1999 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-25-1999

So Cross Overseas v. Wah Kwong Shipping

Precedential or Non-Precedential:

Docket 98-5185

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Recommended Citation

"So Cross Overseas v. Wah Kwong Shipping" (1999). 1999 Decisions. Paper 167.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/167
Filed June 25, 1999 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

NO. 98-5185 

SOUTHERN CROSS OVERSEAS AGENCIES, INC., 

A New Jersey Corporation; 

TRANSPORT INTERNATIONAL POOL INC., 

A Pennsylvania Corporation, Appellants 

v. 

WAH KWONG SHIPPING GROUP LTD., 

A Foreign Corporation 

On Appeal From the United States District Court 

For the District of New Jersey 

(D.C. Civ. No. 96-cv-05887) 

District Judge: Honorable Anne E. Thompson, 

Chief Judge 

Argued: March 25, 1999 

Before: BECKER, Chief Judge, LEWIS and 

WELLFORD,* Circuit Judges. 

(Filed June 25, 1999) 

_________________________________________________________________ 

*Honorable Harry Wellford, United States Circuit Judge for the United 

States Court of Appeals for the Sixth Circuit, sitting by designation. 
 HYMAN HILLENBRAND, ESQUIRE 

 (ARGUED) 

 R. BRETT KELLY, ESQUIRE 

 De Orchis, Corsa & Hillenbrand 

 2650 Biscayne Boulevard 

 Miami, FL 33137 

 (Organized in New York) 

 1495 Morris Avenue 

 Union, New Jersey 07083 

 LAURA E. SHER, ESQUIRE 

 Kroll & Tract 

 One Gateway Center 

 Newark, NJ 07102-5311 

 Counsel for Appellants 

 JEFFREY W. SARLES, ESQUIRE 

 (ARGUED) 

 ALAN N. SALPETER, ESQUIRE 

 Mayer, Brown & Platt 

 190 South LaSalle Street 

 Chicago, IL 60603 

 ROBERT B. KURZWEIL, ESQUIRE 

 FREDRIC R. COHEN, ESQUIRE 

 Katz, Ettin, Levine, Kurzweil, 

 Weber & Scialabba 

 905 North Kings Highway 

 Cherry Hill, NJ 08034 

 Counsel for Appellee 

OPINION OF THE COURT 

BECKER, Chief Judge. 

This suit for sums past due for transportation of cargo 

emerges from a setting of contractual relationships and 

prior litigation history so complicated and convoluted as to 

almost boggle the mind. It will take over thirteen pages of 

typescript to describe them. The case had its genesis in a 

now-failed Australian corporation's relationship with a stillextant Hong Kong corporation. The plaintiffs here claim to 

 2 
have been victims of fraud by the Hong Kong corporation. 

Aspects of the controversy have previously been litigated in 

an Australian liquidation proceeding, a New Jersey 

bankruptcy proceeding (consolidated with a California 

proceeding),1 and a civil action in the United States District 

Court for the Northern District of Illinois. The present 

appeal arises from an order of the District Court for the 

District of New Jersey dismissing the complaint of plaintiffs 

Southern Cross Overseas Agencies, Inc. ("Southern Cross") 

and Transport International Pool Inc. ("TIP") against 

defendant Wah Kwong Shipping Group Ltd. ("Wah Kwong") 

under Fed. R. Civ. Proc. 12(b)(6) on the ground that the 

statute of limitations barred the action. It presents two 

interesting and important questions, one of which we 

resolve in a way that creates a circuit split. 

The first issue stems from the defense that the District 

Court lacked diversity jurisdiction because the defendant is 

a Hong Kong corporation. The Court of Appeals for the 

Second Circuit has determined that Hong Kong 

corporations, being neither "citizens" nor"subjects" of a 

foreign state, were "stateless" and therefore do not fall 

within federal alienage diversity jurisdiction under 28 

U.S.C. S 1332(a)(2). See Matimak Trading Co. v. Khalily, 118 

F.3d 76 (2d Cir. 1997), cert. denied, 118 S. Ct. 883 (1998). 

We disagree. 

Because the question implicates foreign policy, we 

requested that the government offer its views, and we now 

endorse the State Department's position that a Hong Kong 

corporation, though not a "citizen" of the United Kingdom, 

was a "subject" of the United Kingdom for purposes of 

diversity jurisdiction. At the time the lawsuit wasfiled, 

Hong Kong was a British Dependent Territory. While 

governed by laws separate from those governing the United 

Kingdom itself, Hong Kong was ultimately subject to British 

sovereignty. The British Crown had the power of final 

approval of its laws. Furthermore, under the relevant 

consular agreements, Hong Kong citizens (including 

corporations) were treated as United Kingdom "nationals" 

_________________________________________________________________ 

1. The principal asset in both the Australian liquidation and the U.S. 

bankruptcy came from the proceeds of a California arbitration. 

 3 
for purposes of relations between the United Kingdom and 

the United States. Therefore, we agree with the District 

Court that we possess subject matter jurisdiction. 

The second issue implicates the permissible scope of a 

court's inquiry on a 12(b)(6) motion. The plaintiffs filed their 

complaint in December 1996. The District Court granted 

the defendant's 12(b)(6) motion, which was grounded on the 

statute of limitations, because the fraudulent acts

complained of occurred in the mid-1980s and the court was 

satisfied that New Jersey's six-year statute of limitations for 

fraud had long since run. The plaintiffs, however, maintain 

that the facts that might have given them knowledge of a 

probable cause of action did not come to their attention 

until 1992 and that they could not reasonably have been 

expected to know them sooner. 

Resolution of the issue requires us to examine the 

published opinion in the earlier New Jersey bankruptcy 

litigation. Although this examination takes us beyond the 

face of the complaint, we conclude that we may take

judicial notice of that opinion as a matter of public record 

and as a document on which the plaintiffs rely in the 

complaint. We further conclude that, as a matter of law, the 

opinion provided the bankruptcy creditors in that action 

with notice of the facts that should have led them to inquire 

into the alleged fraud. Because the plaintiffs were creditors 

who filed claims in that action, they should have known of 

the opinion. Therefore, we will affirm the District Court's 

conclusion that the complaint is barred by the statute of 

limitations. 

As is already apparent, the factual and procedural 

background of this case is incredibly complex. Because the 

subject matter jurisdiction issue is a threshold matter that 

is distinct from the other issues before us, we address it 

first, and then turn to the facts and procedural history. 

I. Subject Matter Jurisdiction 

Wah Kwong alleges that we lack alienage diversity 

jurisdiction in this case because, as a corporation organized 

under Hong Kong law, it is "stateless" and does not fall 

within 28 U.S.C. S 1332(a)(2). The Supreme Court has 

 4 
recently instructed us not to hypothesize jurisdiction, but 

to decide jurisdiction first and then address other issues 

only if there is jurisdiction. See Steel Co. v. Citizens for a 

Better Environment, 523 U.S. 83 (1998). Thus, we address 

this issue before resolving the parties' other arguments. 

Section 1332(a)(2) confers original jurisdiction on federal 

courts in civil actions in which the matter in controversy 

exceeds $75,000 between "citizens of a State and citizens or 

subjects of a foreign state." This tracks the language of 

Article III of the Constitution, which extends the federal 

judicial power to "all Cases . . . between a State, or Citizens 

thereof, and foreign States, Citizens or Subjects." Wah 

Kwong argues that, as a Hong Kong corporation, it is 

neither a citizen nor a subject of a "foreign state."2 The 

District Court found that it had jurisdiction, reasoning only 

that federal jurisdiction in this case served the interests of 

"providing a neutral forum and avoiding the appearance of 

injustice or creating grounds for resentment in the relations 

of the United States with other nations." Slip Op. at 14. 

