Opinion ID: 169915
Heading Depth: 3
Heading Rank: 3

Heading: The FSIA's commercial activity exception

Text: In this case, Plaintiffs do not dispute that the Bank is an instrumentality of a foreign sovereign  the People's Republic of China. [16] See also Voest-Alpine Trading USA Corp. v. Bank of China, 142 F.3d 887, 890 (5th Cir.1998) (The Bank of China is an instrumentality of the People's Republic of China.). Therefore, the Bank has made a prima facie showing of immunity. See Southway, 328 F.3d at 1271. Plaintiffs assert, however, that the FSIA's commercial activity exception, see 28 U.S.C. § 1605(a)(2), applies in this case to give United States courts subject matter jurisdiction. The commercial activity exception is the FSIA's most significant . . . exception[ ] to foreign sovereign immunity. Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 611, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992). It is at the heart of the FSIA's codification of the restrictive theory of foreign sovereign immunity. Joseph F. Morrissey, Simplifying the Foreign Sovereign Immunities Act: If a Sovereign Acts Like a Private Party, Treat It Like One, 5 Chi. J. Int'l L. 675, 682 (Winter 2005); see also Weltover, 504 U.S. at 612-13, 112 S.Ct. 2160. In this case, the parties also do not dispute that the Bank is engaged in commercial activity. See Voest-Alpine Trading, 142 F.3d at 892 (parties did not dispute that the Bank of China is a foreign state engaged in commercial activity). Nevertheless, there must also be a sufficient nexus between the Bank's commercial activity and the United States: For there to be jurisdiction in this case, therefore, Plaintiffs' action must be `based upon' some `commercial activity' by [the Bank] that had `substantial contact' with the United States within the meaning of the [FSIA]. Nelson, 507 U.S. at 356, 113 S.Ct. 1471; see also Morrissey, supra, at 676-77, 683-84; William R. Dorsey, III, Reflections on the Foreign Sovereign Immunities Act After Twenty Years, 28 J. Mar. L. & Com. 257, 264 (1997). The FSIA's commercial activity exception is broken down into three clauses, each identifying a sufficient connection to the United States necessary to satisfy the jurisdictional nexus requirement. Voest-Alpine Trading, 142 F.3d at 892. The FSIA provides: A foreign state shall not be immune from the jurisdiction of courts of the United States or of any of the States in any case  . . . in which the action is based upon [1] a commercial activity carried on in the United States by the foreign state; or [2] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [3] 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) (numbering in brackets added). In this case, Plaintiffs assert that the district court has subject matter jurisdiction over their claims asserted against the Bank under all three clauses of the commercial activity exception. In addressing whether a federal court has subject matter jurisdiction over Plaintiffs' claims, we must first identify the particular conduct on which [Plaintiffs'] action is based. Nelson, 507 U.S. at 356, 113 S.Ct. 1471 (quotation omitted). That is because, for FSIA purposes, the statutory phrase based upon, 28 U.S.C. § 1605(a)(2), is read most naturally to mean those elements of a claim that, if proven, would entitle a plaintiff to relief under his theory of the case. Nelson, 507 U.S. at 357, 113 S.Ct. 1471. Our focus, then, must be on the specific claim[s] that Plaintiffs assert against the Bank and the elements of th[ose] claim[s] that, `if proven, would entitle [Plaintiffs] to relief under [their] theory of the case.' Globe Nuclear Servs. & Supply (GNSS), Ltd. v. AO Techsnabexport, 376 F.3d 282, 287 (4th Cir.2004) (quoting Nelson, 507 U.S. at 357, 113 S.Ct. 1471). In this case, although Plaintiffs asserted at least five different theories of recovery against the Bank, all of their claims are based on the Bank's alleged breach of a duty, created contractually or otherwise, 1) to keep safe the funds Orient Mineral wired to its temporary account in the Bank's Lingbao sub-branch, and to disburse those funds only according to Jones' directions; and 2) to require Jones' authorization for any withdrawals from Wil-Bao's accounts in an amount greater than $25,000. [17] i. Whether Plaintiffs' claims are based upon the Bank's commercial activity carried on in the United States Section 1605(a)(2)'s first clause applies when the the action is based upon a commercial activity carried on in the United States by the foreign state. `[C]ommercial activity' means either a regular course of commercial