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

February 1, 2012

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 as well as business entities and individuals related to the firm, all located in China, that plaintiffs had retained for legal and other professional services in preparation for plaintiffs' credit card business project in China. After plaintiffs transferred over $1 million to defendants to begin the project, however, the relationship soured and plaintiffs demanded that the money be 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"), Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), Sections 43(a)(1)(A) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A), and several state law causes of action. Pro se defendant Scott Garner, an associate at the defendant law firm Lehman, Lee & Xu Ltd., had previously moved to dismiss, and the Court granted that motion for lack of personal jurisdiction over Garner. The remaining defendants, alleging that plaintiffs' service of process was defective, now move to dismiss pursuant to Fed. R. Civ. P. 12(b)(5). For the reasons explained below, their motion is GRANTED in part and DENIED in part. The Court deems plaintiffs' service of process on corporate defendant Lehman, Lee & Xu Ltd. to be valid and GRANTS plaintiffs' application for an order of attachment against Lehman, Lee & Xu Ltd.. Plaintiffs are given leave to effect proper service of process upon corporate defendant Lehman, Jones & Partners (HK) Ltd., which had consented to jurisdiction in this Court during a related action previously filed in California court.

FACTUAL SETTING

Plaintiffs are limited liability companies incorporated in Nevada and Texas with principal places of business in Utah. (Compl. ¶¶ 4-6.) Corporate defendant Lehman, Lee & Xu Ltd. (the "Lehman firm") is a Hong Kong company with its principal place of business located in Beijing, China and, according to an undated printout from a webpage that the Lehman firm has since removed from its website, a New York office located at 410 Park Avenue 15th Floor, PMB#1205, New York, NY 10022 (Id. ¶ 7, and Ex. B.) Corporate defendants Lehman, Jones & Partners (HK) Ltd., Lehman, Lee & Xu Patent and Trademark Agents Ltd. ("LLX P & T"), Lehman & Co. Management Ltd. ("L & Co."), Lehman, Lee & Xu Corporate Services Ltd., Lehman CGS Ltd., and Home & Garden Ltd. ("H&G") are Hong Kong and British Virgin Islands companies which plaintiffs allege have principal places of business in Beijing, China and operate out of a New York office located at 410 Park Avenue 15th Floor, PMB#1205, New York, NY 10022. (Compl. ¶¶ 7 and 10.) Individual defendant Edward E. Lehman ("Lehman"), the Managing Director of the Lehman firm as well as the president and sole owner of L & Co. and LLX P & T, is a U.S. citizen residing in Beijing, China. (Compl. ¶ 8; Affidavits of Edward E. Lehman ("Lehman Affs").) Individual defendant Karolina Lehman, the president and sole owner of H&G, is a Polish citizen residing in Beijing, China who has never lived, worked, or done business in New York. (Compl. ¶ 9; Affidavits of Karolina Lehman ("Karolina Affs.").)

During the period roughly spanning February to early July of 2010, plaintiffs retained the Lehman firm for legal and professional services to start a credit card business in China and allegedly transferred to the firm over $1 million in various escrow accounts on behalf of plaintiffs' client investors. (Compl. ¶¶ 16-23, and Ex. J.) In early July 2010, the relationship between plaintiffs and defendant Lehman deteriorated. After Lehman refused to confirm in writing that he had set up a Hong Kong bank account for plaintiff Total Access Global Capital and transferred the funds from escrow to this Hong Kong bank account, as he allegedly promised to do in a recorded phone conversation, plaintiffs demanded that the funds be either returned to the original investors or back to plaintiff Total Access Global Capital's U.S. bank account for a new set of escrow instructions. (Id. ¶¶ 24-25, and Ex. K.)

In response to the request that funds be moved back to plaintiff Total Access Global Capital's U.S. bank account, Lehman wrote that "TAGC is a fraud, and the request which has been made is tantamount to money laundering . . . . Nothing will be done for the time being." (Id. Ex. L.) Plaintiffs engaged legal counsel to request the return of funds to plaintiffs' account and after attempting to resolve the issue through a series of email communications, filed an action in this Court on September 3, 2010. Plaintiffs had previously brought this action in the United States District Court for the Central District of California in July 2010 (Case No. 10-CV-05447 PSG (JEMx)). Two corporate defendants, the Lehman firm and Lehman, Jones & Partners (HK) Ltd., had objected to the California venue and consented to jurisdiction in this Court by means of a declaration filed in conjunction with their motion to dismiss. Accordingly, plaintiffs dismissed the action in California without prejudice and re-filed in this Court. (Compl. ¶¶ 1 and 13.)

