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Tagc Management, LLC, A Nevada Limited Liability Company, Tagc I, LLC v. Edward Eugene Lehman

August 26, 2011

TAGC MANAGEMENT, LLC, A NEVADA LIMITED LIABILITY COMPANY, TAGC I, LLC, A NEVADA LIMITED LIABILITY COMPANY, AND TOTAL ACCESS GLOBAL CAPITAL, LLC, A TEXAS LIMITED LIABILITY COMPANY, PLAINTIFFS,
v.
EDWARD EUGENE LEHMAN, AN INDIVIDUAL, KAROLINA LEHMAN, AN INDIVIDUAL, SCOTT GARNER, AN INDIVIDUAL, LEHMAN, LEE & XU LIMITED, A HONG KONG CORPORATION, HOME & GARDEN LIMITED, A HONG KONG CORPORATION, LEHMAN, LEE & XU PATENT AND TRADEMARK AGENTS LIMITED, A HONG KONG CORPORATION, LEHMAN, LEE & XU CORPORATE SERVICES LIMITED, A HONG KONG CORPORATION, LEHMAN, JONES & PARTNERS (HK) LIMITED, A HONG KONG CORPORATION, LEHMAN CGS LIMITED, A HONG KONG CORPORATION, LEHMAN & CO MANAGEMENT, LTD., A BRITISH VIRGIN ISLANDS COMPANY, AND DOES 1-10 INCLUSIVE, DEFENDANTS



The opinion of the court was delivered by: Richard J. Holwell, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiffs TAGC Management, LLC, TAGC I, LLC, and Total Access Global Capital, LLC are a group of companies that attempted to start a credit card business in China. Defendants are a law firm, certain lawyers at the firm, and business entities related to the firm and the firm's principals, all located in China, who were to provide plaintiffs with legal and other professional services for plaintiffs' credit card business. After plaintiffs transferred over $1 million to defendants to begin the project, however, they became skeptical and demanded that the moneybe returned. Defendants refused to return the money, and plaintiffs subsequently initiated this action alleging violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. ("RICO"), of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), and several state law causes of action. Defendant Scott Garner is an associate at the defendant law firm who billed ten hours to the project. Garner, proceeding pro se, now moves to dismiss arguing that the Court lacks personal jurisdiction over him. Garner is correct. Because Garner has no connections whatsoever to New York, has never availed himself of the privilege of doing business in New York, and has not consented to this Court's jurisdiction, the Court lacks jurisdiction against him, and he is dismissed from this action. For that reason, explained more fully below, Garner's motion is granted in its entirety.

FACTUAL SETTING

Plaintiffs are Nevada and Texas limited liability companies with their principal places of business in Utah. (Compl. ¶¶ 4-6.) Defendant Lehman, Lee & Xu Limited (the "Lehman Firm") is a Hong Kong law firm with its principal place of business in Beijing, China, and offices located throughout mainland China, as well as in Chicago and New York in the United States. (Id. ¶ 7, and Ex. B.) Defendant Edward Eugene Lehman is an American citizen living in Beijing and is the Managing Director of the Lehman Firm. (Id. ¶ 8, and Ex. A.) Defendant Scott Garner is an attorney licensed by, and in good standing in, the state of Georgia. (Unsworn Affidavit of Scott Garner ("Garner Aff.") at unnumbered page 2; Compl. ¶ 11.) Garner graduated from law school in 2007 and has since worked as an associate at the Lehman Firm. (Garner Aff. at unnumbered page 2.) Garner has no assets in New York, has never transacted business in New York, has no clients in New York, has never purposefully directed communications towards New York, has no friends or relatives in New York, has "never visited or set foot in" New York, and does not practice law anywhere in the United States. (Id. at 1-2.)