conduct or a particular commercial transaction or act. 28 U.S.C. § 1603(d). The phrase `commercial activity carried on in the United States' means commercial activity carried on by [a foreign] state and having substantial contact with the United States. Id. § 1603(e). Plaintiffs assert several ways in which the Bank carries on commercial activity in the United States. First, the Bank drafted a letter, dated May 14, 1996, promising to keep safe the funds Orient Mineral wired to its temporary account in the Bank's Lingbao sub-branch until Orient Mineral's representative, Jones, arrived in China. With this letter, according to Plaintiffs, the Bank established an ongoing business relationship with Orient Mineral. But the evidence established that it was Yue, a director of Orient Mineral and Wil-Bao's manager, who made arrangements with the Bank, in China, for Orient Mineral to wire $3 million into a temporary account in the Bank's Lingbao sub-branch. At Wilson's direction, Yue, in making these arrangements, requested that the Bank draft a letter that would include account routing instructions and a promise to keep Orient Mineral's funds safe until Orient Mineral's representative, Jones, arrived in China. The Bank provided Yue with such a letter, dated May 14, 1996, written in Chinese and addressed to Yue. It was Yue, not the Bank, who sent this letter to Wilson in the United States, along with a rough English explanation. Orient Mineral then responded to the Bank's letter with the Orient Mineral resolution making Jones its sole representative and agreeing to hold the Bank harmless if it followed Jones' directions. Eck also drafted a letter to the Bank reiterating these points. But Eck delivered these two Orient Mineral documents in person to the Bank's Lingbao sub-branch when Eck accompanied Jones to China. This series of events can not be construed as the Bank's carrying on commercial activity in the United States. [18] Plaintiffs next argue that the Bank carries on commercial activity in the United States by operating a branch Bank in New York City. We agree. See Callejo v. Bancomer, S.A., 764 F.2d 1101, 1105 (5th Cir.1985) (noting foreign bank regularly engaged in commercial activity in the United States, where, among other things, bank operated branch bank in Los Angeles). But the fact that a foreign sovereign is engaged in commercial activity in the United States does not serve as a license for United States courts to entertain all claims against it. Dorsey, supra, at 294; see also id. at 296 (noting that the test for jurisdiction under the commercial activity exception's first clause is something more than just a `doing business' test, that is, that the foreign sovereign can be sued in the United States . . . even though there is no specific connection between the lawsuit and the United States). Rather, Plaintiffs' claims must be based upon that commercial activity. See Reiss v. Societe Centrale Du Groupe Des Assurances Nationales, 235 F.3d 738, 747 (2d Cir.2000); see also Kirkham, 429 F.3d at 293 (noting that once a foreign state engages in a commercial activity in the United States, it becomes subject to litigation based upon that activity  just like any other commercial actor) (emphasis added). Plaintiffs point to the fact that, when McKee transferred $3 million for Orient Mineral, from an American bank to Orient Mineral's temporary account in the Bank's Lingbao sub-branch, that wire transfer went through the Bank's New York branch. And when the Bank transferred Wil-Bao funds back to the United States, as Jones requested, those transfers also may have gone through the New York branch. These connections alone, however, are insufficient to establish subject matter jurisdiction under the first clause of the FSIA's commercial activity exception because none of Plaintiffs' claims against the Bank are based upon these particular transactions. See Nelson, 507 U.S. at 356-58, 113 S.Ct. 1471 [19] ; see also Goodman Holdings v. Rafidain Bank, 26 F.3d 1143, 1144-46 (D.C.Cir.1994) (rejecting argument that there was a sufficient nexus between the Iraqi government bank's commercial activity carried on in the United States and claim asserted against the bank by several Irish companies, alleging that the bank had failed to make payments under a letter of credit, even though the bank had made previous payments from accounts the Iraqi bank had in the United States); Gen. Elec. Capital Corp. v. Grossman, 991 F.2d 1376, 1382-84 (8th Cir.1993) (holding that the fact that defendant operated airline that served destinations in the United States did not