Mitsui O.S.K. Lines, Ltd. v. Centurion Logistics Management et al

Filing 153

ORDER re (332 in 3:11-cv-02861-SC) USCA Memorandum. Signed by Judge Samuel Conti on 10/5/2015. (sclc1, COURT STAFF) (Filed on 10/5/2015)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

United States District Court

For the Northern District of California

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MITSUI O.S.K. LINES, LTD.,

) Case Nos. 11-cv-02861-SC
)
10-cv-05591-SC
Plaintiff,
)
)
v.
) ORDER ON REMAND FROM THE NINTH
) CIRCUIT
SEAMASTER LOGISTICS, INC.,
)
SUMMIT LOGISTICS INTERNATIONAL, )
INC., KESCO CONTAINER LINE,
)
INC., KESCO SHIPPING, INC., and )
DOES 1 through 20,
)
)
Defendants.
)
)
)

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On March 21, 2013, following a trial, the Court issued its

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Findings of Facts and Conclusions of Law ("FFCL") in a single

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opinion covering two consolidated cases: the "Freight Case" (No.

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10-cv-05591-SC) and the "Trucking Case" (No. 11-cv-2861-SC).

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No. 261 ("FFCL").

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("SeaMaster") and Summit Logistics International, Inc. ("Summit")1

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appealed the Judgment in the Trucking Case, and Plaintiff Mitsui

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O.S.K. Lines ("MOL") cross-appealed.

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Line, Inc. and Kesco Shipping, Inc. ("Kesco") did not appeal.

Defendants SeaMaster Logistics, Inc.

Defendants Kesco Container

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ECF

Summit was subsequently renamed Toll Global Forwarding
(Americas), Inc. ("Toll).

On

affirming the finding of misrepresentation against SeaMaster and

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Summit, reversing the damages award to MOL and remanding for

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recalculation, reversing the award of attorney's fees to MOL,

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reversing the dismissal of MOL's RICO claim and remanding with

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instructions to apply the test set forth in United States v. Chao

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Fan Xu, 706 F.3d 965, 974 (9th Cir. 2013), and affirming the

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United States District Court

July 6, 2015, the Ninth Circuit issued a Memorandum Disposition

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For the Northern District of California

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Court's conclusions on alleged co-conspirator liability.

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before the Court are the two issues remanded for further

Now

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proceedings: (1) recalculation of damages and (2) reconsideration

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of MOL's RICO claim.
On September 4, 2015, the parties submitted their opening

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briefs on those two issues.

ECF Nos. 339 ("Def. Opening Br."), 340

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("Pl. Opening Br.").

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11, 2015.

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Br.").

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suitable for resolution without oral argument.

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Ninth Circuit's Opinion and the parties' briefs and supporting

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papers, the Court finds as follows:

Response briefs were submitted on September

ECF Nos. 345 ("Pl. Response Br."), 346 ("Def. Response

Pursuant to Local Rule 7-1(b), the Court finds this matter
After reviewing the

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1. MOL's RICO claim is DISMISSED WITH PREJUDICE

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2. The Court AWARDS MOL damages against SeaMaster in the amount
of $1,151,205

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3. The Court AWARDS MOL damages against Summit in the amount of
$2,122,374

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I.

BACKGROUND
The facts are set out in detail in the FFCL.

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part, they are as follows:

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///

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In pertinent

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Defendants engaged in a conspiracy to induce MOL to pay for

Shenzhen, to ports in and around Hong Kong.

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"Shenzhen door arrangement" was managed and organized by Michael

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Yip, the head of MOL's Hong Kong office, without MOL's knowledge or

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authorization.

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them with more space on MOL's ships and lower surcharges ("origin

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United States District Court

fake truck moves between factories in inland China, typically

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For the Northern District of California

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receiving charges"), and, in return, Defendants would request that

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MOL book truck moves from inland factories to Hong Kong ports

This so-called

Yip struck a deal with Defendants: He would provide

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through Rainbow Transportation Co. Ltd. ("Rainbow"), a fake

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trucking company suggested by Yip.

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trail and a series of payments and kickbacks, it appeared that

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Rainbow was actually providing trucking, but, in reality,

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Defendants or their customers made other arrangements to move their

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goods from the factory to the port.

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space and lower origin receiving charges for Defendants and

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revenues for Rainbow.

Due to a complicated paper

The end result was guaranteed

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A.

