Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca6-13-02731/USCOURTS-ca6-13-02731-0/pdf.json

Parties Involved:
Chery Automobile Co., Ltd.
Appellee
Kan Lei
Appellee
Yin Tongyao
Appellee
V Cars, LLC
Appellant

Document Text:

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION

File Name: 15a0161n.06

No. 13-2731

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

V CARS, LLC, a Delaware limited liability 

company,

Plaintiff-Appellant,

v.

CHERY AUTOMOBILE CO., LTD., a 

corporation organized under the laws of the 

People’s Republic of China; YIN 

TONGYAO, an individual Chinese national; 

and KAN LEI, an individual German citizen, 

residing in China.

Defendants-Appellees.

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

ON APPEAL FROM THE UNITED 

STATES DISTRICT COURT FOR THE 

EASTERN DISTRICT OF MICHIGAN

BEFORE: DAUGHTREY, ROGERS, and DONALD, Circuit Judges.

MARTHA CRAIG DAUGHTREY, Circuit Judge. Plaintiff V Cars, LLC, appeals the 

district court judgment denying its motion for leave to file a second amended complaint in the 

plaintiff’s suit against defendants Chery Automobile Company, Ltd., Yin Tongyao, and Kan Lei. 

Because well-established res judicata principles ensure that the proposed complaint could not 

withstand a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, an 

amendment of the plaintiff’s complaint would be futile, as the district court correctly determined. 

We therefore affirm. 

 Case: 13-2731 Document: 23-1 Filed: 03/02/2015 Page: 1
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

-2-

This appeal has its genesis in a 2008 complaint filled with allegations of corporate 

espionage and international intrigue. According to V Cars (formerly known as Visionary 

Vehicles, LLC), the Chinese company and the officials named as defendants routinely bribed or 

otherwise illicitly influenced employees of American car companies in order to obtain plans and 

other proprietary information about vehicles that then could be produced in China and sold to 

consumers in the West. The alleged harm to companies like V Cars was not insubstantial; in 

fact, the plaintiff claims that had Chery not backed out of a joint venture with V Cars after it 

improperly gained information about other potential joint partners from a V Cars employee, V 

Cars stood to make “in excess of $14 billion on that deal.” 

Frustrated by the perceived undermining of its lucrative business association, V Cars 

filed a 72-page, 18-count complaint alleging, in pertinent part, that Chery, Yin, and Kan

conspired with a former V Cars employee in such a manner as to violate subsections (c) and (d) 

of 18 U.S.C. § 1962, part of the Racketeer Influenced and Corrupt Organizations Act (RICO), 

18 U.S.C. §§ 1961-1968. Approximately one year later, the plaintiff filed its first amended 

complaint, which again alleged RICO violations in two of the 15 counts of that pleading. Rather 

than proceeding to trial, however, Chery moved the district court to stay the federal court 

proceedings and to compel the parties to arbitrate their dispute. In support of that motion, Chery

highlighted provisions of two agreements it had entered into with V Cars. In the agreements, the 

parties clearly specified that any disputes between them were “to be arbitrated in English at the 

Hong Kong International Arbitration Centre in accordance with the International Chamber of 

Commerce Rules,” and that if any disagreements could not be resolved “through friendly 

consultations” within 60 days, “arbitration shall be conducted according to the Hong Kong 

 Case: 13-2731 Document: 23-1 Filed: 03/02/2015 Page: 2
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

-3-

International Arbitration Centre (“HKIAC”) in accordance with the International Chamber of 

Commerce Arbitration Rules (“ICC Rules”)” in Hong Kong. 

In February 2010, the district court granted the motion, leading to a lengthy, thorough 

arbitration proceeding in Hong Kong. Oral hearings before the arbitral tribunal commenced on 

November 7, 2011, and continued through November 26 of that year. Then, with the conclusion 

of the oral proceedings, came various post-hearing submissions, the proffering of expert 

opinions, requests for costs, and the filing of summaries of alleged damages. Finally, the 

tribunal declared the proceedings closed on November 8, 2012, a full year after the 

commencement of the arbitration process and almost three years from the date of the district 

court’s order compelling the adjudication. The arbitral tribunal released its extensive, written 

final award on November 19, 2012. 

The tribunal dedicated 11 of the 124 pages of the award decision to a discussion of the 

plaintiff’s RICO claims, concluding that, to be subject to RICO, an enterprise “must be a 

domestic rather than foreign enterprise.” Applying the so-called “nerve center test,”1the tribunal 

then recognized that the members of the enterprise at issue in this case often met in the United 

States and otherwise “communicated via a US-based server owned by Yahoo.com and by 

telephone.” Nevertheless, as even V Cars itself conceded in its post-hearing submissions, 

“Chery . . . directed and conducted the affairs of the Chery enterprise,” and “‘Chery 

management’ controlled the alleged ‘enterprise.’” Consequently, the tribunal determined “that if 

the alleged ‘Chery Enterprise’ existed, the true ‘brains’ and ‘nerve center’ of the enterprise 

 

1 As explained in Royal Indemnity Co. v. Wyckoff Heights Hospital, 953 F. Supp. 460, 462-63 (E.D.N.Y. 1996)

(internal quotation marks and citations omitted):

The nerve center test looks to those factors that identify the place where overall corporate policy 

originates or the nerve center from which it radiates out to its constituent parts and from which its 

officers direct, control and coordinate all activities without regard to locale, in the furtherance of 

the corporate objectives.

