Wood Ex Rel. United States v. American Institute in Taiwan

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 12, 2002 Decided April 16, 2002

No. 01-5092

James C. Wood, Jr., ex rel.

United States of America,

Appellant

v.

The American Institute in Taiwan, et al.,

Appellees

Appeal from the United States District Court

for the District of Columbia

(No. 98cv01952)

Wm. Paul Lawrence, II argued the cause for appellant.

With him on the briefs was Bradley S. Weiss.

Douglas N. Letter, Litigation Counsel, U.S. Department of

Justice, argued the cause for appellee. With him on the brief

were Roscoe C. Howard, Jr., U.S. Attorney, R. Craig Law-

rence and Lydia Kay Griggsby, Assistant U.S. Attorneys.

Before: Tatel and Garland, Circuit Judges, and Williams,

Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: In this case, we must determine

whether the American Institute in Taiwan, a unique entity

through which the United States performs consular services

on Taiwan and conducts commercial, cultural, and other rela-

tions with the people on Taiwan, enjoys sovereign immunity

from a qui tam suit brought by the Institute's former Manag-

ing Director. Agreeing with the district court that the Insti-

tute is immune, we affirm the dismissal of the complaint.

I.

Following the triumph of Mao Zedong's 1949 communist

revolution, Chiang Kai-Shek, leader of China's defeated Na-

tionalist party, fled to Taiwan with two million loyalists. The

United States declined to recognize the new People's Repub-

lic of China, continuing instead to recognize the Nationalists

as the official leaders of the Chinese government. This

arrangement lasted until several years after President Rich-

ard Nixon's historic visit to China when, in 1978, the United

States established diplomatic relations with the People's Re-

public.

As a condition of normalizing relations with the United

States, the People's Republic insisted on recognition as "the

sole legal government of China," stating its "firm[ ] op-

pos[ition] [to] any activities which aim at ... an[ ] 'indepen-

dent Taiwan.' " Dep't St. Bull., Mar. 20, 1972, at 435, 437

(setting forth text of Shanghai Communique). Because the

United States wished to maintain relations with Taiwan that

would not be unacceptable to the People's Republic, Congress

passed the Taiwan Relations Act of 1979, which replaced

official recognition of Taiwan with "relations between the

people of the United States and the people on Taiwan." 22

U.S.C. s 3301(b)(1). In addition to "preserv[ing] and pro-

mot[ing] commercial, cultural, and other relations" with the

people on Taiwan, id., Congress sought to protect the United

States' ongoing interest in "peace and stability in the area,"

id. s 3301(b)(2), and in the determination of Taiwan's future

by "peaceful means," id. s 3301(b)(3), (4); "to provide Taiwan

with arms of a defensive character," id. s 3301(b)(5); and to

prevent threats to "the security, or the social or economic

system, of the people on Taiwan," id. s 3301(b)(6). As Sena-

tor Church, the sponsor of the bill that became the Taiwan

Relations Act explained, Congress wanted to "make[ ] clear to

the people on Taiwan that we are not abandoning them" while

"simultaneously developing a mutually beneficial relationship

with the People's Republic of China." 125 Cong. Rec. 6709

(1979).

To facilitate this new and sensitive set of relations, the

Taiwan Relations Act created appellee, the American Insti-

tute in Taiwan. Given that the United States no longer had

an embassy on or ambassador to Taiwan, the Institute be-

came the entity through which "the people of the United

States" and "the people on Taiwan" maintain "extensive,

close, and friendly commercial, cultural, and other relations."

22 U.S.C. s 3301(a)(2), (b). The Act establishes the Institute

as "a nonprofit corporation incorporated under the laws of the

District of Columbia or ... such comparable successor non-

governmental entity as the President may designate." Id.

s 3305(a)(1)-(2). The Act "preempt[s]" any "law, rule, regu-

lation, or ordinance of the District of Columbia" "[t]o the

extent" it "impedes or otherwise interferes with the perfor-

mance of the functions of the Institute pursuant to [the Act]."

