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Wuxi City Runyuan Keji Ziaoe Daikuan Co. Ltd. v. Xu

United States District Court, Ninth Circuit

July 30, 2013

XUEWEI XU, an individual; SHENG XU, an individual; HAIRONG CAO, et al., Defendants.


DEAN D. PREGERSON, District Judge.

Presently before the court is Defendant's Motion to Dismiss Plaintiffs' Complaint ("Motion"). Having reviewed the parties' submissions, the Court grants the Motion and adopts the following Order.

I. Facts

Plaintiff Wuxi City Runyan Keji XiaoE Daikuan Co., Ltd. ("Wuxi" or "Plaintiff") is a Chinese business entity with its principal place of business in the Jiangsu Province of the People's Republic of China. (Complaint at ¶ 7.) Plaintiff "is licensed by the Government of the People's Republic of China to lend small amounts of money to qualified borrowers for approved and legitimate use." (Id.) Plaintiff alleges that Defendants Xuexi Xu, Sheng Xu, Shubin Zhao, and Hairong Cao conspired to defraud Plaintiff of funds and to divert the funds to Defendants Repet, Repet Group, and America TBS. (Id. at ¶ 22.) Defendants Xuewei Xu, Sheng Xu, Cao, and Zhao maintain an ownership interest in, are employees of, and operate Repet, Repet Group, and America TBS. (Id. at ¶¶ 17-20.) Repet, Repet Group, and America TBS are all California companies engaged in the business of processing post-consumer plastic used in making water bottles and polyethylene terephthalate flakes. (Id. at ¶¶ 17-19, 21.) The companies are alleged to be alter egos. (Id. at ¶ 21.) Repet was incorporated in 2009, America TBS was incorporated in 2010, and Repet Group was incorporated on December 4, 2012. (Id. at ¶¶ 17-10.)

Plaintiff alleges that Defendants Xu and Cao arranged for a series of ten commercial loans in the amount of RMB ¥ Five Million, or approximately $806, 452.00, on the following dates: August 1-6, 2012 (loan 1), August 17, 2012 (loan 2), August 28, 2012 (loans 3-5), September 10, 2012 (loans 6-8), October 19, 2012 (loans 9-10). (Id. at ¶¶ 24-33.) In each case, Plaintiff distributed the loan proceeds to an account over which Cao and Xu had access and control. (Id.) The loans were intended to provide working capital for Jiangyin City XinRong HuaXian Co., Ltd. (owned by Cao) and Jiangyin City ShengChang KeJi Co., Ltd. (owned by Xu), but they were not used for that purpose. (Id. at ¶ 36.)

Instead, the Defendants "diverted the proceeds of the above-referenced loans out of the People's Republic of China, and upon information and belief, to bank accounts controlled by Repet, Repet Group, and America TBS, as well as other accounts for Defendants' personal use." (Id. at ¶ 37)(capitalizations omitted). The Plaintiff alleges that the Defendants were able to divert the proceeds by using a complex scheme of transfers. (Id. at ¶ 102.) The Plaintiff alleges that from August 9, 2010, to April 28, 2012, a group of Chinese nationals, including Jingxia Gu, Huixiang Xu, Xuewei Xu, Pang Zhang, Xinjun Hu, Junhong Gu, and Feifan Chen transferred ¥ 28, 442, 000 from Defendants' bank accounts to bank accounts controlled by Xiaoting Li and Yishong Chen. (Id.) Chen and Li are alleged to regularly engage in illegal cross-border transfers of money from the People's Republic of China to Hong Kong. (Id.) Once the money was transferred to Chen and Li in Hong Kong, they transferred it to the Defendants' U.S. bank accounts. (Id.)

The funds were diverted for operating capital to Repet, Repet Group, and America TBS, and for the individual Defendants' personal use. (Id. at ¶ 37.) Xu left China for the United States on November 21, 2012, and he now resides in California. (Id. at ¶ 34.) Cao left China on an unknown date and now resides in California. (Id. at ¶ 35.) Plaintiff asserts claims for breach of contract, fraud in the inducement, fraud, conversion, unjust enrichment, vicarious liability, and civil RICO.

Plaintiff has previously filed a complaint with the same allegations against the Defendants. (Case No. 5:12-cv-00274-DDP-SP.) The Court granted the Defendants' motion to dismiss while giving the Plaintiff leave to amend. (Id. at Dkt. No. 38.) The Plaintiff failed to file an amended complaint within the time limits, and the Court dismissed the case without prejudice. (Id. at Dkt. No. 40.)

Defendants move to dismiss because: (1) the doctrine of collateral estoppel bars Plaintiff from reltiigating its RICO claim, which is the basis of this Court's subject matter jurisdiction, (2)Plaintiff failed to state a claim for civil RICO and, without that cause of action, the Court will lack jurisdiction over the action, (3) Plaintiff lacks standing to bring a RICO claim, and (4) a forum selection clause agreed to by the parties requires any litigation to occur in China.

II. Legal Standard

A complaint will survive a motion to dismiss when it contains "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570 (2007)). When considering a Rule 12(b)(6) motion, a court must "accept as true all allegations of material fact and must construe those facts in the light most favorable to the plaintiff." Resnick v. Hayes , 213 F.3d 443, 447 (9th Cir. 2000). Although a complaint need not include "detailed factual allegations, " it must offer "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal , 556 U.S. at 678. Conclusory allegations or allegations that are no more than a statement of a legal conclusion "are not entitled to the assumption of truth." Id. at 679. In other words, a pleading that merely offers "labels and conclusions, " a "formulaic recitation of the elements, " or "naked assertions" will not be sufficient to state a claim upon which relief can be granted. Id. at 678 (citations and internal quotation marks omitted).

"When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. at 679. Plaintiffs must allege "plausible grounds to infer" that their claims rise "above the speculative level." Twombly , 550 U.S. at 555, 556. "Determining whether a complaint states a plausible claim for relief" is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal , 556 U.S. at 679.

III. Discussion

Defendants move to dismiss due to issue preclusion, lack of subject matter jurisdiction, lack of ...

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