Court Opinion

ID: 4438758
Source: CourtListenerOpinion
Date Created: 2019-09-17 17:00:40.968122+00
Date Added: 2024-06-11T14:53:05.623088
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

ROYAL WULFF VENTURES LLC,                  No. 17-56367
Lead Plaintiff; ROBERT E. COOK, as
Trustee for the Robert E. Cook and            D.C. No.
Paula J. Brooks Living Trust Under         2:16-cv-01034-
An Agreement Dated 12/30/1998.               BRO-RAO
Lead Plaintiff,
                 Plaintiffs-Appellants,
                                             OPINION
                  v.

PRIMERO MINING CORP.; JOSEPH F.
CONWAY; DAVID BLAIKLOCK;
WENDY KAUFMAN; WADE NESMITH;
DAVID DEMERS; GRANT EDEY; BRAD
MARCHANT; ROBERT QUARTERMAIN;
MICHAEL RILEY; ROHAN HAZELTON;
TIMO JAURISTO; EDUARDO LUNA,
             Defendants-Appellees.

     Appeal from the United States District Court
         for the Central District of California
   Beverly Reid O’Connell, District Judge, Presiding

          Argued and Submitted March 4, 2019
                 Pasadena, California

                Filed September 17, 2019
2       ROYAL WULFF VENTURES V. PRIMERO MINING

    Before: Kim McLane Wardlaw and Mark J. Bennett,
       Circuit Judges, and William K. Sessions III, *
                      District Judge.

                  Opinion by Judge Wardlaw;
                   Dissent by Judge Bennett

                          SUMMARY **

          Securities Fraud / Act of State Doctrine

    The panel affirmed the district court’s dismissal of a
securities fraud action as barred by the act of state doctrine
because plaintiffs’ claims under the Securities Exchange Act
of 1934 would require a United States court to pass judgment
on the validity of a 2012 ruling by the Mexican tax authority.

    Plaintiffs alleged that defendants failed to disclose legal
deficiencies in the tax ruling and sold shares knowing those
deficiencies existed. After a change in government in
Mexico, a challenge to the ruling was filed, but it remained
valid under Mexican law.

    The act of state doctrine bars suit where there is an
official act of a foreign state performed within its own
territory and the relief sought or the defenses interposed in
the action would require a court in the United States to

    *
      The Honorable William K. Sessions III, United States District
Judge for the District of Vermont, sitting by designation.
    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
       ROYAL WULFF VENTURES V. PRIMERO MINING                3

declare invalid the foreign sovereign’s official act. The
panel held that plaintiffs’ claims would require a United
States court to determine whether the Mexican tax
authority’s ruling was properly issued under Mexican law.
To determine whether defendants misled investors with an
intent to deceive, a court would have to decide whether, and
to what extent, the ruling complied with Mexico’s Income
Tax Law, as well as various other Mexican laws governing
the ethical obligations of public servants in Mexico.
Agreeing with other circuits, the panel held that the district
court was not required to consider other factors, known as
the Sabbatino factors. Further, those factors would not have
weighed against application of the act of state doctrine. In
sum, the mandatory elements for applying the act of state
doctrine were satisfied, and the policies underlying the
doctrine weighed in favor of applying it to bar plaintiffs’
claims.

    Dissenting, Judge Bennett wrote that the majority
misapplied the act of state doctrine, and he believed that
defendants’ statements were materially false or misleading.
Judge Bennett wrote that, to find for plaintiffs, a court would
only need to determine whether, at the time the defendants
made the alleged misrepresentations, they knew that there
was a real risk that the Mexican government would nullify
the tax ruling—not whether the ruling was actually invalid.
Judge Bennett would reverse the district court’s rulings that
the act of state doctrine barred plaintiffs’ action and that
plaintiffs failed to adequately plead any materially false or
misleading statements.
4      ROYAL WULFF VENTURES V. PRIMERO MINING

                         COUNSEL

Richard W. Gonnello (argued), Katherine M. Lenahan, and
Megan M. Sullivan, Faruqi & Farugi LLP, New York, New
York, for Plaintiffs-Appellants.

Daniel M. Perry (argued) and James D. Whooley, Milbank
Tweed Hadley & McCloy LLP, Los Angeles, California, for
Defendants-Appellees.

                         OPINION

WARDLAW, Circuit Judge:

    We have long recognized that the courts of one country
will not sit in judgment of the acts of a foreign sovereign
committed within its own territory. The act of state doctrine
limits judicial interference in foreign relations by precluding
adjudication of the sovereign acts of other nations in United
States courts. Because Plaintiffs’ claims under the Securities
Exchange Act of 1934 would require a United States court
to pass judgment on the validity of a 2012 ruling by the
United Mexican States’ (Mexico) tax authority, the Servicio
de Administraciόn Tributaria, they are barred by the act of
state doctrine. We therefore affirm the district court’s
dismissal of Plaintiffs’ putative class action complaint.

                              I.

    Plaintiffs Royal Wulff Ventures LLC and Robert E.
Cook, as trustee of the Robert E. Cook and Paula J. Brooks
Living Trust Under An Agreement Dated 12/30/1988
(collectively Plaintiffs), filed a putative class action in the
Central District of California, alleging violations of the
Securities Exchange Act of 1934 (Exchange Act) against
       ROYAL WULFF VENTURES V. PRIMERO MINING                 5

Primero Mining Corporation (Primero) and twelve other
named defendants.

    According to the operative complaint, Primero is a
Canadian mining company whose principal asset at the
beginning of the class period (October 5, 2012 to February
3, 2016) was the San Dimas gold-silver mine in Tayoltita,
Durango, Mexico. The San Dimas mine “has a large silver
reserve [that] can be mined at a relatively low cost,” and was
previously owned and operated by two companies that are
not parties to the present action: Wheaton River Minerals
Ltd. and Goldcorp Inc. After Primero purchased the San
Dimas mine from Goldcorp Inc. in August 2010 for
$510 million, Primero’s Mexican subsidiary, Primero
Empresa Minera, S.A. de C.V. (PEM) owned and operated
the San Dimas mine. Primero also acquired a separate
subsidiary from Goldcorp Inc., which it renamed Silver
Trading Barbados.

    In connection with the August 2010 purchase of the San
Dimas mine, Primero also assumed the obligations of two
separate amended contracts: the Internal Silver Purchase
Agreement 2004 (Internal SPA) and External Silver
Purchase Agreement 2004 (External SPA). As a result, PEM
was contractually bound to sell to Silver Trading Barbados,
another Primero subsidiary, “the first 3.5 million ounces per
year of silver produced by the San Dimas mine, plus 50% of
the excess silver above this amount” at the market rate per
ounce of silver (Spot Price) for the first four years after
Primero acquired the San Dimas mine. Silver Trading
Barbados, in turn, was bound by these contracts to “sell that
silver to [unaffiliated Silver Wheaton (Caymans) Ltd.] at the
lesser of $4.04 per ounce (adjusted by 1% per year) and Spot
Prices.” Primero also agreed that after the first four years, it
would sell “the first 6 million ounces per year of silver
6      ROYAL WULFF VENTURES V. PRIMERO MINING

produced by the San Dimas mine, plus 50% of the excess
silver above this amount,” to Silver Wheaton (Caymans)
Ltd., “at the lesser of $4.20 per ounce (adjusted by 1% per
year) and Spot Prices for the life of the mine.” During this
period, PEM “computed income taxes in Mexico based on
selling all silver produced at the San Dimas mine to [Silver
Trading Barbados] at Spot Prices as provided in the Internal
SPA.” Thus, while Primero was required to sell the silver to
Silver Wheaton (Caymans) Ltd. at around $4 per ounce, it
was required under Mexican law to pay taxes at the
significantly higher Spot Prices at which PEM sold the silver
to its sister subsidiary. The complaint alleges that Mexico
then allowed six transfer pricing methods for transactions
with non-resident related parties, which PEM was required
to follow with respect to sales by PEM to Silver Trading
Barbados under Mexico’s Income Tax Law.

    During the existence of these contracts the Spot Price per
ounce of silver began to rise. At the outset of the
agreements, the price was around $6.47 per ounce, but by
March 2011, the Spot Price of silver had increased to nearly
$35 per ounce. The Internal SPA and External SPA
agreements thus led to a significant tax burden for Primero:
in the first quarter of 2011, for instance, Primero “recorded
a net loss of $7.895 million after paying $12.9 million in
income taxes on pre-tax income of just $5.05 million.”

    Plaintiffs allege that Primero devised a tax evasion
scheme to reduce this significant tax liability. This alleged
scheme involved two steps. First, Primero restructured its
company and amended the Internal SPA “so that the transfer
price (i.e., the sale price) from PEM to [its sister subsidiary,
Silver Trading Barbados] was no longer the significantly
higher Spot Price of silver, but rather the approximately $4
per ounce [unaffiliated Silver Wheaton (Caymans) Ltd.]
      ROYAL WULFF VENTURES V. PRIMERO MINING               7

Purchase Price.” And second, on October 17, 2011, a few
days after amending the Internal SPA, Primero submitted an
“advance pricing agreement” (APA) application to Mexico’s
tax authority, the Servicio de Administraciόn Tributaria
(SAT), seeking approval of its new transfer pricing
methodology resulting from its amendment to the Internal
SPA.

