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Dandong Old North-East Agriculture & Animal Husbandry Co., Ltd. v. Hu

United States District Court, S.D. New York

August 3, 2017

DANDONG OLD NORTH-EAST AGRICULTURE & ANIMAL HUSBANDRY CO., LTD. f/k/a DANDONG PASITE GRAIN AND OIL CO., LTD., Plaintiff,
v.
GARY MING HU, YUHUA WANG ESTHER HU MANGAN, JOHN DOES 1 to 10, and JANE DOES 11 to 20, Defendants.

          OPINION AND ORDER

          KATHERINE POLK FAILLA United States District Judge.

         Plaintiff Dandong Old North-East Agriculture & Animal Husbandry Co., Ltd. (“Plaintiff” or “Dandong”) alleges claims under the federal Racketeer Influenced and Corrupt Organizations Act (commonly known as “RICO”) and New York law against its former executive, Gary Ming Hu, and others. In brief, Plaintiff contends that Hu conspired with individuals and entities to defraud Plaintiff into paying above-market prices for tons of soybeans, and then laundered proceeds of that fraud through New York real estate purchases involving his ex-wife, Yuhua Wang, and their daughter, Esther Hu Mangan.

         Plaintiff filed its initial complaint on December 23, 2015. After settling with several defendants named in that document, Plaintiff filed an Amended Complaint on November 28, 2016, naming only Hu, Wang, and Mangan as defendants. At present, Hu is incarcerated in China and has not appeared in this action.

         Before the Court is the joint motion of Wang and Mangan (collectively, “Defendants”) to dismiss the claims asserted against them. Both Defendants move to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), and Mangan also moves to dismiss for want of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). As set forth in the remainder of this Opinion, the Court finds that although personal jurisdiction properly lies over both defendants, Plaintiff fails to state a claim under 18 U.S.C. § 1962(d), because it does not properly allege that Defendants' conduct caused a domestic injury to its business. And because the Court dismisses the federal-law claim over which it has original jurisdiction, it declines to exercise supplemental jurisdiction over any related state-law claims. Accordingly, Defendants' motion to dismiss is granted in full.

         BACKGROUND[1]

         A. Factual Background

         1. The Parties

         Plaintiff is one of the largest purchasers of soybeans produced in the United States. (Am. Compl. ¶¶ 5, 22). The company is incorporated in China and maintains a principal place of business in Dandong City, China. (Id. at ¶ 5). There, Plaintiff maintains an enormous factory that manufactures soybean oil and meal for distribution to consumers. (Id. at ¶ 23). Plaintiff relies on the receipt of a specific volume of soybean shipments from its suppliers (which are located principally in the United States and Brazil) to process approximately 5, 600 metric tons of soybeans per day. (Id. at ¶¶ 23, 36).

         Defendant Gary Ming Hu served as Plaintiff's Executive Director and General Manager from 2008 until 2010. (Am. Compl. ¶¶ 37, 83 n.2). A citizen of the United States, Hu maintained a residence in New York during the time he worked for Plaintiff. (Id. at ¶ 7). But since September 2013, Hu has been incarcerated in China following convictions stemming from the same events underlying this action. (Id.). Hu was initially convicted of diverting funds from Plaintiff's expense accounts during his time of employment. (Id.). His sentence was recently increased to twenty years after a subsequent conviction for perjury and making “materially false statements” to conceal his activities to defraud Plaintiff. (Id. at ¶¶ 68, 93).

         Defendant Yuhua Wang is Hu's former wife. (Am. Compl. ¶ 9). According to Plaintiff, she is a current resident and domiciliary of Flushing, New York. (Id.). Defendant Esther Hu Mangan is their daughter. (Id. at ¶¶ 9-10). Mangan is a United States citizen who is domiciled in Seattle, Washington. (Id. at ¶ 10). Plaintiff believes that Hu, with help from Wang, Mangan, and other players in the soybean industry, conspired to divert funds received from soybean contracts between Plaintiff and various United States suppliers as described further in this section. (Id. at ¶¶ 9-10).

         2. Standard Practices in the Soybean Industry

         As background, Plaintiff explains that there are common practices in the soybean industry to which buyers and sellers adhere when negotiating contracts. (Am. Compl. ¶ 25). Because soybean prices frequently fluctuate, buyers settle on a list of alternative prices per soybean bushel either with brokers, or with sellers who contract on behalf of the soybean suppliers. (Id. at ¶ 35). These alternative prices anticipate changes in soybean prices during the purchase and shipment periods. (Id. at ¶ 27). The buyer then selects a final purchase price by the “pricing cutoff date, ” which typically occurs before the soybeans arrive by vessel at the buyer's port. (Id. at ¶ 29). Finally, buyer and broker open an irrevocable letter of credit, which is provided before the soybeans are shipped. (Id. at ¶ 32). According to Plaintiff, the letter of credit favors the seller because it represents a value that covers “price fluctuations while the shipment is in transit.” (Id.). A buyer defaults on the contract by failing to provide a letter of credit, but once the letter is provided, it “nearly always result[s] in a credit owed to the buyer at the close of the transaction.” (Id.).