A. The Second Circuit's View 

The District Court's decision is in conflict with the 

Second Circuit's decision in Matimak. The District Court 

disposed of the jurisdictional issue summarily, and did not 

discuss Matimak. In Matimak, Judge McLaughlin, joined by 

Judge Jacobs, held that Hong Kong was not a "foreign 

state" for purposes of alienage jurisdiction and that Hong 

Kong corporations were not "citizens or subjects" of the 

United Kingdom. Matimak set forth two important 

principles that formed the basis for its decision. 

The first concerned the definition of "foreign state": 

 Neither the Constitution nor S 1332(a)(2) defines 

 "foreign state." However, "it has generally been held 

 that a foreign state is one formally recognized by the 

 executive branch of the United States government." 

_________________________________________________________________ 

2. Diversity is to be determined at the time the complaint is filed. See 

Smith v. Sperling, 354 U.S. 91, 93 n.1 (1957). Hong Kong was a British 

Dependent Territory at the time the complaint wasfiled, and it so 

remained until July 1, 1997, when sovereignty was transferred to the 

People's Republic of China. 

 5 
 13B C. Wright, A. Miller & E. Cooper, Federal Practice 

 & Procedure S 3604 (1984). 

Matimak, 118 F.3d at 79. It is undisputed that Hong Kong 

has not been formally recognized as an independent 

sovereign by the executive branch. The Matimak court also 

found that Hong Kong was not a "de facto" foreign state, 

despite its status as the United States's twelfth-largest 

trading partner and the United States-Hong Kong Policy Act 

of 1992, 22 U.S.C.A. SS 5701-5732 (West Supp. 1996). That 

Act establishes that Congress desires close United StatesHong Kong relations to continue after Hong Kong's change 

from a British Dependent Territory to a special 

administrative region of the People's Republic of China.3 

While the Act demonstrates that there is a special, close 

relationship between the United States and Hong Kong, 

that, we agree, is simply not the same as explicit 

recognition of foreign statehood. 

Recognition matters because the Framers feared that

foreign nations might become incensed if they perceived 

that state courts were biased against foreigners; the result 

could be or commercial disruption if foreign nations became 

incensed at the treatment of their citizens or subjects in 

state courts. See Matimak, 118 F.3d at 82-83. Matimak 

suggested that, "[w]here the Executive Branch determines 

that a foreign entity is not a `sovereign,' there is no threat 

of entanglement with a sovereign stemming from the refusal 

of a federal court to treat that entity's citizen in a national 

forum." Id. at 83. The court recognized that, if an

unrecognized foreign entity perceived that its citizens had 

been subject to bias in a state court, there could be foreign 

relations repercussions, but found that it was for the 

executive branch to evaluate a foreign entity's autonomy 

and resources in order to determine whether the entity 

constituted a sovereign state. Thus, the risk of foreign 

policy entanglements was not for the court to evaluate. See 

id. 

_________________________________________________________________ 

3. The Act provides that "Hong Kong plays an important role in today's 

regional and world economy. This role is reflected in strong economic, 

cultural, and other ties with the United States that give the United 

States a strong interest in the continued vitality, prosperity, and 

stability 

of Hong Kong." 22 U.S.C. S 5701(4). 

 6 
The second crucial principle in Matimak concerned the 

definition of "citizens or subjects," and a corollary relating 

to corporations: 

 We begin with the truism that a foreign state is entitled 

 to define who are its citizens or subjects. United States 

 v. Wong Kim Ark, 169 U.S. 649, 668, 18 S.Ct. 456, 

 464, 42 L.Ed. 890 (1898) ("Nor can it be doubted that 

 it is the inherent right of every independent nation to 

 determine for itself, and according to its own 

 constitution and laws, what classes of persons shall be 

 entitled to its citizenship."); Ruggiero v. Compania 

 Peruana de Vapores "Inca Capac Yupanqui", 639 F.2d 

 872, 875 (2d Cir. 1981); Murarka v. Bachrack Bros. 

 Inc., 215 F.2d 547, 551-53 (2d Cir. 1954); 13B C. 

 Wright, A. Miller & E. Cooper, Federal Practice and 

 Procedure: Jurisdiction 2d SS 3604 & 3611 (1984). 

 It is another accepted precept that a corporation, for 

 purposes of diversity jurisdiction, is a "citizen" or 

 "subject" of the entity under whose sovereignty it is 

 created. 

Id. at 85. 

The court concluded that Hong Kong corporations were 

not "citizens or subjects" of the United Kingdom because 

the United Kingdom did not recognize such corporations as 

citizens. The British Nationality Act 1981, which extends 

privileges to natural persons in British Dependent 

Territories such as Hong Kong, does not apply to 

corporations. The British Companies Act 1948 specifies 

that corporations formed under the laws of Hong Kong are 

not entitled to the privileges of British nationality. See 

Matimak, 118 F.3d at 85. Given these laws, the court 

concluded that the alternate argument that Hong Kong 

corporations were ultimately subject to British sovereignty 

must also be rejected, reasoning that "Hong Kong 

corporations . . . are no more `subjects' than `citizens.' " Id. 

at 86. Although Hong Kong's laws might ultimately be 

traceable to the British Crown, the Matimak court reasoned 

that Hong Kong corporations were in fact incorporated 

under the Companies Ordinance 1984 of Hong Kong and

entitled only to the protection of that law. See id. 

 7 
Judge Altimari dissented, arguing that "[a] stateless 

corporation is an oxymoron." Id. at 89 (Altimari, J., 

dissenting). He emphasized the practical importance of 

Hong Kong-United States relations and the State 

Department's expressed view that Hong Kong corporations 

should be allowed to take advantage of alienage 

jurisdiction. He would have found diversity jurisdiction over 

a Hong Kong corporation on any of three grounds: (1) as a 

citizen or subject of a "de facto" autonomous state; (2) as a 

citizen or subject of the United Kingdom, given the

"inexorabl[e] link[age]" between Hong Kong and the United 

Kingdom; or (3) as a citizen or subject of a "political 

subdivision" of the United Kingdom. See id. at 91-92 

(Altimari, J., dissenting). 

B. The Purposes of Alienage Jurisdiction 

Most courts have accepted the proposition that the 

problem of "statelessness" was unanticipated by the

Framers, because it is a twentieth-century phenomenon. 

"[A] basic assumption of the drafters was that anyone who 

was not a citizen of the United States must by definition 

have been subject to the power of a foreign government or 

sovereign." Matimak, 118 F.3d at 87. Thus, the Framers 

apparently considered the class of "subjects or citizens of a 

foreign state" as identical with the class of"aliens." See 

Kevin R. Johnson, Why Alienage Jurisdiction? Historical 

Foundations and Modern Justifications for Federal 

Jurisdiction over Disputes Involving Noncitizens, 21 Yale J. 

Int'l L. 1, 1-20 (1996). 

Historical evidence from the Federalist Papers and the 

debates over the ratification of the Constitution shows that 

the Framers often "refer[red] to citizens, subjects and 

foreigners interchangeably." Van der Schelling v. U.S. News 

& World Report, Inc., 213 F. Supp. 756, 759 (E.D. Pa.), 

aff'd, 324 F.2d 956 (3d Cir. 1963) (per curiam). In fact, the 

phrase "citizens or subjects" reflected an expansive intent: 

 The framers of the Constitution were undoubtedly 

 keenly aware of the fact that they had lately been 

 subjects and that in other lands men still remained 

 subjects of a sovereign and not citizens of a state.. . . 

 It was only by the inclusion of `subjects' that all aliens, 

 8 
 whether they [owed] allegiance to a sovereign monarch 

 or were citizens of a democracy, could sue or be sued 

 in federal courts. 

 . . . . 

 . . . . Indeed, Story's doubts appear to have been 

 abandoned, for in his `Commentaries on the 

 Constitution of the United States' (5th Ed., 1891) he 

 says, at page 499: 

 `* * * The inquiry may here be made, who are to be 

 deemed aliens entitled to sue in the courts of the 

 United States? The general answer is, any person who 

 is not a citizen of the United States. * * *' 

Id. at 761 (emphasis added). Thus, while foreign modes of 

government are hardly "technicalities" in any other sense, 

the Framers apparently did not consider them relevant to 

the exercise of federal jurisdiction. See Johnson, supra; 

Bradford Williams, Note, The Aftermath of Matimak Trading 

Co. v. Khalily: Is the American Legal System Ready for 

Global Interdependence?, 23 N.C. J. Int'l L. & Com. Reg. 