     According to the operative complaint, an APA is a
“prospective agreement regarding the taxpayer’s transfer
prices” through which “taxpayers [in Mexico can] avoid
future disputes over transfer pricing.” “APA Rulings are
valid for five years, spanning the fiscal year in which they
are acquired, the immediately preceding year, and the
following three fiscal years.” If an APA Ruling is not
properly grounded in law or fact, “it can be retroactively
annulled by Mexico’s Tax Court through a proceeding
initiated by the SAT, known as a juicio de lesividad.”

    The operative complaint also alleges that “APAs are
handled exclusively by the SAT’s Transfer Pricing Audit
Administration,” and that “[u]nder Mexican law, the head of
the Transfer Pricing Audit Administration, known as the
Central Administrator for Transfer Pricing Audits, is one of
a few people in the Transfer Pricing Administration who
may decide [APAs] and in any event is in charge of the
remaining few [people] who can [decide APAs].”

    As part of Primero’s APA application, the company
hired an attorney named Christian Natera, whose firm,
Natera Consultores, S.C., specialized in transfer pricing. At
the time, Christian Natera’s brother, Luis Natera, served as
the Central Administrator for Transfer Pricing Audits. In
this position, Christian Natera’s brother was “one of a few
people in the Transfer Pricing Administration who [could]
decide [APAs] and in any event [was] in charge of the
8     ROYAL WULFF VENTURES V. PRIMERO MINING

remaining few [people] who [could decide APAs].”
Through its APA application, Primero allegedly sought
approval of a transfer pricing methodology known as the
“comparable uncontrolled price” or “CUP” method, which
would allow it to pay taxes based on the approximately $4
per ounce unaffiliated Silver Wheaton (Caymans) Ltd.
Purchase Price for silver extracted from the San Dimas mine,
rather than the Spot Price. Plaintiffs allege that the CUP
method is one of the six Mexican-approved transfer pricing
methods; however, they also contend that Primero’s APA, as
actually approved, failed to comply with the CUP method.

    On October 5, 2012, Primero issued a press release
announcing that PEM “ha[d] received a positive ruling from
the Mexican tax authorities . . . .” The release described the
ruling: “The ruling confirms that [PEM] appropriately
records revenue and taxes from sales under the silver
purchase agreement at realized prices rather than spot prices
effective from August 6, 2010.” Thus, under the ruling, the
Mexican tax authority allowed PEM to pay taxes based on
the Silver Wheaton (Caymans) Ltd. Purchase Price, rather
than the Spot Price.        According to Plaintiffs, this
announcement “shocked the markets,” and resulted in
Primero’s stock increasing by 36%, closing at $7.37 per
share that same day.

    Following this positive ruling by the SAT, Primero made
a number of public statements that Plaintiffs allege were
misleading in violation of U.S. securities laws. The first set
of statements Plaintiffs identify concerns the effect that the
SAT’s 2012 APA Ruling would have on Primero’s cash flow
and tax position. While Plaintiffs catalogue a significant
number of these statements by Primero in their complaint,
the district court found the following statements
representative:
ROYAL WULFF VENTURES V. PRIMERO MINING            9

(1) Primero’s October 5, 2012 press release:
    “Primero Mining Corp. . . . announced
    today that [PEM] has received a positive
    ruling from the Mexican tax authorities
    (Servicio de Administracion Tributaria)
    on its Advance Pricing Agreement
    (“APA”) filing made in October 2011.
    The ruling confirms that [PEM]
    appropriately records revenues and taxes
    from sales under the silver purchase
    agreement at realized prices rather than
    spot prices effective from August 6,
    2010. Under Mexican tax law, an APA
    ruling is generally applicable for up to a
    five year period. For Primero this applies
    to the fiscal years 2010 to 2014.
    Assuming the Company continues to sell
    its silver from its San Dimas mine on the
    same terms and there are no changes in
    the application of Mexican tax laws
    relative to the APA ruling, the Company
    expects to pay taxes on realized prices for
    the life of the San Dimas mine.”

(2) Defendant Conway: “We had a
    significant tax burden, which we have
    just recently got cleared of, but more
    importantly I think as well now that that
    is done, what else are we doing?”

(3) Primero’s February 13, 2014 Form 6-K:
    “The Company has taken the position that
    if the Mexican tax laws relative to the
    APA ruling do not change and the
    Company does not change the structure
10     ROYAL WULFF VENTURES V. PRIMERO MINING

           of the silver purchase agreement, the
           ability of the Company to continue to pay
           taxes in Mexico based on realized prices
           of silver will continue for the life of the
           San Dimas mine. Should this judgment
           change, there would be a material change
           in both the income and deferred tax
           position recognized by the Company.”

    Plaintiffs also allege that Primero made various false and
misleading public statements representing that its quarterly
and annual financial statements were “prepared in
accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board,
and reflect management’s best estimates and judgment based
on information currently available.” In addition to making
these statements, Primero allegedly used its newly generated
wealth to acquire two companies, Cerro Resources NL and
Brigus Gold Corp., selling 41,340,664 of its own shares in
the process.

    But, according to Plaintiffs, several legal deficiencies in
the SAT’s 2012 APA Ruling were confirmed after a new
government administration came to power in Mexico. The
new government, led by President Enrique Peña Nieto and
members of the Institutional Revolutionary Party, began to
crack down on suspected tax avoidance schemes. Plaintiffs
allege that by November 2013, Luis Natera had been found
administratively liable for failing to recuse himself from
Primero’s APA application, and was temporarily suspended
from working in the public sector. Plaintiffs also allege that
in August 2015, the SAT filed a juicio de lesividad against
PEM seeking to retroactively nullify the 2012 APA Ruling.
When Primero issued a press release in February 2016
announcing that the SAT had served it with a juicio de
       ROYAL WULFF VENTURES V. PRIMERO MINING               11

lesividad challenging the 2012 APA Ruling, Primero’s
shares fell “$0.74 per share, or over 28%, to close at $1.89
per share on February 4, 2016.” However, although a juicio
de lesividad was filed, its contents, and the reasons for which
it was filed, are not public. Moreover, Plaintiffs do not
contest that the 2012 APA Ruling remains valid under
Mexican law.

      Although Plaintiffs concede that the contents of the
juicio de lesividad and the reasons for which it was filed are
not public, Plaintiffs allege “[u]pon information and belief
. . . that the juicio de lesividad was filed for the following
reasons: (i) Luis Natera improperly failed to recuse himself
from Primero’s APA application given that his brother,
Christian Natera, was an authorized representative of
[Primero;] (ii) the APA Ruling approved a transfer pricing
methodology other than the CUP methodologies that were
proposed by Primero[;] (iii) the APA Ruling did not conduct
the requisite comparison of the factors set forth in Article
215 of [Mexico’s Income Tax Law] that are used to
determine whether a transaction complies with the [arms
length principle;] and (iv) Primero’s proposed CUP
methodologies were flawed anyway because the transaction
that Primero attempted to use as its comparable independent
transaction . . . was actually a related party transaction and
was therefore an inappropriate comparison transaction . . . .”

    Plaintiffs allege that in failing to disclose these alleged
legal deficiencies in the 2012 APA Ruling, and in selling
Primero shares knowing these legal deficiencies existed,
Primero violated Rule 10b-5 and sections 10(b), 20A of the
Exchange Act. Plaintiffs also allege violations of Rule 10b-
5 and sections 10(b), 20(a) of the Exchange Act against
various “Officer Defendants,” as well as violations of
12     ROYAL WULFF VENTURES V. PRIMERO MINING

section 20(a) of the Exchange Act against various “Director
Defendants” and Defendant Joseph Conway.

    Primero moved to dismiss the Plaintiffs’ complaint
based on the act of state doctrine and failure to state a claim.
The district court dismissed the action as barred by the act of
state doctrine, and ruled in the alternative that Plaintiffs had
failed to adequately plead any materially false or misleading
statements. Plaintiffs timely appeal.

                              II.

    “[W]e review the district court’s decision concerning the
act of state doctrine de novo.” Liu v. Republic of China,
892 F.2d 1419, 1424 (9th Cir. 1989). “When the doctrine is
raised on a motion to dismiss, we take the allegations in the
complaint as true and view them in the light most favorable
to the plaintiffs.” Sea Breeze Salt, Inc. v. Mitsubishi Corp.,
899 F.3d 1064, 1068 (9th Cir. 2018) (citing Clayco
Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d
404, 406 (9th Cir. 1983) (per curiam)).

                              III.

