Mitsui O.S.K. Lines, Ltd. v. Seamaster Logistics, Inc. et al

Filing 89

Order by Hon. Samuel Conti denying 77 Motion to Partially Dismiss Second Amended Complaint by Seamaster & Summit and 78 Motion to Partially Dismiss Second Amended Complaint by AGL.(sclc2, COURT STAFF) (Filed on 5/10/2012)

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1 2 3 IN THE UNITED STATES DISTRICT COURT 4 FOR THE NORTHERN DISTRICT OF CALIFORNIA 5 6 7 8 10 For the Northern District of California United States District Court 9 11 12 13 14 15 16 MITSUI O.S.K. LINES, LTD., ) ) Plaintiff, ) ) v. ) ) SEAMASTER LOGISTICS, INC.; TOLL ) GLOBAL FORWARDING (AMERICAS) INC.; ) AMERICAN GLOBAL LOGISTICS LLC; ) KESCO CONTAINER LINE, INC.; KESCO ) SHIPPING, INC.; and DOES 1 through ) 20, ) ) Defendants. ) ) I. Case No. 11-2861 SC ORDER DENYING MOTIONS TO PARTIALLY DISMISS SECOND AMENDED COMPLAINT INTRODUCTION Now before the Court are two motions to partially dismiss the 17 Second Amended Complaint, ECF No. 72 ("SAC"), of Plaintiff Mitsui 18 O.S.K. Lines, Ltd. ("MOL"), a Japanese corporation. 19 the motions seek dismissal of the SAC's fourth and fifth claims, 20 arising under the Racketeer Influenced and Corrupt Organizations 21 Act ("RICO"), 18 U.S.C. §§ 1962(c) and 1962 (d). 22 to dismiss was brought by Defendants Seamaster Logistics, Inc. 23 ("Seamaster") and Toll Global Forwarding (Americas) Inc., formerly 24 named Summit Logistics International, Inc. ("Summit"), and the 25 second was brought by Defendant American Global Logistics LLC 26 ("AGL") (collectively, "Moving Defendants"). 27 28 Both motions are fully briefed. Specifically, The first motion ECF Nos. 77 ("SM/SL MTD"), 78-1 ("AGL MTD"), 80 ("MOL Opp'n"), 82 ("SM/SL Reply"), 84 ("AGL 1 Reply"). Pursuant to Civil Local Rule 7-1(b), both motions are 2 suitable for decision without oral argument. 3 forth below, the Court DENIES both motions. For the reasons set 4 5 6 II. BACKGROUND The Court assumes familiarity with Magistrate Judge James's 7 October 19, 2011 Order dismissing MOL's original Complaint. ECF 8 No. 38. 9 supplementing Judge James's account with allegations contained in Therefore, the Court will only briefly summarize the case, United States District Court For the Northern District of California 10 the SAC. 11 part of the discussion sections below, and takes all of the SAC's 12 well-pleaded allegations as true. 13 679 (2009). 14 The Court recounts additional, specific allegations as Ashcroft v. Iqbal, 556 U.S. 662, MOL is a Vessel Operating Common Carrier ("VOCC") -- that is, 15 an ocean shipper -- operating between foreign and U.S. ports, 16 including the Port of Oakland. 17 parlance, "NVOCCs," that is, Non-Vessel Operating Common Carriers. 18 Like MOL, they are shippers, but unlike MOL, they do not operate 19 seafaring vessels. 20 essentially are trucking companies that engage only in inland or 21 "door" carriage, while VOCCs like MOL may engage in ocean shipping. 22 See SAC ¶ 16. 23 Moving Defendants are, in industry NVOCCs such as the Moving Defendants Sometimes, in addition to providing ocean carriage, MOL is See id. On those jobs, called 24 hired to arrange inland carriage. 25 "through" or "door-to-door" carriage, MOL pays NVOCCs to arrange 26 for the inland leg (or legs) of the trip on MOL's behalf. 27 alleges that Defendants engaged in a scheme to charge MOL for 28 unnecessary or nonexistent inland carriage. 2 Id. In essence, MOL MOL 1 alleges that Defendants routinely represented to MOL that they had 2 performed inland carriage to or from a port serviced by MOL, but in 3 actuality third parties would make the inland shipments. 4 result, MOL allegedly was induced into paying for inland carriage 5 that it never received. 6 of this conduct occurred in inland China and some in the United 7 States. 8 purportedly pertain to U.S. conduct). See id. ¶¶ 24-31. As a MOL alleges that some See MOL Opp'n at 7-8 (identifying allegations of SAC which The SAC's fourth and fifth claims assert that, by using postal 9 United States District Court For the Northern District of California 10 mail, faxes, and the Internet to communicate with and bill MOL in 11 connection with these shipments, Defendants engaged in wire and 12 mail fraud -- predicate acts that can support civil RICO liability 13 under 18 U.S.C. §§ 1962(c) and (d), respectively.1 14 91. 15 state viable RICO claims against them because the case primarily 16 concerns conduct that took place in inland China and effected MOL 17 in Japan, and that, under Morrison v. National Australia Bank Ltd., 18 --- U.S. ---, 130 S. Ct. 2869 (2010), RICO has no extraterritorial 19 application. See SAC ¶¶ 78- Moving Defendants' position, in brief, is that MOL cannot 20 21 III. LEGAL STANDARD A motion to dismiss under Federal Rule of Civil Procedure 22 23 12(b)(6) "tests the legal sufficiency of a claim." 