provide United States courts with subject matter jurisdiction over claims against the defendant that were not based upon its operation of the airline, but were instead based upon the defendant's negotiations to purchase another airline, where negotiations took place primarily outside the United States); Wahba v. Nat'l Bank of Egypt, 457 F.Supp.2d 721, 735 (E.D.Tex. 2006) (holding National Bank of Egypt's specific commercial activity implicated by plaintiffs' claims was financing plaintiffs' businesses in Egypt; the Bank's contact with the United States regarding these particular transactions was only sporadic; and, therefore, plaintiffs' claims were not based on the Bank's commercial activity in the United States). Plaintiffs further argue that the Bank's transfer of $400,000 of Wil-Bao's funds to the bank in Utah amounts to the Bank's carrying on commercial activity in the United States. We later conclude that this activity was sufficient to subject the Bank to jurisdiction for this particular act under the third clause of § 1605(a)(2). However, we do not believe this single act constitutes commercial activity carried on in the United States by the Bank under the first clause of § 1605(a)(2). The Bank acted within China, not the United States. The consequence of the act was felt in the United States when the Utah bank received the funds but the Utah bank was not acting as an agent of the Bank. Rather, it was acting as an independent, arms-length entity in an ordinary commercial transaction. So, the Utah bank's act in the United States cannot be attributed to the Bank. For these reasons, Plaintiffs have failed to assert sufficient evidence establishing that their action is based upon the Bank's commercial activity carried on in the United States. The district court, therefore, did not have subject matter jurisdiction over Plaintiffs' claims based upon the commercial activity exception's first clause. ii. Whether Plaintiffs' claims are based upon an act the Bank performed in the United States in connection with the Bank's commercial activity . . . elsewhere. Section 1605(a)(2)'s second clause applies when the action is based . . . upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere. Under this clause, a material connection must exist between the act performed in the United States and plaintiff's cause of action. Pere v. Nuovo Pignone, Inc., 150 F.3d 477, 482 (5th Cir.1998); see also Grossman, 991 F.2d at 1384; Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 709 (9th Cir.1992). In invoking the second clause of the FSIA's commercial activity exception, Plaintiffs rely on the same Bank conduct that Plaintiffs asserted to invoke § 1605(a)(2)'s first clause. For the same reasons stated above, however, Plaintiffs here have failed to establish that their claims are based upon any action the Bank took in the United States. See Pere, 150 F.3d at 482; Grossman, 991 F.2d at 1384. iii. Whether Plaintiffs' claims are based upon an act the Bank took outside the United States that cause[d] a direct effect in the United States. The commercial activity exception's third clause provides that [a] foreign state shall not be immune from the jurisdiction of courts of the United States . . . in any case . . . in which the action 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. 28 U.S.C. § 1605(a)(2). The district court in this case held that it had jurisdiction under the third clause to consider only Plaintiffs' claims that are based upon the Bank's transferring $400,000 to the Utah bank. We agree. Although it is clear that the Bank was carrying on commercial activity in China, we must consider here what specific acts the Bank took in China that underlie Plaintiffs' claims. On appeal, Plaintiffs rely primarily on the Bank's conduct in transferring, at Yue's request, $400,000 from Wil-Bao's account in the Bank's Lingbao sub-branch. [20] We address that Bank act first. The Bank's transferring this $400,000 out of Wil-Bao's account was certainly connected with the Bank's commercial activity in China. The dispositive question here, then, is whether this Bank conduct, taken in China, had a direct effect in the United States. A direct effect need not be substantial or foreseeable, but it must be more than trivial. See Weltover, 504 U.S. at 617-18, 112 S.Ct. 2160. And it will be sufficiently `direct' if it follows as an immediate consequence of the defendant's activity. Id. at 618, 112 S.Ct. 2160 (quotation, alteration omitted). [21] Applying that reasoning to this case, it is clear that the Bank's transfer of $400,000 of Wil-Bao's funds from