    While the act of state doctrine was once viewed as “an
expression of international law, resting upon ‘the highest
considerations of international comity and expediency,’”
W.S. Kirkpatrick & Co. v. Envtl. Tectonics Corp., Int’l,
493 U.S. 400, 404 (1990) (quoting Oetjen v. Cent. Leather
Co., 246 U.S. 297, 303–04 (1918)), we have come to view
the doctrine “as a consequence of domestic separation of
powers, reflecting ‘the strong sense of the Judicial Branch
that its engagement in the task of passing on the validity of
foreign acts of state may hinder’ the conduct of foreign
affairs,” id. (quoting Banco Nacional de Cuba v. Sabbatino,
376 U.S. 398, 423 (1964)).
       ROYAL WULFF VENTURES V. PRIMERO MINING                13

    “As a doctrinal matter, the ‘classic statement’ of the act
of state doctrine is that ‘[e]very sovereign State is bound to
respect the independence of every other sovereign State, and
the courts of one country will not sit in judgment on the acts
of the government of another done within its own territory.’”
Sea Breeze Salt, 899 F.3d at 1069 (quoting Credit Suisse v.
U.S. Dist. Court for Cent. Dist. of Cal., 130 F.3d 1342, 1346
(9th Cir. 1997)). “In its modern formulation, the doctrine
bars suit where ‘(1) there is an official act of a foreign
sovereign performed within its own territory; and (2) the
relief sought or the defense interposed [in the action would
require] a court in the United States to declare invalid the
[foreign sovereign’s] official act.’” Id. (alterations in
original) (quoting Credit Suisse, 130 F.3d at 1346). “[E]ven
when [these] two mandatory elements are satisfied, courts
may appropriately look to additional factors [i.e., the policies
underlying the act of state doctrine] to determine whether
application of the act of state doctrine is justified.” Id.
at 1072–73 (citing W.S. Kirkpatrick, 493 U.S. at 409).

   A. Invalidation of an Official Act of a Foreign
      Sovereign

    The district court correctly held that all of Plaintiffs’
Exchange Act claims are barred by the act of state doctrine
because they would require a United States court to
determine whether the Mexican tax authority’s 2012 APA
Ruling was properly issued under Mexican law. Plaintiffs
do not challenge the conclusion that the 2012 APA Ruling
issued by Mexico’s tax authority constitutes a “public and
governmental act[] of [a] sovereign state,” taken within its
own territory, Alfred Dunhill of London, Inc. v. Republic of
Cuba, 425 U.S. 682, 695 (1976) (plurality opinion), but
instead argue that the act of state doctrine applies only where
United States courts would be required to declare the foreign
14     ROYAL WULFF VENTURES V. PRIMERO MINING

government’s action “null and void,” not unlawful in any
other way. But our precedent dictates otherwise. We have
long recognized that the act of state doctrine applies where
resolution of a plaintiff’s claims would require a court to
evaluate a foreign sovereign’s compliance with its own laws.
See West v. Multibanco Comermex, S.A., 807 F.2d 820, 828
(9th Cir. 1987) (“The evaluation by one sovereign of foreign
officers’ compliance with their own laws would, at least in
the absence of the foreign sovereign’s consent, intrude upon
that state’s coequal status.”).

    In Kirkpatrick, the Supreme Court rejected application
of the act of state doctrine because “the factual predicate for
application . . . d[id] not exist.” 493 U.S. at 405. It went on
to state: “Nothing in the present suit requires the Court to
declare invalid, and thus ineffective . . . the official act of a
foreign sovereign.” Id. (citation omitted). The Court further
reasoned that “[a]ct of state issues only arise when a court
must decide—that is, when the outcome of the case turns
upon—the effect of official action by a foreign sovereign.”
Id. at 406; see also Sabbatino, 376 U.S. at 415 n.17 (“An
inquiry by United States courts into the validity of an act of
an official of a foreign state under the law of that state would
not only be exceedingly difficult but, if wrongly made,
would be likely to be highly offensive to the state in
question.”).

    Plaintiffs rely on Kirkpatrick to support their argument
that the act of state doctrine is inapplicable here because their
claims do not require United States courts to decide whether
the Mexican tax authority’s 2012 APA Ruling was valid. In
Kirkpatrick, plaintiffs brought federal and state civil RICO
claims, as well as claims under the Robinson-Patman Act of
1936, 15 U.S.C. § 13, against a competitor which allegedly
paid bribes to Nigerian officials in order to obtain a contract
       ROYAL WULFF VENTURES V. PRIMERO MINING                 15

from the Nigerian government. 493 U.S. at 401–04. The
Kirkpatrick defendants argued that the facts required to
demonstrate they paid bribes to Nigerian officials to obtain
contracts would also demonstrate that the contracts violated
Nigerian law. Id. at 406. The Court disagreed, holding that
“[r]egardless of what the court’s factual findings may
suggest as to the legality of the Nigerian contract, its legality
is simply not a question to be decided in the present suit, and
there is thus no occasion to apply the rule of decision that the
act of state doctrine requires.” Id. The Court cited Sharon
v. Time, Inc., 599 F. Supp. 538, 546 (S.D.N.Y. 1984), to
emphasize that “[t]he issue in this litigation is not whether
[the alleged] acts are valid, but whether they occurred.” See
W.S. Kirkpatrick, 493 U.S. at 406.

    Here, unlike in Kirkpatrick, to conclude that Primero
misled investors, a court must decide whether, and to what
extent, the 2012 APA Ruling complies with Mexico’s
Income Tax Law, as well as various other Mexican laws
governing the ethical obligations of public servants in
Mexico. Here, it is not simply a question of whether a given
act—in Kirkpatrick a bribe—occurred; the questions
Plaintiffs raise are as to the legality of the 2012 APA Ruling
itself, and what defendants knew about its validity or not.

    To prevail on their securities fraud claims under section
10(b) and Rule 10b-5, Plaintiffs must show (1) a material
misrepresentation or omission; (2) scienter; (3) a connection
between the misrepresentation or omission and the purchase
or sale of a security; (4) reliance; (5) economic loss; and
(6) loss causation. See Or. Pub. Emps. Ret. Fund v. Apollo
Grp. Inc., 774 F.3d 598, 603 (9th Cir. 2014) (citing
Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, Inc., 552 U.S.
148, 157 (2008)). “[S]cienter refers to ‘a mental state
embracing intent to deceive, manipulate, or defraud,’”
16    ROYAL WULFF VENTURES V. PRIMERO MINING

Merck & Co., Inc. v. Reynolds, 559 U.S. 633, 648 (2010)
(citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12
(1976)), and may also refer to deliberate recklessness, “a
form of intentional or knowing misconduct.” Zucco
Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th
Cir. 2009) (citation omitted). Plaintiffs accordingly must
show that Primero “made a material misstatement with an
intent to deceive—not merely innocently or negligently.”
Merck & Co., 559 U.S. at 648–49 (citing Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 319 (2007)).
Plaintiffs’ claims under sections 20A, 20(a) of the Exchange
Act, in turn, depend on predicate violations of either section
10(b) or Rule 10b-5. See In re VeriFone Holdings, Inc. Sec.
Litig., 704 F.3d 694, 710–11 (9th Cir. 2012) (“To prevail on
its claims for violations of § 20A, [Plaintiff] must first
sufficiently allege a violation of § 10(b) or Rule 10b-5.”
(citing Lipton v. Pathogenesis Corp., 284 F.3d 1027, 1035
n.15 (9th Cir. 2002))); see also Zucco Partners, LLC v.
Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009) (“Section
20(a) claims may be dismissed summarily . . . if a plaintiff
fails to adequately plead a primary violation of section
10(b).”). In total, Plaintiffs identify two categories of
allegedly materially misleading statements: (1) statements
about the 2012 APA Ruling and its impact on Primero’s
finances; and (2) statements that Primero’s quarterly and
annual statements were prepared in accordance with
International Financial Reporting Standards. Plaintiffs
allege that in making both categories of statements,
defendants knowingly failed to disclose legal deficiencies
under Mexican tax law in the 2012 APA Ruling that could
render it vulnerable to non-renewal or nullification. The
logic is compelling: United States courts would be required
to decide whether there were in fact legal deficiencies under
Mexican law that would nullify the APA Ruling—in other
words invalidate it—that could be known and were known
        ROYAL WULFF VENTURES V. PRIMERO MINING                        17

as such to defendants when they made their public
statements. By contrast, in Kirkpatrick, United States courts
were not called upon to decide whether the Nigerian contract
was legally deficient under Nigerian law due to the bribes;
all they were asked to decide is whether bribes were made. 1

    As Plaintiffs also acknowledge, the 2012 APA Ruling
that they contend is so legally flawed as to render Primero’s
statements about it misleading, remains lawful and valid
under Mexican law. And although Plaintiffs allege that the
Mexican government has filed a juicio de lesividad to nullify
the 2012 APA Ruling, according to the complaint those
proceedings are ongoing, and there are no allegations that
the Mexican government has ruled on its juicio de lesividad.