24 1 25 26 27 28 Navarro v. Section 1962(c) provides: "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 1962(d) makes it unlawful to conspire to do so. Section 1961(1) enumerates prohibited racketeering activities (or "predicate acts"), which include mail and wire fraud. 3 1 Block, 250 F.3d 729, 732 (9th Cir. 2001). "Dismissal can be based 2 on the lack of a cognizable legal theory or the absence of 3 sufficient facts alleged under a cognizable legal theory." 4 Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 5 1988). 6 should assume their veracity and then determine whether they 7 plausibly give rise to an entitlement to relief." 8 at 679. 9 of the allegations contained in a complaint is inapplicable to "When there are well-pleaded factual allegations, a court Iqbal, 556 U.S. However, "the tenet that a court must accept as true all United States District Court For the Northern District of California 10 legal conclusions. Threadbare recitals of the elements of a cause 11 of action, supported by mere conclusory statements, do not 12 suffice." 13 555 (2007)). 14 "sufficiently detailed to give fair notice to the opposing party of 15 the nature of the claim so that the party may effectively defend 16 against it" and "sufficiently plausible" such that "it is not 17 unfair to require the opposing party to be subjected to the expense 18 of discovery." Id. (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, The allegations made in a complaint must be both Starr v. Baca, 633 F.3d 1191, 1204 (9th Cir. 2011). 19 20 IV. DISCUSSION 21 A. Morrison and Its Progeny 22 Moving Defendants have not challenged the sufficiency of MOL's 23 factual allegations. See SM/SL Reply at 7-8 (acknowledging that 24 MOL's claims are sufficiently pled). 25 rest their challenge to MOL's RICO claims on Morrison, a securities 26 action, and the handful of cases that have applied its reasoning in 27 the RICO context. 28 settle on a single approach, the Court will briefly survey the Instead, Moving Defendants Because the post-Morrison RICO cases have yet to 4 1 field. 2 No. 02-CV-5771 (NGG)(VVP), 2011 WL 843957 (E.D.N.Y. Mar. 8, 2011), 3 supplies the governing rule in this case. 4 5 It concludes that European Community v. RJR Nabisco, Inc., 1. Territoriality in the Securities Context In Morrison, the Supreme Court considered whether § 10(b) of 6 the Securities and Exchange Act of 1934 has extraterritorial 7 application. 8 Australian nationals, had purchased stock in an Australian bank on 9 an Australian stock exchange. 130 S. Ct. at 2876-77. The Morrison plaintiffs, all Their complaint alleged that United States District Court For the Northern District of California 10 officers of the bank's U.S. subsidiary had, in the United States, 11 made fraudulent statements that caused some of the subsidiary's 12 assets to appear more valuable than they really were. 13 On these facts, the Court addressed the question of whether the 14 Australian plaintiffs had a viable cause of action under § 10(b), 15 given the long-standing presumption against extraterritorial 16 application of domestic laws. 17 Id. at 2876. Id. at 2877-78. The court held that they did not. Rejecting tests that 18 various circuit courts had developed for ascertaining the 19 extraterritorial application of statutes, id. at 2878-81, the court 20 articulated the presumption against extraterritoriality in robust 21 terms: "When a statute gives no clear indication of an 22 extraterritorial application, it has none." 23 court then turned to the language of the Exchange Act, observing 24 that "the objects of the statute's solicitude" were "transactions 25 in securities listed on domestic exchanges, and domestic 26 transactions in other securities . . . ." 27 those transactions that the statute seeks to regulate . . . ; it is 28 parties or prospective parties to those transactions that the 5 Id. at 2878. Id. at 2884. The "It is 1 statute seeks to protect . . . ." Id. (citations omitted). On 2 that basis, the court concluded that Congress did not intend for 3 the Exchange Act to possess extraterritorial reach. The Morrison court also rejected the argument that the case 4 5 called only for domestic application of § 10(b). The court 6 acknowledged that plaintiffs had alleged some U.S. conduct, but 7 this did not make their proposed application of § 10(b) domestic 8 rather than extraterritorial: "[I]t is a rare case of prohibited 9 extraterritorial application that lacks all contact with the United States District