In early 2010, William R. Dunavant, one of plaintiffs' principals, began communicating with the Lehman Firm in connection with the performance of a variety of legal and professional services relating mainly to a project for offering credit cards in China. (See Compl. ¶ 16, and Ex. E.) To that end, Dunavant and Lehman exchanged several emails on January 31, 2010, and February 1, 2010, concerning the details of the project. (See generally Compl. Ex. E.) Early in the morning on February 1, Lehman sent Dunavant an email urging that the project "needs to establish a presence in China immediately," and stating:

Scott Garner (a CPA and JD who also has an MBA from Thunderbird) will coordinate this effort from a professional standpoint and will send you an engagement letter from out law firm under separate cover today . . . while you [] and I explore the more entrepreneurial side of this operation. (Id. at unnumbered page 2.) Later on the same day, Garner emailed Dunavant stating:

Lehman ask [sic] that I forward to you our standard retainer agreement with my proposed retainer amount . . . . [I] propose a retainer amount of USD 150,000. If you find the terms of our engagement letter acceptable, please sign the engagement letter . . . . As soon as out accounts department confirms receipt of the retainer amount, our attorneys will immediately begin work on this project. (Id. at unnumbered page 1.) After this exchange, "Garner caused a proposal to be sent to [Dunavant] requesting that [Dunavant] place $2.2 million on deposit with [defendants]." (Compl. ¶ 19.) Plaintiffs do not allege that they signed this proposal, titled "Business Operations Agreement," and the copy included in the Complaint's exhibits is unsigned, contains several blank terms, and contains a "track changes" edit. (See id., and Ex. G at 4.)

In early May 2010, Dunavant and other principals at the plaintiff companies exchanged several rounds of emails with Lehman "regarding a potential new engagement involving a variety of financial transactions . . . including, but not limited, to, establishing a Hong Kong corporation to act as a party to financial transactions and the establishment of a Hong Kong bank account." (Compl. ¶¶ 21-22.) It is unclear whether these transactions or discussions were part of, or otherwise related to, the earlier credit card project. Garner was copied on some, but not all, of the emails. (See generally, Compl. Exs. H, I.) Garner also sent an undated letter to a lawyer named Kevin Christian affiliated with plaintiffs listing "the funds we have received to date." (Compl. Ex. J; see also Compl. Ex. H.) These payments totaled $1,132,850, and the last of the five listed transfers occurred on June 7, 2010. (Compl. Ex. J.) Plaintiffs allege that these funds were transferred to defendants under certain escrow agreements between the parties relating to the projects the parties had been pursuing. (Compl. ¶¶ 23, 24.) Plaintiffs include as an exhibit an Escrow Agreement between the Lehman Firm and a Utah Corporation named Landshark Real Estate LLC otherwise not mentioned in any submission from either party. (See Compl. Ex. V at unnumbered page 9, 11.) Garner billed Dunavant for 9.8 hours at $420 per hour-a total of $4,116-between June 9, and June 30, 2010. (Pl.'s Opp'n Ex. B.)

In early July 2010, the relationship between plaintiffs and Lehman apparently soured. Plaintiffs requested that the escrowed funds be returned. (Compl. ¶ 25.) And Lehman wrote back that "[b]est I can see TAGC is a fraud, and the request which has been made is tantamount to money laundering as to what has been proposed. Nothing will be done for the time being. I am seeking legal advice as to how to proceed." (Compl. Ex. L.) Plaintiffs then secured legal counsel and, after several emails between plaintiffs' counsel and Lehman, plaintiffs filed this action on September 2, 2010. Plaintiffs assert federal RICO and Exchange Act securities fraud claims, as well as state law claims for, inter alia, conversion, breach of fiduciary duty, professional negligence, fraud, unjust enrichment, and false advertising against all defendants. (See generally Compl. ¶¶ 43-101.) Plaintiffs allege that they "initially brought this action in the United States District Court for the Central District of California on July 23, 2010," (id. ¶ 1), and that "[d]efendants Lehman Lee & Xu Limited [the Lehman Firm] and Lehman Jones & Partners (HK) Limited objected to the venue and contended that they had no contacts with the State of California and consented to jurisdiction in this Court pursuant to a Motion to Dismiss." (Id.)