201, 224-25 (1997); cf. Wilson v. Humphreys (Cayman) Ltd., 

916 F.2d 1239, 1242 (7th Cir. 1990) (holding that the 

"policies supporting alienage jurisdiction" supported 

jurisdiction over a Cayman Islands citizen--the Cayman 

Islands is also a British Dependent Territory). 

Matimak rejected these and similar statements on the 

ground that the Framers never contemplated 

"statelessness." See Matimak, 118 F.3d at 87. However, 

without further analysis, this is an inadequate response. 

The Framers never contemplated telephones, and yet we 

have applied the Fourth Amendment to cases about 

telephones. See Katz v. United States, 389 U.S. 347 (1967) 

(overruling an earlier decision that had held that 

telephones, not having been within the Framers' 

contemplation, would not receive Fourth Amendment 

protection). The relevant question is whether the Framers 

articulated principles that assist us in this case.

We believe that they did. The history reviewed in Van der 

Schelling is relevant because Hong Kong's importance to the 

United States evokes the Framers' concerns for smooth 

 9 
foreign relations. As two practitioners note, British 

Dependent Territories "are the international equivalent of 

Delaware or Nevada for many clients." William Wilson III & 

Jonathan K. Cooperman, 2d Circuit Bars Suits by 

"Offshore" Corporations, Nat'l L.J., Aug. 25, 1997, at B9. 

Because Hong Kong was a dependent territory of the United 

Kingdom and is now a special administrative region of the 

Peoples' Republic of China, the way we treat its 

corporations may affect our relations with those countries, 

not to mention our relations with Hong Kong itself. See 

Wilson, 916 F.2d at 1243 (exercise of American judicial 

authority over a citizen of a British Dependent Territory 

implicates our relations with the United Kingdom). The 

State Department expressed this concern in its submission 

to us. 

C. Who is a "Subject" of a Foreign State? 

1. The State Department's Position 

The State Department's view, communicated to us by the 

Justice Department at our request, is that: 

 [I]n the last analysis, Hong Kong nationals, including 

 corporations, [were] subjects of United Kingdom 

 sovereignty. While the United States views Hong Kong 

 as largely autonomous in most respects, as a matter of 

 recognition, it deal[t] with Hong Kong through British 

 authorities, since Hong Kong [was] ultimately subject 

 to United Kingdom sovereignty. The various 

 international agreements between Hong Kong and the 

 United States [were] identified in the State

 Department's authoritative "Treaties In Force" under 

 "United Kingdom" sovereignty. The Consular 

 Convention between the United States and the United 

 Kingdom identifie[d] citizens of the United Kingdom's 

 "colonies" (including corporations) as U.K."nationals" 

 for purposes of relations between the two countries. 

 This approach [was] mirrored in the underlying legal 

 structure under which [a Hong Kong] corporation was 

 created. The Letters Patent for Hong Kong issued by 

 the British Crown [made] clear that ultimate

 sovereignty and authority, including final approval of 

 all laws, [was] reserved to the British Crown. Since the 

 10 
 ultimate sovereign authority over [a Hong Kong 

 corporation was] the British Crown, [it] should be 

 treated as a subject of United Kingdom sovereignty for 

 purposes of alienage diversity jurisdiction.

Gov't Brief at 6-7.4 

2. Citizens and Subjects 

Matimak rejected the State Department's argument, 

which was identical to the argument presented to us, on 

the ground that Hong Kong corporations were not United 

Kingdom citizens according to explicit United Kingdom law. 

If they were not citizens, Matimak reasoned, they could not 

be subjects. We agree with Matimak that, in general, there 

is no difference between the way our federal courts deal 

with "citizens" and "subjects": 

 In S 1332(a)(2) the terms "citizen" and"subject" do not 

 connote a different "degree of attachment or allegiance 

 to a foreign state." 1 James Wm. Moore et al., Moore's 

 Federal Practice P 0.75 (3d ed. 1996); United States v. 

 Wong Kim Ark, 169 U.S. 649, 663-664, 42 L. Ed. 890, 

 18 S. Ct. 456 (1898) ("The term `citizen,' as understood 

 in our law, is precisely analogous to the term `subject' 

 in the common law, and the change of phrase has 

 entirely resulted from the change of government."). 

 Rather, the terms are meant to encompass persons 

 living under distinct forms of government: "A monarchy 

 has subjects; a republic has citizens." Moore, supra, 

 P 0.75. 

Matimak, 118 F.3d at 85. 

The two terms are identical in that they both describe a 

relationship between an individual and a sovereign power 

that suffices to confer alienage jurisdiction on a federal 

court. That the terms are identical for this specific purpose, 

however, does not mean that a sovereign must have only 

"citizens" or only "subjects." See Walter C. Hutchens, Note, 

Alienage Jurisdiction and the Problem of Stateless 

Corporations, 76 Wash. U. L.Q. 1067, 1081 n.81 (1998). 

_________________________________________________________________ 

4. At the time the brief was written, Hong Kong remained a British 

Dependent Territory. 

 11 
British law does not clearly establish that the British Crown 

recognizes only one sort of sovereign relationship. Rather, 

British law, while silent on the crucial issue here, seems to 

recognize both "citizens" and "subjects." The United 

Kingdom has by statute made natural persons who are

citizens of Hong Kong or other British colonies subjects of 

the Crown. See British Nationality Act 1948, at 1. Hong 

Kong corporations are not covered by this statute, but the 

State Department's position is that Hong Kong's laws 

required Crown approval at the relevant time, and its 

conclusion that Hong Kong corporations were thus 

ultimately subject to United Kingdom sovereignty seems 

eminently reasonable. We are concerned that, were we to 

decide that a foreign sovereign must choose between having 

"citizens" and "subjects," we would be making a fairly 

significant foreign policy decision, and one that the State 

Department rejects. 

3. The Role of Deference to the Executive Branch 

We accord substantial weight to the State Department's 

position. In Banco Nacional de Cuba v. Sabbatino, 376 U.S. 

398 (1964), the Supreme Court considered the right of an 

instrumentality of a hostile foreign government to file suit 

in U.S. courts. The United States had severed formal 

diplomatic relations with Cuba, but had not derecognized it 

as a sovereign. The Court rejected the argument that a 

hostile government should not be allowed to litigate in U.S. 

courts. Sabbatino looked to the executive's position in 

support of its decision: 

 The view that the existing situation between the United 

 States and Cuba should not lead to a denial of status 

 to sue is buttressed by the circumstance that none of 

 the acts of our Government have been aimed at closing 

 the courts of this country to Cuba, and more

 particularly by the fact that the Government has come 

 to the support of Cuba's "act of state" claim in this very 

 litigation. 

Id. at 411.5 

_________________________________________________________________ 

5. We also note that Taiwanese citizens have been allowed to sue under 

alienage jurisdiction, despite formal derecognition of Taiwan by the 

 12 
We will likewise take heed of the State Department's 

position here. We do not believe that executive authority in 

foreign policy matters is limited to the definition of "foreign 

state" for S 1332 purposes. Executive competence also 

extends to the definition of "citizens or subjects," at a 

minimum in cases where the proper interpretation is

unclear and the outcome may affect our foreign policy. Just 

as the executive is best positioned to make the 

determination that recognition of a sovereign is appropriate, 

the executive is best situated to conclude that Hong Kong 

was, at the time suit was filed, so closely connected to the 

United Kingdom that its corporations were United Kingdom 

subjects. 