Court For the Northern District of California 10 territory of the United States. But the presumption against 11 extraterritorial application would be a craven watchdog indeed if 12 it retreated to its kennel whenever some domestic activity is 13 involved in the case." 14 2. Id. (emphasis in original). Cases Addressing Territoriality in the RICO Context Since Morrison made it clear that the presumption against 15 16 extraterritoriality is a canon of construction applicable to any 17 statute, id. at 2878-79, a half-dozen courts have applied its 18 reasoning in the RICO context.2 19 that RICO is silent as to its extraterritorial application and 20 that, under Morrison, it therefore has none. 21 Toyota, 785 F. Supp. 2d at 913; Norex, 631 F.3d at 32. 22 these courts have broadly agreed that, while the "object" of the 23 Exchange Act's "solicitude" considered in Morrison was domestic 24 securities transactions, in the RICO context "it is the 25 2 26 27 28 These courts have uniformly held See, e.g., In re Further, Cedeño v. Intech Group, Inc., 733 F. Supp. 2d 471, 474 (S.D.N.Y. 2010); Norex Petroleum Ltd. v. Access Industries, Inc., 631 F.3d 29, 32 (2d Cir. 2010); European Cmty., 2011 WL 843957; United States v. Philip Morris USA, Inc., 783 F. Supp. 2d 23, 28-29 (D.D.C. 2011); In re Toyota Motor Corp., 785 F. Supp. 2d 883, 913 (C.D. Cal. 2011); CGC Holding Co., LLC v. Hutchens, 2011 WL 5320988, at *14, --- F. Supp. 2d --- (D. Colo. 2011). 6 1 'enterprise' that is the object of the statute's solicitude, and 2 the 'focus' of the statute." 3 *5. 4 recipient of, or cover for, a pattern of criminal activity." 5 Cedeño, 733 F. Supp. 2d at 474. 6 'enterprises' by protecting them from being victimized by or 7 conducted through racketeering activity." 8 843957, at *5.3 European Cmty., 2011 WL 843957, at Specifically, "the focus of RICO is on the enterprise as the RICO "seeks to regulate European Cmty., 2011 WL Beyond these points, however, the cases' reasoning diverges. 9 United States District Court For the Northern District of California 10 Cf. In re Toyota, 785 F. Supp. 2d at 914-15 (surveying cases and 11 observing that "[i]t is unclear how Morrison's logic, which 12 evaluates the 'focus' of the relevant statute, precisely translates 13 to RICO"). 14 by factual differences between the cases, specifically, their 15 varying mixtures of foreign and domestic elements. 16 been relatively clear-cut: Post-Morrison courts have had no 17 difficulty concluding that far-flung foreign schemes conducted by 18 foreign actors and implicating only incidental U.S. conduct are 19 fundamentally extraterritorial and thus beyond the reach of RICO.4 This divergence has been obscured to a certain degree Some cases have 20 3 21 22 23 24 25 26 27 28 See also Philip Morris, 783 F. Supp. 2d at 28-29 (citing Cedeño, 733 F. Supp. 2d at 473) (RICO "is focused on how a pattern of racketeering activity affects an enterprise"); In re Toyota, 785 F. Supp. 2d at 914 (same); but see CGC Holding Co., 2011 WL 5320988, at *14 ("The focus of [RICO] is the racketeering activity, i.e., to render unlawful a pattern of domestic racketeering activity perpetrated by an enterprise."). 4 See Cedeño, 733 F. Supp. 2d 471 (Venezuelan actors allegedly conspired to imprison Venezuelan national in Venezuela); Norex, 631 F.3d 29 (conspiracy by Russian nationals to seize control over Russian oil industry through widespread bribery and institutional corruption in Russia); European Cmty., 2011 WL 843957 (South American and Russian cartels allegedly operated labyrinthine international money laundering and smuggling scheme involving illicit distribution abroad of U.S.-made cigarettes). 7 has not been so one-sided. 3 starting from the premise that RICO has no extraterritorial 4 application -- have had to decide whether applying RICO to the 5 facts before them would result in an impermissible extraterritorial 6 application or a permissible domestic one. 7 in Morrison's memorable terms, these courts have had to decide how 8 much or what kind of domestic conduct sends the watchdog back to 9 its kennel. 10 United States District Court But in other cases, the balance of foreign and domestic elements 2 For the Northern District of California 1 approaches.5 In those cases, district courts -- Or, to state the matter Morrison does not say, and the cases evince differing The challenge of applying Morrison in RICO cases stems from 11 12 the difficulty of ascertaining where a RICO enterprise is located. 13 This difficulty was not present in the securities context from 14 which Morrison arose. 