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Air China Limited v. Li

March 31, 2009

AIR CHINA LIMITED, PLAINTIFF,
v.
NELSON LI (A/K/A SHENG LI), JOHN A. VARACCHI (A/K/A JOHN A. DAVIS), GEORGE F. DONOHUE, JAY KOPF (A/K/A JACOB M. KOPF) CHRISTIAN DEUTSCH, WBM-JMK DEVELOPMENT LLC (D/B/A WBM INTERNATIONAL DEVELOPMENT), JMK CONSTRUCTION GROUP LTD., TCC INTERIORS, LTD., GMAC REAL ESTATE LLC, GMAC REAL ESTATE IPG NEW YORK, DEFENDANTS.



The opinion of the court was delivered by: Laura Taylor Swain, District Judge

MEMORANDUM OPINION AND ORDER

In this action arising out of an alleged ongoing fraudulent scheme, Plaintiff Air China Limited ("Air China") asserts statutory claims for violations of the Racketeer Influenced Corrupt Organization Act ("RICO"), 18 U.S.C. §§ 1961-1968, and New York General Business Law § 349. Plaintiff also asserts New York state common law claims for breach of fiduciary duty, conversion, unjust enrichment, negligence, negligent misrepresentation, fraud in the inducement and deceit, and an accounting. The Court has subject matter jurisdiction of Plaintiff's RICO claims pursuant to 28 U.S.C. § 1331 and of Plaintiff's state law claims pursuant to 28 U.S.C. § 1367. Defendants Nelson Li ("Li"), John A. Varacchi ("Varacchi"), George F. Donohue ("Donohue"), Jay Kopf ("Kopf"), Christian M. Deutsch ("Deutsch"), WBM-JMK Development LLC ("WBM-JMK"), JMK Construction Group Ltd. ("JMK Construction"), TCC Interiors, Ltd. ("TCC"), GMAC Real Estate LLC ("GMAC") and GMAC Real Estate IPG New York ("GMAC IPG") move for judgment on the pleadings and dismissal of the Complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(c).*fn1 The Court has considered thoroughly the Plaintiff's Complaint and Civil RICO Statement (collectively, "Pleadings") as well as Defendants' Motion to Dismiss, Plaintiff's Opposition to the Motion to Dismiss, and Defendants' Reply. For the following reasons, Defendants' motion is denied in part and granted in part.

BACKGROUND

The following facts, alleged in Plaintiff's Pleadings, are taken as true for the purposes of this motion to dismiss. See Blue Tree Hotels Inv. (Canada), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004).

In early 2003, Plaintiff, an "international public company" that provides air passenger service, air cargo service, and airline related services, with a principal place of business in Beijing, China, decided to develop its property at 485 West Broadway, Long Beach, New York (the "Property"), in order to house its airline workers during their stays in New York (Compl. ¶¶ 5, 22). To that end, Plaintiff requested that the William B. May Company ("William B. May)",*fn2 a longstanding participant in the New York real estate business community, submit a proposal for the renovation of Plaintiff's property (the "Air China Project") (Compl. ¶ 23). Defendant George F. Donohue responded to Plaintiff's request in a letter written on William B. May Company letterhead and dated June 12, 2003 ("Initial Letter"), in which Donohue claimed to be "President" of William B. May and stated his intention of providing Plaintiff with a proposal (id.).*fn3

In later correspondence, Defendants*fn4 used the name of an inactive corporation, William B. May International, Inc. ("WBMI"), which had been dissolved by the New York Secretary of State due to non-payment of franchise taxes (Compl. ¶ 24). Defendants used the name in communications with Plaintiff in order to deceive Plaintiff into believing that Defendants were associated with William B. May (id.). Defendants Li, Donohue and Deutsch submitted a written proposal to provide management services to Plaintiff on June 26, 2003 ("June 2003 Proposal"), claiming that WBMI had been incorporated in 1866 and employed more than 200 real estate professionals, thereby providing the false appearance that WBMI (technically a non-entity) was William B. May (id.). The June 2003 Proposal represented that Deutsch, Donohue and Li were WBMI's Chief Executive Officer, President, and Managing Director, respectively (id.).