    Under these circumstances, allowing Plaintiffs’
Exchange Act claims to proceed would require “[t]he
evaluation by one sovereign of foreign officers’ compliance
with their own laws . . . in the absence of the foreign
sovereign’s consent,” because “[t]he acts or omissions of the
sovereign,” and the compliance of Mexican officials with
Mexican law “is the determinative issue on [Plaintiffs’]
claim[s].” West, 807 F.2d at 828. For instance, Plaintiffs
allege that the 2012 APA Ruling was vulnerable to legal

    1
       The dissent seems to misapprehend this aspect of a section 10(b)
and Rule 10b-5 claim. To prevail, Plaintiffs must demonstrate an
intentional or knowing material misleading fact or omission. See Merck
& Co., 559 U.S. at 648–49. The only way Primero’s statements were
knowingly or intentionally misleading is if the alleged unethical behavior
of a Mexican official rendered Mexico’s 2012 APA Ruling invalid.
Even taking Plaintiffs’ allegations as true, and assuming that Luis Natera
acted unethically, Plaintiffs still must prove both that this conduct
invalidated the 2012 APA Ruling under Mexican law as a result and that
Primero knew that the APA Ruling was so invalidated at the time of its
statements.
18       ROYAL WULFF VENTURES V. PRIMERO MINING

challenge, and could therefore be nullified, under two
separate articles of Mexico’s Income Tax Law, as well as at
least two other articles of Mexico’s conflict of interest laws.
But for a court to credit Plaintiffs’ theories, and conclude
that Primero knowingly failed to disclose these alleged
material legal deficiencies, that court will necessarily be
required to determine whether those alleged deficiencies
were in fact present in the APA proceedings, should have led
the Mexican tax authority to disapprove the APA in the first
place, or resulted in an APA Ruling that was subject to
nullification. This sort of review of a foreign government’s
decision is precisely what the act of state doctrine precludes.
Because Plaintiffs’ Exchange Act claims would require a
court to evaluate Mexico’s tax authority’s compliance with
Mexican law, their claims would require “a court in the
United States to declare invalid the official act of a foreign
sovereign performed within its own territory.” W.S.
Kirkpatrick, 493 U.S. at 405. The second element for
application of the act of state doctrine is therefore met. 2

     2
       While the dissent focuses extensively on the history of the Supreme
Court’s act of state doctrine jurisprudence, it fails to engage in the
doctrinal analysis required in this case. As we have previously
recognized, the act of state doctrine bars suit where “(1) there is an
official act of a foreign sovereign performed within its own territory; and
(2) the relief sought or the defense interposed [in the action] would
require a court in the United States to declare invalid the [foreign
sovereign’s] official act.” Sea Breeze Salt, 899 F.3d at 1069 (alterations
in original) (citation omitted). Here, applying our precedent, we hold
that the second element of the act of state doctrine is satisfied where the
validity of a public and governmental act—Mexico’s 2012 APA
Ruling—under Mexico’s own, myriad applicable laws is outcome-
determinative of Plaintiffs’ claims. See West, 807 F.2d at 828. This
holding is squarely consistent with W.S. Kirkpatrick, which affirmed,
rather than reversed, the principle acknowledged in West that the act of
state doctrine applies where a court must decide the legality of a foreign
        ROYAL WULFF VENTURES V. PRIMERO MINING                         19

    B. The Sabbatino Factors

    In Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398
(1964), the Supreme Court acknowledged three factors for
courts to consider to ensure that application of the act of state
doctrine “reflect[s] the proper distribution of functions
between the judicial and political branches of the
Government on matters bearing upon foreign affairs.”
376 U.S. at 427–28. First, “the greater the degree of
codification or consensus concerning a particular area of
international law, the more appropriate it is for the judiciary
to render decisions regarding it . . . .” Id. at 428. Second,
“the less important the implications of an issue are for our
foreign relations, the weaker the justification for exclusivity
in the political branches.” Id. And finally, “[t]he balance of
relevant considerations may also be shifted if the
government which perpetrated the challenged act of state is
no longer in existence . . . .” Id. As the Court later stated,

sovereign’s actions under that sovereign’s laws. See W.S. Kirkpatrick,
493 U.S. at 406.

     The dissent further asserts that Plaintiffs’ Exchange Act claims do
not require us to determine the legality of the 2012 APA Ruling. See,
e.g., Dissent at 34 (“Plaintiffs need not show . . . that the 2012 APA
Ruling was illegal or invalid.”). But in order for us to determine whether
or not Defendants’ statements or omissions about the legal validity of the
2012 APA Ruling were materially false or misleading, we must
necessarily determine in the first instance (1) whether the 2012 APA
Ruling did in fact suffer from legal defects under Mexican law, and
(2) whether Defendants’ statements or omissions accurately reflected
those purported legal defects under Mexican law. Despite its exhaustive
review, the dissent fails to explain how Plaintiffs’ claims can be resolved
without first determining whether the 2012 APA Ruling suffered from
legal deficiencies under Mexican law, and similarly fails to show how
the second element of the act of state doctrine is not met where a foreign
sovereign’s compliance with its own laws is the determinative issue on
Plaintiffs’ claims, as here.
20     ROYAL WULFF VENTURES V. PRIMERO MINING

“in Sabbatino . . . we observed that sometimes, even though
the validity of the act of a foreign sovereign within its own
territory is called into question, the policies underlying the
act of state doctrine may not justify its application.” W.S.
Kirkpatrick, 493 U.S. at 409.

    Plaintiffs contend that the district court erred by failing
to conduct an analysis of the Sabbatino factors. But neither
our circuit nor the Supreme Court has required explicit
consideration of the Sabbatino factors in properly applying
the act of state doctrine. See Sea Breeze Salt, 899 F.3d
at 1072–73 (“[E]ven when the two mandatory elements are
satisfied, courts may appropriately look to additional factors
to determine whether application of the act of state doctrine
is justified.” (emphasis added) (citing W.S. Kirkpatrick,
493 U.S. at 409)). This accords with the approach taken by
our sister circuits. See, e.g., Konowaloff v. Metro. Museum
of Art, 702 F.3d 140, 146 (2d Cir. 2012) (“[A] court may
properly grant a motion to dismiss on the basis of [the act of
state doctrine] when its applicability is shown on the face of
the complaint.”), cert. denied, 570 U.S. 906 (2013); see also
World Wide Minerals, Ltd. v. Republic of Kazakhstan,
296 F.3d 1154, 1164–67 (D.C. Cir. 2002) (affirming the
district court’s dismissal under the act of state doctrine
where the district court did not address the Sabbatino factors,
but the case was “plainly [one] in which the policies
underlying the doctrine ‘justify its application’” (quoting
W.S. Kirkpatrick, 493 U.S. at 409)), cert. denied, 537 U.S.
1187 (2003). Because this is a case in which the policies
underlying the act of state doctrine justify its application, the
district court did not err in declining to specifically address
each Sabbatino factor. And even if the district court had
gone on to address those factors, they would not have
weighed against applying the act of state doctrine.
       ROYAL WULFF VENTURES V. PRIMERO MINING               21

    With respect to “the degree of codification or consensus
concerning a particular area of international law,”
Sabbatino, 376 U.S. at 428, Plaintiffs argue that there is a
high degree of international consensus as to the appropriate
use of the arm’s length principle for transfer pricing
methodologies, rendering review of the 2012 APA Ruling
appropriate. While Plaintiffs cite to guidelines on transfer
pricing published by the Organisation for Economic Co-
operation and Development (OECD) in support of their
claim of international consensus on the arm’s length
principle, these guidelines do not affect the issue underlying
Plaintiffs’ claims: that resolving their claims would require
a court to determine whether the Mexican government
violated its own tax laws in issuing the 2012 APA Ruling.
Plaintiffs’ assertion that the 2012 APA Ruling failed to
comply with the arm’s length principle is simply a
rephrasing of their assertion that the 2012 APA Ruling failed
to comply with Mexico’s Income Tax Law. The SAT, in its
ruling, approved of a transfer pricing methodology for PEM,
concluding that this methodology complied with Article 215
of Mexico’s Income Tax Law. Article 215, according to
Plaintiffs, “sets forth the [arm’s length principle], providing
that corporate taxpayers dealing with foreign related parties
are required to determine their gross income and allowable
deductions by using the prices and consideration that would
have been used with or between independent parties in
comparable transactions.” As such, guidelines published by
the OECD as to the appropriate use of the arm’s length
principle have no effect on the requirement inherent in
Plaintiffs’ claims that a court in the United States reevaluate
the Mexican government’s compliance with its own tax
laws. Because of this, the degree of international consensus
as to the arm’s length principle does not affect our
conclusion that the act of state doctrine applies.
22     ROYAL WULFF VENTURES V. PRIMERO MINING

     Second, Plaintiffs’ claims carry significant implications
for U.S. foreign relations because the subject of the 2012
APA Ruling is how Mexico taxes transfers of silver, a
natural resource extracted in Mexico. We have repeatedly
recognized that where an action challenges a foreign
sovereign’s decisions about how to exploit its own natural
resources, that action “would be inherently offensive to the
principle of co-equality among international sovereigns[.]”
Sea Breeze Salt, 899 F.3d at 1073; see also Int’l Ass’n of
Machinists and Aerospace Workers, (IAM) v. OPEC,
649 F.2d 1354, 1361 (9th Cir. 1981) (“[T]he granting of any
relief would in effect amount to an order from a domestic
court instructing a foreign sovereign to alter its chosen
means of allocating and profiting from its own valuable
natural resources.”). Here, were a United States court to
review the 2012 APA Ruling, and attempt to determine
whether the 2012 APA Ruling complied with Mexico’s tax
laws, it would be instructing a foreign sovereign both on how
it should tax and regulate silver extracted in Mexico, and on
how to do so in compliance with the foreign sovereign’s own
laws. The “very nature” of that action would raise “[t]he
possibility of insult to the [Mexican government] and of
interference with the efforts of the political branches to seek
favorable relations with [the Mexican government],”
directly supporting application of the act of state doctrine.
IAM, 649 F.2d at 1361; see also Sabbatino, 376 U.S. at 415
n.17 (“An inquiry by United States courts into the validity of
an act of an official of a foreign state under the law of that
state . . . if wrongly made[] would be likely to be highly
offensive to the state in question.”).