15 "transactions in securities listed on domestic exchanges, and 16 domestic transactions in other securities" were properly subject to 17 the Exchange Act, 130 S. Ct. at 2884, it could rely on courts to 18 identify the place where an alleged transaction occurred: Though 19 securities transactions may occur in volume, each one occurs in a 20 5 21 22 23 24 25 26 27 28 When the Morrison court determined that only See Philip Morris, 783 F. Supp. 2d 23 (where English cigarette manufacturer allegedly conspired to deceive American public about health effects of smoking, district court dismissed RICO claims, despite enterprise's "tremendous impacts" on United States, because English defendant's domestic conduct was "isolated" and not by itself actionable under RICO); In re Toyota, 785 F. Supp. 2d at 914-15 (dismissing RICO claims as insufficiently pled but observing that well-pled allegations of "enterprise operating in the United States, consisting largely of domestic 'persons,' engaging in a pattern of racketeering activity in the United States, and damaging Plaintiffs abroad, . . . might well state a claim consistent with Morrison's holding"); CGC Holding Co., 2011 WL 5320988, at *14 (where Canadian nationals allegedly engaged in an enterprise "to extract money from [U.S. plaintiffs] through a phony loan scheme," plaintiffs stated cognizable RICO claim because "the racketeering activity of the enterprise . . . was directed at and largely occurred within the United States"). 8 1 readily ascertained place at a readily ascertained time. RICO enterprises are different. 2 They are not discrete events; 3 they are groups of people.6 4 place in the way that transactions do. 5 different and, especially in the case of association-in-fact 6 enterprises, more amorphous structure: 7 9 10 United States District Court They have an entirely [A]n association-in-fact enterprise is simply a continuing unit that functions with a common purpose. Such a group need not have a hierarchical structure or a "chain of command"; decisions may be made on an ad hoc basis and by any number of methods -- by majority vote, consensus, a show of strength, etc. Members of the group need not have fixed roles; different members may perform different roles at different times. The group need not have a name, regular meetings, dues, established rules and regulations, disciplinary procedures, or induction or initiation ceremonies. 8 For the Northern District of California As such, they do not "occur" in a 11 12 13 Boyle v. United States, 556 U.S. 938, 948 (2009). 14 in-fact enterprise need only have "a purpose, relationships among 15 those associated with the enterprise, and longevity sufficient to 16 permit these associates to pursue the enterprise's purpose." 17 at 946. An association- Id. Because the very notion of an association-in-fact enterprise 18 19 is "expansive," id. at 944, some alleged enterprises may be 20 difficult to pin to a location. 21 only to domestic enterprises, courts will be called upon to 22 determine whether a particular RICO enterprise, whatever its 23 structure, is extraterritorial or domestic, which implies a rough Nevertheless, because RICO applies 24 25 26 27 28 6 RICO defines the term "enterprise" to include "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C § 1961(4). The latter type of enterprise -- the kind that is not a legal entity -- is commonly called an "association-in-fact" or "associated-in-fact" enterprise. E.g., Cedeño, 733 F. Supp. 2d at 472; In re Toyota, 785 F. Supp. 2d at 900. 9 1 determination of the location of the enterprise. 2 location need not be targeted with pinpoint accuracy: The relevant 3 question is simply whether the enterprise is extraterritorial or 4 not.7 3. 5 The enterprise's The Nerve Center Test The only case to squarely propose a principled way to 6 7 determine the territoriality of a RICO enterprise is European 8 Community. 9 the 'focus' of RICO is the 'enterprise,' a RICO 'enterprise' must The European Community court recognized that "[b]ecause United States District Court For the Northern District of California 10 be a 'domestic enterprise.'" 11 Morrison, 130 S. Ct. at 2884). 12 precedent "suggesting how a court may determine the geographic 13 location of a RICO enterprise." 14 inquiry to "determin[ing] the geographic location of a 15 corporation." 16 Friend, --- U.S. ---, 130 S. Ct. 1181 (2010). 