its account in the Bank's Lingbao sub-branch to the Utah bank had a direct effect in the United States  the Utah bank received $400,000 on Gaowa's behalf. This follow[ed] as an immediate consequence of the Bank's alleged wrongful conduct in permitting Yue to withdraw $400,000 from Wil-Bao's account without Jones' authorization and to direct those funds be transferred to Utah. [22] The Bank suggests that the direct effect occurring in the United States must be legally significant in order for an American court to have subject matter jurisdiction under the commercial activity exception's third clause. There are courts that have adopted a legally significant act test when applying § 1605(a)(2)'s third clause. See Virtual Countries, Inc. v. Republic of S. Africa, 300 F.3d 230, 240 (2d Cir.2002); Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 931 (2d Cir. 1998); Adler v. Fed. Republic of Nigeria, 107 F.3d 720, 726-27 (9th Cir.1997). But this test is defined in different ways. Some courts require that the direct effect occurring in the United States be a direct effect caused by legally significant conduct outside the United States. See Virtual Countries, 300 F.3d at 240. That test would be met here. The Bank's permitting Yue to withdraw $400,000 from Wil-Bao's account in Lingbao without Jones' authorization is certainly legally significant to Plaintiffs' claims. Other authority, however, defines the legally significant act test to require that a legally significant act occur within the United States. See Adler v. Fed. Republic of Nigeria, 219 F.3d 869, 876 (9th Cir.2000); see also Virtual Countries, 300 F.3d at 241 (assuming there was a legally significant direct effect); cf. Keller v. Cent. Bank of Nigeria, 277 F.3d 811, 817-18 (6th Cir.2002) (discussing, but declining to adopt, legally significant act test); Voest-Alpine, 142 F.3d at 894-95 (same). This court has never adopted the legally significant act test, and we now explicitly reject that additional, judicially-created criteria to satisfy 28 U.S.C. § 1605(a)(2)'s third clause. In United World Trade, we recognized that courts often look to the place where legally significant acts giving rise to the claim occurred in determining the place where a direct effect may be said to be located. 33 F.3d at 1239 (quotation omitted). In that case, this court was struggling to resolve the amorphous . . . issue of locat[ing] the site of financial harm to a corporation, . . . where the cause of the injury is an omission. Id. There, we ultimately examined all of the facts . . . together . . ., including the `legally significant acts,' before concluding that the conduct at issue in that case did not produce a direct effect in the United States. Id. We thus will consider the legally significant acts, as well as other relevant facts under the circumstances of a given case, to aid our determination. In doing so, we look to where the legally significant acts occurred as simply one of several means to determine whether a direct effect occurred in the United States. See Morrissey, supra, at 688 (making this observation). In United World Trade, we did not make legally significant acts in the United States a prerequisite for jurisdiction under the third clause of 28 U.S.C. § 1605(a)(2). We reject engrafting this additional requirement necessary to satisfy § 1605(a)(2)'s third clause for many reasons. First, the statute's text does not require it. See Voest-Alpine, 142 F.3d at 894; see also Keller, 277 F.3d at 818. And the Supreme Court has counseled against adding extra-legislative requirements to statutory text. See Weltover, 504 U.S. at 618, 112 S.Ct. 2160 (rejecting suggestion that § 1605(a)(2) contains unexpressed requirement[s]). Second, requiring legally significant acts to occur in the United States would render the second and third clauses of § 1605(a)(2) redundant, as any legally significant act occurring in the United States would likely also satisfy at least the second clause (a foreign sovereign's act in the United States), if not also the first clause (a foreign sovereign's commercial activity carried on in the United States). See Voest-Alpine, 142 F.3d at 895; see also Morrissey, supra, at 677 (noting that the commercial activity exception's first and second clauses address [s]uits based on actions that actually occur in the United States). Third, the phrase legally significant act is vague and ambiguous, adding nothing to the analysis. Thus, we will simply apply the third clause of § 1605(a)(2) as it is written, without judicial adornment. In this case, it is clear that the Bank's