    Third, as to whether “[t]he balance of relevant
considerations may . . . be shifted if the government which
perpetuated the challenged act of state is no longer in
existence,” Sabbatino, 376 U.S. at 428, Plaintiffs argue that
       ROYAL WULFF VENTURES V. PRIMERO MINING               23

a change in presidential administrations since the 2012 APA
Ruling issued counsels against applying the doctrine. But a
change in presidential administrations and policies does not
mean that the government is no longer in existence, and
Plaintiffs cite no authority suggesting that a mere change in
presidential administrations satisfies the third Sabbatino
factor. Here, the challenged act of state, the government, and
the institution that took the challenged act, the SAT, remain
intact. Cf. Sea Breeze Salt, 899 F.3d at 1074 (“[I]t is
undisputed that the government of Mexico continues to
exist.”). Furthermore, Plaintiffs’ complaint alleges that the
new administration has initiated proceedings to resolve the
same issues at the heart of their claims: whether, and to what
extent, the 2012 APA Ruling complied with Mexico’s tax
laws. That inquiry counsels against the courts of a foreign
nation interfering with Mexico’s sovereign interest in
determining the SAT’s compliance with Mexican tax law.
Therefore, the change in presidential administrations
Plaintiffs identify does not weigh against applying the act of
state doctrine.

     Finally, Plaintiffs argue that the district court erred in
failing to consider whether the challenged act of state was in
the public interest. While we have recognized in other
contexts that “[o]ne factor we must consider [in deciding
whether to apply the act of state doctrine] is whether the
foreign state was acting in the public interest,” Liu, 892 F.2d
at 1432, we have not mandated that courts consider the
public interest in determining whether the act of state
doctrine applies. See, e.g., Credit Suisse, 130 F.3d at 1346–
48 (applying act of state doctrine without considering
whether a foreign sovereign’s actions were taken in its
public’s interest); see also Sea Breeze Salt, 899 F.3d at
1068–74 (same). Plaintiffs’ argument is that we should
decline to apply the act of state doctrine because Luis
24       ROYAL WULFF VENTURES V. PRIMERO MINING

Natera’s issuance of the 2012 APA Ruling was not in the
public interest, because “it violated Mexican law . . . and
deprived Mexico of legitimate tax revenue that could have
been used for its populace.”           But to deem those
considerations as precluding application of the act of state
doctrine would turn the doctrine on its head. These are
precisely the types of domestic issues that Mexico should be
able to resolve without interference by foreign courts. Thus,
whether the 2012 APA Ruling advanced Mexico’s public
interest does not counsel against applying the act of state
doctrine in this case.

    In sum, the mandatory elements for applying the act of
state doctrine are satisfied, and the policies underlying the
doctrine weigh in favor of applying it to bar Plaintiffs’
claims. 3

                                   IV.

    For the foregoing reasons, we affirm the district court’s
dismissal under the act of state doctrine, and decline to
reconsider whether a tax ruling by the Mexican government,
that remains valid in Mexico, complied with Mexico’s tax
laws.

     AFFIRMED.

     3
      Because we conclude that the act of state doctrine applies to bar all
of Plaintiffs’ claims, we need not consider whether the district court
correctly dismissed this action on the alternative ground that Plaintiffs
failed to adequately plead any materially false or misleading statements.
       ROYAL WULFF VENTURES V. PRIMERO MINING                 25

BENNETT, Circuit Judge, dissenting:

    “In every case in which we have held the act of state
doctrine applicable, the relief sought or the defense
interposed would have required a court in the United States
to declare invalid the official act of a foreign sovereign
performed within its own territory.” W.S. Kirkpatrick & Co.
v. Envtl. Tectonics Corp., Int’l, 493 U.S. 400, 405 (1990). At
issue here is whether Defendants knowingly made materially
false or misleading statements, including non-disclosure of
material information. Contrary to the majority’s assertion,
the validity of the 2012 APA Ruling (the “Ruling”) is not at
issue; Plaintiffs hardly need to ask this court to invalidate the
Ruling—the Mexican government is doing that already.

    But, to be clear, Plaintiffs have not sought a
determination that the APA Ruling is invalid, and such a
determination is unnecessary for them to prevail. To find for
Plaintiffs, a court would only need to determine whether, at
the time the Defendants made the alleged
misrepresentations, they knew that there was a real risk that
the Mexican government would nullify the Ruling—not
whether the Ruling was actually invalid.

    Because the majority’s opinion misapplies the act of
state doctrine, and because I believe that Defendants’
statements were materially false or misleading, I respectfully
dissent.

                               I.

    The linchpin of the act of state doctrine has always been
an unwillingness to countermand the act of a foreign
sovereign. See Blad v. Bamfield, 36 Eng. Rep. 992, 993 (Ch.
1674) (refusing to reverse Danish seizure of an English
ship). The doctrine originated in Seventeenth Century
26    ROYAL WULFF VENTURES V. PRIMERO MINING

England as an extension of sovereign immunity for officials
acting on the sovereign’s behalf. Michael J. Bazyler,
Abolishing the Act of State Doctrine, 134 U. Pa. L. Rev. 325,
330 n.23 (1986) (recognizing Blad v. Bamfield as the
common law origin of the act of state doctrine); see also,
e.g., Nabab of Arcot v. East India Co., (1793) 4 Brown Ch.
181 (holding that the East India Company could not be sued
because it acted with sovereign authority).

    The Supreme Court first recognized the doctrine in The
Schooner Exchange v. McFaddon, 11 U.S. 116, 122 (1812),
in which the Court refused to set aside the French seizure of
a ship on the orders of Napoleon: “We do not justify that
decree, but we say that whenever the act is done by a
sovereign in his sovereign character, it becomes a matter of
negotiation, or of reprisals, or of war, according to its
importance.” Following The Schooner Exchange, the Court
built upon this sovereign immunity corollary in cases
involving property disputes arising from sovereign actions
during times of war. See, e.g., United States v. Rice, 17 U.S.
246 (1819) (holding that no taxes due on goods imported by
the British during the War of 1812); Williams v. Bruffy,
96 U.S. 176 (1877) (refusing to uphold Confederate States’
sequestration of debts to Union loyalists as the act of an
independent nation).

    In 1897, the Supreme Court formally articulated the act
of state doctrine: “Every sovereign state is bound to respect
the independence of every other sovereign state, and the
courts of one country will not sit in judgment on the acts of
the government of another, done within its own territory.”
Underhill v. Hernandez, 168 U.S. 250, 252 (1897). The
Court dismissed tort claims for false imprisonment by a
Venezuelan general during an 1892 revolution, finding that
“[t]he acts complained of were the acts of a military
        ROYAL WULFF VENTURES V. PRIMERO MINING                      27

commander representing the authority of the revolutionary
party as a government, which afterwards succeeded, and was
recognized by the United States.” Id. at 254.

    Since Underhill, the Supreme Court has applied the act
of state doctrine in only two situations: 1) actions seeking to
reverse a foreign land grant, Shapleigh v. Mier, 299 U.S.
468, 471 (1937); and 2) actions seeking to reverse a
sovereign seizure of property, Oetjen v. Cent. Leather Co.,
246 U.S. 297 (1918) (Mexican general’s seizure of goods
during revolution); Ricaud v. Am. Metal Co., 246 U.S. 304
(1918) (same); United States v. Belmont, 301 U.S. 324
(1937) (Soviet nationalization of property); United States v.
Pink, 315 U.S. 203 (1942) (same); Banco Nacional de Cuba
v. Sabbatino, 376 U.S. 398 (1964) (Cuban expropriation
decree). 1 In all of these cases, plaintiffs asked the Court to
set aside the acts of foreign sovereigns, and in all, the Court
refused.

    Oetjen and Ricaud, companion cases, involved the
seizure of property by Mexican generals during a revolution.
In each, a general seized property for the war effort and then
sold it to American third parties who re-sold it in turn.
Plaintiffs sued the new owners, claiming title and asking the
Court to invalidate the sales. The Court refused, invoking the
act of state doctrine: “[W]e have a duly commissioned
military commander of what must be accepted as the
legitimate government of Mexico, in the progress of a
revolution, and when conducting active independent
operations, seizing and selling in Mexico, as a military

    1
       That nearly all the Supreme Court cases applying the act of state
doctrine involved seizures of property—sovereign acts far different from
those involved here—should have given the majority immediate pause.
It didn’t.
28       ROYAL WULFF VENTURES V. PRIMERO MINING

contribution, the property in controversy, at the time owned
and in the possession of a citizen of Mexico.” Oetjen,
246 U.S. at 303.

    In 1937, the Court similarly refused to invalidate a
Mexican land grant, holding that “the [Mexican]
expropriation decree, if lawful and effective under the
Constitution and laws of Mexico, must be recognized as
lawful and effective under the laws of the United States, the
sovereignty of Mexico at the time of that decree being
exclusive of any other.” Shapleigh, 299 U.S. at 471. The
Court examined the validity of the expropriation decree
under Mexican law when it was granted: “What concerns us
here and now is the efficacy of the decree under the land law
of Mexico at the date of its proclamation to extinguish
hostile claims of ownership and pass the title to another.” Id.
The Court discussed evidence on Mexican law from
“[e]xperts testifying . . . [as to the] the Constitution of the
Federal Republic (Constitution of Mexico, 1917, Art. 27),
and . . . the Agrarian Law of the State of Chihuahua,” id. at
473, as well as “[o]pinions of the Supreme Court of
Mexico,” id. at 474. 2 The Court found the expropriation
decree validly extinguished competing claims under
Mexican law when it was made and thus was “proof against
assault.” Id. at 473.

