Jinro America, Inc. v. Secure Investments, Inc.

266 F.3d 993 (9th Cir. 2001)

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Nature of the Case

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Facts

Ps sued Ds for breach of contract, fraud, and racketeering. The parties had engaged in business over frozen chickens. Ds claimed that the deal was a sham. Brian Bishop had entered into the chicken trading agreement with P. D claims Ps actually used the chicken trading contract as a cover-up for their real agreement: a joint venture to invest in a highly risky 'roll program.' As part of the agreement between Bishop and Ps, Secure (D) was supposed to supply $10 million in United States Treasury notes as collateral to be held in a blocked account for the benefit of P. P and D envisioned the buying and selling of chicken in large amounts, with P serving as an intermediary and making its profit from the difference in price. One party would buy chicken in large volumes at extremely low prices and sell it to P. P, in turn, would immediately sell it to Bishop, which had already secured sales orders for the chicken at a higher price -- chicken arbitrage, in essence. P agreed to advance $10 million to cover part of the shipment of the product in the twelfth month. As collateral for the advance, they agreed to assign to P $ 10 million of Treasury securities, which were to be held in a blocked account under P's name at an investment house called Saratoga Investments, Inc. As months went by, no chicken was bought or sold. Bishop repeatedly communicated with P, offering excuses for the delay. P finally declared Bishop and his companies in default on the contract and demanded repayment of its advance. P filed suit to prohibit the transfer of the Treasury collateral D had placed at Saratoga Investments in P's name. Bishop contends P approached him with a request to help it invest money in the United States in a high-risk, high-yield type of investment scheme known as a 'roll program.' P's representatives promised substantial profits and explained that, because P's participation in such a deal was contrary to Korean laws, they needed an American company to effectuate the transaction. Bishop says he then found people who knew about such a transaction who helped him set it up. He formed his companies at P's request so that the companies could enter into a legal trade agreement as a cover for the parties' underlying activity. D continually updated P with phony chicken orders and problems so the company would have seemingly legitimate documentation to prove the validity of the chicken trading contract. Disappointed by the profits from the roll program, P decided to sue to recover its initial $10 million investment, treating the chicken deal as though it were a legitimate agreement. At trial, D called an expert witness, David Herbert Pelham, on Korean business practices, particularly Koreans’ tendency to engage in fraudulent activity. Pelham was a private investigator providing security for various non-Korean companies doing business in Korea. He had never investigated P nor was there any direct contact with P. Pelham was allowed to testify that Korean businessmen never honored oral contracts, particularly with foreigners. This expert opinion was based on his conclusions, newspaper articles, and information from his office staff. The jury found for Ds, and the court entered a summary judgment. P appealed.