commercial activity in China produced a direct effect in the United States  the transfer of $400,000 to a Utah bank. This case is unlike the circumstances addressed by this court in United World Trade, where the plaintiff alleged a direct effect resulting from the defendants' omission or failure to act, and the effect was only a loss of corporate profit in the United States, which we held was not a sufficient direct effect. See United World Trade, 33 F.3d at 1236-39. Here, instead, the Bank took affirmative action that caused an effect in the United States  money was received in the United States. And that effect was direct, that is, it followed as an immediate consequence of the Bank's permitting Yue to withdraw more than $400,000 from Wil-Bao's Chinese bank account without Jones' authorization, Weltover, 504 U.S. at 618, 112 S.Ct. 2160 (quotation omitted), which was the essence of at least one of Plaintiffs' legal claims. For these reasons, the district court correctly held that it had subject matter jurisdiction over Plaintiffs' claims to the extent they were based upon the Bank's transferring $400,000 from Wil-Bao's account to Saren Gaowa's account in a bank in Utah. On appeal, Plaintiffs also point to the Bank's conduct of drafting its May 14, 1996 letter as an act taken in China, in connection with the Bank's commercial activity there, that had a direct effect in the United States. Because, again, it is clear that this act underlies Plaintiffs' claims, occurred in China and is connected with the Bank's commercial activity in China, the relevant inquiry here is whether that act caused a direct effect in the United States. Under the specific facts of this case, we conclude it did not. Plaintiffs assert that the Bank's May 14 letter induced them into wiring Orient Mineral's funds to the Bank's Lingbao sub-Branch. But the Bank wrote this letter at Yue's request, pursuant to the terms Yue requested. And Yue requested these terms at Wilson's insistence. Further, the Bank addressed the letter to Yue, who was Wil-Bao's general manager and a director of Orient Mineral, wrote the letter in Chinese and gave it to Yue in China. It was Yue who sent the Bank's letter to Wilson in the United States, along with Yue's rough explanation in English. Under these circumstances, Orient Mineral's wiring $3 million to the Bank's Lingbao sub-branch was not an immediate consequence of the Bank's drafting this May 14 letter addressed and given to Yue in China. Weltover, 504 U.S. at 618, 112 S.Ct. 2160 (quotation omitted). The effect the Bank's conduct had in the United States, therefore, was indirect, rather than direct. Orient Mineral's response to the Bank's letter was ultimately the result of Yue's unlawful course of conduct, which constitutes an intervening act not attributable to the Bank. Plaintiffs also point to the Bank's thrice wiring funds from Wil-Bao's accounts in the Bank's Lingbao sub-branch to the United States through the Bank's New York branch. But Plaintiffs' claims are not based upon the two transfers to the United States that Jones' authorized. And we have already concluded that the Bank's unauthorized transfer of $400,000 to the Utah bank was an act taken in China, in connection with the Bank's commercial activity there, that had a direct effect in the United States. This Utah transfer, therefore, is the only Bank conduct that Plaintiffs rely upon that was taken outside the United States, in connection with the Bank's commercial activity in China, that had a direct effect in the United States. [23] Plaintiffs, nevertheless, assert that, because the district court had subject matter jurisdiction over Plaintiffs' claims, to the extent they were based upon this $400,000 transfer, that is sufficient to give the district court subject matter jurisdiction over all of Plaintiffs' claims, even those based upon conduct occurring entirely in China. We disagree. We look first to the FSIA's text. See Permanent Mission of India, 127 S.Ct. at 2356, 127 S.Ct. 2352. The FSIA specifically provides, in relevant part, that a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in section 1605 to 1607 of this chapter. 28 U.S.C. § 1604 (emphasis added). Thus, a foreign sovereign is immune from suit in any civil action in any court of the United States unless, and to the extent that, one of the exceptions set forth in §§ 1605-1607 applies. David P. Stewart, Practising Law Inst., Litig. & Admin. Practice Course Handbook Series, Int'l Business Litig. & Arbitration, The Foreign Sovereign Immunities Act 139 (2006) (emphasis added). [I]f the claim does not fall within one of the exceptions, federal courts lack subject matter jurisdiction. Verlinden, 461 U.S. at 489, 103 S.Ct. 1962. The third clause of the commercial activity exception provides subject matter jurisdiction where the action is based upon . . . an act [occurring] outside the territory of the United States that has caused a direct effect in the United States. 