Id. s 3305(c).

The Taiwan Relations Act gives the Institute two primary

functions, both of which are to be carried out "in the manner

and to the extent directed by the President." 22 U.S.C.

s 3305(a), (b). First, the Institute "conduct[s] [and] carrie[s]

out" "[p]rograms, transactions, and other relations conducted

or carried out by the President or any agency of the United

States Government with respect to Taiwan." Id. s 3305(a).

Second, the Institute "enter[s] into, perform[s], [and] en-

force[s]" any "agreement or transaction" of the President or

any federal agency "relative to Taiwan." Id. s 3305(b). The

Institute also provides services to federal agencies, id.

s 3308, and performs "acts such as are authorized to be

performed outside the United States for consular purposes,"

id. s 3306(a)(3); acts performed in this latter connection

"shall be valid, and of like force and effect within the United

States, as if performed by any other person authorized under

the laws of the United States to perform such acts," id.

s 3306(b). The United States Comptroller General may audit

the Institute's books with respect to any funds made available

to the Institute by federal agencies. Id. s 3308(c).

The President delegated the lion's share of his authority

over the Institute to the Secretary of State. See Exec. Order

No. 12,143, 44 Fed. Reg. 37,191 (June 22, 1979), superseded

by Exec. Order No. 13,014, 61 Fed. Reg. 42,963 (Aug. 15,

1996). Under the Institute's bylaws, the Secretary appoints

and "may ... remove[ ] [the Trustees] at any time, with or

without cause." James Wood ex rel. United States of Amer-

ica v. Am. Inst. in Taiwan, No. 98-1952, slip op. at 13

(D.D.C. Feb. 28, 2001) (quoting United States' Mem. Supp.

Mot. to Dismiss at 6 n.3 (quoting Institute bylaws)) (internal

quotation marks omitted). The Board of Trustees appoints

both a Chairperson and a Managing Director, see id., and

" 'manage[s] and conduct[s]' " the Institute's " 'business and

affairs ... in accordance with the bylaws,' " Appellant's Br. at

8 (quoting Institute Articles of Incorporation).

The Institute carries out its statutory responsibilities pur-

suant to a contract with the State Department. Under that

contract, the Institute performs "consular and other functions

in Taiwan .... normally performed by the ... [State Depart-

ment] and other U.S. agencies at United States foreign

diplomatic posts." Compl. p 14. Among other things, the

Institute processes visa applications from foreign nationals

and provides travel-related services for Americans. The In-

stitute contracts with other government agencies to provide

"services ... similar to those ... provided by federal [embas-

sy] employees prior to the time the United States terminated

diplomatic relations with Taiwan." Id. p 13. For example,

the Institute conducts trade shows on behalf of the Depart-

ment of Commerce. The Institute has also entered into a

number of agreements with the Taipei Economic and Cultural

Representative Office in the United States, "the instrumental-

ity established by the people on Taiwan having the necessary

authority ... to ... take ... actions on behalf of Taiwan in

accordance with the [Taiwan Relations] Act," Exec. Order No.

13,014, 61 Fed. Reg. at 42,964, concerning such matters as

customs, energy, intellectual property rights, taxation, and

trade, see Agreements in Force as of December 31, 1997

Between the American Institute in Taiwan and the Taipei

Economic and Cultural Representative Office in the United

States, 63 Fed. Reg. 71,507 (Dec. 28, 1998).

Over half of the Institute's approximately $36 million in

annual revenue derives from the State Department contract.

Most of the remainder comes from either visa processing fees

or contracts with other federal agencies. Between $1.4 and

$1.5 million comes from trade shows.

Appellant James Wood served as the Institute's Managing

Director and chaired its Board of Trustees from 1995 to 1997.

