Court Opinion

ID: 2783170
Source: CourtListenerOpinion
Date Created: 2015-03-02 16:05:30.642764+00
Date Added: 2024-06-11T11:02:43.875810
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                            File Name: 15a0161n.06

                                           No. 13-2731
                                                                                       FILED
                                                                                 Mar 02, 2015
                                                                             DEBORAH S. HUNT, Clerk
                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

V CARS, LLC, a Delaware limited liability       )
company,                                        )
                                                )
       Plaintiff-Appellant,                     )
                                                )
v.                                              )
                                                )
CHERY AUTOMOBILE CO., LTD., a                   )     ON APPEAL FROM THE UNITED
corporation organized under the laws of the     )     STATES DISTRICT COURT FOR THE
People’s Republic of China; YIN                 )     EASTERN DISTRICT OF MICHIGAN
TONGYAO, an individual Chinese national;        )
and KAN LEI, an individual German citizen,      )
residing in China.                              )
                                                )
       Defendants-Appellees.                    )

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

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

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

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

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

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

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

We therefore affirm.
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                               -2-
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

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

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

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

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

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

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

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

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

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

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

final award on November 19, 2012.

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

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

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

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

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

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

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

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

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

1
  As explained in Royal Indemnity Co. v. Wyckoff Heights Hospital, 953 F. Supp. 460, 462-63 (E.D.N.Y. 1996)
(internal quotation marks and citations omitted):

        The nerve center test looks to those factors that identify the place where overall corporate policy
        originates or the nerve center from which it radiates out to its constituent parts and from which its
        officers direct, control and coordinate all activities without regard to locale, in the furtherance of
        the corporate objectives.

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No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

decision, V Cars now appeals to this court.

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

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

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

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

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

                                                -4-
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

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

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

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

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

claim preclusion:

       [A] claim is barred by the res judicata effect of prior litigation if all of the
       following elements are present: (1) a final decision on the merits by a court of
       competent jurisdiction; (2) a subsequent action between the same parties or their
       privies; (3) an issue in the subsequent action which was litigated or which should
       have been litigated in the prior action; and (4) an identity of the causes of action.

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

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

claim-preclusion elements was met in this matter.

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

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

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

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

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

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

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

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

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

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

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

                                                 -5-
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

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

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

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

Both of these avenues of attack fail.

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

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

rigorously enforce agreements to arbitrate.’” Shearson/Am. Express, Inc. v. McMahon, 482 U.S.
220, 226 (1987) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24

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

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

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

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

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

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

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

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

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

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

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

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

again.”

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

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

                                                    -6-
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

       If the Legislature clearly states that a threshold limitation on a statute’s scope
       shall count as jurisdictional, then courts and litigants will be duly instructed and
       will not be left to wrestle with the issue. But when Congress does not rank a

                                                -7-
No. 13-2731, V Cars, LLC v. Chery Automobile Co., LLC

        statutory limitation on coverage as jurisdictional, courts should treat the
        restriction as nonjurisdictional in character.

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

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

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

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

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

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

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

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

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

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

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

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

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

International Arbitration Centre].”

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

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

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

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

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

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

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

district court.

                                                -8-