         3. Hu's Alleged Fraud

         Plaintiff hired Hu as an Executive Director and General Manager on August 26, 2008. (Am. Compl. ¶ 35). Acting as an agent on Plaintiff's behalf, Hu had sole authority to negotiate contracts with brokers in the United States and Brazil. (Id.). Plaintiff expected Hu to analyze market trends and “obtain the best available price for the shipment of soybeans” under the alternative pricing lists set forth in each contract. (Id. at ¶¶ 35, 40, 42). But instead of meeting these expectations, Hu conspired with Wang, Mangan, and various soybean brokers to steal company funds. (Id. at ¶ 48).

         According to Plaintiff, between April 2009 and December 2010, Hu “manipulate[d] contracts and pricing” to overcharge Plaintiff. (Am. Compl. ¶ 43). In particular, Hu entered into twenty-three contracts on Plaintiff's behalf where the price of soybeans was significantly inflated. (Id. at ¶¶ 41, 42). By inflating the contract prices, Hu forced Plaintiff to pay more “than it actually should have based on current commodity prices.” (Id. at ¶ 43). In theory, these overpayments would have entitled Plaintiff to refunds “for the difference between the [letter of credit] and the final price.” (Id.). But Hu concealed the refunds by sending Plaintiff documents that reflected “incorrect - and higher - prices” above the soybeans' market value. (Id. at ¶ 57). The scheme resulted in losses to Plaintiff exceeding $10.877 million. (Id. at ¶ 44).

         Worse yet, Hu was also secretly “working for, and being paid by at least one soybean broker (seller) on the same contracts he was ostensibly negotiating for the benefit of [Plaintiff].” (Am. Compl. ¶ 49). Hu “took affirmative steps to conceal” this dual employment, and in so doing reaped two salaries in addition to the “fraudulently-obtained profit” from his contract-inflation scheme. (Id. at ¶¶ 40, 57(c)).

         4. The Role of Hu's Co-Conspirators

         While Plaintiff overpaid on each contract, Hu took the overages and “wrongfully caused those refunds to be sent to parties other than Plaintiff.” (Am. Compl. ¶ 44). According to Plaintiff, Hu transmitted the proceeds to others “by interstate and/or international wire” to bank accounts in China, Hong Kong, and New York. (Id. at ¶¶ 45-46). Plaintiff believes that Hu continued to transmit funds even after his abrupt resignation from Plaintiff's company in December 2010. (Id. at ¶¶ 41, 83 n.2).

         Wang and Mangan helped Hu to conceal his fraudulent conduct. (Am. Compl. ¶ 100). Between 2010 and 2013, Hu wire-transferred proceeds from the fraudulent scheme to Wang's and Mangan's New York bank accounts. (Id. at ¶¶ 74, 82). The two women then took steps to “hide the unlawful proceeds” in real estate investments. (Id. at ¶¶ 175-77). In particular, Wang and Mangan used $674, 000 of the proceeds to purchase two condominiums in Flushing, New York. (Id. at ¶ 101).

         5. Plaintiff's Damages from the Alleged Fraud

         Plaintiff claims that in the niche soybean market, the viability of a soybean buyer's business depends on its reputation as an honest negotiator. (Am. Compl. ¶ 24). And because the soybean industry has limited sources of supply, a buyer with poor credibility will lose substantial business by being unable to contract with sellers at a competitive price. (Id.).

         After Hu's resignation, Plaintiff undertook investigations that revealed just how extensively Hu's schemes had damaged the company. (Am. Compl. ¶¶ 97, 110). These damages are outlined in the Amended Complaint. First, Plaintiff sustained monetary losses on each of the twenty-three contracts that Hu allegedly overpriced. (Id. at ¶ 120). These losses comprised the price difference between the amount that Plaintiff paid and the actual market value of the soybeans, extra customs fees, and increased costs associated with insurance and letters of credit. (Id.).

         Additionally, Hu's actions damaged Plaintiff's business reputation. (Am. Compl. ¶ 113). Several news sources in the United States published articles about Hu's fraudulent scheme and subsequent conviction. (Id. at ¶ 118). These articles, in turn, prompted suppliers to cut ties with Plaintiff. (Id. at ¶ 114). One sales representative specifically advised Plaintiff of its belief that Plaintiff “did not honor contracts and had [business] trouble” because of its association with Hu. (Id.). Indeed, Plaintiff lost its main soybean supplier in the United States as a result of its damaged reputation. (Id. at ¶ 111).