17 Supreme Court set forth a "nerve center" test for ascertaining the 18 7 19 20 21 22 23 24 25 26 27 28 Id. 2011 WL 843957, at *6 (citing The court acknowledged the lack of Id. It then analogized the The court turned for guidance to Hertz Corp. v. In that case, the The location of the associated racketeering activity is a different question, and not dispositive of the issue of the enterprise's territoriality. "The 'enterprise' is not the 'pattern of racketeering activity'; it is an entity separate and apart from the pattern of activity in which it engages." United States v. Turkette, 452 U.S. 576, 583 (1981). "RICO is not a recidivist statute designed to punish someone for committing a pattern of multiple criminal acts. Rather, it prohibits the use of such a pattern to impact an enterprise . . . ." Cedeño, 733 F. Supp. 2d at 473. Accordingly, the question before this Court is not where the predicate acts alleged by MOL took place, but rather the territoriality of the alleged enterprise itself. See id. at 474; European Cmty., 2011 WL 843957, at *5. The propriety of focusing the territoriality inquiry on the enterprise rather than the racketeering is confirmed by the fact that RICO defines the term "enterprise" to include legal entities. 18 U.S.C. § 1961(4). In such cases, the territoriality of the RICO enterprise clearly would not depend on the location where predicate acts occurred but on the location of the legal entity, that is, of the enterprise itself. The Court sees no reason why the analysis should differ for association-in-fact enterprises. 10 jurisdiction. 3 Community court, applying Hertz principles, suggested that courts 4 should focus on the RICO enterprise's "brains" as opposed to its 5 "brawn," that is, on "the decisions effectuating the relationships 6 and common interest of its members, and how those decisions are 7 made," as compared to the location where the consequences of those 8 decisions transpire. 9 recognize that the inquiry will sometimes yield artificially 10 United States District Court state citizenship of a corporation for purposes of diversity 2 For the Northern District of California 1 simplified results, "i.e., [a] single place of business for a 11 corporation, though there may be many," but stated that "the test 12 is still instructive . . . ." 13 This Court agrees. Hertz, 130 S. Ct. at 1192-94. 2011 WL 843957, at *6. The European The court appeared to Id. The nerve center test provides a familiar, 14 consistent, and administrable method for determining the 15 territoriality of RICO enterprises in cases such as the one at bar, 16 which blend domestic and foreign elements. 17 courts deciding RICO cases like this one to analogize to the larger 18 body of cases that use the nerve center test to identify a 19 corporation's state court citizenship for diversity purposes. 20 Further, the nerve center test has the virtue of recognizing that a 21 RICO enterprise is analytically distinct from the pattern of 22 predicate acts associated with it -- a distinction that the earlier 23 cases have sometimes blurred. 24 5320988, at *14 (determining that RICO enterprise was domestic 25 because the "racketeering activity of the enterprise . . . was 26 directed at and largely occurred within the United States"). 27 short, the test aligns the focus of the court's inquiry with the 28 focus of RICO: "the enterprise as the recipient of, or cover for, a It permits district E.g., CGC Holding Co., 2011 WL 11 In 1 pattern of criminal activity." Cedeño, 733 F. Supp. 2d at 474. 2 the extent that previous post-Morrison RICO cases -- none of which 3 are binding precedent on this Court -- have focused on the 4 nationality of a RICO enterprise's constituent members, the 5 location of racketeering activity, the location of "effects," or 6 the location or quantity of ambiguously defined "conduct," this 7 Court parts ways with them. 8 B. 9 Application of Nerve Center Test The nerve center test ascertains the territoriality of an United States District Court 10 For the Northern District of California To association-in-fact RICO enterprise by examining the alleged 11 "decisions effectuating the relationships and common interest of 12 [the enterprise's] members, and how those decisions are made." 13 European Cmty., 2011 WL 843957, at *6. 14 first to examine the structure of the enterprise alleged by MOL. 1. 15 This requires the Court Structure of the Alleged RICO Enterprise "To state a claim under § 1962(c), a plaintiff must allege (1) 16 17 conduct (2) of an enterprise (3) through a pattern (4) of 18 racketeering activity." 19 (9th Cir. 2007) (internal quotation marks omitted).8 20 this Court is concerned only with the second element, that of the 21 enterprise. 22 of MOL's allegations of the "enterprise" element. 