Basba v. Liu Xuejie

BENJU BASBA, et al., Plaintiffs, v. LIU XUEJIE, et al., Defendants.

Civil Action No. 8:19-cv-380-PX

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

January 25, 2021

MEMORANDUM OPINION

Pending before the Court is the Motion for Default Judgment filed by Plaintiffs Benju Basba and 55 other individuals. ECF No. 17. Defendants Liu Xuejie ("Xuejie") and Liu Xuelin ("Liu"), have not responded to the motion or entered an appearance, and the time for doing so has passed. See Loc. R. 105.2.a. The matter has been briefed and no hearing is necessary. See Loc. R. 105.6. For the reasons below, Plaintiffs' Motion for Default Judgment is GRANTED IN PART and DENIED IN PART.

I. Background

According to the Complaint, Plaintiff Benju Basba is a Buddhist religious leader, who, along with 55 members of his congregation, agreed to invest in Defendant Liu's businesses. ECF No. 1 ¶¶ 1, 6-61. Liu held himself out as a well-respected investor with close family ties to businesses in China. Id. ¶ 71. His son, Liu Wei, is the Chief Executive Officer of KK Culture Holding Limited ("KKCHL") and Liu's sister, Xuejie, was an executive at Liangpeng Haoyou Web Technology Limited ("Liangpeng"). Id. ¶¶ 71 n. 7, 99, 101. On at least four occasions, Liu attended conferences with Basba and his followers where Liu encouraged them to invest in his family's businesses, promising significant returns on their money. ECF No. 1 ¶¶ 69-84, 92-97.

Liu first met Basba through a mutual acquaintance, Wang Baoning, at a 2015 conference in Malaysia. Id. ¶¶ 69-70, 129-130. Liu and Xuejie had planned the introduction with Baoning in advance, in hopes of gaining access to Basba whom they knew to be an influential leader with many followers. Id. ¶ 129. Liu held himself out to Basba as a skilled investor and promised that if Basba and his followers invested in KKCHL, where Liu's son was CEO, they would at least double their money within the year. Id. ¶¶ 71-73, 107-08.

After the Malaysia conference, Liu registered Liangpeng in Shenzhen, China. Id. ¶ 74. Xuejie was listed as an executive at Liangpeng although she resided in Maryland. Id. ¶ 86. Between December 2015 and February 2016, most of the Plaintiffs invested in KKCHL, each giving Liu personally or wiring amounts ranging from $114 to $30,302 and totaling nearly $400,000. Id. ¶¶ 75, 108; ECF No. 17-2. The account designated for Plaintiffs' funds was linked not to KKCHL, as promised, but to Liangpeng. ECF No. 1 ¶ 98.

In April 2016, Liu, Basba, and certain other Plaintiffs met in South Korea. ECF No. 1 ¶¶ 77-78. At this meeting, Liu encouraged Plaintiffs to invest in Liangpeng, again promising Plaintiffs that their investments would at least double within the year. Id. ¶¶ 77-80, 111-13. Liu also represented that KKCHL planned to acquire Liangpeng, and this acquisition would result in even greater gains for Plaintiffs. Id. ¶ 79.

Two months later, in June 2016, Basba and the Plaintiffs met with Liu again, this time in California. By now, the Chinese government had designated Liangpeng as "abnormal" because officials were unable to contact company representatives. ECF No. 1 ¶¶ 87-88, n.9. Shortly thereafter, the company liquidated assets and then officially dissolved January 1, 2017. Id. ¶¶ 89-91. Despite this, Liu continued to encourage the Plaintiffs to invest in Lianpeng. Id. ¶¶ 83-84, 92-96. In the months following the California conference, Plaintiffs Basba, Rong Liu, and Ben Yunlong Dee invested $513,000 into Liu's ventures. Id. ¶¶ 83-84.

At a conference in Saipei in early 2017, Liu informed some Plaintiffs that his son would see to it that KKCHL acquired Liangpeng and again emphasized that the merger would create major profits for its investors. Id. ¶¶ 94-96. Liu pressed this matter even though he knew Lianpeng had been dissolved. As a result, Plaintiffs invested more money. Id. ¶ 97.

When speaking with Plaintiffs, Liu always encouraged them either to give him money directly or through wire transfer not into an account held personally by Xuejie. ECF No. 1 ¶¶ 66, 98-100, 131. Xuejie, in turn, used the funds to pay for and maintain various properties in Maryland and Texas. Id. ¶¶101-02.

Plaintiffs aver that they have not received any of the promised gains from their investments after having invested collectively nearly a million dollars in Liu's ventures. ECF No. 1 ¶¶ 6-61, 105; ECF No. 17-2. Further, their repeated requests for Liu to return their money have gone unheeded, although in September 2018, a mutual acquaintance approached Basba and told him that Liu wanted more time to repay the debts he owed. ECF No. 1 ¶¶ 104-05, 109.

