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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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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For the Northern District of California

United States District Court

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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

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Second Amended Complaint, ECF No. 72 ("SAC"), of Plaintiff Mitsui

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O.S.K. Lines, Ltd. ("MOL"), a Japanese corporation.

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the motions seek dismissal of the SAC's fourth and fifth claims,

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arising under the Racketeer Influenced and Corrupt Organizations

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Act ("RICO"), 18 U.S.C. §§ 1962(c) and 1962 (d).

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to dismiss was brought by Defendants Seamaster Logistics, Inc.

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("Seamaster") and Toll Global Forwarding (Americas) Inc., formerly

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named Summit Logistics International, Inc. ("Summit"), and the

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second was brought by Defendant American Global Logistics LLC

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("AGL") (collectively, "Moving Defendants").

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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

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suitable for decision without oral argument.

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forth below, the Court DENIES both motions.

For the reasons set

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5
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II.

BACKGROUND
The Court assumes familiarity with Magistrate Judge James's

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October 19, 2011 Order dismissing MOL's original Complaint.

ECF

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No. 38.

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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

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the SAC.

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part of the discussion sections below, and takes all of the SAC's

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well-pleaded allegations as true.

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679 (2009).

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The Court recounts additional, specific allegations as

Ashcroft v. Iqbal, 556 U.S. 662,

MOL is a Vessel Operating Common Carrier ("VOCC") -- that is,

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an ocean shipper -- operating between foreign and U.S. ports,

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including the Port of Oakland.

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parlance, "NVOCCs," that is, Non-Vessel Operating Common Carriers.

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Like MOL, they are shippers, but unlike MOL, they do not operate

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seafaring vessels.

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essentially are trucking companies that engage only in inland or

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"door" carriage, while VOCCs like MOL may engage in ocean shipping.

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See SAC ¶ 16.

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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

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hired to arrange inland carriage.

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"through" or "door-to-door" carriage, MOL pays NVOCCs to arrange

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for the inland leg (or legs) of the trip on MOL's behalf.

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alleges that Defendants engaged in a scheme to charge MOL for

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unnecessary or nonexistent inland carriage.

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Id.

In essence, MOL

MOL

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alleges that Defendants routinely represented to MOL that they had

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performed inland carriage to or from a port serviced by MOL, but in

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actuality third parties would make the inland shipments.

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result, MOL allegedly was induced into paying for inland carriage

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that it never received.

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of this conduct occurred in inland China and some in the United

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States.

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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

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connection with these shipments, Defendants engaged in wire and

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mail fraud -- predicate acts that can support civil RICO liability

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under 18 U.S.C. §§ 1962(c) and (d), respectively.1

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91.

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state viable RICO claims against them because the case primarily

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concerns conduct that took place in inland China and effected MOL

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in Japan, and that, under Morrison v. National Australia Bank Ltd.,

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--- U.S. ---, 130 S. Ct. 2869 (2010), RICO has no extraterritorial

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application.

See SAC ¶¶ 78-

Moving Defendants' position, in brief, is that MOL cannot

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III. LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure

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23

12(b)(6) "tests the legal sufficiency of a claim."

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1

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26
27
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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

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on the lack of a cognizable legal theory or the absence of

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sufficient facts alleged under a cognizable legal theory."

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Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.

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1988).

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should assume their veracity and then determine whether they

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plausibly give rise to an entitlement to relief."

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at 679.

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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

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legal conclusions.

Threadbare recitals of the elements of a cause

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of action, supported by mere conclusory statements, do not

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suffice."

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555 (2007)).

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"sufficiently detailed to give fair notice to the opposing party of

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the nature of the claim so that the party may effectively defend

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against it" and "sufficiently plausible" such that "it is not

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unfair to require the opposing party to be subjected to the expense

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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).

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IV.

DISCUSSION

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A.

Morrison and Its Progeny

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Moving Defendants have not challenged the sufficiency of MOL's

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factual allegations.

See SM/SL Reply at 7-8 (acknowledging that

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MOL's claims are sufficiently pled).

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rest their challenge to MOL's RICO claims on Morrison, a securities

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action, and the handful of cases that have applied its reasoning in

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the RICO context.

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settle on a single approach, the Court will briefly survey the

Instead, Moving Defendants

Because the post-Morrison RICO cases have yet to

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field.

2

No. 02-CV-5771 (NGG)(VVP), 2011 WL 843957 (E.D.N.Y. Mar. 8, 2011),

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supplies the governing rule in this case.

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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

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the Securities and Exchange Act of 1934 has extraterritorial

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application.

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Australian nationals, had purchased stock in an Australian bank on

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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,

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made fraudulent statements that caused some of the subsidiary's

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assets to appear more valuable than they really were.

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On these facts, the Court addressed the question of whether the

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Australian plaintiffs had a viable cause of action under § 10(b),

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given the long-standing presumption against extraterritorial

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application of domestic laws.

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Id. at 2876.

Id. at 2877-78.

