Lack of subject matter jurisdiction

Federal District Court Opinions

BIG SKY NETWORK CANADA v. SICHUAN PROVINCIAL GOVERNMENT, (Utah 12-11-2006) BIG SKY NETWORK CANADA, LTD., a British Virgin Islands corporation, Plaintiff, v. SICHUAN PROVINCIAL GOVERNMENT, a subdivision of the People’s Republic of China, a foreign state, and QINGYANG DISTRICT GOVERNMENT, a subdivision of the People’s Republic of China, a foreign state, Defendants. Case No. 2:06-CV-00265 PGC. United States District Court, D. Utah, Central Division. December 11, 2006

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

PAUL CASSELL, District Judge

In this removal action, plaintiff Big Sky Network Canada,
Ltd. asserts intentional interference with contractual
relations and unjust enrichment claims against defendants
Sichuan Provincial Government and Qingyang District
Government (collectively the Governments). In particular,
Big Sky asserts that the Governments intentionally
interfered in its joint venture with Chengdu Huayu
Information Industry Co., Ltd. (Huayu) to provide cable and
internet services in a city in the Governments. Big Sky
asserts that the Governments interfered for the improper
purposes of reaping the venture’s profits and capital Big
Sky contributed to the venture. Page 2

Pursuant to Federal Rule of Civil Procedure 12(b), the
Governments move to dismiss the complaint for lack of
jurisdiction and under the Act of State and international
comity doctrines. Alternatively, the Governments move to
transfer venue to the United States District Court for the
District of Columbia. Plaintiff opposes the motions.
Because the Governments’ asserted actions did not cause a
direct effect in the United States, this court lacks
subject matter jurisdiction under the Foreign Sovereign
Immunities Act (FSIA). The court therefore grants the
Governments’ motion to dismiss.

BACKGROUND

Where a defendant facially attacks the complaint for lack
of subject matter jurisdiction, the court assumes that the
allegations in the complaint are true.[fn1] The defendant,
however, “`may go beyond the allegations in the complaint,
and challenge facts upon which subject matter jurisdiction
depends.'”[fn2] In that case, the court has wide discretion
to consider documentary evidence to resolve the
motion.[fn3] Here, the Governments have mounted a facial
and factual attack on the complaint. Big Sky has submitted
affidavits and other documents in support of its position
that this court has subject matter jurisdiction. The court
therefore does not simply assume that the allegations in
the complaint are true, but invokes its discretion to
consider the Page 3 materials outside the complaint.

The complaint and materials disclose the following facts.
Big Sky is a British Virgin Islands corporation, resides in
Canada, and is a wholly-owned subsidiary of a
publicly-traded Nevada corporation with Utah shareholders
and with a Utah stock transfer agent. The Governments are
subdivisions of the People’s Republic of China, a foreign
state.

Big Sky and Huayu entered into a joint-venture agreement
to provide cable and internet services in a city in the
Governments. Big Sky supplied capital while Huayu supplied
the network for the services. At the time the parties
entered into the agreement, Big Sky understood that the
Governments jointly owned and operated Huayu.

On or about May 11, 2001, the Chinese State Administration
of Radio, Film, and Television issued a notice prohibiting
the operation of cable television networks by
foreign-funded, Sino-foreign joint and Chinese-foreign
contractual joint ventures or by private investors (the
ARFT notice). The notice demanded that the ARFT departments
of governmental entities clear-up financing, differentiate
various situations, and come up with applicable solutions.
On June 4, 2001, the Sichuan Province distributed its own
notice ordering compliance with the ARFT notice.

Initially, Huayu notified Big Sky that it still had the
right to use the network. In July 2003, however, Huayu
informed Big Sky that it was breaching and terminating the
joint-venture agreement because of the Governments’
enforcement of the ARFT notice. Big Sky maintains, however,
that (1) the Governments induced Huayu to breach the
joint-venture agreement for the purpose of reaping its
profits; (2) that the Governments were unjustly enriched by
Big Sky’s Page 4 significant capital contributions to the
joint-venture; and (3) consequently, that Big Sky’s parent
corporation and shareholders lost anticipated profits from
the joint-venture and its parent corporation had to
reorganize.

The Governments move to dismiss the complaint for, among
other things, lack of subject matter jurisdiction under
FSIA. Big Sky opposes the motion to dismiss. Because the
court agrees that it does not have subject matter
jurisdiction under FSIA, the court does not reach the
Governments’ other proposed grounds for dismissal.

DISCUSSION

In its complaint, Big Sky asserts subject matter
jurisdiction under the FSIA. In their motion to dismiss,
the Governments contend that this court lacks subject
matter jurisdiction under the FSIA. The FSIA is the
“exclusive source of jurisdiction for claims against
foreign states” in the courts of this country.[fn4] The
FSIA provides that “a foreign state shall be immune from
the jurisdiction of the courts of the United States and of
the States” unless an exception applies.[fn5] The defendant
foreign state must first make a prima facie showing that it
is immune.[fn6] The plaintiff then has the burden of
showing that an exception applies.[fn7] “If the plaintiff
comes forward with evidence implicating an exception, the
defendant must meet its ultimate burden of Page 5 proving
that the exception does not apply.”[fn8]

FSIA provides that a “foreign state” includes a “political
subdivision of a foreign state.”[fn9] The parties agree that
the Governments are political subdivisions of the Peoples
Republic of China, a foreign state. Therefore, the
Governments are immune from jurisdiction under FSIA unless
an exception applies.