The Ocean Transportation Business

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Licensed vessel-operating common carriers ("VOCCs") like MOL

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operate ships that carry cargo over water between foreign ports and

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the United States.

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bill of lading evidencing the particulars of the shipment.

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bill of lading is often referred to as the "master bill of lading."

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Non-vessel-operating common carriers ("NVOCCs") like SeaMaster

46 U.S.C. §§ 40102(6), (17).

A VOCC issues a
A VOCC

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US, Summit US, and Kesco Container contract with the public to

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provide transportation of cargo by water between foreign ports and

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the United States.

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transportation from the place of receipt to the place of delivery

The NVOCC assumes responsibility for the

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stated on its bill of lading, which is referred to as the "house

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bill of lading."

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vessels.

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that space to its own customers.

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The NVOCC does not, however, operate ocean

An NVOCC obtains space on a VOCC's vessel and re-sells

VOCCs and NVOCCs sometimes contract to carry cargo overland,

from the port of discharge to an inland place of delivery, or both.

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United States District Court

either from an inland place of receipt to the port of loading or

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For the Northern District of California

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Carriage that includes both an inland leg and an ocean leg is

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called "through" or "intermodal transport."

See 46 U.S.C. §

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40102(25).

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port to port, from door to door (e.g., from an inland point of

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origin in Asia to a final inland destination in the United States),

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from door to port, or from port to door.

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Thus, VOCCs and NVOCCs may offer carriage of cargo from

In providing intermodal transport, the VOCC or NVOCC may

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utilize the services of subcontractor railroads, truckers, and

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other inland carriers.

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transportation service from Shenzhen, China to Las Vegas, Nevada by

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utilizing a motor carrier in China for the Shenzhen to Hong Kong

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leg (a.k.a. a "door move" or "truck move"), an ocean carrier from

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Hong Kong to Oakland, California, and a motor carrier in the United

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States for the Oakland to Las Vegas leg.

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VOCC's master bill of lading would show the port of Hong Kong as

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the place of receipt and the port of Oakland as the place of

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delivery.

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the place of receipt and Las Vegas as the place of delivery.

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VOCC could offer this same intermodal transport.

For example, an NVOCC may provide

In this example, the

The NVOCC's house bill of lading would show Shenzhen as

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B.

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Plaintiff MOL is a Japanese VOCC.

The

The Parties and Key Players

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MOL uses general agents to

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perform its operational functions in Asia and in the United States.

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MOL (HK) Agency Ltd. ("MOL HK") is MOL's general agent subsidiary

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for its "South China territory," which encompasses a number of

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provinces and cities in South China, including Shenzhen, as well as

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Hong Kong.

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in Hong Kong.

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Exs. D-519, D-526, D-527; Tr. 1964-65.

MOL HK is based

Yip Kwok-Wai, a.k.a. Michael Yip, was the district director of

United States District Court

For the Northern District of California

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MOL HK from sometime in 2009 through 2011, and before that he was

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MOL's General Manager of Sales and Customer Service for Hong Kong

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and South China.

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Yip was in charge of MOL's Hong Kong and South China Sales team,

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which allocated shipping space among MOL's customers.

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Yip was the mastermind behind the fraud in this case, though he was

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not a party to this action.

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Tr. at 1962-65.

As district director of MOL HK,

Tr. at 2040.

Defendant Kesco Container was incorporated in New York in

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1994 and primarily deals with ocean freight business.

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In or around 1995, the Kesco partners entered into an agreement to

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become the air freight handling agent for a company known as

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Fashion Merchandising, Inc. ("FMI"), which performed warehousing

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and trucking services for a number of garment manufacturers.

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at 1750.

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transportation needs.

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direct customer relationship with the Jones Apparel Group ("Jones

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Apparel"), a large, well-known garment company.

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FMI became Kesco's biggest customer, comprising over 50 percent of

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its business.

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Tr. at 1748.

Tr.

In 1997, Kesco Container began to service FMI's ocean
Id.

Around that time, FMI developed a

Id.

As a result,

Tr. at 1750-51.

In or around 2006, a group of companies known as the Summit
Group, acquired FMI for approximately $114 million.

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Tr. at 1435-

to take over the Jones Apparel business, and the Kesco partners

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agreed to cooperate with the transition.

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stages of the transition, Kesco was to be the origin handling agent

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in Asia for the Jones Apparel business, and the Summit Group was to

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take over the role of sales agent and destination handling agent in

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the United States.

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United States District Court

36.