    The last time the Court invoked the act of state doctrine
was more than fifty years ago, in Sabbatino, when it refused
to reverse a Cuban expropriation decree. The Court limited

     2
      Here, as in Shapleigh, the district court may have needed to hear
expert testimony about the laws of Mexico (in accord with Rule 44.1 of
the Federal Rules of Civil Procedure). But taking that testimony to
determine whether there were false or misleading statements is a far cry
from adjudicating the acts of a foreign sovereign.
       ROYAL WULFF VENTURES V. PRIMERO MINING                29

its holding to property: “[R]ather than laying down or
reaffirming an inflexible and all-encompassing rule in this
case, we decide only that the [Judicial Branch] will not
examine the validity of a taking of property within its own
territory by a foreign sovereign government, extant and
recognized by this country at the time of suit[.]” 376 U.S.
at 428. Congress disagreed and less than a year later declared
that seizure of property in violation of international law does
not implicate the act of state doctrine. Foreign Assistance
Act of 1964 (Second Hickenlooper Amendment), Pub. L.
No. 88-633, 77 Stat. 386 (current version at 22 U.S.C.
§ 2370(e)(2)).

    Sabbatino established three principles for the modern act
of state doctrine. First, the doctrine is a “principle of
decision.” 376 U.S. at 427. Second, it has constitutional
underpinnings based on institutional competency but neither
the Constitution nor international law mandate it. Id. at 423.
And third, applying the doctrine requires a balancing test
because “the less important the implications of an issue are
for our foreign relations, the weaker the justification for
exclusivity in the political branches.” Id. at 428.

    Since the 1960s, the Court has consistently found the act
of state doctrine inapplicable, either because the policies
underlying the act do not justify its application, First Nat.
City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 769–
70 (1972) (plurality op.) (finding act of state doctrine did not
bar counterclaim against Cuba where the Department of
State advised the Court the doctrine need not be applied),
because no state act occurred, Alfred Dunhill v. Republic of
Cuba, 425 U.S. 682 (1976) (plurality op.) (suggesting there
may be a commercial exception to the doctrine), or because
undermining a foreign act did not require the court to
invalidate it, W.S. Kirkpatrick, 493 U.S. at 409.
30    ROYAL WULFF VENTURES V. PRIMERO MINING

    “The act of state doctrine is not some vague doctrine of
abstention but a principle of decision.” Id. at 406 (quoting
Sabbatino, 376 U.S. at 427) (emphasis in W.S. Kirkpatrick).
In W.S. Kirkpatrick, the plaintiff brought state and federal
RICO claims alleging that the defendants bribed Nigerian
officials to obtain a lucrative government contract. A
unanimous Supreme Court held that litigating the Nigerian
officials’ misconduct could not trigger the act of state
doctrine, even though such misconduct could invalidate the
award of the state contract under Nigerian law. Id. at 406
(explaining that the doctrine did not apply even if “factual
findings . . . may cast doubt upon the validity of foreign
sovereign acts”).

    Before 1991, lower courts had been applying the act of
state doctrine any time an inquiry would “impugn or
question the nobility of a foreign nation’s motivation.”
Clayco Petroleum Corp. v. Occidental Petroleum Corp.,
712 F.2d 404, 407 (9th Cir. 1983). The facts of Clayco were
nearly identical to those in W.S. Kirkpatrick—plaintiffs
claimed that defendants paid bribes to foreign officials to
secure “valuable off-shore oil concession[s].” Clayco,
712 F.2d at 405. Since “the very existence of plaintiffs’
claim depend[ed] upon establishing that the motivation for
the sovereign act was bribery,” we dismissed the case. Id.
at 407. Following that principle, a few years later we
established that “[t]he evaluation by one sovereign of foreign
officers’ compliance with their own laws would, at least in
the absence of the foreign sovereign’s consent, intrude upon
that state’s coequal status.” West v. Multibanco Comermex,
S.A., 807 F.2d 820, 828 (9th Cir. 1987) (citing e.g., Clayco,
712 F.2d at 406–407). The majority relies on this
interpretation of the act of state doctrine. Maj. op. at 18.
       ROYAL WULFF VENTURES V. PRIMERO MINING               31

    The district court in W.S. Kirkpatrick relied on this same
interpretation, citing Clayco when it dismissed the plaintiff’s
claims. Envtl. Tectonics Corp. v. W.S. Kirkpatrick & Co.,
Inc. (Kirkpatrick District Court Decision), 659 F. Supp.
1381, 1393 (D.N.J. 1987). The district court determined that
it could not inquire into the “validity of an act by a foreign
government.” Id. at 1392. Thus, plaintiff’s case was barred
because “an indispensable ingredient of [plaintiff’s] cause of
action requires establishing the involvement of the
Government of Nigeria, its officials or representatives in
corrupt activities which violate Nigerian law.” Id. at 1394.

    When it took up W.S. Kirkpatrick, the Supreme Court
directly overruled this interpretation of the act of state
doctrine: “[It] does not establish an exception for cases and
controversies that may embarrass foreign governments, but
merely requires that, in the process of deciding, the acts of
foreign sovereigns taken within their own jurisdictions shall
be deemed valid.” 493 U.S. at 409. Undermining the validity
of a state act (bribery was illegal in Nigeria) differs from
invalidating it: “Neither the claim nor any asserted defense
requires a determination that Nigeria’s contract with
Kirkpatrick International was, or was not, effective . . .
[r]egardless of what the court’s factual findings may suggest
as to the legality of the Nigerian contract.” Id. at 406
(emphasis added). That holding should end the analysis here.
Plaintiffs’ claims are based on alleged materially false and
misleading statements. If Plaintiffs are correct, the ultimate
factual findings may imply that Defendants improperly
obtained the APA Ruling, which was subject, ab initio, to
challenge and ultimate retraction (nunc pro tunc or
otherwise). But to paraphrase W.S. Kirkpatrick, neither the
claim nor any asserted defense requires a determination that
the APA Ruling was or was not effective, no matter what the
court’s factual findings may suggest about the legality of the
32       ROYAL WULFF VENTURES V. PRIMERO MINING

APA Ruling or Defendants’ efforts to obtain it. After W.S.
Kirkpatrick, the majority’s holding that the act of state
doctrine bars any inquiry into “foreign officers’ compliance
with their own laws,” Maj. op. at 14, simply isn’t
supportable.

    In each of the very few Supreme Court cases invoking
the doctrine, a sovereign allegedly caused the injury
(seizure/expropriation of property), and the requested
remedy required the court to set that act aside. The same has
been true in this circuit, except for the Clayco and
Multibanco line of cases overruled in W.S. Kirkpatrick. For
example, in Credit Suisse v. U.S. District Court for the
Central District of California, 130 F.3d 1342, 1347 (9th Cir.
1997), the plaintiff requested injunctive and declaratory
relief, which would have required the court to override Swiss
Executive Orders. In International Association of
Machinists & Aerospace Workers (IAM) v. Organization of
Petroleum Exporting Countries (OPEC), 649 F.2d 1354,
1355 (9th Cir. 1981), plaintiffs sought injunctive relief and
damages against the OPEC countries—“The possibility of
insult to the OPEC states and of interference with the efforts
of the political branches to seek favorable relations with
them is apparent from the very nature of this action and the
remedy sought.” Id. at 1361. Most recently, in Sea Breeze
Salt, Inc. v. Mitsubishi Corp., 899 F.3d 1064, 1071 (9th Cir.
2018), the plaintiffs sought injunctive relief against Mexico 3
for alleged anticompetitive acts: “[A]ny relief would in

     3
      We found that the alleged anti-competitive acts were “acts of the
Mexican government” because the government owned a majority of the
defendant corporation, appointed the majority of the company’s board of
directors and Director General (the CEO), and under Mexico’s
Constitution, had exclusive authority to distribute the country’s natural
resources, including by establishing companies to do so. Sea Breeze Salt,
899 F.3d at 1069–70.
       ROYAL WULFF VENTURES V. PRIMERO MINING               33

effect amount to an order from a domestic court instructing
a foreign sovereign to alter its chosen means of allocating
and profiting from its own valuable natural resources.”

    Here, by contrast, Plaintiffs have not alleged an injury
caused by the Mexican government—they have alleged
injury caused by false or misleading statements and material
omissions. Plaintiffs do not seek to set aside the 2012 APA
Ruling—they want money damages from a private company
and its officers and directors. Nothing in Plaintiffs’
requested remedy would require the court to set aside or
invalidate Mexico’s APA Ruling. Thus, the act of state
doctrine, as clearly defined (and limited) by the Supreme
Court, does not bar Plaintiffs’ claims.

                              II.

    The majority believes the validity of the APA Ruling is
at stake because “a foreign sovereign’s compliance with its
own laws is the determinative issue on Plaintiffs’ claims[.]”
Maj. op. at 18 n.2. The same could be said of W.S.
Kirkpatrick.

    The majority contends that “[h]ere, it is not simply a
question of whether a given act—in Kirkpatrick a bribe—
occurred; the questions Plaintiffs raise are as to the legality
of the 2012 APA Ruling itself, and what defendants knew
about its validity or not.” Maj. op. at 15; also maj. op. at 17
(“[I]n Kirkpatrick, United States courts were not called upon
to decide whether the Nigerian contract was legally deficient
under Nigerian law due to the bribes; all they were asked to
decide is whether bribes were made.”).

