United States District Court, C.D. California
TATUNG COMPANY, LTD.
SHU TZE HSU, ET AL
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For Tatung Company Ltd, a Foreign Corporation, Plaintiff: Benjamin L Wagner, Daniel Thomas Pascucci, LEAD ATTORNEYS, Eric Joseph Eastham, Mintz Levin Cohn Ferris Glovsky & Popeo, San Diego, CA; Joseph S Wu, LEAD ATTORNEY, USASIA Law, La Jolla, CA; Peter A Biagetti, LEAD ATTORNEY, Mintz, Levin Cohn Ferris Glovsky and Popeo P.C., Boston, MA; Joseph R Dunn, Mintz Levin Cohn Ferris Glovsky and Popeo PC, San Diego, CA.
For Shu Tze Hsu, a foreign national, Shou-Por Houng, a foreign national, Rui-Lin Hsu, a foreign national, Defendants: John A Kithas, LEAD ATTORNEY, Christopher Land, Law Offices of John A Kithas, San Francisco, CA.
For Chin-Ying Hsu, a foreign national, Nexcast, LLC, a Delaware LLC, Defendants: Gary A Pemberton, LEAD ATTORNEY, Shulman Hodges and Bastian LLP, Irvine, CA.
For Li Fu Investment Co, a foreign corporation, Defendant: Gopi K Panchapakesan, Bird Marella Boxer Wolpert Nessim Drooks and Lincenberg LLP, Los Angeles, CA; Karis Ann-Yu Chi, Bird Marella Boxer Wolpert Nessim Drooks Lincenberg & Rhow, Los Angeles, CA; Paul S Chan, Bird Marella Boxer Wolpert Nessim Drooks & Lincenberg, Los Angeles, CA.
WDE Solution, Inc, a foreign corporation, Defendant, Pro se.
For Chimei Trading Co., Ltd, a foreign company, Rich Demander LTD, a foreign company, Defendants: Daniel Sakaguchi, Armstrong Teasdale LLP, St Louis, MO.
Bollington Enterprises, Ltd, a foreign company, Defendant, Pro se.
For Westinghouse Digital LLC, a California Limited Liability Company, Defendant: Carol S Zaist, LEAD ATTORNEY, Newmeyer & Dillion LLP, Newport Beach, CA; Robyn E Frick, Newmeyer & Dillion, Newport Beach, CA.
For Peak Paradise Enterprises Co., Ltd, a foreign company, Defendant: Paul L Gale, Troutman Sanders LLP, Irvine, CA.
For Douglas Woo, a California citizen, Benson Lin, a California citizen, John Araki, a California citizen, David Chen, a California citizen, Defendants: Joshua David Mendelsohn, Keith A Sipprelle, Van Etten Suzumoto and Sipprelle LLP, Westlake Village, CA.
For Arthur Moore, a California citizen, Juan Salcedo, a California citizen, Westinghouse Digital, LLC, a Delaware limited liability company, Defendants: Carol S Zaist, LEAD ATTORNEY, Newmeyer & Dillion LLP, Newport Beach, CA.
PRESENT: THE HONORABLE DAVID O. CARTER, JUDGE.
DAVID O. CARTER, JUDGE.
CIVIL MINUTES -- GENERAL
PROCEEDINGS (IN CHAMBERS): ORDER PARTIALLY GRANTING MOTIONS TO DISMISS 
Before the Court are three matters: Defendant Chin-Ying Hsu's Motion to Dismiss (Dkt. 58), Defendants Shu Tze Hsu, Shou-Por Houng, and Jui-Ling Hsu's Motion to Dismiss (Dkt. 109), and Defendant Westinghouse Digital LLC's Motion to Dismiss. Having considered the written submissions, the Court DENIES Shu Tze Hsu, Shou-Por Houng, and Jui-Ling Hsu's Motion to Dismiss, GRANTS in part and DENIES in part Chin-Ying Hsu's Motion to Dismiss, and GRANTS in part and DENIES in part Westinghouse Digital LLC's Motion to Dismiss.