23 because MOL's pleading could be clearer in connecting its 24 allegations to its claims, the Court recounts the allegations that 25 8 26 27 28 Odom v. Microsoft Corp., 486 F.3d 541, 547 Presently, Moving Defendants have not challenged the sufficiency Nevertheless, MOL also asserts a claim under subsection (d) of § 1962. Subsection (d) simply makes it unlawful to conspire to violate the preceding three subsections. Since Moving Defendants' § 1962(d) liability depends on MOL making out a viable claim under § 1962(c), and Moving Defendants have raised no specific challenge to the conspiracy element of MOL's § 1962(d) claim, the Court focuses on § 1962(c) exclusively. 12 1 comprise the enterprise element. The Court does so solely to 2 illuminate the structure of the alleged enterprise, with an eye 3 toward applying the nerve center test. "[A]n association-in-fact enterprise is simply a continuing 4 Boyle, 556 U.S. at 5 unit that functions with a common purpose." 6 948. 7 must adequately allege that: (1) defendants have associated for a 8 common purpose for engaging in a course of conduct, (2) in an 9 ongoing organization, either formal or informal, and (3) the To plead the "enterprise" element of a RICO claim, plaintiffs United States District Court For the Northern District of California 10 various associates function as a continuing unit. 11 See Odom, 486 F.3d at 552-53.9 12 The enterprise alleged by MOL satisfies these minimal 13 structural requirements -- which, as the Ninth Circuit has 14 observed, are "not very demanding." 15 following: Seamaster is a California corporation, Summit is a U.S. 16 corporation with its principal place of business in New Jersey, and 17 AGL is a "corporation and/or limited liability company" organized 18 under Georgia law, with its principal place of business in that 19 state. 20 group of companies whose corporate parent is the Toll Group 21 ("Toll"), a business entity of form unknown. SAC ¶¶ 4-5, 10. Id. at 548. MOL alleges the Both Summit and Seamaster are part of a Id. ¶ 6 & n.1.10 22 23 24 25 26 27 28 9 Odom was decided before Boyle, but the Court sees no distinction between the cases' respective definitions of a RICO enterprise. Both cases simply applied the holding of Turkette to reject argument that RICO required a plaintiff to show that an enterprise has a separate or "ascertainable" structure, i.e., one going beyond what is necessary to carry out its racketeering activities. Compare Odom, 486 F.2d at 553 with Boyle, 556 U.S. at 948. The Court therefore continues to recognize Odom as binding authority. 10 As explained supra in the Introduction, Summit is Toll's former name and Toll appears in this action as Toll Global Forwarding (Americas) Inc. 13 1 During a period covering 2006-2007, Summit and Seamaster were spun 2 off from a corporate forebearer, the Hecny Group ("Hecny"), with 3 whom Summit and Seamaster now directly compete. 4 Huang, aka Huang Chun Jen ("Huang"), was a "key executive and 5 member of the Board of Directors" of Hecny, id., and now is 6 Summit's Managing Director for the Asia Pacific Region, id. ¶ 8. Id. ¶ 7. Jerry Hecny was the "longtime strategic partner" of a company called 7 8 Global Link Logistics, Inc. ("Global Link"), whose founder and CEO 9 was Chad Rosenberg ("Rosenberg"). Id. ¶ 12. Rosenberg left Global United States District Court For the Northern District of California 10 Link and bought Moving Defendant AGL; Rosenberg now serves as AGL's 11 CEO. Id. ¶¶ 11-12, 14; Ex. I. 12 MOL alleges that the relationship between AGL on the one hand 13 and Summit and Seamaster on the other is a "strategic partnership" 14 mirroring that of Hecny and Global Link. 15 MOL avers that Summit/Seamaster and AGL comprise an association-in- 16 fact. 17 of customers in the United States who are the ultimate recipient of 18 the goods." 19 the import transportation of cargo (largely furniture and other 20 consumer goods) from Asia to the United States." 21 that Summit, Seamaster, and AGL "actively conducted and 22 participated in the affairs of the enterprise" by "arranging for 23 and otherwise participating in thousands of shipments of cargo from 24 Asia to the United States." 25 partnership and related shipping activities began at least in 2007 26 and continued until at least 2011. Id. Id. ¶ 15. Furthermore, "Through Seamaster, AGL ships goods with MOL on behalf Id. The purpose of the relationship is "to facilitate Id. ¶ 80. Id. MOL alleges MOL alleges that the Id. ¶ 79. 27 Taken together, these allegations describe an association-in- 28 fact enterprise, that is, "a continuing unit that functions with a 14 U.S. at 948; 18 U.S.C. § 1961(4). 3 namely, the import transportation of cargo from Asia to the United 4 States. 5 organization is nothing more than "a vehicle for the commission of 6 two or more predicate crimes" which need not have any particular 7 formal organization. 