4. Conclusion 

In summary, it is established that Hong Kong 

corporations were not United Kingdom citizens at the time 

the lawsuit was filed, but it is quite plausible that they were 

United Kingdom subjects. The law of the United Kingdom is 

not entirely clear on this point. The State Department, 

however, has informed us that, consistent with various 

agreements with Hong Kong and the United Kingdom, it 

considers Hong Kong corporations to have been subjects of 

the United Kingdom for alienage diversity purposes. This, it 

represents, best reflects the actual relationship between the 

United Kingdom, Hong Kong, and the United States. There 

is no indication that the United Kingdom disagrees with 

this characterization. For the reasons set forth above, we 

agree with the State Department that treating Hong Kong 

corporations as United Kingdom subjects comports with the 

facts and the law of alienage jurisdiction. We therefore have 

jurisdiction of this case under 28 U.S.C. S 1332(a)(2). 

II. Facts and Procedural History 

As we noted at the outset, this case has a history that is 

difficult to follow. We attempt to unravel the tangled 

_________________________________________________________________ 

executive branch. See, e.g., Chang v. Northwestern Mem'l Hosp., 506 F. 

Supp. 975 (N.D. Ill. 1980). Formal derecognition had geopolitical causes 

and consequences far overwhelming diversity jurisdiction, yet courts 

have not found that derecognition indicated a desire on the part of the 

executive branch to strip Taiwanese citizens of the benefits of alienage 

diversity jurisdiction. 

 13 
narrative by describing the dramatis personae, the essence 

of the plaintiffs' claims, and then the tortuous course of 

events that brought the parties to this court. 

A. Parties 

The plaintiffs are Southern Cross and TIP. Southern

Cross, a New Jersey corporation that acted as a booking 

agent for corporations that transport ocean marine cargo, is 

wholly owned by a corporation that in turn is at least forty 

percent owned by Trygve Vangsnes, a Norwegian national.6 

TIP is a Pennsylvania corporation that rents equipment to 

corporations that transport such cargo. The defendant is 

Wah Kwong Shipping Group, Ltd. ("Wah Kwong"), a 

corporation organized under Hong Kong law. Wah Kwong is 

the parent holding company of a group of subsidiary

companies, including Maritime Shipping & Investments, 

Ltd. ("MSI") and Venture Shipping Managers, Ltd. ("VSM"). 

Hong Kong residents Frank and George Chao were the chief 

executives and managers of Wah Kwong and various 

subsidiaries. 

Other entities are also involved in this case. Karlander 

(Australia) Pty. Ltd. ("Karlander") was an Australian 

company operating an ocean liner service out of Australia. 

Until 1983, Karlander chartered five vessels from 

shipowning companies in which MSI owned shares, at 

which time Karlander went into arrears. Karlander was 

reorganized and the liner service was separately 

incorporated as KKL Kangaroo Lines ("KKL"). Vangsnes was 

owner and chief executive officer of KKL. Southern Cross 

and TIP provided services to KKL, which called on ports in 

New Jersey before it ceased doing business in 1986. At that 

time, KKL allegedly owed money to Southern Cross and TIP. 

B. Pre-litigation Activity 

The plaintiffs' claims spring from a series of agreements 

between Wah Kwong or its subsidiaries and KKL. The 

agreements apparently involved a $6 million loan from Wah 

Kwong that enabled KKL to continue in business. However, 

_________________________________________________________________ 

6. Southern Cross apparently filed a Chapter 11 petition in 1986, which 

was confirmed by the Bankruptcy Court in 1994. Accordingly, it may 

lack present existence, although the parties do not discuss the issue. 

 14 
the plaintiffs argue that the agreements actually 

established a partnership relationship between Wah Kwong 

and KKL's other principal (Vansgnes). 

In particular, the plaintiffs argue that convoluted

agreements, subagreements, collateral agreements--many 

of which cancelled prior agreements--addenda, and side 

letters were used to construct KKL. Thus, while Wah Kwong 

ostensibly made a loan to start KKL, backed by a demand 

note and stating an interest rate, the plaintiffs submit that 

in fact this "loan" was for show and did not reflect the true 

equity relationship between the parties. The plaintiffs allege 

that Wah Kwong was entitled to receive and retain KKL's 

profits over $100,000 and that the $6 million was the cost 

of buying into KKL's business. Moreover, the $6 million 

went back to Wah Kwong via intermediaries immediately 

after the "loan" was made. 

The basic substance of the written agreements was as 

follows: Karlander chartered vessels from shipowning 

companies in which MSI and VSM had interests. The 

payments ("charterhire") accumulated and became overdue. 

Karlander's owners decided to restructure the company by 

forming KKL to operate Karlander's Australian-U.S. liner 

service; KKL undertook Karlander's charters with the 

shipowning companies and assumed outstanding 

charterhire. At about the same time, Wah Kwong sought 

advice from its accountants at Price Waterhouse, who 

suggested five ways Wah Kwong might respond to the 

restructuring and the unpaid charterhire, including the 

injection of $6 million as a loan to KKL. In March 1983, 

Wah Kwong and Karlander entered into a "Loan Facility" 

under which MSI would provide up to $6 million to 

Karlander to pay off overdue charterhire. 

On November 26, 1983, Karlander, KKL and Wah Kwong 

executed a document called the Heads of Agreement. This 

document provided that English law would govern its

interpretation. Vangsnes and Frank Chao signed for all 

parties, including various holding companies controlled by 

Wah Kwong and others controlled by Vangsnes. Southern 

Cross was one of those companies, though Southern 

Cross's CEO has submitted an affidavit that Vangsnes was 

 15 
never authorized to sign documents on behalf of Southern 

Cross. 

Noting that Karlander was indebted to Wah Kwong and

 839<!>that Karlander's successor, KKL, required financial 

assistance to pay off Karlander's creditors, the Heads of 

Agreement provided that MSI would make a $6 million

interest-free deposit, repayable on demand, with afinance 

company established as a wholly-owned subsidiary of KKL. 

The finance company then would advance the deposit to 

KKL, which would advance the money to Karlander to pay 

off the outstanding charterhire. As security for the $6 

million deposit, KKL granted MSI an option to acquire half 

of KKL's stock. (KKL's main asset at that point was its 

rights in an arbitration proceeding between Karlander and 

the Weyerhauser company.) 

The Heads of Agreement also authorized MSI to appoint 

two members of KKL's board of directors, at least one of 

whom was required for a quorum; to appoint a financial 

consultant to KKL; and to approve KKL's auditors. The 

agreement additionally allowed MSI to appoint two 

members of the boards of directors of the holding 

companies, including Southern Cross. 

The Heads of Agreement stated that it would not become 

effective until additional documents were executed. One 

such document, a side letter signed the same day as the 

Heads of Agreement, noted that repayment of the $6 million 

deposit "is by mutual agreement instead of on demand." 

Another document, the Supplemental Agreement, 

warranted that KKL's total outstanding debts were not more 

than $10.6 million, and stated that if that representation 

were false, MSI would be entitled to demand repayment of 

the $6 million. The Supplemental Agreement also 

established a two-person committee, including one MSI 

nominee, to monitor KKL's cash flow and recommend 

guidelines for payments to creditors. 

In accordance with the Heads of Agreement and the 

related agreements, on February 6, 1984, VSM drew a $6 

million check on MSI's account payable to KKL's 

subsidiary. The subsidiary endorsed the check to KKL, 

which endorsed it to VSM as the shipowners' agent in 

 16 
payment of outstanding charterhire. Thus, the loan 

proceeds returned to Wah Kwong-controlled companies. On 

February 22, 1984, George Chao sent Vangsnes a notice of 

default indicating that KKL's total outstanding debts in fact 

exceeded $10.6 million. On March 2, 1984, the parties 

executed a document providing for the assignment of KKL's 

and Karlander's ship-operation earnings to VSM as 

"security for the various obligations" to MSI and VSM. The 

agreement provided that KKL's earnings would be paid to 

VSM-designated bank accounts, though such earnings first 

would be applied to charterhire due to shipowners. Wah 

Kwong represents that the Assignment of Earnings was 

never implemented. 