Li, Kopf, Varacchi and Donohue, on behalf of WBMI, also submitted a second proposal on June 26, 2003, the "Overhaul Plan," to provide contracting services to Plaintiff with respect to the Property. The Overhaul Plain included a false representation that "WBMID," an entity which in fact did not exist, was a "wholly owned subsidiary of WBMI," and made false representations about WBMI in order to associate Defendants with William B. May (Compl. ¶¶ 25-26). Donohue carried on his work from the offices of GMAC, a Delaware limited liability company controlled by Deutsch (Pl.'s Civil RICO Stmt. p. 3) with its principal place of business at 505 8th

Avenue, New York, New York (Compl. ¶¶ 16, 30). William B. May has never carried out business from that address nor has William B. May associated itself with GMAC. GMAC lists Deutsch and Li among its sales associates, although neither is licensed by New York State Department of Licensing to sell real estate or to otherwise hold himself out as a sales agent (Compl. ¶¶ 16, 42). Plaintiff asserts that GMAC has provided a base of operations for the alleged RICO enterprise, as Defendants have used GMAC's address and phone number in communications with Plaintiff.

Throughout 2004, Defendants continued to deceive Plaintiff into believing that they were associated with William B. May and that they would work on the Air China Project. Li provided Plaintiff with a "February 2004 Professional Assessment Report" that repeated the false claims of association with William B. May and included additional falsehoods with respect to Defendants' qualifications (Compl. ¶ 38). On March 4, 2005, Defendants submitted a formal bid for the Air China Project ("2005 Bid"), in which Defendants continued to use GMAC's contact information and identified themselves by the corporate name "WBM International Development LLC," which also was a non-entity (Compl. ¶ 42). The 2005 Bid was supplemented by additional letters sent by Donohue in March 2005.

Plaintiff relied on Defendants' various false representations and executed a contract dated May 31, 2005 ("May 2005 Agreement"), by which Plaintiff agreed to pay "WBM International Development, LLC" nearly $4,000,000 for Defendants to provide "turn-key" contracting services for the Air China Project, which was to be completed within eight months (Compl. ¶¶ 44-56). Donohue signed the contract on behalf of Defendants. The May 2005 Agreement included a payment schedule. In June 2005, Plaintiff made its first two payments, totaling over $900,000, payable to the non-entity "WBM International Development, LLC" (Compl. ¶ 51). Defendants subsequently formed a new entity, WBM-JMK Development LLC ("WBMJMK"), and that entity filed a certificate of assumed name that enabled it to deposit Plaintiff's payments directed to non-entity WBM International Development, LLC. The May 2005 Agreement provided that WBM International Development would perform all work as a general contractor. The provision was unlawful, as the non-entity was not licensed to perform such work. In fact, Kopf was the only defendant licensed to perform contracting services in New York, and he obtained permits on behalf of Defendants to carry out the Air China Project through a New York corporation he controlled, Defendant JMK Construction (Compl. ¶¶ 55-76). Defendants not only perpetrated their fraudulent scheme against Plaintiff, but they used the names of a non-existent entity in their filings with the New York State Department of Taxation and Finance (Compl. ¶ 78) and in their transactions with national banks (Pl.'s Civ. RICO Stmt. p. 14).

Throughout 2005 and 2006, Defendants held themselves out as "WBM International Development, LLC," represented to Plaintiffs that they were pursuing the Air China Project diligently but that numerous hurdles were delaying the project's completion, and demanded additional payments for a variety of reasons. Plaintiff generally complied with the demands for payment. These additional payments ultimately resulted in Plaintiff's payment of more money than originally contemplated in the May 2005 Agreement despite Defendants' failure to complete the project (Compl. ¶¶ 79-86, 133). Many of the communications between the parties occurred through use of the mail (Pl.'s Civ. RICO Stmt. pp. 5-28). Kopf directed a portion of the proceeds from Plaintiff's payments to an entity he controlled that was purported to be a subcontractor, Defendant TCC (Compl. ¶¶ 102-04).

Plaintiff became suspicious of Defendants by, at the latest, July 2007, when Plaintiff demanded an accounting from Defendants and threatened litigation (Compl. ¶¶ 131-36). Defendants did not respond to Plaintiff's requests for explanations, and Plaintiff ordered Defendants to stop all work on the project and terminated the relationship in August 2007 (Compl. ¶ 137). At that point Plaintiffs had paid Defendants over $2,000,000 above the price contemplated in the May 2005 Agreement, and hundreds of thousands of dollars of work remained necessary to complete the project (Compl. ¶ 144).

DISCUSSION

A motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) is determined under the same standard as a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Shaw v. Rolex Watch U.S.A., Inc., 745 F. Supp. 982, 984 (S.D.N.Y. 1990). To survive dismissal, the plaintiff must allege facts sufficient "to raise a right to relief above the speculative level." ATSI Commc'ns., Inc. v. The Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007)). The elements of Plaintiff's RICO claim that are based on Defendants' alleged fraud are subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b), which requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed. R. Civ. P. 9(b). The plaintiff must "(1) specify the statements that the plaintiff contends were ...


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