Wood alleges that during his tenure, he discovered that the

Institute had defrauded the United States by making false

claims for payment under the State Department contract to

the tune of some $5.3 million. According to Wood, Institute

personnel accomplished this fraud by embezzling visa pro-

cessing fees and submitting false reports to the State Depart-

ment. In order to cover operating expenses, he alleges, the

Institute offset the embezzled amount by drawing additional

funds from the State Department contract. Wood claims that

when he reported the alleged fraud to the State Department,

the Trustees and State Department officials embarked on a

"campaign of retaliation, discrimination and intimidation"

against him, ultimately forcing him to resign. Compl. p 87.

Wood then filed a qui tam suit under the False Claims Act,

31 U.S.C. s 3730, in the United States District Court for the

District of Columbia. The False Claims Act permits a pri-

vate person, known as the "relator," to bring "a civil action

... for the person and for the United States Government ...

in the name of the Government," id. s 3730(b), against any

"person who ... knowingly presents, or causes to be present-

ed, to [the federal government] ... a false or fraudulent claim

for payment or approval," id. s 3729(a)(1). The relator

shares in any financial recovery. Id. s 3730(d). In addition

to the qui tam claim, Wood's complaint asserts retaliatory

discharge "because of lawful acts done ... in furtherance of

... [the qui tam] action." Id. s 3730(h).

Declining to intervene in Wood's suit, the United States, on

behalf of the Institute, moved to dismiss on the grounds of

sovereign immunity. The district court denied Wood's mo-

tion for discovery and an evidentiary hearing on the issue,

concluded that the Institute "is an arm of the sovereign ...

for purposes of [the Institute's] claim of sovereign immunity

under the [False Claims Act]," Wood, No. 98-1952, slip op. at

17, and dismissed the complaint. Wood now appeals, chal-

lenging the district court's sovereign immunity determination

as well as its denial of discovery.

II.

The Institute describes itself as an "agency or instrumen-

tality" of the United States not subject to suit under the

False Claims Act. Disagreeing, Wood argues that Congress's

decision to create the Institute as a "nonprofit corporation

incorporated under the laws of the District of Columbia, or

... comparable successor nongovernmental entity," 22 U.S.C.

s 3305(a)(1)-(2), demonstrates that the Institute is not a

governmental entity enjoying sovereign immunity, but rather

a private corporation providing services to the government.

Wood likens the Institute to Radio Free Europe/Radio Liber-

ty, the American National Red Cross, and Amtrak, three

corporations created by the federal government and char-

tered under state or District of Columbia law that courts have

held (or observed in dicta) are not part of the government for

some purposes. See Ralis v. RFE/RL, Inc., 770 F.2d 1121,

1124-25 (D.C. Cir. 1985) (holding that Radio Free Europe/Ra-

dio Liberty is not a "government controlled corporation"

within the meaning of the Age Discrimination Employment

Act); Marcella v. Brandywine Hosp., 47 F.3d 618, 622-24 (3d

Cir. 1995) (holding that Red Cross is not part of government

for purpose of immunity from jury trials in personal injury

suits, although Red Cross is "virtually ... an arm of the

[federal] government" entitled to immunity for some pur-

poses, including state taxation (internal quotation marks and

citation omitted)); Lebron v. Nat'l R.R. Passenger Corp., 513

U.S. 374, 391-92, 400 (1995) (noting in dictum that the

statutory provision that Amtrak "will not be an agency or

establishment of the United States government" "no doubt

... deprives Amtrak of sovereign immunity from suit," but

holding that Amtrak is "part of the Government" for First

Amendment purposes (internal quotation marks and citation

omitted)).

Although certainly relevant to the issue of sovereign immu-

nity, the Institute's nonprofit corporate status is hardly dis-

positive. Relying on the Institute's status alone would ignore

the governmental nature of its responsibilities and the exten-

sive control the government exerts over Institute operations.

