V Cars, LLC v. Chery Automobile Co., Ltd., et al

Filing

OPINION filed : AFFIRMED the judgment of the district court, decision not for publication. Martha Craig Daughtrey, Circuit Judge AUTHORING; John M. Rogers, Circuit Judge and Bernice Bouie Donald, Circuit Judge.

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NOT RECOMMENDED FOR FULL-TEXT PUBLICATION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
corporation organized under the laws of the
People’s Republic of China; YIN
TONGYAO, an individual Chinese national;
and KAN LEI, an individual German citizen,
residing in China.
Defendants-Appellees.

BEFORE:

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ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF MICHIGAN

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.

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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

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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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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.

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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.

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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

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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

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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.
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