 Case: 13-2731 Document: 23-1 Filed: 03/02/2015 Page: 3
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

-4-

resided not in the US but in China.” Thus, because the enterprise that formed the basis of the 

RICO allegations was a Chinese enterprise and not an United States enterprise, application of the 

RICO Act to the claims asserted by V Cars “would involve an impermissible extraterritorial 

application of the statute. Accordingly, [the RICO] claims are dismissed.” Despite dismissing 

the plaintiff’s claims in the arbitration proceeding, the tribunal stated that its decision with 

respect to the RICO claims “is not intended to foreclose any statutory rights that the Claimant 

may have to pursue a remedy under the RICO statute in a court of law.” Indeed, in announcing 

its official decision and award, the tribunal reiterated specifically that the RICO claims 

advanced by V Cars “are dismissed without prejudice to any statutory rights that the Claimant 

may have to pursue a remedy under the RICO statute in a court of law.” 

Seizing upon the award language dismissing the RICO causes of action without prejudice

and the tribunal’s statement that its arbitration decision was not intended to foreclose any rights 

under the RICO statute that V Cars might be able to bring, V Cars returned to federal district 

court and moved for leave to file a second amended complaint against the defendants. After 

hearing arguments, the district court denied the motion, holding that any RICO claims that 

V Cars sought to pursue were precluded by the arbitration panel’s decision and, as a result, that 

any further attempt to impose RICO liability on the defendants would be futile. From that 

decision, V Cars now appeals to this court.

Ordinarily, when reviewing a district court’s decision to deny a motion to amend a 

pleading, we apply a deferential abuse-of-discretion standard. Dubuc v. Green Oak Twp., 

312 F.3d 736, 743 (6th Cir. 2002). However, “[i]f the denial of the motion to amend is based on 

it being futile, or solely on the legal conclusion that the amended pleading would not withstand a 

motion to dismiss, then it is reviewed de novo.” Id.

 Case: 13-2731 Document: 23-1 Filed: 03/02/2015 Page: 4
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

-5-

In denying the plaintiff’s motion to file a second amended complaint, the district court 

determined that principles of res judicata precluded V Cars from seeking to relitigate RICO 

claims that the court viewed as having been dismissed by the arbitral tribunal. In Winget v. JP 

Morgan Chase Bank, N.A., 537 F.3d 565, 577-78 (6th Cir. 2008), we listed the four elements of 

claim preclusion:

[A] claim is barred by the res judicata effect of prior litigation if all of the 

following elements are present: (1) a final decision on the merits by a court of 

competent jurisdiction; (2) a subsequent action between the same parties or their 

privies; (3) an issue in the subsequent action which was litigated or which should 

have been litigated in the prior action; and (4) an identity of the causes of action.

(Internal quotation marks and citations omitted.) We conclude that the arbitration proceedings in 

Hong Kong were sufficient to serve as a basis for the district court’s holding that each of the four 

claim-preclusion elements was met in this matter.

V Cars does not dispute that the subsequent action in federal district court was between 

the same parties as the arbitration proceeding (element 2), and that there is an identity of the 

causes of action in the two matters (element 4). Furthermore, the claims that V Cars sought to 

raise in its second amended complaint were, or should have been, litigated in the Hong Kong 

arbitration (element 3). Although the plaintiff claimed, both in open court and in its brief in 

support it’s motion to file a second amended complaint, that it had discovered new facts “during 

discovery in the Hong Kong arbitration” “regarding Defendants’ predicate acts of mail and wire 

fraud,” those “facts” could not alter the arbitrators’ decision because, new or not, those facts still 

related to an extraterritorial enterprise not subject to liability under the RICO statute. Thus, any 

new information upon which V Cars relied in seeking to amend its pleadings was intimately 

connected with the very claims that had been before the tribunal.

 Case: 13-2731 Document: 23-1 Filed: 03/02/2015 Page: 5
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

-6-

Hence, if the plaintiff is to avoid application of res judicata principles at this stage of the 

litigation, it must establish either that the arbitral tribunal was not a “court of competent 

jurisdiction” or that the tribunal did not reach a final decision on the merits of the RICO claims. 

Both of these avenues of attack fail.

First, the tribunal clearly had jurisdiction to resolve the claims before it. It is no longer 

debatable that there exists a clear “federal policy favoring arbitration,” “requiring that ‘we 

rigorously enforce agreements to arbitrate.’” Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 

220, 226 (1987) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 

(1983); Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221 (1985)). Moreover, nothing in the 

RICO statute itself is “intended to prevent enforcement of agreements to arbitrate RICO claims,” 

Shearson/Am. Express, 482 U.S. at 242, and “significant precedent hold[s] that an arbitrator’s 

decision has preclusive effect in federal court.” Schreiber v. Philips Display Components Co., 

580 F.3d 355, 367 (6th Cir. 2009). There is, therefore, no impediment under United States law

to vesting the arbitral tribunal with the authority to resolve the RICO causes of action. 