In its complaint, Big Sky has not alleged that any
exception applies. In its opposition to the motion to
dismiss, however, Big Sky asserts that it falls within
third commercial activity exception. This exception
provides that a foreign state is not immune from
jurisdiction where “the action is based upon an act outside
the territory of the United States in connection with a
commercial activity of the foreign state elsewhere and that
act causes a direct effect in the United States.”[fn10]
Therefore, to fall within this exception, (1) the acts at
issue must involve commercial activity outside the United
States and (2) the acts must cause a direct effect in the
United States.

The parties hotly dispute whether the Governments’ actions
in this case are commercial. Big Sky contends that any
private entity can own and operate a cable company and
enter into and breach agreements related to providing cable
services. Big Sky, therefore, maintains that the
Governments’ actions as they relate to the operation of
cable, internet, and data transmission industries are
clearly commercial. The Governments respond that in its
complaint, Big Sky alleges that the Governments were merely
enforcing the ARFT notices, which is a governmental Page 6
activity. What Big Sky alleges, however, is that Huayu
informed Big Sky that it was breaching and terminating the
joint-venture agreement because of the Governments’
enforcement of the ARFT notice. Big Sky then alleges that
the Governments intentionally induced Huayu to terminate
the joint-venture to reap the venture’s profits.

Here, the court need not determine whether the
Governments’ asserted activities were commercial. Big Sky
has not shown that the Governments’ activities had a direct
effect in the United States.

Big Sky asserts that the Governments’ activities caused it
to directly suffer financial loss. The FSIA, however,
requires a direct effect in the United States.[fn11] Big
Sky has not alleged that it directly suffered loss in the
United States. Big Sky admittedly is a British Virgin
Islands Corporation that resides in Canada. Any losses that
Big Sky may have suffered as a result of the Governments’
actions occurred either in China, the British Virgin
Islands, or Canada.

Big Sky also asserts that the Governments’ actions caused
its United States parent corporation and the corporation’s
shareholders harm. In particular, the parent-corporation
and shareholders did not realize any anticipated profits or
dividends from the joint-venture and the parent-corporation
was forced to reorganize.

The court agrees with the Governments that any effect from
the Governments’ activities to Big Sky’s parent corporation
and shareholders was not direct. “An effect is direct `if
it follows Page 7 as an immediate consequence of the
defendant’s activity.'”[fn12] The immediate consequence of
the Governments’ asserted activity was the termination of
the joint-venture between Big Sky and Huayu outside the
United States and unjust enrichment to the Governments
outside the United States. That Big Sky’s parent
corporation and shareholders in the United States may have
suffered financial harm or lost anticipated profits is an
indirect consequence.

This conclusion is consistent with the Tenth Circuit’s
position that financial loss to a United States corporation
is not sufficient to show a direct effect under FSIA.[fn13]
Because Big Sky has not made any showing of a direct effect
in the United States, the third commercial activity
exception to immunity under FISA does not apply. The court
therefore concludes that the Governments are immune from
jurisdiction in United States’ courts.

CONCLUSION

Accordingly, the court HEREBY ORDERS that the Governments’
motion to dismiss for lack of subject matter jurisdiction
(#19) is GRANTED and the motion to transfer venue is DENIED
as moot. The court FURTHER ORDERS that Big Sky’s complaint
is HEREBY Page 8 DISMISSED without prejudice. The court
clerk is directed to close this case.

SO ORDERED.

[fn1] See Paper, Allied-Indus., Chem. & Energy Workers Int’l
Union v. Continental Carbon Co., 428 F.3d 1285, 1292 (10th
Cir. 2005); see also United World Trade, Inc. v.
Mangyshlakneft Oil Prod. Ass’n., 33 F.3d 1232, 1234 (10th
Cir. 1994).

[fn2] Davis ex rel. Davis v. United States, 343 F.3d 1282,
1295 (10th Cir. 2003) (quoting Holt v. United States, 46
F.3d 1000, 1003 (10th Cir. 1995)).

[fn3] Id.

[fn4] Southway v. Central Bank of Nigeria, 328 F.3d 1267,
1270 (10th Cir. 2003).

[fn5] 28 U.S.C. § 1604, see also Southway, 328 F.3d
at 1271.

[fn6] See Southway, 328 F.3d at 1271.

[fn7] See id. at 1271, 1274.

[fn8] Id.

[fn9] 28 U.S.C. § 1603(a).

[fn10] See id. § 1605(a)(3).

[fn11] See 28 U.S.C. § 1605(a)(3).

[fn12] United World Trade, Inc., 33 F.3d at 1236 (quoting
Republic of Argentina v. Weltover, 504 U.S. 607 (1992)).

[fn13] See id. at 1239.