In April 1984, the parties agreed that the finance 

committee provided for in the Supplemental Agreement 

would be replaced by an arrangement in which the Wah 

Kwong-nominated members of the KKL board would 

examine KKL's various expenditures. In August 1984,

Vangsnes agreed that all KKL checks would be signed

jointly by Wah Kwong and KKL representatives. The 

plaintiffs assert that Wah Kwong took further steps to 

ensure its control of KKL's expenses, including entering 

into agreements with two principal booking agents in the 

U.S., Great Lakes Overseas, Inc. ("GLO") in the midwest 

and Southern Cross in New Jersey, to arrange for booking 

services and provide customers to KKL. Wah Kwong also 

sent two employees to New Jersey and stationed them on 

Southern Cross's premises to ensure that only properly 

approved expenses would be paid in the U.S.; these 

employees remained in New Jersey for almost two years. 

The plaintiffs argue that Wah Kwong's representatives 

essentially raided KKL, paying sums owed to Wah Kwong 

subsidiaries ahead of the priority actually allowed to them 

under the various agreements. It was this activity,

according to the plaintiffs, that led to KKL's liquidation. At 

the time KKL stopped doing business in January 1986, it 

still carried the $6 million to Wah Kwong on its books as a 

debt, along with other accumulated arrearages, including 

debts to the plaintiffs. 

C. The Australian Liquidation and Litigation 

KKL went into liquidation in January 1986 in New South 

Wales when it lacked funds to pay its creditors. A liquidator 

 17 
appointed by the Australian courts assumed control and 

discontinued KKL's operations. The liquidator agreed to 

repay $6 million to Wah Kwong as a priority creditor. This 

agreement was incorporated in a confidential settlement 

with various Wah Kwong companies dated May 14, 1986, 

which indicated that Wah Kwong was owed $20 million in 

past-due charterhire and that Wah Kwong was a creditor 

and not a partner. The plaintiffs allege that Wah Kwong 

submitted "show" documents to the liquidator to prove its 

creditor status and persuaded the liquidator to forgo suing 

Wah Kwong in exchange for Wah Kwong's agreement to 

finance certain collateral litigation. Southern Cross and TIP 

were KKL creditors in this liquidation. 

In 1994, the liquidator petitioned Justice Bryson of the 

Supreme Court of New South Wales for direction to close 

the proceedings in Australia, because KKL had been wound 

down. Vangsnes and TIP filed an application for leave to 

intervene and argued that Wah Kwong had misrepresented 

itself as a creditor. Justice Bryson rejected this argument, 

finding no evidence of fraud and expressing concerns about 

the statute of limitations, and refused to reopen the 

liquidator's 1986 decision. In 1996, Vangsnes filed an 

application to inspect correspondence and other documents 

in the possession of the liquidator relating to the KKL 

liquidation. An Australian master rejected the application in 

light of Justice Bryson's decision. 

D. The New Jersey Bankruptcy Proceeding (The Interpool 

 Litigation) 

In early 1986, certain of KKL's U.S. creditors filed 

complaints in the U.S. District Court for the District of New 

Jersey seeking writs of maritime attachment against KKL's 

freights. Three KKL creditors filed a Chapter 7 involuntary 

bankruptcy petition against KKL in the U.S. District Court 

for the Central District of California. All cases were 

consolidated and transferred to the U.S. District Court for 

the District of New Jersey. See Interpool, Ltd. v. Certain 

Freights of M/V Venture Star, 102 B.R. 373 (D.N.J. 1988), 

appeal dismissed, 878 F.2d 111 (3d Cir. 1989). Southern 

Cross was a named party in the consolidated action,

because its assets were attached by KKL's other creditors, 

and TIP was a KKL creditor. 

 18 
In February 1986, the Australian liquidator brought an 

11 U.S.C. S 304(a) proceeding ancillary to a foreign 

proceeding in New Jersey Bankruptcy Court, seeking to 

enjoin the U.S. creditors from proceeding against KKL's 

U.S. assets and to remit those assets to Australia for 

administration in the liquidation there. The S 304 

proceeding was transferred and consolidated with the other 

pending proceedings. The District Court entered an interim 

order enjoining the U.S. creditors from proceeding against 

KKL's assets and later ordered that KKL's freights should 

be distributed among the liquidator and the creditors. In 

February 1988, the liquidator moved to dismiss the 

pending involuntary Chapter 7 petition and thereby 

administer all KKL assets in Australia. On October 14, 

1988, Judge Politan denied the motion and held that KKL's 

U.S. assets should be administered in a Chapter 7 

bankruptcy case. He reasoned that the Australian 

liquidation proceedings (1) were already underway and (2) 

were being conducted ex parte, which under the 

circumstances made it highly unlikely that the rights of 

U.S. creditors would be properly respected. He therefore 

authorized the appointment of a Chapter 7 trustee. 

We quote Judge Politan's opinion at length, because it is 

vital to our resolution of this appeal: 

 On November 26, 1983, KKL executed a "Heads of 

 Agreement," assuming the business of Karlander. KKL 

 also agreed to pay off Karlander's creditors. In turn, 

 Karlander transferred its rights in the Weyerhauser 

 arbitration to KKL in January 1984. KKL received a 

 loan of $6 million from a Wah Kwong subsidiary, and 

 in exchange, KKL assigned its rights in the 

 Weyerhauser arbitration to Wah Kwong. The repayment 

 method to Wah Kwong for this loan was unclear. 

 According to the Heads of Agreement, it was to be on 

 demand. However, according to a letter dated

 November 26, 1983, repayment was to be by mutual 

 agreement. Again, on January 11, 1984, a letter was 

 sent to KKL from a Wah Kwong subsidiary, stating that 

 unless outstanding debts exceeded $10,122,000, 

 repayment of the loan would be by mutual agreement. 

 19 
 The relationship between Wah Kwong and KKL was 

 described as a joint venture agreement. Wah Kwong 

 corporate individuals were considered to be partners 

 for the purpose of "earnings or distribution of earnings" 

 of KKL. On March 2, 1984, KKL assigned its earnings 

 to Wah Kwong through another Wah Kwong subsidiary. 

 In addition, by letter dated March 3, 1984, the parties 

 agreed to take care to ensure that "day to day liner 

 service operations will be maintained without any 

 interruption." By agreement, dated October 8, 1984, 

 KKL and Wah Kwong agreed to require joint signatures 

 on all KKL checks. 

 In January 1986, a vessel was arrested in L.A., and 

 Wah Kwong issued a press release saying KKL owed[it] 

 $10 million. Wah Kwong blocked payments to creditors 

 who in turn shortened their credit terms and forced a 

 shortage of funds from KKL. Soon after, KKL ceased 

 doing business and Wah Kwong also went into 

 receivership. 

 On May 14, 1986, an agreement ("Deed") was 

 consummated between the Liquidator, KKL, Karlander, 

 and several Wah Kwong subsidiaries which concerned 

 the prospective proceeds of the Weyerhauser 

 arbitration pending in San Francisco, California 

 between Karlander and Weyerhauser Co. (Weyco). 

 Karlander had previously assigned its rights in the 

 arbitration outcome on January 10, 1984 to KKL. KKL, 

 in turn, assigned its rights in the arbitration outcome 

 to a Wah Kwong subsidiary, as security for repayment 

 of the $6 million loan. Under the terms of the "Deed," 

 any proceeds from Weyco claims would be paid to the 

 Liquidator. The Liquidator, in turn, agreed to distribute 

 the first $6 million to a Wah Kwong subsidiary in 

 satisfaction of the loan. Following distribution of some 

 other monies, the rest of the proceeds would be held by 

 the Liquidator for the purposes of administering KKL 

 while in bankruptcy. 