The following is a summary of the allegations contained in the First Amended Complaint (" FAC" ) (Dkt. 49).
A. The Parties
1. Plaintiff Tatung Company, Ltd.
Plaintiff Tatung Company, Ltd. (" Tatung" ) is a corporation formed under the laws of the Republic of China, Taiwan. FAC ¶ 4. Tatung operates manufacturing facilities in Asia (including Taiwan and the People's Republic of China), producing consumer electronic goods for customers around the world. FAC ¶ 4.
Tatung brings suit against twenty-eight defendants, broadly categorized as the " Houng Family Defendants," the " Operational Defendants," and a variety of business entities. See FAC 3-14. The defendants are all related, in one way or another, to Richard Houng and WDE. See generally FAC. Richard Houng and WDE are not parties to this action and a judgment of over $26.7 million has previously
been entered against them. FAC ¶ 1.
a. Houng Family Defendants
Defendants Shu Tze Hsu, Shou-Por Houng, Chin-Ying Hsu, Jui-Ling Hsu, Jack Houng, and Howard Houng (together, " Houng Family Defendants" ) are all Taiwanese nationals. FAC ¶ ¶ 6-11. The Court will break down the relations generationally: Chin-Ying Hsu is the mother of Shu Tze Hsu and Jui-Ling Hsu, FAC ¶ 8; Shu Tze Hsu and Shou-Por Houng are married, and their children are Jack Houng, Howard Houng, and non-party Richard Houng, FAC ¶ ¶ 6-7, 9-11.
b. Operational Defendants
Defendants Douglas Woo, Benson Lin, John Araki, David Chen, Arthur Moore, and Juan Salcedo are all U.S. citizens and residents of California. FAC ¶ ¶ 14, 16-20. Defendants Jennifer Huang and Yu Hui Chen are Taiwanese nationals. FAC ¶ ¶ 17, 21.
c. Other Defendants
Defendants RH Holdings, LLC, Nexcast, LLC, and Westinghouse Digital, LLC are limited liability companies organized under the laws of the State of Delaware with their principal place of business in Orange County, California. FAC ¶ ¶ 13, 25-26. Li Fu Investment Co., Westinghouse Digital (Taiwan), Ltd., and ChiMei Trading Co., Ltd. are companies organized under the laws of Taiwan. FAC ¶ ¶ 22, 27, 29. WDE Solution, Inc., Gorham Investment Holding Co., Ltd., Bollington Enterprises, Ltd., and NEO Star Development, Ltd. are companies organized under the laws of the British Virgin Islands. FAC ¶ ¶ 24, 28, 31, 34. Northwood Partners, Ltd. is a company organized under the laws of Hong Kong. FAC ¶ 33. Rich Demander, Ltd. is a company organized under the laws of Vietnam. FAC ¶ 30. Peak Paradise Enterprises Co., Ltd. is a company organized under the laws of Samoa. FAC ¶ 32. Finally, Hung-Wen Chen is a Taiwanese national who is the director of Northwood Partners, Ltd. FAC ¶ 35.
B. Underlying Facts
Senior members of the Houng Family Defendants--Shou-Por Houng, Shu Tze Hsu, Chin-Ying Hsu, and Jui-Ling Hsu--have long been involved in international manufacturing and trade through a family-operated, multinational conglomerate operating under the " Chi Mei" name (the " Chi Mei Companies" ). FAC ¶ 72. Throughout the 1990s, non-party Richard Houng, the eldest son of Defendants Shu Tze Hsu and Shou-Por Houng, was groomed by the Chi Mei Companies and served as general manager of the China subsidiaries of one of the Chi Mei Companies. FAC ¶ 73.
By late 2003, senior members of the Houng Family Defendants began expanding the influence of the Chi Mei Companies into the United States consumer electronics market, particularly in the fields of LCD computer monitors and televisions. FAC ¶ 73. Richard Houng, a then-recent business graduate of the University of Southern California, was tasked by the Houng Family Defendants to launch the " Sham Enterprise," which is the network of business entities built around non-party Westinghouse Digital Electronics (" WDE" ). FAC ¶ 73.