    This oversimplifies the cause of action in W.S.
Kirkpatrick. The W.S. Kirkpatrick plaintiff’s various claims
all depended on proving that the bribery induced Nigerian
34       ROYAL WULFF VENTURES V. PRIMERO MINING

officials to award the contract to the defendant, and that but
for the bribes, the officials would have awarded the contract
to plaintiff. Kirkpatrick District Court Decision, 659 F.
Supp. at 1393. In other words, Nigerian officials’ illegal
corruption was a determinative issue. The question was not
simply whether defendants paid a bribe, but whether the
bribe caused the state act—which was why the district court
originally dismissed the case. Id. at 1395. (“[I]nquiry would
have to be had as to the effect of the payment or promise of
payment of such a bribe, [and] whether in fact the payment
or anticipation of the bribe caused the award of the Nigerian
Contract to Kirkpatrick International[.]”). Contrary to the
majority’s assertion, the “occurrence” of bribery was
virtually a given, since before plaintiff’s suit the defendants
pleaded guilty to violating the Foreign Corrupt Practices
Act. W.S. Kirkpatrick, 493 U.S. at 401.

    There simply is no meaningful distinction between this
case and W.S. Kirkpatrick. In fact, the state action here is
more removed: In W.S. Kirkpatrick, the plaintiff had to
demonstrate but-for causation as to the state act itself, while
here, all of Plaintiffs’ claims relate to representations made
(or not made) to investors. Plaintiffs need not show that but
for corrupt Mexican government officials the 2012 APA
Ruling would not have been issued, nor must they show that
the 2012 APA Ruling was illegal or invalid. 4

     4
        The majority observes that “although a juicio de lesividad was
filed, its contents, and the reasons for which it was filed, are not public.”
Maj. op. at 11; also id. (“Plaintiffs concede that the contents of the juicio
de lesividad and the reasons for which it was filed are not public[.]”). “In
reviewing the district court’s dismissal for failure to state a claim, we
accept the plaintiffs’ allegations as true and construe them in the light
most favorable to the plaintiffs.” Siracusano v. Matrixx Initiatives, Inc.,
585 F.3d 1167, 1170 n.2 (9th Cir. 2009). While the juicio may not be
        ROYAL WULFF VENTURES V. PRIMERO MINING                       35

    Plaintiffs’ alleged injuries were not caused by a legally
deficient APA Ruling, but by alleged false and misleading
statements and material omissions about Mexican taxes, the
Ruling, and how the Ruling was (or wasn’t) obtained. The
question is not, as the majority contends, whether the 2012
APA Ruling is legally invalid, although Mexico evidently
thinks so. The question is whether Defendants intentionally
or knowingly made false, misleading, and/or legally
insufficient statements about the Ruling and Mexican taxes,
given the circumstances allegedly known to Defendants but
not to Plaintiffs (like that the approving official’s brother
allegedly represented Defendants).

     The majority argues that to prevail, Plaintiffs would have
to show that the APA Ruling was invalid and that
Defendants “knew that the APA Ruling was so invalidated
at the time of its statements.” Maj. op. at 17 n.1. Not so.

    To prevail, Plaintiffs would need to show that
Defendants’ statements “affirmatively create[d] an
impression of a state of affairs that differ[ed] in a material
way from the one that actually exist[ed.]” Brody v.
Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir.
2002). 5 According to Plaintiffs, Defendants told investors
that the favorable Ruling was an all but permanent solution

public, its contents would be discoverable if the proceedings moved
forward. At this stage, any uncertainty about the juicio’s exact contents
should not be held against Plaintiffs. And, evidence submitted by
Defendants—their NAFTA arbitration demand filed as an exhibit to their
motion to dismiss—suggests that at least one of Plaintiffs’ alleged
defects (the flawed methodology) was a basis for the juicio.
    5
       As the district court did not reach scienter, I assume, arguendo,
that Plaintiffs have adequately established Defendants acted with the
intent to mislead.
36     ROYAL WULFF VENTURES V. PRIMERO MINING

to the company’s cash-flow problems. But unknown to
Plaintiffs, when Defendants made this representation,
Defendants knew that they obtained the Ruling through
questionable means and that Mexico had begun investigating
the Ruling and threatened to nullify it. Taking Plaintiffs’
allegations as true, Defendants’ statements affirmatively
created an impression of a state of affairs that differed in a
material way from the actual one—they created the
impression that the Ruling provided a permanent solution,
when in reality the Ruling was on shaky ground.

    Reaching this conclusion would not implicate the act of
state doctrine because a court can determine whether there
was a risk that Mexico would seek to nullify the Ruling and
whether Defendants’ statements to investors improperly
minimized that risk, without concluding that the Ruling is
actually invalid. These types of findings might suggest that
the Ruling is invalid, but like in W.S. Kirkpatrick, that is not
enough to implicate the act of state doctrine.

    And, if Plaintiffs were to prevail, a decision that
Defendants misled investors would not invalidate the
Ruling, just as a determination that the W.S. Kirkpatrick
defendants procured their contract illegally did not mean the
court was invalidating the contract.

                              III.

    The majority recognizes that “sometimes, even though
the validity of the act of a foreign sovereign within its own
territory is called into question, the policies underlying the
act of state doctrine may not justify its application.” Maj. op.
at 20 (quoting W.S. Kirkpatrick, 493 U.S. at 409). In my
view, the majority should have never reached this step of the
analysis because the act of state doctrine is simply not
       ROYAL WULFF VENTURES V. PRIMERO MINING                  37

implicated here. But, even were that not true, the majority’s
analysis is deeply flawed.

    The Sabbatino factors—codification or consensus on
international law, the relative importance of an issue to
foreign relations, and the continuing existence of the foreign
government—are not exclusive, but part of “[t]he balance of
relevant considerations” for assessing what impact the case
could have on foreign relations. Sabbatino, 376 U.S. at 428;
see also W.S. Kirkpatrick, 493 U.S. at 409 (explaining the
Sabbatino factors are part of a “balancing approach” for
evaluating whether “the policies underlying the act of state
doctrine . . . justify its application”). In weighing the factors,
“[t]he ‘touchstone’ or ‘crucial element’ is the potential for
interference with our foreign relations.” Liu v. Republic of
China, 892 F.2d 1419, 1432 (9th Cir. 1989).

     To assess any impact on our foreign relations, the
primary question must be “[t]he political interest of [the
foreign] country,” Sabbatino, 376 U.S. at 428, as well as “the
depth and nature of the [foreign] government’s interest,” Liu,
892 F.2d at 1432. After all, if the foreign country has little
or no interest in the validity of an act of state, then the case
should have little or no impact on foreign relations, and so
there is no reason to apply the act of state doctrine. See
Sabbatino, 376 U.S. at 428. If there is a consensus in
international law on an issue, then the court need not grapple
with “the sensitive task of establishing a principle” that
could offend the foreign country; the less important an issue
is to the foreign country, the less likely it is to impact foreign
relations; and if the government that perpetrated the act of
state is no longer in existence, then “the political interest of
[the foreign] country may, as a result, be measurably
altered.” Id.
38       ROYAL WULFF VENTURES V. PRIMERO MINING

    In analyzing each Sabbatino factor independently, the
majority glosses over the crucial question—does Mexico
have an interest in the continuing validity of the APA
Ruling? If it does not, this case does not implicate “the
policies underlying the act of state doctrine.” W.S.
Kirkpatrick, 493 U.S. at 409. Fortunately, the court does not
have to speculate: By initiating proceedings to retroactively
nullify the APA Ruling, Mexico has signaled that it does not
have an interest in the validity of the 2012 APA Ruling—in
fact, quite the opposite. 6

    The majority claims that because this case involves
Mexico’s natural resources, it “carr[ies] significant
implications for U.S. foreign relations.” Maj. op. at 22. It is
not clear how or why that is, since any suggestion the 2012
APA Ruling was either inconsistent with Mexico’s tax laws
or improperly procured by the approving official’s brother
would be in keeping with Mexico’s apparent position on
those issues. Moreover, the relationship to Mexico’s natural
resources is far more attenuated here than in the two cases
the majority cites. In OPEC, 649 F.2d 1354 and Sea Breeze
Salt, 899 F.3d 1064, the plaintiffs were asking for injunctive
relief that contradicted the countries’ own decisions on the
actual allocation of oil and salt. Here, by contrast, the
requested remedy would be damages from Defendants—
who are not associated with the Mexican government—

     6
      The majority notes that “there are no allegations that the Mexican
government has ruled on its juicio de lesividad.” Maj. op. at 17. That
may be because in July 2016, Defendants alleged discrimination under
NAFTA and sought international arbitration. If the case moved forward,
the current status of the juicio proceedings would presumably be
discoverable. At a minimum, the court should not infer that Mexico is no
longer interested in nullifying the 2012 APA Ruling, or that Mexico is
choosing to enforce it, simply because the juicio has not resolved.
       ROYAL WULFF VENTURES V. PRIMERO MINING                  39

arising from statements generally about the tax treatment of
sales of silver.