         Ultimately, Plaintiff was forced to slow its business operations at its factory in China. (Am. Compl. ¶ 122). As a consequence of losing its main supplier, Plaintiff reduced the rate at which it processed soybeans and terminated approximately ninety employees. (Id.). This reduction in business operations then caused Plaintiff to lose much of its market share of the soybean oil and meal it manufactured. (Id. at ¶ 123).

         B. Procedural Background

         Plaintiff filed the initial complaint in this action on December 23, 2015. (Dkt. #1). After settling with certain of Hu's alleged co-conspirators, Plaintiff filed its Amended Complaint on November 28, 2016. (Dkt. #73). The Court held a conference to discuss the motion to dismiss proposed by Defendants Wang and Mangan on December 6, 2016. (Dkt. #74). Wang and Mangan subsequently filed their motion to dismiss the Amended Complaint on December 21, 2016. (Dkt. #78). Plaintiff opposed the motion on March 1, 2017 (Dkt. #88-90), and briefing concluded when Wang and Mangan filed a reply memorandum in support of their motion to dismiss on March 24, 2017 (Dkt. #94).

         DISCUSSION

         A. Personal Jurisdiction Is Properly Exercised Over Defendant Mangan 1. Motions to Dismiss Under Fed.R.Civ.P. 12(b)(2)

         Before addressing Defendants' motion to dismiss under Rule 12(b)(6), the Court considers Defendant Mangan's antecedent motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2). In this setting, “the plaintiff bears the burden of establishing that the court has jurisdiction over the defendant.” Elsevier, Inc. v. Grossman, 77 F.Supp.3d 331, 341 (S.D.N.Y. 2015) (“Elsevier I”) (internal quotation marks omitted) (citing DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001)). Prior to discovery, a plaintiff can establish that the court has jurisdiction over a defendant by “pleading in good faith, legally sufficient allegations of jurisdiction.” Id. (internal quotation marks omitted) (citing Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013)); see also AmTrust Fin. Servs., Inc. v. Lacchini, No. 16 Civ. 2575 (PAE), 2017 WL 728262, at *6 (S.D.N.Y. Feb. 23, 2017) (citing In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 659, 673 (2d Cir. 2013) (“In order to survive a motion to dismiss for lack of personal jurisdiction, a plaintiff must make a prima facie showing that jurisdiction exists.”)).

         A plaintiff makes sufficient allegations of jurisdiction by introducing “affidavits and supporting materials, containing an averment of facts that, if credited, would suffice to establish jurisdiction.” AmTrust, 2017 WL 728262, at *6 (internal quotation marks omitted) (quoting S. New Eng. Telephone Co. v. Global NAPs Inc., 624 F.3d 123, 138 (2d Cir. 1993)). All jurisdictional allegations “are construed in the light most favorable to the plaintiff and doubts are resolved in the plaintiff's favor[.]” Elsevier I, 77 F.Supp.3d at 341 (internal quotation marks omitted) (quoting A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993)). But even this solicitude does not permit a court to “draw argumentative inferences, ” or to accept a conclusory statement “couched as a factual allegation.” In re Terrorist Attacks, 714 F.3d at 673 (internal quotation marks and citations omitted).

         Federal courts engage in a two-step analysis to determine whether the exercise of personal jurisdiction is proper. AmTrust, 2017 WL 728262, at *6. First, a court must determine whether it has a statutory basis for exercising personal jurisdiction. In re Braskem S.A. Sec. Litig., __F.Supp.3d__, No. 15 Civ. 5132 (PAE), 2017 WL 1216592, at *23 (S.D.N.Y. Mar. 30, 2017) (internal quotation marks omitted) (quoting Marvel Characters, Inc. v. Kirby, 726 F.3d 119, 129 (2d Cir. 2013)). It does so by looking to Federal Rule of Civil Procedure 4 “unless a federal statute specifically provide[s] for national service of process.” Id. (quoting PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997)). If a federal statute does not provide for national service of process, a court may still exercise jurisdiction if, under Federal Rule of Civil Procedure 4(k)(1)(A), the defendant is subject to the jurisdiction in the state where the district court is located. See Fed. R. Civ. P. 4(k)(1)(A). Second, a federal court must consider whether its exercise of personal jurisdiction comports with due process. Hecklerco, LLC v. YuuZoo Corp. Ltd., No. 15 Civ. 5779 (VM), 2017 WL 2294606, at *5 (S.D.N.Y. May 11, 2017) (citing Licci ex rel. Licci v. Lebanese Can. Bank, SAL, 732 F.3d 161, 168 (2d Cir. 2013)).

         2. Summary of the ...


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