In 2004, WDE was projected to operate at or above $250 million in annual revenue. FAC ¶ 74. The Houng Family Defendants designed the " Sham Enterprise" to meet two goals: (1) shift the risk of capitalizing their venture onto its creditors and (2) deliver any profits or business opportunities
from the United States back to the larger Chi Mei Companies. FAC ¶ 74.
With the help of the Operational Defendants, many of them being legal and accounting professionals, the Houng Family Defendants employed a complex financing scheme, which left WDE undercapitalized, while making it appear to be a well-capitalized stand-alone United States company. FAC ¶ ¶ 75-77. Off-shore entities were created in well-known tax havens to infuse WDE with " uncharacterized" funds on an " as-needed" basis. FAC ¶ 77. Assets and profits were kept in those off-shore entities while WDE bore all of the liabilities. FAC ¶ 77.
The " Sham Enterprise" was established in such a way that when it was time to execute the bust out scheme, all available cash in WDE could be laundered into a separate investment enterprise, which consisted of Defendants Li Fu Investment Co., WDE Solution, Inc., and RH Holdings, LLC (together, the " Investment Enterprise" ). FAC ¶ ¶ 79, 94.
From 2008 to 2010, tens of millions of dollars were moved from WDE to the Investment Enterprise for the benefit of the Houng Family Defendants. FAC ¶ 98. This movement occurred in three ways. FAC ¶ 98. First, WDE's business profits and other benefits were diverted off shore to WDE Solution, Inc., an entity incorporated in the British Virgin Islands. FAC ¶ ¶ 99-104. Second, WDE transferred its interest in a lucrative business opportunity involving small LCD monitors to Defendant Nexcast, LLC without consideration. FAC ¶ ¶ 105-07. Along the way, WDE bore all of the costs of operating Nexcast and the Operational Defendants, at the direction of the Houng Family Defendants, fabricated backdated corporate records. FAC ¶ ¶ 105-07. Finally, through a variety of elaborate schemes, the remaining WDE funds were transferred to the Investment Enterprise. FAC ¶ ¶ 108-121.
As a result of the " Sham Enterprise" and relying on WDE's ostensible solvency, Tatung extended increasing amounts of credit to WDE. FAC ¶ 76.
C. Previous Proceedings
This case comes to this Court after three years of litigation involving two arbitrations, four superior court disputes, two superior court confirmation hearings, and a non-dischargeability case in the U.S. bankruptcy court. FAC ¶ 60.
In 2009, Tatung initiated arbitration against non-parties WDE, Richard Houng, and Nexis to recover the unpaid debt that WDE owed Tatung. FAC ¶ 133. Tatung's discovery efforts were obstructed, and days before the arbitrator's deadline to produce documents, Richard Houng and Nexis both filed for bankruptcy, triggering an automatic bankruptcy stay. FAC ¶ 134. After further obstruction in the bankruptcy court, the stay was lifted in February 2011. FAC ¶ 136. After the arbitrator compelled discovery, Richard Houng moved to disqualify the arbitrator. FAC ¶ 136. The three-person arbitration panel rejected Richard Houng's request, noting that, " [i]t seems patently obvious to this tribunal that [Richard Houng's] Demand is frivolous[.]" FAC ¶ 137.
In May 2010, the arbitrator issued an award of nearly $22 million to Tatung and against WDE. See FAC Ex. 3 at 2. In September 2011, the arbitrator issued his final award against Richard Houng, finding him liable as the alter ego of WDE. See FAC Ex. 4 at 1-22. In issuing this award, the arbitrator noted:
In a nearly four-decade long judicial career, this Arbitrator recalls no case in which a litigant engaged in more bad-faith, dilatory and deceptive practices as Mr. Houng has here, including repeated
'willful disobedience' of statutory [discovery] obligations and this Arbitrator's orders, including 'willful suppress[ion]' by Houng 'and the various entities he controlled.