On September 20, 2010, all seven corporate and individual defendants were allegedly served by hand delivery of a copy of the summons and complaint at 410 Park Avenue 15th Floor, PMB#1205, New York, NY 10022 ("410 Park Avenue, New York"). The documents were served on a woman identified in the affidavits of service as "Jane Smith", who apparently refused to state her true name but held herself out as someone authorized to accept service on behalf of all corporate and individual defendants. (Pls' Opp'n Defs.' Mot. Dismiss at 4, Exs. E and F.) Plaintiffs also make the puzzling claim that "[t]he process server effectuated service on the security guard of the building who refused to allow the process server access to the office suite listed as [defendants'] proper business address." (Id. at 4.) It is not clear whether the security guard and "Jane Smith" are the same individual, and whether the process server effectuated service by either gaining access to office suite 1205 at a later point in time or by serving "Jane Smith" in the office building lobby. A copy of the summons and complaint was also mailed to each defendant at 410 Park Avenue, New York, which plaintiffs claim is the defendants' last known place of mailing. (Id. at Exs. E and F.)

Defendants now move to dismiss the complaint for failure to effect service of process on all defendants. Specifically, they claim that service on the individual defendants Edward and Karolina Lehman was defective under Fed. R. Civ. P. 4 because (1) their address for service is in Beijing, China, and (2) 410 Park Avenue was neither individual defendant's actual place of business, location of physical presence on a regular basis, or site of physical proximity to their residence. Defendants also claim that service on the corporate defendants was defective under Fed. R. Civ. P. 4, Section 311(a) of the New York Civil Practice Law and Rules ("CPLR"), as well as Sections 306 and 307(a) of the New York Business Corporation Law ("BCL") because they are foreign corporations not authorized to do business in New York, and plaintiffs failed to effect personal service on any officer, director, managing agent, or general agent of the entities named. (Defs.' Mot. Dismiss at 4-6.)

DISCUSSION

On a motion to dismiss pursuant to Rule 12(b)(5) for deficient service of process, "the plaintiff bears the burden of establishing that service was sufficient." Khan v. Khan, 360 Fed. Appx. 202, 203 (2d Cir. 2010) (citing Burda Media, Inc. v. Viertel, 417 F.3d 292, 298 (2d Cir. 2005)); see Kwan v. Schlein, 441 F.Supp.2d 491, 496 (S.D.N.Y. 2006). Plaintiff must meet this burden by making a prima facie case of proper service "through specific factual allegations and any supporting materials," Kwon v. Yun, No. 05 Civ. 1142 (GEL), 2006 WL 416375, at *2 (S.D.N.Y. Feb. 21, 2006), and conclusory statements alone are not sufficient to overcome a defendant's sworn affidavit that service was improper. Darden v. DaimlerChrysler N. Am. Holding Corp., 191 F.Supp.2d 382, 387 (S.D.N.Y. 2002).

When considering a Rule 12(b)(5) motion to dismiss for insufficient service of process, "a court must look to matters outside the complaint to determine whether it has jurisdiction." Mende v. Milestone Tech., Inc., 269 F.Supp. 2d 246, 251 (S.D.N.Y. 2003) (quoting Darden v. DaimlerChrysler, 191 F.Supp.2d at 387). "If service of process was not sufficient, the Court has discretion to dismiss the action, but dismissal is not mandatory." Darden v. DaimlerChrysler, 191 F.Supp.2d at 387. The Court may, for example, simultaneously grant a defendant's Rule 12(b)(5) motion to dismiss and a plaintiff leave to properly serve that defendant. Stone v. Ranbaxy Pharm., Inc., No. JFM--10--CV--08816, 2011 WL 2462654, at *6 (S.D.N.Y. June 16, 2011).

I.Individual Defendants: Edward and Karolina Lehman

A.Lack of Personal Jurisdiction

The Second Circuit in Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560 (2d Cir. 1996) has summarized the two-prong test for whether a ...


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