Garner, proceeding pro se, filed this motion to dismiss for lack of personal jurisdiction in February 2011. Despite technical filing deficiencies, the Court accepted the motion in March, and plaintiffs have since filed opposition papers and Garner reply papers.

DISCUSSION

"A court is 'obligated to dismiss an action against a defendant over which it has no personal jurisdiction' upon motion by that defendant." Stone v. Ranbaxy Pharm., Inc., No. 10 Civ. 8816, 2011 WL 2462654, at *1 (S.D.N.Y. June 16, 2011) (quoting In re Ski Train Fire, 230 F. Supp. 2d 403, 406 (S.D.N.Y. 2002)). "A plaintiff opposing a motion to dismiss a complaint for lack of personal jurisdiction pursuant to Rule 12(b)(2) 'bears the burden of establishing that the court has jurisdiction over the defendant'" Anderson v. Marr, No 10 Civ. 818, 2011 WL 3423694, at *4 (S.D.N.Y. July 18, 2011) (quoting DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001)). Prior to discovery, the plaintiff need only plead facts which, if true, would establish jurisdiction over the moving defendant. Id.; Stone, 2011 WL 2462654 at *1. "At the pre-discovery stage, a court may consider documents beyond the pleadings in determining whether personal jurisdiction exists, and any pleadings and other documents considered by the Court must be interpreted in the light most favorable to the plaintiff." Anderson, 2011 WL 3423694, at *4. "However, conclusory allegations are not enough to establish personal jurisdiction." Capitol Records, L.L.C. v. SeeqPod, Inc., 09 Civ. 1584, 2010 WL 481228, at *2 (S.D.N.Y. Feb. 1, 2010) (quoting Gmurzynska v. Hutton, 257 F. Supp. 2d 621, 625 (S.D.N.Y. 2003)). Instead the allegations supporting jurisdiction "must be 'factually supported.'" Yellow Page Solutions, Inc. v. Bell Atlantic Yellow Pages Co., 00 Civ. 5663, 2001 WL 1468168, at *3 (S.D.N.Y. Nov. 19, 2001) (quoting Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990)).

"In assessing whether personal jurisdiction is authorized under New York law, the Court looks to whether the defendant is either 'present' in New York or has committed acts within the scope of New York's long-arm statute." Ford v. Department of Soc. Servs., No 10 Civ. 3800, 2011 WL 1458138, at *2 (S.D.N.Y. Mar. 22, 2011) (citing N.Y. C.P.L.R. §§ 301, 302). Alternatively, personal jurisdiction may exist under Federal Rule of Civil Procedure 4(k)(2) when "(1) the plaintiff's cause of action arises under federal law, (2) the defendant is not subject to the jurisdiction of any one state, and (3) the exercise of personal jurisdiction over the defendant is consistent with the requirements of due process." Kiobel v. Royal Dutch Petroleum Co., 02 Civ. 7618, 2010 WL 2507025, at *6 (S.D.N.Y. June 21, 2010) (citing Porina v. Marward Shipping Co., Ltd., 521 F.3d 122, 127 (2d Cir. 2008)).

N.Y. C.P.L.R. § 301 N.Y. C.P.L.R. § 301 provides for personal jurisdiction with respect to any cause of action over a defendant who "is 'doing business' and is therefore 'present' in New York." Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir. 2000). Defendant must "do[] business in New York not occasionally or casually, but with a fair measure of permanence and continuity." Id. (internal quotation marks omitted). "In order to establish that this standard is met, a plaintiff must show that a defendant engaged in continuous, permanent, and substantial activity in New York." Id. (internal quotation marks omitted). New York courts consider several factors in this analysis "including 'the existence of an office in New York; the solicitation of business in New York; the presence of bank accounts or other property in New York; and ...


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