Cf. Lebron, 513 U.S. at 400 (holding that Amtrak is "part of

the Government for purposes of the First Amendment" be-

cause the government created Amtrak "by special law" to

further "governmental objectives" and retained authority to

appoint a majority of Amtrak's corporate directors). Indeed,

the Institute has no role other than promoting and conducting

relations "between the people of the United States and the

people on Taiwan," a role it performs through governmental-

type activities such as processing visa applications, providing

consular services, and entering into agreements regarding

customs and trade. Wood himself describes the Institute as

performing activities that are not only "normally performed"

by the State Department "at ... foreign diplomatic posts,"

Compl. p 14, but are also similar to those "provided by federal

[embassy] employees prior to the time the United States

terminated diplomatic relations with Taiwan," id. p 13.

Under the Taiwan Relations Act, moreover, the Institute

carries out its core statutory functions--"programs," "trans-

actions," and "agreements"--as well as "services" to federal

agencies, "in the manner and to the extent directed by the

President," 22 U.S.C. s 3305(a), (b), or "upon such terms and

conditions as the President may direct," id. s 3308(b). Al-

though the Trustees " 'manage[ ] and conduct[ ]' " the Insti-

tute's " 'business and affairs,' " Appellant's Br. at 8 (quoting

Institute Articles of Incorporation), the Secretary of State

retains ultimate control over the Trustees through the power

of appointment and removal at will. As Wood conceded at

oral argument, the Institute may undertake no "activities ...

inconsistent with U.S. government policy." Tr. of Oral Arg.

at 13. Were this not the case, we cannot imagine how acts of

Institute employees could ever have the same "force and

effect" as "acts ... for consular purposes.... performed by

any other [authorized] person." 22 U.S.C. s 3306(a)(3), (b).

Put simply, though not an embassy, the Institute functions

like one. In Wood's words, the Institute "carr[ies] out U.S.

foreign policy." Appellant's Br. at 9. The Institute thus

differs quite significantly from Radio Free Europe/Radio

Liberty and the Red Cross. Finding Radio Free Europe/Ra-

dio Liberty not a governmental entity for ADEA purposes,

we emphasized that the corporation, though required to carry

programming "consistent with" U.S. foreign policy, operates

under an express statutory mandate to remain "an indepen-

dent broadcast media"; it thus retains "independence in

programming and broadcasting decisions" and "day-to-day

... operational control." RFE/RL, 770 F.2d at 1125-26

(internal quotation marks and citation omitted). Likewise, in

concluding that the Red Cross is not the government for

purposes of immunity from jury trials, the Third Circuit

thought it important that the Red Cross, in order "to proper-

ly fulfill its role ... in international ... activities[,] ... must

be independent of the United States government," and that

the government "does not manage the [Red Cross's] day-to-

day activities." Marcella, 47 F.3d at 624. "Independence" is

not a word one associates with the Institute. Indeed, the

Institute's foreign policy mission requires a fundamental lack

of independence from U.S. government control.

Lebron also differs from this case. There, the Supreme

Court held that Amtrak is "part of the Government" for First

Amendment purposes. 513 U.S. at 400. To be sure, the

court stated that Amtrak enjoys no sovereign immunity, id. at

392, but that observation, in addition to being dictum, rested

on a provision in the "authorizing statute ... that ... [Am-

trak] 'will not be an agency or establishment of the United

States Government,' " id. at 391 (quoting the Rail Passenger

Service Act of 1970, 84 Stat. 1330). In contrast, when Con-

gress used the words "nongovernmental entity" in the Taiwan

Relations Act, it did not create an independent corporation

like Amtrak. Instead, Congress established a vehicle

through which the United States could accomplish two seem-

ingly inconsistent objectives: fulfill its commitment to the

People's Republic to end official ties with Taiwan, yet main-

tain relations with the "people on Taiwan" through consular,

commercial, and cultural activities--even arms sales. To

hold, as Wood urges, that the Institute is not part of the

government would ignore this central foreign policy mission.

Galvan v. Federal Prison Industries reinforces our belief

that the Institute, notwithstanding its nonprofit corporate

status, remains very much part of the federal government.

