United States District Court, S.D. New York
DANDONG OLD NORTH-EAST AGRICULTURE & ANIMAL HUSBANDRY CO., LTD. f/k/a DANDONG PASITE GRAIN AND OIL CO., LTD., Plaintiff,
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.
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.
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
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.
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,
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).
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).
Standard Practices in the Soybean Industry
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
Hu's Alleged Fraud
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
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).
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,
The Role of Hu's Co-Conspirators
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).
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).
Plaintiff's Damages from the Alleged Fraud
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.
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.
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).
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).
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).
Personal Jurisdiction Is Properly Exercised Over Defendant
Mangan 1. Motions to Dismiss Under Fed.R.Civ.P.
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
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
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)).
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