 A second agreement, dated May 14, 1986, also 

 entitled "Deed", stated that the shipowners had 

 "suffered damages as a result of a breach by KKL of the 

 terms and conditions of its charters." There is a 

 20 
 disagreement as to whether this was true, with KKL 

 asserting that Wah Kwong was in breach by milking it 

 of funds and Wah Kwong asserting that KKL could not 

 meet its obligations and therefore [that Wah Kwong] 

 was entitled to the funds. Both "Deeds" were submitted 

 to the Australian Courts and were approved. 

 . . . . 

 Since, in this case, the creditors were not notified 

 prior to the date the Court ratified the agreement 

 between the Liquidator and Wah Kwong, and in

 addition, were not notified of the original S 304 filing, 

 this Court finds that the procedural protections 

 available to creditors in the United States were not 

 given to the United States creditors in Australia. This 

 is a serious omission. 

 . . . . 

 . . . . Wah Kwong's loan was made payable either on 

 demand or by mutual agreement; Wah Kwong's 

 president sat on the Board of Directors of KKL; and 

 someone from Wah Kwong was required to co-sign 

 checks prior to issuance. Additionally, it was Wah 

 Kwong who allegedly overdrew on monies held by KKL 

 which hampered its ability to pay creditors and led to 

 the involuntary petition being brought against KKL. On 

 its face there appear to be substantial allegations of 

 insider machinations . . . . 

 Both the laws and the public policy of the United 

 States will be violated if the case is permitted to 

 proceed under Australian law. The claims of the 

 creditors may have already been prejudiced by the 

 dealings between the Liquidator and Wah Kwong, and 

 this Court does not intend to stand idly by while 

 United States[ ] citizens and creditors are harmed. 

Interpool, 102 B.R. at 375-76, 379, 380. 

On April 5, 1988, the U.S. bankruptcy trustee entered 

into a settlement with MSI. The settlement included a full 

release by the trustee of KKL's claims against MSI, Wah 

Kwong, and all other Wah Kwong subsidiaries that had 

dealt with KKL. It also included an agreement that MSI 

 21 
would fund prosecution of KKL's arbitration claim against 

the Weyerhauser Company, which the trustee regarded as 

KKL's principal asset. The settlement also recognized MSI 

as a KKL creditor and agreed to share proceeds of the 

Weyerhauser claim. The settlement was approved by the 

District Court. 

E. The Illinois Litigation 

GLO, which was a shipping agent and a KKL creditor,

sued Wah Kwong in federal district court in Illinois in 1989. 

GLO, like Southern Cross, is wholly owned by a corporation 

that is at least forty percent owned by Vangsnes. Although 

GLO sought compensation in the liquidation proceedings, it 

was unsuccessful, and it sued Wah Kwong on the theory 

that Wah Kwong entered into a partnership or alter-ego 

relationship with KKL, making it responsible for KKL's 

debts. Wah Kwong once again took the position that it was 

a creditor, not a partner, and that the court therefore 

lacked personal jurisdiction over it. 

According to GLO, a partnership existed because Wah

Kwong had a right to receive a share of KKL's profits, 

agreed to share KKL's losses, and exercised general control 

over KKL. The Court of Appeals for the Seventh Circuit, 

affirming the decision of the District Court for the Northern 

District of Illinois, held that English law applied, which put 

the burden of proof of demonstrating partnership on GLO. 

See Great Lakes Overseas, Inc. v. Wah Kwong Shipping 

Group, Ltd., 990 F.2d 990, 994 (7th Cir. 1993) ("GLO"). The 

court found that the central issue was the characterization 

of Wah Kwong's $6 million payment to KKL. Wah Kwong

described the transaction as a loan that was part of a 

workout arrangement through which Wah Kwong could 

obtain the charterhire KKL owed it. GLO, on the other 

hand, asserted that the $6 million was not an enforceable 

debt obligation but essentially an equity investment by Wah 

Kwong in a partnership with KKL. 

The court in GLO held that the $6 millon was in fact a 

loan, and that the Wah Kwong-KKL relationship was 

therefore a creditor-debtor relationship and not an equity 

arrangement. Although the side letters indicated that the 

money was repayable "on mutual agreement," Wah Kwong 

 22 
was entitled to demand repayment if KKL's liabilities 

exceeded $10.6 million, a situation which in fact developed. 

Moreover, English law recognizes that, under appropriate 

circumstances, transactions may be "loans" even when 

repayment of the loan is only by mutual agreement. See id. 

at 995 n.7. Furthermore, the court found that Wah Kwong 

was not entitled to share in KKL's profits, as a partner 

would be. The close corporate relationship between KKL 

and Wah Kwong, the court concluded, could readily be 

explained as an arrangement by which Wah Kwong could 

attempt to obtain money due on the ships it had chartered 

to KKL, especially in light of the fact that this arrangement 

was recommended by Price Waterhouse as a way to protect 

Wah Kwong's position as a major KKL creditor. See id. at 

996. 

The immediate consequence of the decision that Wah 

Kwong was a creditor was that there was no personal

jurisdiction over Wah Kwong, which could only be haled 

into Illinois courts if it had a partnership or alter-ego 

relationship with KKL. See id. at 998. The plaintiffs here 

contend that the Seventh Circuit misinterpreted the various 

agreements between the parties and relied on certain 

paragraphs that were made ineffective by amendment in 

later agreements, thus erroneously finding a debtor-creditor 

relationship. They also contend that depositions in the GLO 

case revealed important elements of Wah Kwong's 

fraudulent scheme: George and Frank Chao, it is 

contended, admitted that Wah Kwong overdrew on KKL 

earnings to pay themselves charterhire in excess of that to 

which they were entitled under their agreement with KKL, 

while KKL was neither insolvent nor in arrears on 

charterhire payments. The plaintiffs argue that, because 

they were not parties to the Illinois litigation, this evidence 

only became available to them in late 1992 (Southern 

Cross) and mid-1993 (TIP). 

F. The Present Dispute 

On December 6, 1996, Southern Cross and TIP filed a

complaint in federal district court in New Jersey alleging a 

fraudulent breach of contract by Wah Kwong and seeking 

damages of $7.2 million. The plaintiffs alleged that, when 

KKL went into liquidation, it owed them substantial sums 

 23 
for services rendered. The plaintiffs' theory was essentially 

that Wah Kwong controlled KKL, looted the company and 

drove it into bankruptcy, and then, adding insult to injury, 

distanced itself from KKL so as to be treated as a preferred 

creditor, rather than a partner responsible for KKL's debts. 

Thus, the plaintiffs are attempting to recover from Wah 

Kwong the money that KKL owed them, along with 

associated damages. 

The complaint alleged that Wah Kwong knew that it was 

participating in a partnership that was to share KKL's 

profits and losses. It further alleged that Wah Kwong and 

its principals consistently misrepresented this relationship 

to the Australian liquidator, the District Court for the 

District of New Jersey, the U.S. bankruptcy trustee, the 

District Court for the Northern District of Illinois, and the 

Court of Appeals for the Seventh Circuit. These knowingly 

false representations are said to have enabled Wah Kwong 

to enter into settlement agreements with the liquidator and 

the trustee that resulted in an estate with insufficient funds 

to pay its creditors. Judge Thompson granted Wah Kwong's 

12(b)(6) motion on the ground that the statute of limitations 

had run. 

III. The Statute of Limitations 

A. The District Court's Opinion 

The District Court reasoned that the purported 

misrepresentations occurred prior to January 1986, since 

on the plaintiffs' own allegation it was at that time that the 

Australian liquidator directed that the $6 million loan be 

repaid by KKL. Under New Jersey law, the statute of

limitations for fraud is six years, see N.J. Stat. Ann. 

S 2A:14-1, and a cause of action accrues when a plaintiff 

knows or should know of its existence, see Bougher v. 

University of Pittsburgh, 882 F.2d 74, 80 (3d Cir. 1989). The 

plaintiff must be aware of an injury and a causal 

relationship between the injury and an actor, but need not 

know that the conduct is tortious or legally wrongful. See 

Baird v. American Med. Optics, 713 A.2d 1019, 1026 (N.J. 

