Korea Trade Ins. Corp. v. Activeon, Inc.

KOREA TRADE INSURANCE CORPORATION, a Korean Corporation, Plaintiff, v. ACTIVEON, INC., a Delaware corporation; ACTIVEON LLC, a Delaware limited liabilitycompany; ACTIVEON HOLDINGS, INC., a Delaware corporation; RCAELECTRONICS INC., a Delaware corporation; ON CORP USA, INC., a Delaware corporation;CHONG WOEN LEE, an individual; and HAN SUK LEE, an individual, Defendants.

Case No.: 17-cv-0811-WQH-MDD

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

March 9, 2018

ORDER

HAYES, Judge:

The matter before the Court is the Motion to Dismiss Plaintiff's First Amended Complaint filed by Defendants. (ECF No. 14).

I. Background

On April 21, 2017, Plaintiff Korea Trade Insurance Corporation ("K-sure") initiated this action by filing a Complaint (ECF No. 1). On August 18, 2017, K-sure filed the First Amended Complaint (the "FAC") (ECF No. 13). The FAC names seven Defendants: ActiveON, Inc.; ActiveON, LLC; ActiveON Holdings, Inc.; RCA Electronics, Inc.; ON Corp. USA, Inc.; Chong Woen Lee ("CW Lee"); and Han Suk Lee ("HS Lee"). Id. The FAC brings claims against CW Lee and HS Lee for "RICO conspiracy (18 U.S.C § 1962(d))" and "civil RICO (18 U.S.C. § 1962(c))". Id. The FAC also brings claims against all Defendants for fraud (intentional misrepresentation), fraud (concealment), and negligent misrepresentation. Id.

On September 15, 2017, Defendants filed the Motion to Dismiss Plaintiff's First Amended Complaint. (ECF No. 14).¹ On October 6, 2017, K-sure filed an Opposition to Defendants' Motion to Dismiss First Amended Complaint. (ECF No. 16). On October 16, 2017, CW Lee and HS Lee filed a Reply Memorandum of Points and Authorities in Support of Motion to Dismiss. (ECF No. 18).² The Court held oral argument on the Motion to Dismiss on February 28, 2018. (ECF No. 22).

II. Allegations in the FAC

K-sure is a corporation duly organized under the laws of the Republic of Korea ("Korea"). K-sure is an export credit agency that focuses on promoting trade and overseas investment of enterprises in Korea. While domiciled and headquartered in Korea, K-sure maintains branch offices to conduct business in various cities around the world, including one such branch office in Los Angeles, California, which it has operated continuously since 1992.

FAC at ¶ 7. "Among other functions, K-sure's Los Angeles office performs commercial credit investigations and credit information management, coordinates debt collection activities, and facilitates communications with its customers' United States-based offices, affiliates, and personnel, such as ON USA." Id. at ¶ 22.

Defendants ActiveON, Inc.; ActiveON, LLC; ActiveON Holdings, Inc.; and RCA Electronics, Inc. are Delaware companies which are or were engaged in the sale or distribution of consumer electronics products. Id. at ¶¶ 8-10. Defendant ON Corp US, Inc. "either changed its name to RCA Electronics, Inc. and then to ActiveON, Inc., or it otherwise merged with or was acquired by one or more of Defendants ActiveON, Inc.; ActiveON LLC; Activeon Holdings, Inc.; and/or RCA Electronics, Inc." Id. at ¶ 12. Defendants CW Lee and HS Lee actively managed Defendants ON Corp US, Inc.; ActiveON, Inc.; ActiveON LLC; Activeon Holdings, Inc.; and RCA Electronics, Inc. as senior executives throughout the time periods described herein. Id. at ¶ 15.

Through numerous fraudulent communications, falsified documents, and the purposeful concealment of facts, the Defendants and their co-conspirators fraudulently induced K-sure to issue and extend export insurance policies and financial guarantees ("K-sure Policies") used to secure bank financing, loans and credit facilities ("Loans") for the manufacturing and export of consumer electronics products (primarily televisions) ("Export Products") to retailers in the United States. When ON USA failed to remit sale proceeds from the United States to repay the Loans covered by K-sure Policies, K-sure was forced to make payments on the K-sure Policies in excess of $137 million dollars.

Id. at ¶ 4. The payments on the K-sure Policies were made to the Industrial Bank of Korea, the Korea Exchange Bank, and Nonghyup Bank. See id. at ¶¶ 36-37, 40, 109-116. A number of the fraudulent communications that induced K-sure to issue and extend theK-sure Policies were sent from the United States by CW Lee and HS Lee. See, e.g., id. at ¶¶ 54, 55, 61, 63, 65, 72, 81-87, 90-92, 95, 98, 101, 103.