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For the Northern District of California

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culminated in a joint venture between the Kesco partners and Summit

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US in 2009.

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The Summit Group informed the Kesco partners that it intended

Tr. at 1038-43.

Tr. at 617.

In the early

The transition ultimately

The Summit Group was created in 2006 and formed a number of

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subsidiaries, including two companies which would later become

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Defendants SeaMaster US and Summit US.

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acquired Kesco's key partner, FMI.

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of the NVOCC business and ultimately took the Jones Apparel

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business away from Kesco.

The Summit Group also

Summit US ran the retail side

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C.

The Shenzhen Door Arrangement

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The Shenzhen door arrangement was conceived sometime in

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2000 when Jones Apparel's need for ocean services increased

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significantly.

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secure ocean transportation for Jones Apparel cargo.

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21 supra.

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strategies for obtaining the freight rates needed to secure the

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Jones Apparel business and also obtaining "adequate space

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protection," an arrangement to ensure that MOL reserved adequate

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space for Jones Apparel cargo on its ships.

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who was then assistant general manager of Kesco Container HK, took

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these concerns to Yip at MOL, and Yip recommended the Shenzhen door

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arrangement.

Tr. at 634-36.

FMI used Kesco's NVOCC services to
FF ¶¶ 17, 20-

There were various discussions at Kesco and FMI about

Tr. at 1012-1013.

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Tr. at 634-35.

Cheng,

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Under the arrangement, Yip agreed to provide space protection

Kesco would declare false Shenzhen door shipments, meaning that

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Kesco would request that MOL arrange trucking for Kesco cargo

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between inland origins, typically Shenzhen, and ports in and around

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Hong Kong.

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from MOL, because the cargo was tendered by the manufacturer or

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United States District Court

for Kesco cargo.

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For the Northern District of California

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exporter at the port.

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Kesco would pay MOL an "arbitrary," an additional charge for the

Id.

Tr. at 1012, 1019.

In return, Cheng agreed that

In reality, Kesco did not require any trucking

Tr. 634-36, 1012.

Cheng also agreed that

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trucking between Shenzhen and the port.

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would be fully reimbursed for that arbitrary.

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importantly, Cheng agreed to nominate Rainbow Transportation Co.

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Ltd. ("Rainbow"), a Hong Kong trucking company suggested by Yip, to

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perform the purported truck moves.

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Yip agreed that Kesco
Finally and most

Tr. at 1014; Ex. P-84.

MOL paid Rainbow for the door moves, but in reality, Rainbow

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never performed any trucking.

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it merely received payments from MOL and made payments to Kesco

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Container HK.

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to Kesco Container US, which ultimately paid MOL for the door

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moves.

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moves, meaning that MOL paid more to Rainbow than it charged

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Defendants for trucking.

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Rainbow received more from MOL than it paid to Defendants.

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Tr. at 1013-14, 2127-29.

Instead,

Kesco Container HK, in turn, would kick back funds

MOL took a loss on the trucking leg of the Shenzhen door

See Tr. 606-607; Ex. D-595.

Thus,

The master bills of lading issued by MOL reflected a false

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"Shenzhen door" place of receipt.

Tr. at 1016, 1100.

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not over-charge its own customers as a result of the arrangement

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and the house bills of lading issued by Kesco to its customer

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accurately represented the true place of receipt.

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Kesco did

See, e.g., Ex.

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P-111.

The Court also found that Kesco did not share these house

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bills of lading with MOL or inform MOL that its master bills of

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lading were incorrect.
SeaMaster did not enter into the Shenzhen door arrangement

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concerned that MOL was not providing enough vessel space for

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SeaMaster's shipments to the United States.

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United States District Court

until early 2009.

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For the Northern District of California

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Tr. at 1545-46.

Around that time, Huang was

met with Yip in Hong Kong in early 2009, at which time Yip

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indicated that he could solve SeaMaster's space problem if Huang

Tr. at 1542.

Huang

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agreed to the Shenzhen door arrangement.

Tr. at 1544-45.

The

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arrangement proposed by Yip was substantially similar to the one he

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had proposed to Cheng nine years earlier: SeaMaster would declare

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false Shenzhen door shipments and pay an arbitrary for the non-

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existent trucking, and in return Yip would provide space protection

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and a trucking company would reimburse SeaMaster for the arbitrary.

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Tr. at 1545-46.

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able to obtain lower origin receiving charges by booking Hong Kong

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port shipments as Shenzhen door shipments.