8 Seamaster/Summit and AGL form a strategic partnership which engages 9 in the allegedly wrongful shipping practices described in the SAC, 10 United States District Court common purpose" without being, itself, a legal entity. 2 For the Northern District of California 1 practices which are furthered by the alleged mail and wire frauds. 11 While MOL does not allege that the partners are bound by any formal 12 agreement or structure, they are not required to do so. 13 Further, the presence of Huang and Rosenberg in both the previous 14 Hecny/Global Link partnership and the current alleged partnership 15 between Seamaster, Summit, and AGL supports a reasonable inference 16 that these corporations serve, at least to a significant degree, to 17 effectuate the purposes of an informal alliance of businesspeople. 18 Lastly, MOL's allegations describe an enterprise that satisfies the 19 continuity requirement. 20 associates' behavior was 'ongoing' rather than isolated activity." 21 Odom, 486 F.3d at 553 (quoting United States v. Patrick, 248 F.3d 22 11, 19 (1st Cir. 2001)). 23 well as the shipping activities at the center of this case, were 24 ongoing at least from 2007 to 2011 easily satisfies this standard. MOL alleges a common purpose, MOL further alleges an ongoing organization. 2. 25 Boyle, 556 See Odom, 486 F.3d at 552. An ongoing MOL alleges that See id. This requirement "focuses on whether the MOL's allegation that the partnership, as Territoriality of the Alleged RICO Enterprise Having described the alleged RICO enterprise, the Court now 26 27 applies the nerve center test to determine whether RICO applies to 28 it. This test examines the "decisions effectuating the 15 1 relationships and common interest of [the enterprise's] members, 2 and how those decisions are made." 3 at *6. 4 enterprise, id., the Court concludes that the enterprise alleged 5 here is a domestic one. 6 European Cmty., 2011 WL 843957, Focusing on the brains rather than the brawns of the The Court first observes that all three Moving Defendants are 7 U.S. corporations. Their domestic legal status is not by itself 8 dispositive. 9 of a RICO enterprise's constituent members" determines See supra p. 12 (rejecting notion that "nationality United States District Court For the Northern District of California 10 territoriality). 11 that the decision making necessary to effectuate the alleged 12 association-in-fact enterprise's common purpose occurred 13 substantially within the territory of the United States. 14 Their domestic status tends to show, however, Additionally, MOL alleges that Seamaster, Summit, and AGL 15 "arranged" shipments in the United States. 16 shipping actually took place is merely evidence of where the 17 enterprise exercised its "brawn." 18 the allegedly illicit shipments that indicates where the enterprise 19 exercised its "brains." 20 arranged in substantial part within the United States, which, in 21 combination with the U.S. status of the alleged enterprise's member 22 corporations, supports a reasonable inference in MOL's favor, i.e., 23 that the enterprise's nerve center was domestic. 24 The location where the It is the activity of arranging MOL alleges that these shipments were Even if the Court were to read the allegations of the 25 complaint in a light less favorable to MOL -- and in the procedural 26 posture of this case, the Court must do the opposite -- MOL has 27 alleged, at minimum, an enterprise with one foot in China and one 28 in the United States. This is more than the merely incidental 16 1 domestic activity which, Morrison warned, would do nothing to shake 2 the watchdog from its post. 3 the contrary, MOL alleges a cross-national enterprise that uses 4 U.S. corporations as cover for a pattern of racketeering 5 activities. 6 of a domestic enterprise to whose activities RICO applies. 7 Cedeño, 733 F. Supp. 2d at 474. On These allegations are enough to assert the existence See Moving Defendants' arguments to the contrary are unavailing. 8 9 See Morrison, 130 S. Ct. at 2884. Apparently following the "conduct" approach that some earlier cases United States District Court For the Northern District of California 10 took, but which this Court has declined to follow, see supra 11 Section IV.A.3, AGL characterizes this case as being "primarily" or 12 "at its core" about conduct in inland China. 13 Reply at 4. 14 allegations in the SAC relate to conduct in China, the alleged RICO 15 enterprise must be extraterritorial. 16 essentially ignores MOL's allegations of U.S. conduct. 17 AGL had accurately characterized MOL's allegations, the location of 18 "conduct" is simply not the test. 19 is. 20 center test with one that invites courts to adopt a "know-it-when- 21 they-see-it" approach to territoriality, with predictably 22 unpredictable results. 