III. Standard of Review

Federal Rule of Civil Procedure 12(b)(6) permits dismissal for "failure to state a claim upon which relief can be granted." Federal Rule of Civil Procedure 8(a)(2) provides that "[a] pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief." "[A] plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (quoting Fed. R. Civ. P. 8(a)). "To survive a motion to dismiss, a complaint must contain 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 Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citation 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.

IV. Discussion

A. RICO

The FAC brings claims for "RICO conspiracy (18 U.S.C § 1962(d))" and "civil RICO (18 U.S.C. § 1962(c))" against CW Lee and HS Lee. Id. Section³ 1962(c) states

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

Section 1961(1)(B) defines "racketeering activity" to include "any act which is indictable under" 18 U.S.C. § 1341 (relating to mail fraud) and 18 U.S.C. § 1343 (relating to wire fraud). 18 U.S.C. § 1961(1)(B). Section 1962(d) makes it "unlawful for any person to conspire to violate" § 1962(c). Id. at § 1962(d). Section 1964(c), commonly referred to as "civil RICO," "creates a private civil cause of action that allows '[a]ny person injured in his business or property by reason of a violation of section 1962' to sue in federal district court and recover treble damages, costs, and attorney's fees." RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2097 (2016) (alteration in original) (quoting 18 U.S.C. § 1964(c)).

In order to bring its claims against CW Lee and HS Lee for injuries caused by their alleged violations of § 1962(c) and § 1962(d), K-sure must state a claim under § 1964(c). Defendants contend that K-sure fails to state a claim under § 1964(c) because K-sure fails to allege a 'domestic' injury. ECF No. 14-1 at 20 (citing RJR Nabisco, 136 S. Ct. at 2106). K-sure contends that the FAC alleges a domestic injury. (ECF No. 15 at 13-14).

1. Contentions of the Parties

Defendants contend that Plaintiff's RICO claims should be dismissed because "K-sure has not and cannot plausibly plead that it suffered a domestic injury to business or property." ECF No. 14-1 at 15 (quoting RJR Nabisco, 136 S. Ct. at 2111). Defendants contend that K-sure's alleged injury is the payment to the Korean Banks. Id. at 21 (citing FAC at ¶¶ 140, 154). Defendants contend that injury is not domestic because "K-sure paid, and thus relinquished physical control of, the alleged $137 million to the Korean Banks in Korea," and "[a]ny economic harm or harm to K-sure's business also would have been felt in Korea, as that is where K-sure is incorporated and principally located." Id. at 20 (citing FAC at ¶¶ 7, 20-21, 24, 108-116).

K-sure contends that the FAC does allege a domestic injury, focusing on the allegations that (1) K-sure "has maintained a Los Angeles office for more than 25 years to facilitate its significant business with the United States - including the transactions with the Defendants," ECF No. 16 at 14 (citing FAC at ¶¶ 7, 21-23); (2) "the RICO enterprisewas directed at the United States as it involved a United States based corporate enterprise incorporated in Delaware," id. at 14-15 (citing FAC at ¶¶ 8-12, 129, 131); (3) "the RICO Defendants' alleged activities were directed at fraudulently obtaining credit guarantees from K-sure to facilitate the importation and sales of televisions in the United States through ON USA, an entity that they created in the United States," id. at 15 (citing FAC at ¶¶ 131, 136, 139); and (4) "much of the RICO Defendants' racketeering activity and actions taken in support of the scheme occurred in California," id. (citing FAC at ¶¶ 136-138).

2. Applicable Law

In RJR Nabisco, the United States Supreme Court addressed two questions concerning the extraterritorial application of RICO: "First, do RICO's substantive prohibitions, contained in § 1962, apply to conduct that occurs in foreign countries? Second, does RICO's private right of action, contained in § 1964(c), apply to injuries that are suffered in foreign countries?" 136 S. Ct. at 2099.

The Supreme Court answered the first question by "conclud[ing] that RICO applies to some foreign racketeering activity." Id. at 2103. The Supreme Court concluded that "[a] violation of § 1962 may be based on a pattern of racketeering that includes predicate offenses committed abroad, provided that each of those offenses violates a predicate statute that is itself extraterritorial." Id.

The Supreme Court then "turn[ed] to RICO's private right of action" and "conclu...