28 U.S.C. § 1605(a)(2) (emphasis added). By its very terms, then, § 1605(a)(2)'s third clause gives American courts subject matter jurisdiction over claims stemming from a specific act outside the United States that has a direct effect in the United States. In Nelson, the Supreme Court contrasted this language with the language in § 1605(a)(2)'s first clause, which refers instead to an action based upon a foreign sovereign's commercial activity carried on in the United States. See 507 U.S. at 357-58, 113 S.Ct. 1471. [24] Thus, the district court correctly held in this case that it did not have subject matter jurisdiction over Plaintiffs' claims that were not based upon the act of the Bank in transferring $400,000 from Wil-Bao's account in the Bank's Lingbao sub-branch to a Utah bank. c. Conclusion. For these reasons, we AFFIRM the district court's determination that it had subject matter jurisdiction to consider the merits of Plaintiffs' claims, but only to the extent that they were based upon the $400,000 transfer from Wil-Bao's account in Lingbao to the First Zion's National Bank in Utah. [25] 2. Whether the district court erred in ruling for the Bank on the merits of Plaintiffs' claims that were based upon the Bank's transferring $400,000 from Wil-Bao's account to a bank in Utah. a. Standard of review This court will review the district court's factual findings, made after a bench trial, for clear error; and its legal conclusions de novo. See Holdeman v. Devine, 474 F.3d 770, 775 (10th Cir.2007); see also Fed.R.Civ.P. 52(a). b. Choice of law The FSIA does not itself provide the substantive law governing a plaintiff's claims asserted against a foreign sovereign. See Cruz, 387 F.Supp.2d at 1070-71. Rather, the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances, except that the foreign sovereign will not be liable for punitive damages. 28 U.S.C. § 1606. [26] In this case, the parties and the district court primarily applied Utah law in addressing Plaintiffs' claims. On appeal, Plaintiffs do not contest the district court's doing so. Thus, we too will apply Utah law, although it is far from clear that would be our conclusion if we conducted a proper choice-of-law analysis. See Flying J Inc. v. Comdata Network, Inc., 405 F.3d 821, 831 n. 4 (10th Cir.2005) (applying state law upon which the parties agree). c. Merits
As explained in greater detail below, the theory of recovery underlying most of Plaintiffs' claims is that the Bank breached its duty to follow Jones' directions in disbursing the $3 million in Orient Mineral's temporary account in the Bank's Lingbao sub-branch. Although Jones sought to maintain control over these funds by requiring his authorization before Yue could withdraw more than $25,000 from the Wil-Bao U.S. dollar account, Jones trusted Yue to convey this restriction to the Bank. Plaintiffs' claims fail primarily because there is no evidence that Yue ever actually conveyed Jones' requested restriction to the Bank. Believing, wrongly, that this $25,000 restriction was in place, Jones transferred Orient Mineral's money into the Wil-Bao accounts. Because the $25,000 restriction Jones sought to place on the Wil-Bao accounts was never shown to have been conveyed to the Bank, the Bank is not liable for Yue's misappropriating Wil-Bao's funds. Plaintiffs' contention that the circumstances surrounding their dealings with the Bank should have put the Bank on notice that Jones sought to restrict Yue's access to Wil-Bao's funds is unavailing. With this in mind, we turn to Plaintiffs' specific arguments asserted on appeal.
