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SEG VANGUARD GENERAL CORP. v. JI

April 16, 2002

SEG VANGUARD GENERAL CORPORATION PLAINTIFF,
V.
JIANXIONG JI, A.K.A. PETER J.X. JI, HUA LI, JIANWEN JI, A.K.A. MARK JI, BESTON, DEVELOPMENT, INC., AND PIERCE INTERNATIONAL CORP., DEFENDANTS.



The opinion of the court was delivered by: VICTOR Marrero, United States District Judge.

DECISION AND AMENDED ORDER

Plaintiff filed this action on July 9, 2001, alleging, inter alia, claims of fraud and unjust enrichment against the defendants. Plaintiff further alleged that the Court's subject matter jurisdiction over the action was based on a diversity of citizenship between the parties, pursuant to 28 U.S.C. § 1332. On December 11, 2001, defendants filed a motion to dismiss, pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), 17(a) and 17(b), asserting inter alia, that the Court lacked subject matter jurisdiction over this matter due to a lack of complete diversity among the parties. For the reasons set forth below, defendants' motion to dismiss is granted.

I. BACKGROUND

SEG Vanguard is a wholly owned subsidiary of Hainan SEG International Trust and Investment Corporation (hereinafter "SEG International") and is incorporated under the laws of New York. On March 30, 2000, defendant Peter Ji was terminated as president of SEG Vanguard for alleged misconduct and misappropriation of company funds. (Affidavit of Mei May Ruan, dated December 17, 2001 (hereinafter "Ruan Aff."), Exhibit B and Compl. ¶¶ 13-31.) Until this time, SEG Vanguard had maintained offices at 17 State Street, New York, New York.

On April 14, 2000, Mei May Ruan (hereinafter "Ruan") became President of SEG Vanguard, allegedly to "wind down" the company's affairs and to prosecute this case against the defendants. (Ruan Aff. ¶ 8.) Accordingly, SEG Vanguard terminated the lease of its offices in New York, sold certain assets, and officially changed its address to Ruan's home in Livingston, New Jersey. (Id. ¶ 10-11.) The company also designated Ruan's home as the address for service of process of the company. (Id. ¶ 13.) On August 21, 2000, the Company filed an application with the New Jersey Department of Treasury for reinstatement of its authority to do business in New Jersey. (See Supplemental Affidavit of Grant R. Cornehls, dated March 1, 2002, (hereinafter "Cornehls Aff."), Ex. C.)

From Ruan's home, SEG Vanguard conducted a number of activities, allegedly for the sole purpose of winding down the business and prosecuting this action. It employed Cindy Dong (hereinafter "Dong") as an accountant to assist SEG Vanguard in its year-end preparation of books for taxes and similar documents to "keep SEG in good standing in New York." (Id. ¶ 16.) The company paid Ruan an annual salary of approximately $30,550 and Dong an annual salary of approximately $26,250. (See Transcript of March 22, 2002 Hearing (hereinafter "Hearing Tr."), at 27 and Defendants' Exhibit 7, Received at March 22, 2002 Hearing (hereinafter "Defs.' Ex."), at 3.) The company also paid for the medical and dental insurance premiums for Ruan and Dong. (Id.)

In addition to the employment of Ruan and Dong, SEG Vanguard continued to maintain its bank account with United Orient Bank, located at 10 Chatam Square in New York, New York. A review of the records of this account indicates that from October 2000 through January 2002, SEG Vanguard wrote over one hundred checks, many of which were for several thousand dollars. (See Defs.' Ex. 7.) During the same time period, SEG Vanguard made numerous deposits into its account. Many of these deposits were over $10,000 and one deposit, on February 16, 2001, was in the amount of $100,364.10. (Id.)

In 2001, Ruan also served as president of another company, called Golden Shuttle International Inc. (hereinafter "Golden Shuttle"), which was created to attract investors for projects in China. (Hearing Tr. at 45.) Golden Shuttle was an active corporation owned by a joint venture of SEG affiliated companies called Hangzhou Westlake Golf Country Club (hereinafter "Westlake"). At some point in the past, Golden Shuttle was owned by SEG International, the same company that owned SEG Vanguard at the time this action was commenced. (Id. at 43.) Golden Shuttle has no employees and it is managed by Ruan from her home address. (Id. at 47.) Although the company was purportedly owned by Westlake, it received funds from SEG International. (Id. at 49.)

From October 2000 through January 2002, Golden Shuttle made a number of loans to SEG Vanguard for an approximate total of $200,000. These loans are reflected in SEG Vanguard's bank deposits during the same period (Hearing Tr. at 28 and Defs.' Ex. 7), and were used to pay business related expenses, such as the salaries and insurance premiums for Ruan and Dong, the company's payroll taxes, and telephone bills. (Hearing Tr. at 33.)*fn1

On July 9, 2001 SEG Vanguard filed the instant action, alleging claims of conversion, diversion of corporate opportunities, unjust enrichment, accounting, fraud and breach of fiduciary duties. On December 12, 2001, defendants filed a motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), 17(a) and 17(b). On December 20, 2001, SEG Vanguard filed a response in opposition to the motion to dismiss and on December 26, 2001, defendants filed a reply. On January 17, 2002, the Court held a hearing on the motion and ordered that the parties conduct expedited discovery related to the issue of subject matter jurisdiction and appear for a second hearing in March 2002. On March 1, 2002, both SEG Vanguard and defendants filed pre-hearing briefs in opposition to and in further support of the motion to dismiss. On March 22, 2002, the Court held a second hearing, during which Ruan and Dong testified about SEG Vanguard's past and current activities. At the end of the hearing, the Court ruled preliminary on the record that SEG Vanguard had not met its burden of establishing the Court's subject matter jurisdiction. Subsequently, the Court entered an Order on March 27, 2002 granting defendants' motion and indicating that the Court's reasoning would be the subject of a further decision and amended order.

II. DISCUSSION

A. LEGAL STANDARDS

A motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction "can raise a facial challenge based on the pleadings, or a factual challenge based on extrinsic evidence." See Guadagno v. Wallack Ader Levithan Assoc., 932 F. Supp. 94, 95 (S.D.N.Y. 1996). In addition, the court may conduct "whatever further proceedings are appropriate to determine whether it has jurisdiction." Id. In determining whether diversity of citizenship exists, "the court may consider evidence outside the pleadings, such as documentary evidence and witness testimony, and no presumptive truthfulness attaches to the complaint's jurisdictional allegations." Peters v. Timespan Communications, Inc., No. 97 Civ. 8750, 1999 WL 135231, at *3 (S.D.N.Y. March 12, 1999) (citations omitted). See also Integrated Utilities Inc. v. United States, No. 96 Civ. 8983, 1997 WL 529007, at *2 (S.D.N.Y. Aug. 26, 1997) ("[A]rgumentative inferences favorable to the party asserting jurisdiction should not be drawn.").

SEG Vanguard brought its complaint against the defendants under 28 U.S.C. § 1332, which provides that "[t]he district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interests and costs, and is between citizens of different States." 28 U.S.C. § 1332(a)(1). The statute further provides that "a corporation shall be deemed to be a citizen of any State by which ...


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