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2009 and 2010, SeaMaster booked thousands of shipments through the

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Shenzhen door arrangement.

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shipments through its offices in Hong Kong.

As in the arrangement with Cheng, SeaMaster was

Ex. P-263.

Id. at 1594.

Between

SeaMaster booked these
Tr. at 1561-62.

As a result of the information provided by SeaMaster, MOL

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issued master bills of lading that incorrectly identified

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shipments' place of receipt as Shenzhen.

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The house bills of lading that SeaMaster issued to its own

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customers correctly identified a port place of receipt, not

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Shenzhen.

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///

See e.g., id.; Tr. at 1567.

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See, e.g., Ex. P-129.

SeaMaster did not

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overcharge its own customers as a result of the Shenzhen door

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arrangement.

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D.

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In the Trucking Case, MOL asserted federal claims under the

See Tr. at 1567.

The Trucking Case

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Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18

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U.S.C. § 1962, as well as claims for intentional and negligent

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misrepresentation and civil conspiracy.

United States District Court

For the Northern District of California

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Because RICO does not apply extraterritorially, the Court
first had to determine whether Defendants' RICO claims were based

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on acts committed in the United States.

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"nerve center test," which focuses on "the brains rather than the

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brawns of the enterprise and examines the decisions effectuating

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the relationships and common interest of the enterprise's members,

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and how those decisions are made."

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omitted).

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this case were clearly outside of the United States:

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The Court applied the

FFLC at 63-64 (quotations

The Court found that "the brains" of the enterprise in

[T]he Shenzhen door arrangement was set up in Hong Kong
by Yip, Cheng, and Huang. All three of these individuals
worked in Hong Kong and directed the arrangement from
Hong Kong.
The Shenzhen door shipments were booked in
Hong Kong. Rainbow, the key to the entire arrangement,
was also located in Hong Kong.

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Id. at 64.

As a result, the Court dismissed MOL's RICO claims with

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prejudice.

Id.

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On MOL's claims for intentional misrepresentation, negligent

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misrepresentation, and conspiracy to commit international

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misrepresentation, the Court found in favor of MOL and against

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Defendants Kesco Container, SeaMaster US, and Summit US.

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As to damages, the Court found that the appropriate award was
equivalent to the total amount of MOL's payments to Rainbow over

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the course of the Shenzhen door arrangement.

The Court rejected

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Defendants' proposal to offset MOL's damages by the amounts that

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Defendants paid MOL for the non-existent trucking, holding that it

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would be inequitable to do so.

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it would be inequitable to credit Defendants for payments made to

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cover up their fraud.").

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damages and pre-judgment interest.

Id. at 74-75 ("The Court finds that

The Court also declined to award punitive
Id. at 76-77.

United States District Court

For the Northern District of California

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E.

Issues on Remand

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On appeal, the Ninth Circuit reversed and remanded the Court's

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dismissal of MOL's RICO claim for failure to apply the "pattern of

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racketeering" test for extraterritoriality set out in United States

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v. Chao Fan Xu:

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The district court applied a "nerve center" test when it
dismissed MOL's RICO claim.
However, in [United States
v. Chao Fan Xu], this Court explicitly rejected that
test, explaining that the test to determine whether a
RICO application is extraterritorial is to look "not upon
the place where the deception originated," but "at the
pattern of Defendants' racketeering activity taken as a
whole."
Thus, even if racketeering activity is
"conceived and planned overseas," it may still fall
within the ambit of the statute if "it was executed and
perpetuated in the United States."
The district court
therefore erred when it applied the nerve center test.

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Mitsui O.S.K. Lines, Ltd. v. Seamaster Logistics, Inc., No. 13-

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15848, 2015 WL 4071527, at *2 (9th Cir. July 6, 2015) (internal

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citations omitted).

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///

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///

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///

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///

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///

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///

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The Ninth Circuit also reversed and remanded the Court's

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calculation of damages based on the total amount that MOL paid

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Rainbow:

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The district court erred by . . . failing to use a
reasonable basis of computation to calculate the actual
damages incurred by MOL for reimbursed trucking costs,
origin receiving charge differentials, and lost space
protection premiums.

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Id., at *1.

United States District Court

For the Northern District of California

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9 II.

LEGAL STANDARD

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A.

RICO

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RICO does not apply extraterritorially.

Chao Fan Xu, 706 F.3d

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at 974.