Plaintiffs alleged that the Bank, in its May 14, 1996 letter, agreed to keep safe the funds Orient Mineral transferred into its temporary account with the Bank, and further agreed to follow the instructions of Orient Mineral's representative for disbursing those funds. Plaintiffs further alleged that the Bank breached this agreement when it transferred Orient Mineral's money from its temporary account into the newly created Wil-Bao U.S. dollar account without restricting Yue's access to those funds; and further breached this contract when the Bank permitted Yue to make withdrawals in excess of $25,000 from Wil-Bao accounts without Jones' authorization. On appeal, Plaintiffs challenge the district court's determination that Plaintiffs' claim for breach of contract . . . fail[s]. First, the Bank of China performed according to the terms of its agreement with Orient Mineral: the Bank received Orient Mineral's wire transfer, held its funds awaiting Mr. Jones' arrival in China, and then followed Jones' direction to transfer those funds into Wil-Bao's account. The contract between Orient Mineral and the Bank did not address the terms of the contract to be formed between the Wil-Bao joint venture and the Bank. Wil-Bao formed its own contract with the Bank of China governing its accounts at the Bank. The terms of that contract did not include a U.S. $25,000 restriction on withdrawals, transfers or remittances from Wil-Bao's U.S. dollar account, or any requirement that the Bank contact Jones to obtain approval to process transactions in the Wil-Bao accounts. Consequently, the processing of the U.S. $400,000 transfer on or about August 28, 1996 without Jones' approval did not breach Wil-Bao's contract with the Bank. (Footnote omitted.) To the extent Plaintiffs are challenging the district court's interpretation of the parties' agreements, we review those legal determinations de novo, see Interwest Constr. v. Palmer, 923 P.2d 1350, 1358-59 (Utah 1996), and agree with the district court's construction of the contracts at issue here. To the extent Plaintiffs are challenging the district court's factual findings, we reject those arguments because the trial record fully supports the district court's determination. Plaintiffs specifically argue that their giving the May 24, 1996 Wil-Bao resolution to Bank officials notified the Bank that Jones wanted to place a $25,000 restriction on Yue's access to the funds in the Wil-Bao U.S. dollar account. That resolution acknowledged McKee's investment in Wil-Bao, agreed to repay McKee in full before distributing any profits, and agreed to pay McKee an annual bonus of $333,333.33 for the next three years. The resolution went on to further resolve[] that until all said sums are repaid in full Preston Jones shall be appointed as the director of Wil-Bao responsible for the management of the financial affairs of Wil Bao with sole authority to approve any expenditures of Wil Bao in excess of $25,000 U.S. dollars. The testimony at trial was conflicting as to whether Plaintiffs ever gave the Wil-Bao resolution to Bank officials and, if so, when. The district court found that it was [m]ore likely than not, [that] the May 24th Wil-Bao board resolution was presented to [the Bank's] Mr. Wang at the May 29th meeting at the Lingbao Sub-branch of the Bank of China. [27] That factual finding is not clearly erroneous. See Watson v. United States, 485 F.3d 1100, 1108 (10th Cir.2007). Because the parties created Wil-Bao's accounts on May 27, 1996, the terms of the Wil-Bao resolution, therefore, could not have been incorporated into the terms that governed the Wil-Bao account. Nor could the Bank, in creating the Wil-Bao accounts, have disregarded a resolution that the Bank had not yet received. Further, Plaintiffs' act of giving the Wil-Bao resolution to a Bank official on May 29 was not sufficient to put the Bank on notice that Wil-Bao wanted additional restrictions placed on its accounts. The Wil-Bao resolution was not addressed to the Bank and was not accompanied by any indicia of an official directive, such as a corporate seal or a letter from Wil-Bao's officers. Even Plaintiffs, in their post-trial arguments before the district court, refer to this resolution as only an internal document. Moreover, although the resolution required Jones' authorization for any expenditures of Wil-Bao, the resolution did not specifically link that restriction to the Bank or Wil-Bao's accounts with the Bank. Plaintiffs also point to the note signed by Jones and Yue authorizing Yue to expend $1.2 million. Jones gave Bank official Wang this note during the May 29 meeting. Plaintiffs assert that this note also should have put the Bank on notice that Jones wanted a $25,000 restriction on Wil-Bao account expenditures. That note, however, handwritten on a piece of paper torn from a notebook, was not addressed to the Bank and did not clearly indicate it was to be any sort of authorization for the Bank to take some action. That note, therefore, would not have put the Bank on notice that Wil-Bao wanted a $25,000 restriction placed on its accounts with the Bank. For these reasons, the district court did not err in entering judgment for the Bank on Plaintiffs' breach-of-contract claim.