    In asserting that the “very nature” of this action could
offend Mexico, the majority quotes from Sabbatino: “An
inquiry by United States courts into the validity of an act of
an official of a foreign state under the law of the state . . . if
wrongly made[] would be likely to be highly offensive to the
state in question.” Maj. op. at 22 (quoting Sabbatino,
376 U.S. at 415 n.17). Yet the majority omits the rest of the
footnote:

        Were any test to be applied it would have to
        be what effect the decree would have if
        challenged in Cuba. If no institution of legal
        authority would refuse to effectuate the
        decree, its ‘formal’ status—here its argued
        invalidity if not properly published in the
        Official Gazette in Cuba—is irrelevant. It has
        not been seriously contended that the judicial
        institutions of Cuba would declare the decree
        invalid.

Sabbatino, 376 U.S. at 415 n.17.

    The Sabbatino plaintiffs asked the Court not to enforce
the state act because it would be invalid under Cuban law.
Id. at 413. The Court rejected that argument—not because,
as the majority claims, a court can never apply the law of a
foreign state to a foreign act, but because the Cuban act “has
been fully executed within the foreign state.” Id. at 414.
Neither Sabbatino nor any other Supreme Court case
prohibits questioning a state act. And Sabbatino goes further,
recognizing that evaluating a foreign act could be proper if
“seriously contended” that the foreign country would “refuse
to effectuate the decree” and would declare the act “invalid”
40       ROYAL WULFF VENTURES V. PRIMERO MINING

if challenged. That is, of course, precisely what Plaintiffs
contend here. But, even more to the point, the issue here is
not the actual validity of the APA Ruling—the issue is
whether representations made (and not made) were false or
misleading in violation of the laws of the United States. 7

     7
       Looking at W.S. Kirkpatrick from an investor’s perspective proves
enlightening. Defendants obtain an important state contract through
bribery, illegal in Nigeria. Presume defendants then trumpet the contract
without mentioning the bribery. Stock skyrockets. Nigeria brings up the
bribery—stock plummets. Now, instead of a competitor suing under
RICO, imagine defendants’ investors suing for securities fraud, claiming
false and misleading statements and material omissions about the
contract. The act of state doctrine is no more implicated by this scenario
than by the facts of W.S. Kirkpatrick. No matter what Nigeria were to
ultimately decide about the validity of the contract, the act of state
doctrine would not insulate the American defendants from securities-
fraud liability based on their own affirmative statements and material
non-disclosures. For this appeal, there is no difference between that
hypothetical and the facts alleged. Here, had Defendants trumpeted the
(alleged) use of the approving official’s brother, as well as certain other
facts about the process used to obtain the APA Ruling, the shares
similarly wouldn’t have skyrocketed (or so Plaintiffs claim). The act of
state doctrine is equally irrelevant in both scenarios.

      This hypothetical has played out in lower courts with no suggestion
the act of state doctrine was implicated. In In re Petrobras Sec. Lit., 116
F. Supp. 3d 368, 372–73 (S.D.N.Y. 2015), “[p]laintiffs allege[d] that
Petrobras was at the center of a multi-year, multi-billion dollar bribery
and kickback scheme [implicating Brazilian officials], in connection
with which defendants made false and misleading statements in violation
of the Securities Exchange Act of 1934, . . . the Securities Act of 1933,
. . . and Brazilian law.” The district court denied Petrobas’s motion to
dismiss. Similarly, in Knox v. Yingli Green Energy Holding Co. Ltd., the
district court found statements about a Chinese government subsidy
program materially false and/or misleading because of widescale fraud
related to procuring the subsidies: “[T]here was always a material risk
that the government would eventually take some sort of drastic measure
once it discovered the scale of the fraud.” 242 F. Supp. 3d 950, 964 (C.D.
        ROYAL WULFF VENTURES V. PRIMERO MINING                         41

    The purpose of the Sabbatino factors was to “avoid
unquestioning judicial acceptance of the acts of foreign
sovereigns,” not to “expand[] judicial incapacities where
such acts are not directly (or even indirectly) involved.” W.S.
Kirkpatrick, 493 U.S. at 409. Yet the majority’s holding
expands the act of state doctrine far beyond the narrow
“principle of decision” mandated by the Supreme Court.

                                   IV.

   Because it upheld the district court’s act of state doctrine
dismissal, the majority does not address whether
Defendants’ statements were misleading. Maj. op. at 24 n.3.
I conclude that Plaintiffs sufficiently pleaded false or
misleading statements to survive a motion to dismiss.

    To be actionable under the securities laws, a statement
must be either objectively false or materially misleading.
Brody, 280 F.3d at 1006. Liability for non-disclosure of
material information depends on whether disclosure was
“necessary in order to make the statements made, in the light
of the circumstances under which they were made, not
misleading.” 17 C.F.R. § 240.10b-5. As discussed above, to
be misleading, a statement must “affirmatively create an
impression of a state of affairs that differs in a material way
from the one that actually exists.” Brody, 280 F.3d at 1006.
“[T]his materiality requirement is satisfied when there is a
substantial likelihood that the disclosure of the omitted fact
would have been viewed by the reasonable investor as
having significantly altered the total mix of information

Cal. 2017). The majority’s holding would insulate companies engaging
in misconduct abroad from liability to domestic shareholders, under
domestic laws, for failing to disclose the misconduct and, as alleged here,
directly profiting from that failure to disclose.
42     ROYAL WULFF VENTURES V. PRIMERO MINING

made available.” Matrixx Initiatives, Inc. v. Siracusano,
563 U.S. 27, 38 (2011) (internal quotation marks omitted).

    Defendants touted the 2012 APA Ruling as a
gamechanger without disclosing that its issuance might not
hold up to scrutiny. According to Plaintiffs, the new
administration of the Mexican government—which was
elected on an anti-corruption platform—took one look at the
Ruling and decided to make an example of it.

     Plaintiffs allege that Defendants “likely were aware that
its tax arrangements would be in the SAT’s cross-hairs
sooner or later,” and indeed, Defendants’ own exhibit shows
that, at a minimum, Defendants knew Mexico had a problem
with the 2012 APA Ruling before the juicio was filed and
before making several of the allegedly misleading
statements. During meetings with Defendants, Mexico
complained about PEM’s tax arrangements, threatened to
“make an example” out of it, audited PEM for years covered
by the Ruling, and suspended the company from its list of
importers and exporters in the summer of 2015. Yet
Defendants continued to reference the 2012 APA Ruling as
if it were renewable and not under threat, telling investors in
an SEC filing, “[i]n 2015 silver is expected to continue to be
sold under the [APA] on the same terms and there are no
known changes in the application of Mexican tax laws
relative to the APA Ruling, so the Company expects to
record revenues and pay taxes based on realized prices for
the life of the San Dimas mine.”

    In August 2015, Mexico filed the juicio to nullify the
APA Ruling retroactively. Yet Defendants filed a statement
with the SEC in November 2015 about the application
process for renewing the Ruling and stating that “[t]he
Company continues to evaluate alternatives to achieve long-
term tax certainty including through engaging in a dialogue
       ROYAL WULFF VENTURES V. PRIMERO MINING               43

with Mexican tax authorities.” Beyond Defendants’ own
statements about the events prompting the juicio, Plaintiffs
allege that Defendants knew of the problems with the APA
Ruling when they made allegedly false or misleading
statements shortly after it was issued. Taking their
allegations as true, Defendants knowingly made statements
that “create[d] an impression of a state of affairs that
differ[ed] in a material way from the one that actually
exists.” Brody, 280 F.3d at 1006.

    The boilerplate disclaimers (“[a]ssuming . . . there are no
changes in the application of Mexican tax laws relative to
the APA ruling . . .”) only mention risks in the abstract,
despite a higher-than-normal probability that the Mexican
government would seek to nullify the Ruling retroactively.
See Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 986
(9th Cir. 2008) (finding disclosures misleading where
“[n]othing alerts the reader that some of these risks may
already have come to fruition”). In fact, in December 2013,
Defendant Conway, Primero’s CEO, told investors that the
disclaimers only referred to changes “for the overall industry
in terms of tax rules,” and Defendants never backed away
from that, even as Mexico showed increasing hostility
toward the tax arrangement. It is hard to see how
Defendants’ statements could not be misleading in this
context.

                              V.

    The act of state doctrine “does not bestow a blank-check
immunity upon all conduct blessed with some imprimatur of
a foreign government.” Timberlane Lumber Co. v. Bank of
Am., 549 F.2d 597, 606 (9th Cir. 1976). As the Supreme
Court observed in W.S. Kirkpatrick, “[c]ourts in the United
States have the power, and ordinarily the obligation, to
44     ROYAL WULFF VENTURES V. PRIMERO MINING

decide cases and controversies properly presented to them.”
493 U.S. at 409. The majority avoids that obligation today.

    The implications of this decision extend far beyond this
case. The act of state doctrine is extraordinarily limited and
sparingly applied. The majority has expanded it so much that
we can expect defendants to invoke it every time a case even
touches on decisions of foreign states, and even if, as here,
the relief sought is not invalidation of a foreign act of state.
The complaint does not challenge state acts—it claims non-
state actors profited from misrepresentations and willful
non-disclosures.

    I would reverse the district court’s rulings that the act of
state doctrine bars Plaintiffs’ action and that Plaintiffs failed
to adequately plead any materially false or misleading
statements. I therefore respectfully dissent.