1998). When the gist of the action is fraud concealed from 

the plaintiff, the statute begins to run on discovery of the 

 24 
wrong or of facts that reasonably should lead the plaintiff 

to inquire into the fraud. See N.J. Stat. Ann. S 2A:14-1; 

Lopez v. Swyer, 300 A.2d 563, 567 (N.J. 1973). 

The District Court held that the plaintiffs had notice of 

the alleged misrepresentations at the time they were made 

and that there was no reason to toll the statute. The court 

noted that the Australian liquidator had agreed that Wah 

Kwong was a creditor in the 1986 settlement agreement, 

thus demonstrating that Wah Kwong's position was open 

and notorious. The court also reasoned that Vansgnes was 

involved in the Australian liquidation on behalf of KKL and 

was aware of the arguments Wah Kwong was making to the 

liquidator. 

B. The Plaintiffs' Arguments 

The plaintiffs argue that the District Court failed to draw 

all reasonable inferences in their favor, as is required when 

there is a 12(b)(6) motion to dismiss, and that it wrongly 

assumed the existence of certain facts not evident on the 

face of the complaint. In this procedural posture, we must 

take all properly pleaded facts as true. See Morse v. Lower 

Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). When 

the applicability of the statute of limitations is in dispute, 

there are usually factual questions as to when a plaintiff 

discovered or should have discovered the elements of its 

cause of action, and thus "defendants bear a heavy burden 

in seeking to establish as a matter of law that the

challenged claims are barred." Van Buskirk v. Carey

Canadian Mines, Ltd., 760 F.2d 481, 498 (3d Cir. 1985). If 

the complaint's allegations, taken as true, allege facts 

sufficient to toll the statute of limitations, it must survive a 

motion to dismiss. See Leone v. Aetna Cas. & Sur. Co., 599 

F.2d 566, 569 (3d Cir. 1979). 

The plaintiffs allege that, though they were aware of Wah 

Kwong's position that it was a creditor and not a partner of 

KKL, they did not have notice that this position was false 

until they obtained documentary evidence in 1992 after 

obtaining discovery documents from the GLO litigation. As 

they point out, as late as 1996, the Australian courts 

refused to allow the Australian creditors (including 

Vansgnes and TIP) access to KKL corporate information and 

 25 
Wah Kwong's dealings with the liquidator. They maintain 

that the statute of limitations did not begin to run until 

they had some notice that Wah Kwong's misrepresentation 

was false. 

We agree that the mere representation that one is a

creditor and not a partner, without more, is not suspicious. 

While the District Court characterized Wah Kwong's alleged 

misrepresentation as "open and notorious," it was not 

openly and notoriously a misrepresentation. One would 

have to know other facts, not necessarily within the 

reasonable ken of an unrelated creditor, to know that a 

party that held itself out as a creditor was in fact a partner. 

Thus, the limitations period did not start to run when the 

plaintiffs knew or should have known that Wah Kwong

represented itself as a creditor. Rather, the period would 

begin to run only when they knew or should have known 

information that would have led a reasonable person to 

question that representation. See Hauptmann v. Wilentz, 

570 F. Supp. 351, 397-98 (D.N.J. 1983), aff 'd without 

opinion, 770 F.2d 1070 (3d Cir. 1985). 

In addition, the District Court should not have imputed 

Vansgnes's knowledge to Southern Cross and TIP. First, 

there is nothing in the pleadings or in the published 

decisions of any court that suggests that TIP is in any way 

related to Vansgnes. Second, while Vansgnes's ownership of 

a large amount of Southern Cross stock could potentially 

justify imputing his knowledge to Southern Cross, such an 

imputation could not be made in the context of a 12(b)(6) 

motion. Wah Kwong cites cases concerning shareholder 

derivative suits for the proposition that Vansgnes and 

Southern Cross are in privity, but privity means different 

things in different contexts. 

In this case, imputing Vansgnes's knowledge to Southern 

Cross would require resolving issues of fact. Southern 

Cross argues that Vansgnes was not authorized to act for 

it (though he signed the Heads of Agreement on its behalf, 

allegedly as the result of an error) and that he never 

communicated any of the relevant facts to it. It submitted 

an affidavit that Vangsnes was never an officer, employee, 

agent, director, or shareholder of Southern Cross. Another 

sticking point is that the complaint and the published 

 26 
judgments do not reveal that Vansgnes participated in the 

1986 proceedings, which were kept confidential from

nonparticipants. The parties have not directed our attention 

to the relevant Australian procedures. The Australian 

liquidator took over the management of KKL, and we 

cannot find any suggestion that Vansgnes was involved in 

the Wah Kwong-liquidator settlement negotiations. Possibly 

he was, and if this were a summary judgment motion we 

might have the evidence to prove it, but the District Court 

could not so assume within the 12(b)(6) framework. 

If Vansgnes's knowledge in 1986 were dispositive, we 

would be obliged to reverse, as these are issues not 

appropriate for judgment on the pleadings. However,

Vansgnes was not the only possible source of the plaintiffs' 

knowledge. We turn, therefore, to the 1988 Interpool 

decision. 

C. The Importance of Interpool 

To resolve a 12(b)(6) motion, a court may properly look at 

public records, including judicial proceedings, in addition 

to the allegations in the complaint. See City of Pittsburgh v. 

West Penn Power Co., 147 F.3d 256, 259 (3d Cir. 1998) 

(public records); Pension Benefit Guar. Corp. v. White 

Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) 

(same); Iacaponi v. New Amsterdam Cas. Co., 379 F.2d 311, 

311-12 (3d Cir. 1967) (previous litigation referred to in 

complaint); In re Woodmar Realty Co., 294 F.2d 785, 788 

(7th Cir. 1961) (previous opinions); DiNicola v. DiPaolo, 945 

F. Supp. 848, 855 n.2 (W.D. Pa. 1996) (same); Kithcart v. 

Metropolitan Life Ins. Co., 62 F. Supp. 93, 94 (W.D. Mo. 

1944) (same), aff'd, 150 F.2d 997 (8th Cir. 1945). 

Specifically, on a motion to dismiss, we may take judicial 

notice of another court's opinion--not for the truth of the 

facts recited therein, but for the existence of the opinion, 

which is not subject to reasonable dispute over its

authenticity. See Kramer v. Time Warner Inc., 937 F.2d 767, 

774 (2d Cir. 1991); United States v. Wood, 925 F.2d 1580, 

1582 (7th Cir. 1991); see also Funk v. Commissioner, 163 

F.2d 796, 800-01 (3d Cir. 1947) (whether a court may 

judicially notice other proceedings depends on what the 

 27 
court is asked to notice and on the circumstances of the 

instant case).7 

Judge Politan's opinion in Interpool is judicially 

noticeable. Moreover, it is a document on which the

plaintiffs rely, as they specifically reference it in the 

complaint to show Wah Kwong's fraudulent behavior. We 

may therefore examine the decision to see if it contradicts 

the complaint's legal conclusions or factual claims. See City 

of Pittsburgh, 147 F.3d at 259 (court may examine 

documents of unquestioned authenticity on which the

plaintiff 's claim depends); Pension Benefit Guar. Corp., 998 

F.2d at 1196 (same); Romani v. Shearson Lehman Hutton, 

929 F.2d 875, 879 & n.3 (1st Cir. 1991) (rejecting a fraud 

claim in light of the underlying documents, pursuant to a 

12(b)(6) motion). 

Our inquiry proceeds in two steps. First, we establish 

that a reasonable creditor who filed a claim in a bankruptcy 

proceeding would examine published opinions in that

proceeding. Therefore, such a creditor "should have known" 

the contents of a published opinion, for purposes of 

starting the limitations period. Second, we conclude that 

Judge Politan's Interpool opinion contained sufficient 

information to put a reasonable creditor on notice that Wah 

Kwong's claim to be a mere creditor (and not some kind of 

"insider" or partner in the affairs of KKL) was suspicious. 

