserva del Peru, 243 F.3d 519, 525-26 (9th

Cir. 2001) (if cause of action arises entirely in foreign country,

“[t]he fact that United States computer companies might have

been affected by . . . breaches [resulting from Peruvian bank’s

act] is jurisdictionally irrelevant”).

USCA Case #05-7030 Document #979009 Filed: 07/07/2006 Page 17 of 17