Zhongshan Fucheng Indus. Inv. Co. v. Fed. Republic of Nigeria

112 F.4th 1054

ZHONGSHAN FUCHENG INDUSTRIAL INVESTMENT CO. LTD, Appellee v. FEDERAL REPUBLIC OF NIGERIA, Appellant.

No. 23-7016

United States Court of Appeals, District of Columbia Circuit

Argued April 22, 2024

Decided August 9, 2024

Appeal from the United States District Court for the District of Columbia (No. 1:22-cv-00170)

Keith Bradley argued the cause for appellant. With him on the briefs was ScheLeese Goudy.

Jovana Crncevic argued the cause and filed the brief for appellee.

Before: Millett, Katsas, and Childs, Circuit Judges.

Dissenting opinion filed by Circuit Judge Katsas.

Millett, Circuit Judge:

In 2001, China and Nigeria signed a bilateral investment treaty to encourage investment between the two countries. As part of that bargain, each country agreed to treat the other country's investors fairly and to protect their investments. The treaty also provided that the countries would arbitrate any disputes with foreign investors.

Appellant Zhongshan Fucheng Industrial Investment then invested in Nigeria, participating in a joint venture with Ogun State, a Nigerian state, to develop a free-trade zone. After years of development and millions of dollars in investments, Ogun State abruptly ended its relationship with Zhongshan, and Nigerian federal authorities ousted the company's executives from the country. Zhongshan initiated arbitration proceedings. An arbitrator found that Nigeria had breached its obligations under the bilateral investment treaty and awarded Zhongshan over $55 million in damages.

Zhongshan now seeks to enforce that arbitral award against Nigeria. The district court held that it had jurisdiction over this case, finding that the Foreign Sovereign Immunities Act's arbitration exception applied because the award is governed by an international arbitration treaty known as the New York Convention.

We affirm.

I

A

Prior to 1952, the United States granted foreign sovereigns "complete immunity" in courts within the United States as "a matter of grace and comity[.]" Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983). For centuries, that rule had been "in harmony with the then-existing general concepts of international practice." In re Grand Jury Subpoena, 912 F.3d 623, 626 (D.C. Cir. 2019) (quotation marks omitted).

Over the course of the nineteenth and twentieth centuries, however, the practice of granting foreign sovereigns complete immunity was called into question. In particular, as foreign governments became more involved in commercial activity, concerns grew over those governments' ability to "manipulate their immunity" to gain unfair advantages in the marketplace over purely private corporations. In re Grand Jury Subpoena, 912 F.3d at 626. In response, a growing number of countries began to strip foreign sovereigns of immunity for "private"—typically commercial— acts. Id.

In 1952, the State Department's Acting Legal Adviser issued a letter adopting this "restrictive theory of sovereign immunity." In re Grand Jury Subpoena, 912 F.3d at 626 (quotation marks omitted). Under that theory, the United States recognized the immunity of foreign sovereigns with regard to sovereign or public acts, but not with regard to private acts. See Republic of Austria v. Altmann, 541 U.S. 677, 690, 124 S.Ct. 2240, 159 L.Ed.2d 1 (2004); Verlinden, 461 U.S. at 487, 103 S.Ct. 1962.

Application of the sovereign-private act distinction, however, "proved troublesome." Verlinden, 461 U.S. at 487, 103 S.Ct. 1962. After 1952, "the State Department continued to advise courts on a case-by-case basis whether immunity should be granted[.]" Princz v. Federal Republic of Germany, 26 F.3d 1166, 1169 (D.C. Cir. 1994). If no advice was given, courts had to independently determine whether immunity was appropriate (that is, whether a foreign state's conduct was private or sovereign). See id.

In 1976, Congress passed the Foreign Sovereign Immunities Act ("FSIA"), Pub. L. No. 94-583, 90 Stat. 2891 (codified as amended in various sections of 28 U.S.C.), to "free the Government from the[se] case-by-case diplomatic pressures" and to clarify the standards governing sovereign immunity, Verlinden, 461 U.S. at 488, 103 S.Ct. 1962. To that end, the FSIA contains a "comprehensive set of legal standards governing claims of immunity in every civil action against a foreign state or its political subdivisions, agencies, or instrumentalities" brought in courts within the United States. Id.