23 AGL MTD at 2, AGL AGL argues, in essence, that because the bulk of the As MOL points out, AGL But even if The location of the enterprise AGL's position would supplant the relatively principled nerve This Court declines to adopt that approach. For their part, Seamaster and Summit urge the Court to dismiss 24 MOL's RICO claims because MOL alleges "an international, not 25 domestic, RICO enterprise." 26 misapprehends the holding of Morrison. 27 "some domestic activity" will not save an otherwise 28 extraterritorial RICO claim -- not that any international activity SM/SL Reply at 4. 17 This argument That case teaches that 2884 (emphasis in original). 3 argue that even though MOL alleges an enterprise with domestic ties 4 substantial enough to make it at least "international," such an 5 enterprise is not truly domestic because the extraterritorial 6 elements somehow matter more. 7 the Court to engage in the sort of conduct-weighing analysis that 8 it has already declined to undertake. 9 alleges a combination of domestic and foreign elements (e.g., 10 United States District Court will doom an otherwise domestic claim. 2 For the Northern District of California 1 conduct, effects, actors), a court needs some way to determine 11 whether the domestic elements outweigh the foreign for purposes of 12 the territoriality inquiry. 13 which elements are relatively important. 14 could be made on an ad hoc basis after examining the (often prolix 15 and complex) allegations of the RICO complaint. 16 believes that the analysis calls instead for a consistent method 17 that cuts through extraneous matter to the heart of the issue. 18 nerve center test meets this need. 19 in the corporate citizenship context from which it is derived, the 20 nerve center test takes a sprawling network of decision makers and 21 actors and reduces it, for legal purposes, to a single, simplified 22 location. 23 and Summit's position would unhelpfully muddy the analysis: Whereas 24 the relevant categories under Morrison are "extraterritorial" and 25 "not," Seamaster and Summit would add a third category -- "both." 26 In such situations, courts would be stuck making ad hoc 27 determinations about territoriality without a reliable guide. 28 See Morrison, 130 S. Ct. at Essentially, Seamaster and Summit Adopting this position would require When a RICO plaintiff This implies a determination about Such a determination But this Court The In the RICO context, as well as This simplification is a feature, not a bug. Seamaster The Court also rejects Seamaster and Summit's argument that 18 as a Japanese company, feels the effects of the alleged scheme in 3 Asia. 4 adopted by various circuits and replaced it with one that focuses, 5 in the securities context, on the location of the alleged 6 transaction, and, in the RICO context, on the location of RICO's 7 object of solicitude, the enterprise as a cover for or victim of 8 racketeering activity. 9 holding bars courts from refusing to apply RICO simply because the 10 United States District Court MOL's RICO claims are impermissibly extraterritorial because MOL, 2 For the Northern District of California 1 scheme's effects are felt abroad; it does not suggest that courts 11 may deny relief for that reason. 12 unambiguously seeks application of RICO to remedy harmful effects 13 felt outside the United States." 14 application is entirely permissible under Morrison, because the 15 enterprise causing those foreign effects is a domestic one. 16 /// 17 /// 18 /// 19 /// 20 /// 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// SM/SL Reply at 4. Morrison repudiated the "effects" tests Cedeño, 733 F. Supp. 2d at 474. Morrison's It is true that "MOL SM/SL Reply at 4. 19 Such 1 2 V. CONCLUSION Moving Defendants have not challenged MOL's RICO claims on any 3 grounds other than the presumption against extraterritoriality. 4 Having concluded for the foregoing reasons that this challenge does 5 not succeed, the Court accordingly DENIES the partial motions to 6 dismiss brought, respectively, by Defendants Seamaster Logistics, 7 Inc., and Toll Global Forwarding (Americas) Inc., formerly named 8 Summit Logistics International, Inc., and by American Global 9 Logistics LLC. Plaintiff Mitsui O.S.K. Lines, Ltd.'s RICO claims United States District Court For the Northern District of California 10 remain undisturbed, as do the other, unchallenged claims of the 11 Second Amended Complaint. 12 13 IT IS SO ORDERED. 14 15 16 Dated: May 10, 2012 UNITED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 27 28 20

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