Whether an alleged RICO violation is extraterritorial

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turns on whether there are enough predicate acts in the United

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States to establish a "pattern of racketeering activity."

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at 978.

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racketeering enterprise was "executed and perpetuated in the United

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States," where the relevant acts in the United States

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"consummate[d] the purpose of the enterprise," or where the acts

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committed overseas would have been "a dangerous failure" if not for

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the acts committed in the United States.

See id.

A RICO claim is not considered extraterritorial where a

Id. at 979.

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B.

Damages

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"[R]ecovery in a tort action for fraud is limited to the

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actual damages suffered by the plaintiff."

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P.2d 534, 537 (Cal. 1959).

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reasonable basis of computation be used."

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P.2d 99, 102 (Cal. Ct. App. 1954).

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///

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///

Ward v. Taggart, 336

Further, the law "requires that some

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Allen v. Gardner, 272

1 III.

DISCUSSION

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A.

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To establish RICO liability a plaintiff must prove "conduct"

RICO

Sedima, S.P.R.L. v. Imrex Co., Inc. 473 U.S. 479, 496 (1985); Odom

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v. Microsoft Corp., 486 F.3d 541, 547 (9th Cir. 2007).

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statute, however, does not have extraterritorial reach.

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United States District Court

of an "enterprise" through a "pattern" of "racketeering" activity.

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For the Northern District of California

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Xu, 706 F.3d at 974.

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RICO if the relevant pattern of racketeering activity occurred

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The RICO
Chao Fan

Thus, a court need not reach the elements of

outside of the United States.

Id.

In United States v. Chao Fan Xu ("Xu"), the Ninth Circuit held

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that the test to determine whether a RICO application is

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extraterritorial is to look "at the pattern of Defendants'

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racketeering activity taken as a whole."

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rejected the alternative "nerve center test," which assesses

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extraterritoriality according to the geographical location of "the

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brains" of the enterprise.

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geographical location of a racketeering enterprise might still be

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relevant in some cases.

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specifically mentioned this case as one such example.

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geographic location of an enterprise may be relevant under certain

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factual scenarios, like the . . . schemes at issue in . . . Mitsui

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O.S.K. Lines.").

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Id. at 977-79.

The Court

The court noted, however, that the

Id. at 977.

In fact, the court
Id. ("The

The criminal racketeering enterprise at issue in Xu had two

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parts.

The first part involved diverting funds from the Bank of

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China to a holding company in Hong Kong, which was conducted

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"predominantly" in China.

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it was beyond the reach of RICO.

As to this activity, the court held that
Id. at 978.

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The second part of

within the U.S. that violated U.S. immigration laws, including

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using fraudulent visas and passports to enter the U.S., traveling

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within the U.S. to execute documents in furtherance of the

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immigration fraud, and opening bank accounts in the U.S., leading

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to defendants' arrest in the U.S.

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the overall enterprise was in Asia (including the so-called "nerve

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United States District Court

the enterprise, however, involved racketeering activities conducted

2

For the Northern District of California

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center"), the RICO claims at issue were not extraterritorial

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because the racketeering enterprise was "executed and perpetuated

The court held that while much

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in the United States," the relevant acts in the United States

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"consummate[d] the purpose of the enterprise," and the acts

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committed in Asia would have been "a dangerous failure" if not for

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the acts committed in the United States.

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Id. at 979.

In its FFCL, the Court found that the Shenzhen door

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arrangement was set up in Hong Kong by Yip, Cheng, and Huang, that

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all three of these individuals worked in Hong Kong and directed the

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arrangement from there, that the Shenzhen door shipments were

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booked in Hong Kong, that Rainbow ("the key to the entire

19

arrangement") was located in Hong Kong, and that although Summit,

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SeaMaster, and Kesco were U.S. corporations, their Hong Kong

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offices or agents ran the arrangement and their U.S. offices had

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very little involvement.

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extent there were any -- do not turn this essentially foreign

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arrangement, accomplished through foreign predicate acts, into a

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domestic U.S. RICO claim.

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The domestic acts in this case -- to the

The domestic acts raised by MOL occurred after the fraud was

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complete: sending bills of lading to the U.S. with an incorrect

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place of receipt of Shenzhen, filing contracts with the Federal

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rates, and reporting information to U.S. Customs that falsely

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included Shenzhen as the place of receipt for certain cargo.

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acts were inconsequential when evaluating the Defendants' "pattern

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of racketeering activity taken as a whole."