Accordingly, Plaintiffs filed suit in this Court on February 7, 2019, alleging breach of contract (Count I), detrimental reliance (Count II), unjust enrichment (Count III), conspiracy (Count IV), fraud (Count V), fraudulent misrepresentation (Count VI), negligent misrepresentation (Count VII), conversion (Count VIII), and aiding and abetting (Count IX). ECF No. 1. Plaintiffs' claims sound in both contract and tort. With regard to Plaintiffs' contract claims, Plaintiffs contend that in Malaysia in June 2015 Liu falsely promised Plaintiffs that he would invest their money in KKCHL and at least double their investment. Id. ¶ 107. Between December 2015 and February 2016, 53 of the Plaintiffs entered into an oral contract when they accepted Liu's offer by giving him money with the expectation of profits from his effortinvesting in KKCHL and Liangpeng. Id. ¶¶ 108-09. Liu breached that contract by failing to provide the promised returns or respond to Plaintiffs attempts to contact him. Id. ¶ 109.

Plaintiffs tort claims, in essence, arise from the fraudulent investment scheme that Liu and Xuejie had promoted. Specifically, Defendants arranged to have Liu introduced to Basba and his followers so he could convince Plaintiffs to "invest" in exchange for easy, but illusory, returns. Liu directed Xuejie to register a sham company to add legitimacy to these promises. And at the time Liu made such promises, he knew that at least one of his company's was defunct and he had no intention of making good on his promises to Plaintiffs.

After difficulties in perfecting service, both Xuejie and Liu were served on August 13 and August 21, 2019 respectively. ECF Nos. 11-12. Neither has answered or responded. ECF Nos. 14-16. The Clerk entered default pursuant to Rule 55(a) of the Federal Rules of Civil Procedure, and Plaintiffs moved for default judgment. ECF No. 17.

II. Discussion

Rule 55(a) provides that "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default." Fed. R. Civ. P. 55(a). Thereafter, the court may enter default judgment at the plaintiff's request and with notice to the defaulting party. Fed. R. Civ. P. 55(b)(2). A plaintiff, however, is not automatically entitled to default judgment simply because the defendant has not responded. Whether to enter default judgment is left to the sound discretion of the court. See, e.g., Choice Hotels Int'l, Inc. v. Jai Shree Navdurga, LLC, No. DKC-11-2893, 2012 WL 5995248, at *1 (D. Md. Nov. 29, 2012); see also Choice Hotels Int'l, Inc. v. Austin Area Hospitality, Inc., No. TDC-15-0516, 2015 WL 6123523, at *1 (D. Md. Oct. 14, 2015).

Although "the Fourth Circuit has a 'strong policy that cases be decided on the merits,'" Disney Enters. v. Delane, 446 F. Supp. 2d 402, 405 (D. Md. 2006) (quoting United States v. Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993)), "default judgment is available when the 'adversary process has been halted because of an essentially unresponsive party'" id. (quoting S.E.C. v. Lawbaugh, 359 F. Supp. 2d 418, 421 (D. Md. 2005)), and thus is proper when a defendant is unresponsive. See Disney Enters., 446 F. Supp. 2d at 405-06 (finding appropriate the entry of default judgment where the defendant had been properly served with the complaint and did not respond, despite repeated attempts to contact him).

When considering a motion for default judgment, the Court takes as true all well-pleaded factual allegations in the complaint, other than those pertaining to damages. See Fed. R. Civ. P. 8(b)(6); Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001) ("The defendant, by his default, admits the plaintiff's well-pleaded allegations of fact, is concluded on those facts by the judgment, and is barred from contesting on appeal the facts thus established.") (citation and internal quotation marks omitted). District courts analyzing default judgments have applied the standards articulated by the United States Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), to determine whether allegations within the complaint are "well-pleaded." See, e.g., Balt. Line Handling Co. v. Brophy, 771 F. Supp. 2d 531, 544 (D. Md. 2011); Russell v. Railey, No. DKC-08-2468, 2012 WL 1190972 at *2-*3 (D. Md. Apr. 9, 2012); U.S. v. Nazarian, No. DKC-10-2962, 2011 WL 5149832 at *2-*3 (D. Md. Oct. 27, 2011). Where a complaint offers only "labels and conclusions" or "naked assertion[s] devoid of further factual enhancement," the allegations therein are not well-pleaded and, consistent with the Court's discretion to grant default judgment, relief should be denied. See, e.g., Balt. Line Handling Co., 771 F. Supp. 2d at 544 ("The recordlacks any specific allegations of fact that 'show' why those conclusions are warranted.") (internal quotation marks omitted).

Once liability is established, the Court cannot rely solely on the Complaint to assess damages. See Trs. of the Elec. Welfare Trust Fund v. MH Passa Elec. Contracting, Inc., No. DKC-08-2805, 2009 WL 2982951, at *1 (D. Md. Sept. 14, 2009) ("Upon default, the well-pled allegations in a complaint as to liability are taken as true, although the allegations as to damages are not."). The Court may...