199 F.3d 461 (D.C. Cir. 1999). Galvan involved a qui tam

suit against the Federal Prison Industries, an entity created

by Congress to provide work opportunities for federal in-

mates. Id. at 462. Pointing out that FPI is a "wholly owned

government corporation," and that its revenues are deposited

in the United States Treasury, we held that the suit was

"against the sovereign" because "any judgment in [the qui

tam relator's] favor would require FPI to pay damages

directly from the public treasury." Id. Although Institute

funds are not held in the United States Treasury, "[d]iversion

of resources from a private entity created to advance federal

interests has effects similar to those of diversion of resources

directly from the Treasury." Id. (internal quotation marks

and citation omitted). A False Claims Act judgment against

the Institute would have one of two consequences for the

government: either the government would have to make up

the loss (as Wood says it did with respect to the $5.3 million

in allegedly embezzled funds), or it would have to adjust its

relations with the "people on Taiwan," as the Act makes the

Institute the sole entity through which the United States

conducts such relations. Wood's suit is "against the sover-

eign," in other words, because the " 'judgment sought would

expend itself on the public treasury or domain, or interfere

with the public administration.' " Dugan v. Rank, 372 U.S.

609, 620 (1963) (quoting Land v. Dollar, 330 U.S. 731, 738

(1947)).

Insisting that a False Claims Act judgment against the

Institute would have no effect on the Treasury, Wood claims

that some Institute revenues--visa fees and funds generated

from trade shows, for example--come from what he calls

"independent sources" and could be used to pay the judg-

ment. Appellant's Br. at 29. We disagree. The Institute

issues visas and conducts trade shows pursuant to State and

Commerce Department contracts through which it fulfills its

statutory responsibility to "promote ... commercial, cultural,

and other relations between the people of the United States

and the people on Taiwan." 22 U.S.C. s 3301(b)(1). Reve-

nues generated by these activities, moreover, offset funds the

federal government would otherwise have to provide for the

Institute to fulfill its statutory and contractual obligations.

And at oral argument, Wood conceded that, were the Insti-

tute to close its doors and liquidate its assets, any remaining

funds would go to the federal government. Put another way,

it makes little difference from the government's perspective

whether a False Claims Act damages award is paid out of visa

and trade show revenues or from funds received from the

State Department or other federal agency--the effect on the

Treasury is essentially the same.

Wood next argues that even if the Institute is part of the

government, Congress waived sovereign immunity because

under D.C. law a nonprofit corporation "shall have power ...

to sue and be sued, complain, and defend, in its corporate

name." D.C. Code s 29-301.05 (West 2001). "A waiver of

the federal government's sovereign immunity must be un-

equivocally expressed in statutory text, and will not be im-

plied." Lane v. PeNa, 518 U.S. 187, 192 (1996) (internal

citations omitted). We construe statutory ambiguity in favor

of immunity: "So long as a statute supposedly waiving immu-

nity has a 'plausible' non-waiver reading, a finding of waiver

must be rejected." Galvan, 199 F.3d at 464 (quoting United

States v. Nordic Village, Inc., 503 U.S. 30, 37 (1992)).

Although FDIC v. Meyer holds that a sue-and-be-sued

clause represents a "broad waiver" of sovereign immunity,

510 U.S. 471, 475 (1994) (internal quotation marks and cita-

tion omitted), this case differs from Meyer in a significant

respect: In Meyer, the federal statute creating the FDIC

contained the sue-and-be-sued clause, while the clause in this

case appears not in the Taiwan Relations Act, but in the D.C.

Code. Given the presumption against waiver, we must there-

fore determine whether the Taiwan Relations Act has a

"plausible non-waiver reading"--that is, can we plausibly read

the Act to exempt the Institute from the sue-and-be-sued

clause? See Galvan, 199 F.3d at 464-66 (analyzing organic

statute to determine whether it could plausibly be read as

rendering D.C. Code's "sue and be sued" clause inapplicable).

Arguing that Congress intended the clause to apply to the

Institute, Wood points to Sloan Shipyards v. United States

Shipping Board Emergency Fleet Corp., 258 U.S. 549 (1922).