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Unlike the domestic acts in Xu, the domestic acts raised by MOL did

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not execute or perpetuate the racketeering enterprise in any

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United States District Court

Maritime Commission that included in them fraudulent trucking

2

For the Northern District of California

1

meaningful way.

9

purpose of the enterprise such that the activity in Hong Kong would

See id. at 979.

These

See id. at 977-79.

Nor did they consummate the

10

have otherwise been a failure.

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in this case occurred after the fraud had occurred in Hong Kong,

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were not important to the Defendants' scheme, and were not

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necessarily illegal insofar as they did not satisfy all the

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elements of wire or mail fraud.

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constitute predicate acts for the purposes of a RICO violation.

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Moreover, even if these acts did amount to mail and wire fraud,

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they did not establish a pattern of domestic racketeering activity

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sufficient to justify an application of the RICO statute to what

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was a foreign scheme to defraud MOL.

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See id.

Instead, the domestic acts

As a result, they do not

Separate but related, MOL's RICO claim also fails because the

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domestic acts raised by MOL were not the proximate cause of its

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damages.

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2013), the plaintiff alleged RICO claims for extortion, money

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laundering, and other crimes in connection with the takeover of

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plaintiff's media businesses in Kazakhstan.

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applying the Xu pattern of racketeering test, dismissed the

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complaint on the ground that it sought extraterritorial application

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of RICO.

In Hourani v. Mirtchev, 943 F. Supp. 2d 159 (D.D.C.

The district court,

The court agreed that the claims had some domestic U.S.

14

citizens, the defendant approved of the extortion scheme from the

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U.S., and the defendant corporation received payment in U.S. bank

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accounts for participating in the extortion.

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concluded that these U.S. contacts were too isolated and peripheral

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to support a RICO claim and did not change the "essentially

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foreign" nature of the activity in that case.

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United States District Court

contact: the individual plaintiff and defendant were both U.S.

2

For the Northern District of California

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particular, the court held that the RICO claims were

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extraterritorial because the U.S. activity did not proximately

But the court

Id. at 165-67.

In

10

cause the injuries alleged.

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City of New York, 559 U.S. 1 (2010) (dismissing a RICO claim

12

because the alleged predicate acts were not the proximate cause of

13

the plaintiff's injuries); Republic of Iraq v. ABB AG, 920 F. Supp.

14

2d 517, 549 (S.D.N.Y. 2013) (same).

15

Id. at 167; see also Hemi Grp. LLC v.

Thus, to avoid dismissal, MOL must show that the U.S.-based

16

activity proximately caused its damages.

"[W]hen a court evaluates

17

a RICO claim for proximate causation, the central question it must

18

ask is whether the alleged violation led directly to the

19

plaintiff's injuries."

20

451, 461 (2006).

Anza v. Ideal Steel Supply Corp. 547 U.S.

21

The booking misrepresentations from SeaMaster and Summit in

22

Hong Kong to MOL in Hong Kong, leading to the payments by MOL in

23

Hong Kong to Rainbow in Hong Kong, was the proximate cause of the

24

loss to MOL.

25

of lading data to the U.S. did not cause the loss; indeed, there is

26

no evidence that anyone attached any importance to those acts.

27
28

The subsequent sending of the bills of lading or bill

The cases on which MOL relies are inapposite.
v. Rude is not a RICO case.

United States

88 F.3d 1538 (9th Cir. 1996).

15

The

support a conviction for wire fraud, where funds were wired from

3

Hawaii to Switzerland, and then to the defendants in Seattle, and

4

then partially back to Hawaii.

5

single scheme for purposes of a wire fraud, but it does not show

6

when wire fraud is the proximate cause of a RICO violation.

7

States v. Jinian, 725 F.3d 954 (9th Cir. 2013) and United

8

United States District Court

question in Rude was whether there was sufficient evidence to

2

For the Northern District of California

1

States v. Redcorn, 528 F.3d 727 (10th Cir. 2008) are not on point

9

for the same reason.

The case shows what constitutes a

United

Bridge v. Phoenix Bond & Indemnity Co. does

10

not support MOL's argument either.

11

in Bridge was whether a domestic mail fraud could support a

12

domestic RICO claim when the plaintiff did not rely on the

13

defendant's misrepresentations.

14

553 U.S. 639 (2008).

The issue

In short, MOL's RICO claim is precluded as extraterritorial

15

under the Xu test because the domestic acts raised by MOL did not

16

constitute a "pattern of racketeering activity."