The court held that they did not.

Rejecting tests that

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various circuit courts had developed for ascertaining the

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extraterritorial application of statutes, id. at 2878-81, the court

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articulated the presumption against extraterritoriality in robust

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terms: "When a statute gives no clear indication of an

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extraterritorial application, it has none."

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court then turned to the language of the Exchange Act, observing

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that "the objects of the statute's solicitude" were "transactions

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in securities listed on domestic exchanges, and domestic

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transactions in other securities . . . ."

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those transactions that the statute seeks to regulate . . . ; it is

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parties or prospective parties to those transactions that the

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Id. at 2878.

Id. at 2884.

The

"It is

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statute seeks to protect . . . ."

Id. (citations omitted).

On

2

that basis, the court concluded that Congress did not intend for

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the Exchange Act to possess extraterritorial reach.
The Morrison court also rejected the argument that the case

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called only for domestic application of § 10(b).

The court

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acknowledged that plaintiffs had alleged some U.S. conduct, but

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this did not make their proposed application of § 10(b) domestic

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rather than extraterritorial: "[I]t is a rare case of prohibited

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extraterritorial application that lacks all contact with the

United States District Court

For the Northern District of California

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territory of the United States.

But the presumption against

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extraterritorial application would be a craven watchdog indeed if

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it retreated to its kennel whenever some domestic activity is

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involved in the case."

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2.

Id. (emphasis in original).

Cases Addressing Territoriality in the RICO Context

Since Morrison made it clear that the presumption against

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extraterritoriality is a canon of construction applicable to any

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statute, id. at 2878-79, a half-dozen courts have applied its

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reasoning in the RICO context.2

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that RICO is silent as to its extraterritorial application and

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that, under Morrison, it therefore has none.

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Toyota, 785 F. Supp. 2d at 913; Norex, 631 F.3d at 32.

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these courts have broadly agreed that, while the "object" of the

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Exchange Act's "solicitude" considered in Morrison was domestic

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securities transactions, in the RICO context "it is the

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2

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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).

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'enterprise' that is the object of the statute's solicitude, and

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the 'focus' of the statute."

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*5.

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recipient of, or cover for, a pattern of criminal activity."

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Cedeño, 733 F. Supp. 2d at 474.

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'enterprises' by protecting them from being victimized by or

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conducted through racketeering activity."

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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.

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United States District Court

For the Northern District of California

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Cf. In re Toyota, 785 F. Supp. 2d at 914-15 (surveying cases and

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observing that "[i]t is unclear how Morrison's logic, which

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evaluates the 'focus' of the relevant statute, precisely translates

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to RICO").

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by factual differences between the cases, specifically, their

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varying mixtures of foreign and domestic elements.

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been relatively clear-cut: Post-Morrison courts have had no

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difficulty concluding that far-flung foreign schemes conducted by

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foreign actors and implicating only incidental U.S. conduct are

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fundamentally extraterritorial and thus beyond the reach of RICO.4

This divergence has been obscured to a certain degree

Some cases have

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3

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25
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27
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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).

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has not been so one-sided.

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starting from the premise that RICO has no extraterritorial

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application -- have had to decide whether applying RICO to the

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facts before them would result in an impermissible extraterritorial

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application or a permissible domestic one.

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in Morrison's memorable terms, these courts have had to decide how

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much or what kind of domestic conduct sends the watchdog back to

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its kennel.

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United States District Court

But in other cases, the balance of foreign and domestic elements

2

For the Northern District of California

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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

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the difficulty of ascertaining where a RICO enterprise is located.

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This difficulty was not present in the securities context from

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which Morrison arose.

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"transactions in securities listed on domestic exchanges, and

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domestic transactions in other securities" were properly subject to

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the Exchange Act, 130 S. Ct. at 2884, it could rely on courts to

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identify the place where an alleged transaction occurred: Though

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securities transactions may occur in volume, each one occurs in a

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25
26
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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").

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readily ascertained place at a readily ascertained time.
RICO enterprises are different.

2

They are not discrete events;

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they are groups of people.6

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place in the way that transactions do.

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different and, especially in the case of association-in-fact

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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.

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For the Northern District of California

As such, they do not "occur" in a

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12
13

Boyle v. United States, 556 U.S. 938, 948 (2009).

14

in-fact enterprise need only have "a purpose, relationships among

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those associated with the enterprise, and longevity sufficient to

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permit these associates to pursue the enterprise's purpose."

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at 946.

An association-

Id.

Because the very notion of an association-in-fact enterprise

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19

is "expansive," id. at 944, some alleged enterprises may be

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difficult to pin to a location.

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only to domestic enterprises, courts will be called upon to

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determine whether a particular RICO enterprise, whatever its

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structure, is extraterritorial or domestic, which implies a rough

Nevertheless, because RICO applies

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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.

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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

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Community.

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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

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20
21
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23
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25
26
27
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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.

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Dated: May 10, 2012
UNITED STATES DISTRICT JUDGE

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