There, the Supreme Court found that a corporation formed

by the United States Shipping Board enjoyed no sovereign

immunity, id. at 566-68, because, as a D.C. corporation, it had

"the capacity to sue and be sued," id. at 565. Although like

the corporation in Sloan Shipyards, the Institute is incorpo-

rated under D.C. law, the Taiwan Relations Act adds an

additional wrinkle by way of the preemption clause, which

bars application of any provision of D.C. law that "impedes or

otherwise interferes with the [Institute's] performance." 22

U.S.C. s 3305(c). "Impede" the Institute's performance or

"otherwise interfere" with it is exactly what a False Claims

Act judgment would do. As we explained, the United States

would either have to make up any losses resulting from such

an award or live with any negative foreign policy conse-

quences that might flow from having to modify or reduce the

Institute's exclusive role. Because we can thus plausibly read

the Act to preempt the D.C. Code's sue-and-be-sued clause,

Congress has not waived the Institute's sovereign immunity.

Contrary to Wood's claim, our conclusion does not leave the

Institute free to operate in a "basically unregulated" "no-

man's land." Tr. of Oral Arg. at 14. The Comptroller

General may audit the Institute's books. 22 U.S.C. s 3308(c).

The State Department's Inspector General has jurisdiction to

investigate the Institute's operations and finances, as does the

Inspector General of every federal agency with which it

contracts. See 5 U.S.C. App. 3 ss 1-12 (Inspector General

Act). Even with sovereign immunity, therefore, the Institute

is hardly free from government oversight. That oversight

may not be what Wood prefers, but the fact remains that

some of the government's most powerful watchdog agencies

may investigate the Institute and its affairs.

III.

Wood contends that the district court erred in denying his

motion for discovery and an evidentiary hearing with respect

to two issues relating to the Institute's claim of sovereign

immunity: the sources of Institute funding and the precise

extent of government control over Institute operations. De-

nying Wood's motion, the district court explained that sover-

eign immunity turns "primarily" on legal rather than factual

conclusions. Wood, No. 98-1952, slip op. at 22. In the

context of foreign sovereign immunity claims, we have recog-

nized that district courts must afford plaintiffs " 'ample op-

portunity to secure and present evidence relevant to the

existence of jurisdiction.' " Phoenix Consulting, Inc. v. Re-

public of Angola, 216 F.3d 36, 40 (D.C. Cir. 2000) (quoting

Prakash v. Am. Univ., 727 F.2d 1174, 1179-80 (D.C. Cir.

1984)). "In order to avoid burdening a sovereign that proves

to be immune from suit, however, ... [such] discovery should

be carefully controlled and limited." Id. The same princi-

ples apply here.

Reviewing for abuse of discretion, see Goodman Holdings

v. Rafidain Bank, 26 F.3d 1143, 1147 (D.C. Cir. 1994), we find

no fault with the denial of discovery on the issue of control.

The district court had no need to resolve disputed factual

issues, relying (as have we) on the Act, bylaws, and Articles

of Incorporation, which themselves ensure virtually total ex-

ecutive branch control. Thus, even if, as Wood sought to

demonstrate through discovery, the Institute exercises "day-

to-day control over [its own] business and financial affairs,"

Appellant's Br. at 29, the Institute would remain part of the

United States government.

The district court did make several factual findings regard-

ing Institute funding, including some findings based on asser-

tions in the Government's brief. Statements by counsel, of

course, are not evidence. See, e.g., Brown v. INS, 775 F.2d

383, 388 (D.C. Cir. 1985). As Wood conceded at oral argu-

ment, however, in order to resolve this appeal we need not

rely on district court findings concerning disputed details of

the Institute's finances. As we have explained, undisputed

evidence regarding the nature of Institute funding, together

with the Institute's exclusive foreign relations role and the

government's extensive control over it, leave no doubt that

the Institute enjoys sovereign immunity.

The decision of the district court is affirmed.

So ordered.