17

predicate acts that took place in Hong Kong, including the booking

18

misrepresentations and associated activity, were the proximate

19

cause of MOL's damages -- not the alleged wire and mail fraud.

20

Accordingly, MOL's RICO claim is DISMISSED WITH PREJUDICE.

Further, the

21

B.

Damages

22

On remand, the Ninth Circuit has asked the Court to

23

recalculate the actual loss to MOL based on trucking costs, origin

24

receiving charge differentials, and lost space protection premiums.

25

The parties agree on the amount of lost trucking costs and the

26

amount of origin receiving charge differentials.

27

on whether MOL has proved an amount for lost space protection

28

premiums.

They do not agree

As to punitive damages and prejudgment interest, MOL did

16

1

not appeal, and the Ninth Circuit's decision does not reopen, this

2

Court's denial of those damages claims.
1.

3

Trucking Costs

The Court found that SeaMaster made shipments under the

4

those shipments, MOL paid Rainbow a total of $1,080,073.

7

74.

8

United States District Court

Shenzhen door arrangement from March 5, 2009 to June 30, 2010.

6

For the Northern District of California

5

purported Shenzhen door trucking.

9

Opening Br. at 8.

10

For

FFCL at

For the same shipments, SeaMaster paid MOL $484,740 for the
Def. Opening Br. at 4; Pl.

Thus, the net loss to MOL for trucking costs for

the SeaMaster shipments totals $595,333.
The Court found that Summit made shipments under the Shenzhen

11
12

door arrangement from May 25, 2008 to June 30, 2010.

13

shipments, MOL paid Rainbow a total of $1,987,833.

14

Br. at 5; Pl. Opening Br. at 8, 52.

15

Summit paid MOL a total of $1,233,063 for the purported Shenzhen

16

door trucking.

17

for the Summit shipments totals $754,820.
2.

18

Id.

For these

Def. Opening

For these same shipments,

Thus, the net loss to MOL for trucking costs

Origin Receiving Charge Differentials

The Shenzhen door arrangement allowed the Defendants to secure

19
20

lower surcharges known as "origin receiving charges."

But for the

21

Defendants' fraud, MOL would have received the full surcharge

22

amount.

Accordingly, MOL should be awarded the difference.

The parties agree that the origin receiving charge

23
24

differential equals $71,132 for SeaMaster and $134,491 for Summit.

25

Def. Opening Br. at 4-5; Pl. Opening Br. at 8.

26

should be added to the total damage award.

27

///

28

///

17

These amounts

3.

1

Space Protection

2

In its FFCL, the Court found that MOL was damaged, in part,

3

because Yip gave Defendants free space protection as part of the

4

Shenzhen door arrangement, a service for which MOL generally

5

charges a premium.

6

to value MOL's loss in this regard given the lack of precise data

7

on the price of space protection premiums during that time.

FFCL at 60.

The more difficult question is how

United States District Court

For the Northern District of California

8

MOL argues that it would be reasonable for the Court to

9

calculate the value of the space protection provided based on the

10

amount that the Defendants were willing to pay to secure space

11

protection through their fraudulent scheme.

12

in the absence of more precise data, a reasonable way to value a

13

service such as space protection is to measure the Defendants'

14

willingness to pay.

15

equals the amount that Defendants paid MOL for the fake trucking by

16

Rainbow -- that is, the "arbitrary."

17

does not express Defendants' willingness to pay, however, for at

18

least two reasons.

19

Defendants received more than just space protection; they also

20

received lower origin receiving charges.

21

arbitrary would have to be reduced by the origin receiving charge

22

differential.

23

full refund from Rainbow for the arbitraries they paid MOL.

24

other words, Defendants did not have to pay anything to receive

25

space protection because the arbitrary was simply passed through

26

MOL, to Rainbow, and then sent back to the Defendants.

27

reason, the amount Defendants paid MOL for trucking arbitraries is

28

///

The Court agrees that

MOL argues that Defendants' willingness to pay

The arbitrary paid to MOL

First, as a result of paying MOL the arbitrary,

As a result, the

Second, and more importantly, Defendants received a

18

In

For that

1

meaningless as a measure of the value of the space protection that

2

they received.

3

There appears to be no easy way to measure the value of the

least part of this difficulty is a result of the Defendants'

6

illusive behavior.