FAC ¶ 142. The arbitrator ultimately found that Richard Houng and the Houng Family Defendants deliberately kept WDE balance sheets insolvent until WDE executed an assignment in April 2010. FAC ¶ 62.
D. Procedural History Before this Court
Tatung asserts several claims against Defendants, including: Racketeer Influenced and Corrupt Organizations Act (" Civil RICO" ), 18 U.S.C. § § 1961, 1962, FAC ¶ ¶ 147-72; fraud, FAC ¶ ¶ 173-85; civil conspiracy to commit fraud, FAC ¶ ¶ 186-90; avoidance and recovery of fraudulent transfer, FAC ¶ ¶ 191-208; conspiracy to fraudulently transfer, FAC ¶ ¶ 209-14; breach of fiduciary duty, FAC ¶ ¶ 215-31; and alter ego liability, FAC ¶ ¶ 232-59.
During the April 21, 2014 scheduling conference, the Court was informed that several motions to dismiss were in the process of being filed. The parties explained that the motions would raise several overlapping jurisdictional questions. Accordingly, the Court ordered that some of the motions would be set for hearing in June, with the rest set for hearing on September 29, 2014. See Minute Order, April 29, 2014.
The Court has already denied Defendant Chin-Ying Hsu's motion to dismiss for insufficient service of process. See Minute Order, March 10, 2014 (Dkt. 43). The Court now addresses two motions: Defendants Shu Tze Hsu, Shou-Por Houng, and Jui-Ling Hsu's Motion to Dismiss (Dkt. 109) and Defendant Chin-Ying Hsu's Motion to Dismiss (Dkt. 58). The Court will address them in turn.
II. Motion to Dismiss Filed by Houng Family Movants
The first motion is brought by Defendants Shu Tze Hsu, Shou-Por Houng, and Jui-Ling Hsu (" Houng Family Movants" or " Movants" ). See Mot. to Dismiss (Dkt. 109). The Houng Family Movants are, respectively, the mother, father, and uncle of non-party Richard Houng. FAC ¶ ¶ 6, 7, 9.
Tatung alleges that each family member deliberately delivered millions of dollars in uncharacterized funds to non-parties WDE and Nexis, California entities with their principal places of business in California, in order to secure favorable terms from creditors, such as Tatung. FAC ¶ 39. Each family member also caused funds to be laundered from WDE and Nexis to foreign entities. FAC ¶ 39. Shou-Por Houng was the director and participated in the management of Nexis and all indirect subsidiaries of Nexis, including WDE. FAC ¶ 40. Specifically, Tatung alleges that the Houng Family Movants:
[O]rchestrated and designed the primary components of the bust out scheme, while they defrauded Tatung into delivering finished goods on trade credit for tens of millions of dollars. They also directed the implementation of this scheme through the various front persons they employed in their conspiracy (including non-party co-conspirator Richard Houng, and the Operational Defendants). Indeed, the actions of non-party Richard Houng, the Operational Defendants and the other defendants named herein that took place in, or were directed at, the State of California were taken on behalf of the Houng Family Defendants (each of whom was both a
primary participant in and beneficiary of the enterprises described below), and the Houng Family Defendants purposefully directed those actions at the State of California, given that the primary sham instrumentalities (WDE and Nexis) were both California entities who, at all times, shared office and personnel based in Orange County, California.
FAC ¶ 41. Tatung also alleges that the Houng Family Movants:
[A]s co-owners of Li Fu [Investments][,] caused Li Fu to create a number of corporate shells through which they ultimately held ownership and control of newly-formed WD (originally known as " Golden Star Electronics, LLC" ). Specifically, with the assistance of other Assignment Defendants, Shu Tze Hsu, Shou-Por Houng, Chin-Ying Hsu, and [Jui-Ling Hsu] caused Golden Star Electronics, LLC to be formed in February 2010 under the laws of the State of Delaware for the specific purpose of carrying out the General Assignment. On April 7, 2010, Douglas Woo caused the entity to file a formal name change to " Westinghouse Digital, LLC." However, on information and belief, this entity was and continues to be owned and controlled by the Houng Family Defendants through Northwood and/or Neo Star.