Plaintiffs also alleged that the Bank was negligent in permitting Yue to misappropriate Wil-Bao's funds. Under Utah law, [t]o establish a claim of negligence, the plaintiff must establish four essential elements: (1) that the defendant owed the plaintiff a duty, (2) that the defendant breached that duty, (3) that the breach of duty was the proximate cause of the plaintiff's injury, and (4) that the plaintiff in fact suffered injuries or damages. Webb v. Univ. of Utah 125 P.3d 906, 909 (Utah 2005) (quotation omitted). Plaintiffs specifically alleged that the Bank owes duties to its depositors to exercise due care in opening and handling of its accounts. Said duties include the exercise of reasonable care to understand and follow the instructions of its customers on account opening, to be alert to suspicious circumstances and fraud in opening and operating accounts, and to prevent fraudulent or unauthorized transfers from said accounts. [28] (Footnote added.) Plaintiffs further alleged that the Bank breached these duties owed to Plaintiffs by (1) failing to follow directions given by Preston Jones as its sole and exclusive representative to maintain its suspense account or open a new Orient Mineral account, or alternatively to establish a $25,000 restricted Wil-Bao USD account, in all cases subject to his approval and control; (2) failing to be alert to suspicious circumstances and fraud on account opening and upon transfer of the full $3 million from the suspense account to the Wil-Bao USD account, relying on the interpretation of Yue, who would thereby possess exclusive control; (3) failing to take reasonable safeguards to prevent the unauthorized transfer of funds from the Wil-Bao USD account by Yue in light of the facts known at the Bank at the time of the transfers; and (4) failing to raise regulatory issues or restrictions that required that the transfer not be made, and that regulatory approval was required. The district court determined that the Bank had not breached any duty owed to Orient Mineral. That determination was not in error.
Plaintiffs alleged that the Bank conspired with Yue and Gaowa, among others, to defraud Plaintiffs. To prove civil conspiracy, five elements must be shown: (1) a combination of two or more persons, (2) an object to be accomplished, (3) a meeting of the minds on the object or course of action, (4) one or more unlawful, overt acts, and (5) damages as a proximate result thereof. [29] Alta Indus. Ltd. v. Hurst, 846 P.2d 1282, 1290 n. 17 (Utah 1993) (quotation omitted). Further, conspiracy to defraud requires proof of the underlying fraud. Gildea v. Guardian Title Co. of Utah, 970 P.2d 1265, 1271 (Utah 1998). The district court determined that Plaintiffs had failed to prove any of these required elements. We agree. In particular, there was no evidence presented that the Bank entered into any agreement with the other alleged co-conspirators. Moreover, as we held above, there is no evidence that the Bank acted with the intent to defraud Plaintiffs.
Plaintiffs also alleged that the Bank defrauded them by falsely representing, in the Bank's May 14, 1996 letter, that it would keep safe the funds Orient Mineral wired into its temporary account with the Bank, and would follow the instructions of Orient Mineral's representative. Under Utah law, to bring a claim sounding in fraud, a party must allege (1) that a representation was made (2) concerning a presently existing material fact (3) which was false and (4) which the representor either (a) knew to be false or (b) made recklessly, knowing that there was insufficient knowledge upon which to base such a representation, (5) for the purpose of inducing the other party to act upon it and (6) that the other party, acting reasonably and in ignorance of its falsity, (7) did in fact rely upon it (8) and was thereby induced to act (9) to that party's injury and damage. Gold Standard, Inc. v. Getty Oil Co., 915 P.2d 1060, 1066-67 (Utah 1996). Fraud must be shown by clear and convincing evidence. See Armed Forces Ins. Exch. v. Harrison, 70 P.3d 35, 43 (Utah 2003); Kuhre v. Goodfellow, 69 P.3d 286, 291 (Utah Ct.App.2003). The district court held that Plaintiffs had failed to establish the elements necessary to prove fraud by clear and convincing evidence. We agree. In particular, the record does not show that the Bank knowingly made any false representations of material facts.
Finally, Plaintiffs alleged that the Bank negligently misrepresented to Orient Mineral that it would keep safe Orient Mineral's funds, transferred into a temporary account with the Bank, and would follow Orient Mineral's representative's instructions in disbursing those funds. Utah courts have held that where one carelessly or negligently makes a false representation, expecting the other party to rely and act thereon, and the other party reasonably does so and suffers a loss in that transaction, the representor can be held liable for negligent misrepresentation. Smith v. Frandsen, 94 P.3d 919, 922-23 & 923 n. 1 (Utah 2004) (quotation, alterations omitted). The district court entered judgment for the Bank on this claim as well. It was not error to do so, for the same reasons discussed above. c. Conclusion The district court did not err in entering judgment for the Bank on Plaintiffs' claims based upon the Bank's transferring $400,000 to a bank in Utah. In light of this conclusion, we need not address Plaintiffs' assertions on appeal arguing that this court should either enter judgment in their favor or remand this case to a new judge.