Applying federal common law, the Ninth Circuit denies foreign sovereign immunity to four state-owned Chinese companies charged with economic espionage

Against the background of the trade war between China and the United States, the Ninth Circuit yesterday rejected four state-owned Chinese companies’ claim of foreign sovereign immunity in their prosecution for economic espionage in United States v. Pangang Group Company, Ltd., No. 22-10058 (Apr. 28, 2025).

The panel was composed of Kim McLane Wardlaw, Daniel P. Collins, and Daniel A. Bress, Circuit Judges, with Judge Collins writing.

In 2011, state-owned Pangang Group Company, Ltd., and three subsidiaries were indicted for economic espionage in connection with their alleged efforts to steal trade secrets from E.I. du Pont relating to the production of titanium dioxide. This was the second appeal in the Pangang Companies’ long-running effort to dismiss the indictments based on foreign sovereign immunity.

While this appeal was pending, the Supreme Court held that federal common law, and not the Foreign Sovereign Immunities Act, governs whether foreign states and their instrumentalities are entitled to foreign sovereign immunity from criminal prosecution in U.S. courts.

Under federal common law, an entity must satisfy, at minimum, two conditions to enjoy foreign sovereign immunity from suit. First, it must be the kind of entity that is eligible for any immunity at all—that is, it must fall within the domain of foreign sovereign immunity. Second, its immunity must extend to the conduct at issue in the suit— that is, the entity’s conduct must fall within the scope of the immunity conferred on such entities. The panel held that the Pangang Companies did not fall within the domain of foreign sovereign immunity, and did not address the issue of scope.

Drawing on the Restatement (Second) of Foreign Relations Law (1965), the panel held that the federal common law extends the immunity of a foreign state to “a corporation created under its laws and exercising functions comparable to those of an agency of the state.” An “agency” means a body having the nature of a government department or ministry.

Under this formulation, the Pangang Companies did not make prima facie showing that they exercise functions comparable to those of an agency of the People’s Republic of China. Although they are state-owned, and the PRC directs state-owned companies with an eye towards coordinating the national economy, the Pangang Companies are ordinary commercial enterprises engaged in the production of steel and non-ferrous metals. The companies’ economic espionage, although it helped to accomplish the PCR’s publicly-acknowledged objective of developing specific titanium dioxide production technology, is not a function comparable to that of an agency of the state. Finally, principles of deference to the Executive Branch on matters touching on foreign relations reinforce the conclusion that, under federal common law, the Pangang Companies are not entitled to immunity.

The decision is here.

Also yesterday, the Ninth Circuit held that a defendant is not eligible for the two-level adjustment for certain zero-point offenders is they received a leadership enhancement or were engaged in a continuing criminal enterprise in United States v. Gonzalez-Loera, No. 24-1013 (Apr. 28, 2025) (Bennett, J., writing).

Effective November 1, 2023, Amendment 821 to the Sentencing Guidelines provides for a two-level adjustment of the offense level for certain zero-point offenders, found at U.S.S.G. § 4C1.1(a). The Sentencing Commission made the amendment retroactive, and appellant Roberto Gonzalez-Loera moved for a sentence reduction under 18 U.S.C. § 3282(c)(2). The district court denied the motion, reasoning that Loera, who received a leader or organizer enhancement, did not satisfy § 4C1.1(a)(10), which requires that “the defendant did not receive an adjustment under § 3B1.1 (Aggravating Role) and was not engaged in a continuing criminal enterprise, as defined in 21 U.S.C. § 848.”

Because “and” connects two negative statements, the panel held that the plain language of § 4C1.1(a)(10) has two separate requirements, and a defendant must satisfy both to be eligible for the adjustment. All other Circuits to have addressed the issue agree, the Ninth Circuit itself interpreted similar language in the safety-valve statute to disqualify a defendant who received either a leadership enhancement or was engaged in a continuing criminal enterprise, and the Sentencing Commission clarified its intention in separating the two requirements in two subsections effective November 1, 2024. See U.S.S.G. § 4C1.1(a)(10), (11). Loera received a leadership enhancement, so he was ineligible for a sentence reduction.

The decision is here.