7

in calculating a precise damage amount does not mean, however, that

8

United States District Court

space protection provided.

5

For the Northern District of California

4

MOL should be denied all recovery.

9
10
11

As MOL describes in its briefs, at

See Pl. Response Br. at 13-14.

The difficulty

As Witkin explains,

The requirement that damages be "certain" and not
"speculative" or "conjectural" is more important in
contract than in tort actions . . . . [T]hough the fact
of damage must be clearly established, the amount need
not be proved with the same degree of certainty, but may
be left to reasonable approximation or inference.

12
13

6 Witkin, Summary 10th (2005) Torts, § 1551, p. 1024; see also

14

Clemente v. State of Cal., 40 Cal. 3d 202, 219 (1985) (holding that

15

the injured party need only establish "the extent of the harm and

16

the amount of money that will represent adequate compensation with

17

as much certainty as the nature of the tort and the circumstances

18

permit").

19

with certainty is due to a defendant's actions, the law normally

20

does not require such proof.

Further, when a plaintiff's inability to prove damages

Clemente, 40 Cal. 3d at 219.

21

Here, MOL has provided some evidence of the range of prices

22

that were being charged for space protection or similar services

23

during the period of the Shenzhen door arrangement.

24

Opening Br. at 52-53.

25

range from $200 to $1,000.

26

estimates are not specifically for space protection.

27

MOL provided the price for dead freight -- the penalty a cargo

28

owner has to pay when it books a shipment but fails to ship it.

See Pl.

MOL's estimates are hardly precise: they
Id.

Further, many of the price

19

For example,

1

Even though dead freight is not the same as space protection,

2

however, the amount paid for dead freight is still informative

3

insofar as it reflects the price of reserving space in a container.

4

Thus, notwithstanding their imprecision, MOL's price estimates

5

provide a baseline against which the reasonableness of MOL's

6

proposed damages can be evaluated.
MOL has asked the Court to award it $484,740 in damages from

7

United States District Court

For the Northern District of California

8

SeaMaster as compensation for the space protection it provided

9

during the Shenzhen door arrangement.

Seamaster was given space

10

protection for 3,998 containers.2

11

per container.

12

range described above, the Court finds it to be a reasonable

13

estimate of the space protection premiums lost as a result of the

14

Shenzhen door arrangement.

Thus, MOL is requesting $121.24

Because this amount falls below the $200-$1,000

MOL has asked the Court to award it $1,233,063 in damages from

15
16

Summit US as compensation for the space protection it provided

17

during the Shenzhen door arrangement.

18

protection on 8,053 containers.

19

per container.

20

range described above, the Court finds it to be a reasonable

21

///

Summit US was given space

Thus, MOL is requesting $153.11

Because this amount falls below the $200-$1,000

22
23
24
25
26
27
28

2

Defendants dispute the premise that they were given space
protection on all containers shipped under the Shenzhen door
arrangement. The Court disagrees. Regardless of whether
Defendants needed space protection for every container, their
arrangement with Yip guaranteed that they would be provided with
space on all containers. But for the fraud, the Defendants would
have been charged a premium for this guarantee on every container.
Further, the guarantee was valuable to the Defendants: it allowed
them to secure and retain their contracts with large clients such
as Jones/Nine West insofar as it gave them a competitive advantage
over other NVOCCs who either could not obtain space protection or
had to pay a premium for it.
20

1

estimate of the space protection premiums lost as a result of the

2

Shenzhen door arrangement.
4.

3

In sum, the Court awards MOL the following in compensatory

4
5

Damages Summary

damages:

6

Trucking
Costs

7

ORC
Differentials

Space
Protection

TOTAL

United States District Court

For the Northern District of California

SeaMaster

$595,333

$71,132

$484,740

$1,151,205

8

Summit

$754,820

$134,491

$1,233,063

$2,122,374

9

TOTAL

$1,350,153

$205,623

$1,717,803

$3,273,579

10
11 IV.
12
13
14

CONCLUSION
For the foregoing reasons, the Court finds as follows:
1.

MOL's RICO claim is DISMISSED WITH PREJUDICE

2.

The Court AWARDS MOL damages against SeaMaster in the
amount of $1,151,205

3.

The Court AWARDS MOL damages against Summit in the amount
of $2,122,374

15
16
17
18
19

IT IS SO ORDERED.

20
21

5
Dated: October __, 2015

22

UNITED STATES DISTRICT JUDGE

23
24
25
26
27
28

21