_________________________________________________________________ 

7. We have held that a court that examines a transcript of a prior 

proceeding to find facts converts a motion to dismiss into a motion for 

summary judgment. See Kauffman v. Moss, 420 F.2d 1270, 1274-75 (3d 

Cir. 1970). We do not call Kauffman into question when we hold that 

judicially noticing the existence of a published opinion is proper to 

resolve a 12(b)(6) motion. Recently, courts and commentators have paid 

more attention to the distinction between judicially noticing the 

existence 

of prior proceedings and judicially noticing the truth of facts averred in 

those proceedings. See 21 Charles Alan Wright & Kenneth W. Graham, 

Jr., Federal Practice & Procedure: EvidenceS 5106, at 247 (1999 Supp.). 

It has been suggested that the appropriate analogy is the hearsay rule, 

which allows an out-of-court statement to be admitted into evidence for 

purposes other than establishing the truth of the statement. See id.; see 

also Colonial Leasing Co., Inc. v. Logistics Control Group Int'l, 762 F.2d 

454, 459 (5th Cir. 1985) (making the distinction between existence and 

truth). 

 28 
As a result, the plaintiffs, who were creditors in that 

proceeding, should have known the relevant facts about 

Wah Kwong's alleged misrepresentations more than six 

years before the filing of the complaint, and the statute of 

limitations bars this suit. 

1. The Obligations of a Bankruptcy Creditor Filing a 

 Claim 

The plaintiffs argue that they were not true parties to the 

Interpool litigation, but merely filed their claims in 

bankruptcy court as creditors after receiving notice from 

the U.S. bankruptcy trustee. Interpool actually involved a 

number of consolidated creditors' claims against KKL and a 

distinct S 304 proceeding challenging the propriety of U.S. 

bankruptcy jurisdiction while the Australian liquidation 

was already pending. Though Southern Cross was a named 

party in Interpool, it alleges that it was not involved in 

litigating the S 304 proceeding and participated actively only 

in other aspects of the case involving creditors' claims 

against various freights. 

The District Court rejected the plaintiffs' distinction 

between the S 304 proceeding--in which the allegations of 

Wah Kwong's misconduct were made--and the run-of-themill creditors' claims. It noted that Southern Cross was 

represented by counsel who entered an appearance in the 

litigation, and that TIP, though not a named party,filed a 

claim after receiving notice. According to the District Court, 

Wah Kwong's arguments were put forth in the S 304 aspect 

of the litigation and in Judge Politan's opinion, and the 

plaintiffs neglected their duty of due diligence if they were 

not aware of Wah Kwong's position. While the District 

Court should not have taken "arguments" before Judge 

Politan into account on a 12(b)(6) motion, for the reasons 

that follow we agree that the plaintiffs should have taken 

notice of Judge Politan's opinion explaining the 

appointment of a U.S. bankruptcy trustee despite the 

ongoing Australian litigation. 

First, and at the very least, a reasonable creditor should 

have inquired why the court found it necessary to have a 

U.S. proceeding in the face of an ongoing foreign 

liquidation. Although Southern Cross argues that it did not 

 29 
participate in the S 304 aspect of the Interpool case, the 

result that the Australian liquidator sought was to void the 

U.S. attachment of Southern Cross's freights. Southern 

Cross was served with all relevant papers, and the 

contention that it was somehow insulated from theS 304 

proceedings is simply untenable. In these circumstances, 

Southern Cross should have examined Judge Politan's

opinion resolving the Australian liquidator's S 304 claim. 

TIP's obligations as a reasonable creditor are much more 

difficult to determine. Unfortunately, the record of the 

Interpool proceedings has not been preserved in its entirety, 

though there is evidence that, in 1990, the Australian 

liquidator was unable to serve TIP with documents in the 

case because it had moved, and its forwarding order had 

expired. At all events, TIP had notice of the pending U.S. 

bankruptcy proceeding triggered by Judge Politan's opinion, 

because it filed a claim in that proceeding.8 Judge Politan's 

opinion was not simply "notice in the air," as TIP 

participated in the resultant proceedings. See People v. Hill, 

952 P.2d 673, 699-700 (Cal. 1998) (judicially noticing prior 

opinions to show that a prosecutor involved in the prior 

cases had notice of a particular problem). We conclude that 

TIP also should have read Judge Politan's opinion, given the 

circumstances of the case. 

2. The Content of the Interpool Opinion 

Because a reasonable creditor in the plaintiffs' position 

would have read the opinion, the statute of limitations 

would start to run if the opinion was sufficient as a matter 

_________________________________________________________________ 

8. The complaint does not specifically allege that TIP filed a claim in 

the 

U.S. bankruptcy proceeding, though it does allege that the plaintiffs were 

unsecured creditors and that "the unsecured United States creditors" 

were harmed by Wah Kwong's representations to the U.S. bankruptcy 

trustee. Logically, only competing claimants could have been harmed by 

Wah Kwong's acts, and thus the only reasonable reading of the 

complaint is that the plaintiffs filed claims. In their brief, the 

plaintiffs 

state that they both filed claims in the bankruptcy proceeding. The brief 

is not evidence, but it allows us to interpret the complaint. See Doe v. 

Johnson, 817 F. Supp. 1382, 1399 n.13 (W.D. Mich. 1993); Ricciotti v. 

Warwick Sch. Comm., 319 F. Supp. 1006, 1010 n.3 (D.R.I. 1970); 5A 

Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure 

S 1364, at 480-81 (1990). 

 30 
of law to give a creditor notice of the facts underlying the 

fraud claim. We find that the published opinion in Interpool 

was sufficient to put the plaintiffs on notice that there was 

evidence that Wah Kwong was KKL's partner and thus to 

distrust Wah Kwong's representations that it was a mere 

creditor. Cf. Hal Roach Studios, Inc. v. Richard Feiner & Co., 

Inc., 896 F.2d 1542, 1548 (9th Cir. 1989) (holding that 

controlling statutory language can be sufficiently clear to 

start a limitations period running as a matter of law). It is 

not relevant whether Judge Politan's interpretation of the 

facts was correct; what is critical is that his interpretation 

was published and available to KKL's creditors, and that 

the discrepancy between Wah Kwong's claims to be a 

creditor and Judge Politan's conclusions was evident on the 

face of the opinion. 

Judge Politan described the Wah Kwong-KKL link as 

follows: "The relationship between Wah Kwong and KKL 

was described as a joint venture agreement. Wah Kwong 

corporate individuals were considered to be partners for the 

purpose of `earnings or distribution of earnings' of KKL." 

Interpool, 102 B.R. at 375-76. This adequately disclosed the 

alleged partnership agreement behind the plaintiffs' claims. 

Moreover, the opinion repeatedly indicated that Wah

Kwong might have acted illegitimately. Interpool discussed 

the troubling features of the arrangement between the 

Australian liquidator and Wah Kwong, which the plaintiffs 

now attack as fraudulent. Indeed, Judge Politan was so 

concerned about the fairness of the Australian settlement 

that he appointed a U.S. bankruptcy trustee to administer 

KKL's U.S. assets. Furthermore, the plaintiff 's complaint in 

this case itself demonstrates that the plaintiffs were (or 

should have been) aware of Wah Kwong's position that it 

was a creditor, as both the plaintiffs and the defendant 

were competing creditors in the U.S. bankruptcy 

proceeding. 

In sum, the plaintiffs should have been aware of evidence 

of the alleged "true facts" after the 1988 Interpool opinion; 

they were also aware of the allegedly false representation 

during the bankruptcy proceedings. It follows that they 

should have known all the information sufficient to begin 

the running of the statute of limitations, which thus ran on 

 31 
the plaintiffs' fraud claims before the December 6, 1996, 

complaint was filed. The judgment of the District Court will 

be affirmed.9 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

_________________________________________________________________ 

9. Because we find that the statute of limitations has run for both 

plaintiffs, we need not address Wah Kwong's other arguments. 

 32