Upon forming Golden Star/WD, Shu Tze Hsu, Shou-Por Houng, and [Jui-Ling Hsu]--as co-owners of Li Fu--then caused Li Fu to fund the $500,000 that Golden Star/WD used as the up-front cash payment for its purchase of the LED TV Assets from CMA as part of the General Assignment. Using the defendants' preexisting relationship through WDE in California, Douglas Woo, John Araki, and Richard Houng also convinced CBS to approve the transfer of the valuable " Westinghouse" license from WDE to WD, and, with consent and support from defendants Shu Tze Hsu, Shou-Por Houng, Chin-Ying Hsu, and [Jui-Ling Hsu], Li Fu provided a written guarantee to CBS to guarantee WD's payment of the future royalty streams due CBS.
FAC ¶ ¶ 197-98.
B. Motion to Dismiss for Lack of Personal Jurisdiction
1. Legal Standard
When a defendant moves to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), the plaintiff bears the burden of demonstrating that the court may properly exercise jurisdiction over the defendant. Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006); Bohara v. Backus Hosp. Med. Benefit Plan, 390 F.Supp.2d 957, 961 (C.D. Cal. 2005) (citing Ziegler v. Indian River Cnty., 64 F.3d 470, 473 (9th Cir. 1995)). Absent formal discovery or an evidentiary hearing, a plaintiff need only make a prima facie showing that jurisdiction is proper. Pebble Beach, 453 F.3d at 1154; Rio Props., Inc. v. Rio Int'l Interlink, 284 F.3d 1007, 1019 (9th Cir. 2002).
To make this prima facie showing, a plaintiff can rely on the allegations in its complaint, to the extent that the moving party does not controvert those allegations. See Doe v. Unocal Corp., 248 F.3d 915, 922 (9th Cir. 2001). If the defendant adduces evidence controverting the allegations, however, the plaintiff must " come forward with facts, by affidavit or otherwise, supporting personal jurisdiction." Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986) (quoting Amba Mktg. Sys., Inc. v. Jobar Int'l, Inc., 551 F.2d 784, 787 (9th Cir. 1977)). " Conflicts between [the] parties over statements contained in the affidavits must be resolved in the plaintiff's favour." Schwarzenegger v. Fred Martin Motor Co.,
374 F.3d 797, 800 (9th Cir. 2004); see also AT& T v. Compagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir. 1996) (" In determining whether [the plaintiff] has met this burden, uncontroverted allegations in [the] complaint must be taken as true, and 'conflicts between the facts contained in the parties' affidavits must be resolved in [the plaintiff's] favor for purposes of deciding whether a prima facie case for personal jurisdiction exists." ).
" The general rule is that personal jurisdiction over a defendant is proper if it is permitted by a long-arm statute and if the exercise of that jurisdiction does not violate federal due process." Pebble Beach, 453 F.3d at 1154-55 (citing Fireman's Fund Ins. Co. v. Nat'l Bank of Coops., 103 F.3d 888, 893 (9th Cir. 1996)). California's long-arm statute authorizes personal jurisdiction to the extent permitted by the Due Process Clause of the Constitution. Cal. Code Civ. Proc. § 410.10; Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998). Therefore, the only question the court must ask is whether the exercise of jurisdiction would be consistent with due process. Harris Rutsky & Co. Ins. Servs., Inc. v. Bell & Clements Ltd., 328 F.3d 1122, 1129 (9th Cir. 2003); Peterson v. Highland Music, Inc., 140 F.3d 1313, 1317 n.2 (9th Cir. 1998).