Furthermore, the tribunal determined that it had jurisdiction over the RICO claims. Indeed, the 

tribunal noted “that there is no dispute between the Parties that the Tribunal has jurisdiction in 

respect of these claims.” Counsel for V Cars even conceded during the arbitration proceedings 

that it understood “that [the] tribunal took the entire case. So the RICO case is before this 

tribunal. If this tribunal considers the RICO provision and addresses it and adjudicates it, that 

would be, I admit, res judicata versus us going back to Detroit and suing Chery for RICO 

again.” 

In light of that concession, and the applicable law supporting it, this appeal by V Cars 

necessarily rises or falls on the plaintiff’s contention that the arbitral tribunal did not reach a 

 Case: 13-2731 Document: 23-1 Filed: 03/02/2015 Page: 6
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

-7-

decision on the merits of the RICO claims. That argument is premised upon the plaintiff’s 

insistence that the following language of the final award constitutes either a recognition by the 

tribunal that it lacked jurisdiction to decide the RICO issues before it, or that the tribunal simply 

deferred resolution of those claims in favor of a judicial determination: “the [RICO claims] are 

dismissed without prejudice to any statutory rights that the Claimant may have to pursue a 

remedy under the RICO statute in a court of law.” 

But as we have just noted—and contrary to the plaintiff’s assertion—the tribunal clearly 

recognized its jurisdiction over the RICO claims. Nor did the arbitrators defer a ruling on the 

merits of those claims. The tribunal’s rejection of the plaintiff’s RICO claims was based entirely 

on the arbitrators’ determination that the RICO enterprise identified by V Cars was Chinese, not 

American, and that the RICO statute does not have extraterritorial reach. In fact, there exists “a 

longstanding principle of American law that legislation of Congress, unless a contrary intent 

appears, is meant to apply only within the territorial jurisdiction of the United States.” Morrison 

v. Nat’l Australia Bank Ltd., 561 U.S. 247, 255 (2010) (internal quotation marks and citations 

omitted). Furthermore, as was made clear in Morrison, when considering what conduct a statute 

reaches, the court or tribunal examining the issue also is deciding what conduct the statute 

prohibits, “which is a merits question.” Id. at 254. The tribunal’s ruling on the RICO claims in 

this case, therefore, did not rest upon jurisdictional grounds. Indeed, the Supreme Court has 

sought to educate the bench and bar on the difference between jurisdictional bases for dismissal 

and dismissals based upon the failure of a party to state a claim with sufficient particularity or 

support. As the Court explained in Arbaugh v. Y&H Corp.:

If the Legislature clearly states that a threshold limitation on a statute’s scope 

shall count as jurisdictional, then courts and litigants will be duly instructed and 

will not be left to wrestle with the issue. But when Congress does not rank a 

 Case: 13-2731 Document: 23-1 Filed: 03/02/2015 Page: 7
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

-8-

statutory limitation on coverage as jurisdictional, courts should treat the 

restriction as nonjurisdictional in character.

 

546 U.S. 500, 515-16 (2006) (footnote and citation omitted.) With no limitation on the 

jurisdiction of the deciding body listed in the RICO statute, the tribunal’s determination here 

must be considered a merits determination and not a jurisdictional ruling.

Finally, even though the Supreme Court has stated that dismissals based upon a denial of 

recognition of the extraterritorial reach of statutes are indeed merits determinations, V Cars 

continues to insist that the decision in its arbitration proceeding cannot be considered a ruling on 

the merits of the RICO claims. The plaintiff bases its argument on the fact that the tribunal, in 

announcing its final award, stated that the RICO claims were dismissed “without prejudice to 

any statutory rights that the Claimant may have to pursue a remedy under the RICO statute in a 

court of law.” But, having agreed to submit its entire case to arbitration, V Cars is without “any 

statutory rights” it may pursue in a court of law. All of its RICO claims were heard and decided 

by the arbitral tribunal. As noted by the district court in its ruling in this matter, 

“Plaintiff . . . has no separate statutory right to remedies not already assessed by the [Hong Kong 

International Arbitration Centre].” 

The district court did not err in denying the plaintiff’s motion for permission to file a 

second amended complaint. The arbitration proceedings in Hong Kong provided V Cars with 

the opportunity to raise all of the RICO claims available to it. Because the arbitral tribunal had 

jurisdiction over the claims, because the arbitrators issued a final decision on the merits of the 

claims, and because the arbitration proceedings and the federal court proceedings involved the 

same parties and the same causes of action, principles of res judicata preclude V Cars from 

pursuing their RICO claims in another forum. We therefore AFFIRM the judgment of the 

district court.

 Case: 13-2731 Document: 23-1 Filed: 03/02/2015 Page: 8