Today, the FSIA is the "sole basis for obtaining jurisdiction over a foreign state in the courts of [the United States.]" Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989). The FSIA's "terms are absolute": Unless a plaintiff shows that a statutorily enumerated exception to sovereign immunity applies, "courts of this country lack jurisdiction over claims against a foreign nation." Belize Soc. Dev., Ltd. v. Government of Belize, 794 F.3d 99, 101 (D.C. Cir. 2015).

This appeal involves the FSIA's arbitration exception. That exception provides in relevant part:

A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case * * * in which the action is brought * * * to confirm an award made pursuant to * * * an agreement to arbitrate, if * * * [the] award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards[.]

28 U.S.C. § 1605(a)(6). To establish jurisdiction under the arbitration exception, a party must offer "more than a claim invoking an arbitration award." LLC SPC Stileks v. Republic of Moldova, 985 F.3d 871, 877 (D.C. Cir. 2021). The party must show (1) "the existence of an arbitration agreement"; (2) "an arbitration award"; and (3) "a treaty governing the award[.]" Id.

The relevant treaty governing the arbitration award in this case is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 21 U.S.T. 2517 ("New York Convention"). The New York Convention is a multilateral treaty that provides for signatory states' "recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought[.]" New York Convention Art. I(1). The United States is a signatory and "appl[ies] the Convention, on the basis of reciprocity, to the recognition and enforcement of only those awards made in the territory of another Contracting State." New York Convention, 21 U.S.T. at 2560; see New York Convention Art. I(3). Congress implemented the New York Convention in Chapter 2 of the Federal Arbitration Act. See 9 U.S.C. §§ 201-208.

In most signatory states, the New York Convention applies to all arbitral agreements, regardless of subject matter. Belize Soc. Dev., 794 F.3d at 103. But the Convention also permits states to adopt a "commercial reservation" that limits the Convention to disputes arising from legal relationships that are "considered as commercial[.]" New York Convention Art. I(3).

The United States adopted the commercial reservation. See New York Convention, 21 U.S.T. at 2560; 9 U.S.C. § 202. As a result, the Federal Arbitration Act provides both that (1) "[a]n action * * * falling under the Convention shall be deemed to arise under the laws and treaties of the United States[,]" 9 U.S.C. § 203; and (2) the Convention applies only to an arbitral award "arising out of a legal relationship, whether contractual or not, which is considered as commercial," id. § 202.

Neither the New York Convention nor the Federal Arbitration Act defines the term "commercial."

B

In 2001, China and Nigeria signed a bilateral investment treaty ("Investment Treaty") aimed at promoting commercial investment between the two countries.¹ The Investment Treaty requires each country to protect investors from the other country and to treat those foreign investors fairly and equitably. The Investment Treaty also provides for arbitration of disputes between an investor and a treaty signatory. See Investment Treaty Art. 9. It separately provides for arbitration of disputes between China and Nigeria. See Investment Treaty Art. 8.

In 2007, Ogun State began contracting with Chinese companies to develop the Ogun Guangdong Free Trade Zone near Lagos, Nigeria's most populous city and an economic hub. A free-trade zone is a geographic area in which countries relax trade restrictions to promote economic activity and investment. Nigerian federal law, for example, exempts businesses in free-trade zones from certain taxes and customs duties. See Nigeria Export Processing Zones Act 1992 §§ 8, 12, available at https://perma.cc/SE8Z-NHCN.

Ogun State entered into a joint venture agreement with a Chinese company and another company to create the Ogun Guangdong Free Trade Zone Company. The Nigeria Export Processing Zones Authority, a Nigerian federal-government entity that oversees free-trade zones in Nigeria, then delegated control and operation of the free-trade zone to the company.

In 2010, the Ogun Guangdong Free Trade Zone Company contracted with Zhongshan's parent company to develop an industrial park in the free-trade zone. The goal was for Zhongshan's parent company to develop the park and build factories in it for zone tenants to use. Zhongshan's parent company then "effectively transferred its rights" to Zhongshan, which conducted its Nigeria operations through its subsidiary, Zhongfu International Investment (NIG) FZE. J.A. 316. Because the distinctions between the Zhongshan-related entities are irrelevant to the legal issues in this case, we refer to them collectively as "Zhongshan."

Zhongshan invested millions of dollars and significant resources to develop the park. Zhongshan built out infrastructure in the...