Due process requires that a defendant must have such " minimum contacts" with the forum state that " maintenance of the suit does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945). There are two recognized basis for exercising jurisdiction over a nonresident defendant: (1) " general jurisdiction," which arises where defendant's activities in the forum are sufficiently " substantial" or " continuous and systematic" to justify the exercise of jurisdiction over him in all matters; and (2) " specific jurisdiction," which arises when a defendant's specific contacts with the forum give rise to the claim in question. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984); Doe v. Am. Nat'l Red Cross, 112 F.3d 1048, 1050-51 (9th Cir. 1997). In a case involving an intentional tort, " specific jurisdiction" arises when (a) the intentional act was expressly aimed at the forum state, causing harm that the defendants knew was likely to be suffered in the forum state and (b) the claim arose out of or was related to the defendant's forum-related activities. Dole Food Co. v. Watts, 303 F.3d 1104, 1110-11 (9th Cir. 2002) (discussing Calder v. Jones, 465 U.S. 783, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984)). If the plaintiff makes these two showings, then the defendant " 'must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable' in order to defeat personal jurisdiction." Dole Food, 303 F.3d at 1114 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)).
At the outset, the Court notes that the Houng Family Movants makes little effort to dispute the allegations contained in the complaint and, therefore, Tatung may rely on those uncontroverted allegations to show that the Court has personal jurisdiction over Movants. See Doe v. Unocal Corp., 248 F.3d 915, 922 (9th Cir. 2001).
First, Tatung has shown that Movants committed an intentional act that was expressly aimed at the forum state, causing
harm that Movants knew was likely to be suffered in the forum state. See Dole Food, 303 F.3d at 1110-11. The First Amended Complaint alleges that Movants knowingly orchestrated and managed an elaborate scheme to finance a business based in California, WDE, in order to fraudulently induce Tatung to extend credit to that California business. See FAC ¶ ¶ 41, 197-98. Specifically, Movants manipulated WDE's finances; used legal, accounting, and other professionals and operatives residing in California to defraud Tatung within the state; diverted WDE's PumpTop TV and LED TV businesses to Orange County entities Nexcast, WD, and RH Holdings; formed and operated WD to hold WDE's LED TV business in California; operated Nexis in California to exert control over WDE until its bankruptcy filing in California; and transferred $100 million out of WDE in California from the " Sham Enterprise" to the Investment Enterprise. FAC ¶ ¶ 22, 24, 26-34, 39-41, 43, 62-64, 87, 88, 93, 95, 99, 101-104, 108-12, 15-120, 122-27, 129-31. Furthermore, the First Amended Complaint individually alleges that Shou-Por Houng personally ratified the corporate actions that Nexis perpetrated in California, FAC ¶ ¶ 95 n. 10, 227; Shu Tze Hsu, as chairman of Defendant Li Fu Investment Co., played a critical role in draining WDE, a California-based corporation, of all assets, FAC ¶ ¶ 197-98; and Jui-Ling Hsu pledged his personal assets as collateral to secure funding of WDE and Nexis in California, FAC ¶ ¶ 86-87.
Movants argue, without citation, that " any alleged wrongful conduct could not possibly have been targeted at a plaintiff known [not] to be a California resident, and the express aiming requirement is not met." Mot. to Dismiss at 13. But, " in tort cases . . . jurisdiction may attach if an out-of-forum defendant merely engaged in conduct aimed at, and having effect in, the situs state." Ziegler v. Indian River Cnty., 64 F.3d 470, 473 (9th Cir. 1995); see also Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 775, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1989) (" [P]laintiff's residence in the forum State is not a separate requirement, and lack of residence will not defeat jurisdiction established on the basis of defendant's contacts." ). Therefore, it is not necessary that the victim be a California resident; rather, it is necessary that the Houng Family Movants expressly aimed their conduct at California.
Movants also argue, citing Jobe v. ATR Marketing, Inc., 87 F.3d 751, 754 (5th Cir. 1996), that the harms caused in California are merely " collateral consequences" stemming from the actual injury. Mot. at 13-14. However, Tatung correctly observes that Jobe analyzed Mississippi's more restrictive long-arm statute, and the Fifth Circuit did not reach the issue of due process. See id. at 752-54. Movants' remaining arguments, first raised in their Reply, are also unavailing--in short, Tatung has shown that Movants committed an ...