UNITED STATES OF AMERICA v. REAL PROPERTY LOCATED AT 8 DRIFT STREET, NEW BRUNSWICK, NEW JERSEY et al

Filing 122

MEMORANDUM AND ORDER that Claimants' motion for a pretrial order 99 is DENIED; the Government's cross-motion for summary judgment 107 is DENIED. Signed by Judge Peter G. Sheridan on 2/20/2020. (jem)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

UNITED STATES OF AMERICA,
Civil Action No.: 14-cv-03587 (PGS)

Plaintiff,
V.

MEMORANDUM
AND ORDER

REAL PROPERTY LOCATED AT 8 DRIFT
STREET, NEW BRUNSWICK, NEW
JERSEY, et al.,
Defendant.

SHERIDAN, U.S.D.J.
This matter comes before the Court on a motion for a pretrial order filed by Claimants
Gengwu Qui (“Gengwu”), 52 BD, Inc. (“52 BD”), and Traveillome 1405, LLC (“Traveillome”)
(collectively, “Claimants”) and on a cross-motion for summary judgment filed by Plaintiff United
States of America (“Plaintiff’ or the “Government”). This is a civil action in rem for the forfeiture
of certain real and personal property pursuant to 18 U.S.C.

§ 981(a)(l)(A) and (a)(l)(C).

Claimants are seeking a pretrial order clarifying the scope of the Stipulation and Consent Order of
Civil Forfeiture filed in this matter on May 27, 2016 (the “Consent Order”) (ECF No. 68). (ECF
No. 99). The Government opposes Claimants’ motion for a pretrial order and cross moves for
summary judgment.

(ECF No. 107).

The Court has jurisdiction over this forfeiture action

commenced by the Government under 28 U.S.C.
28 U.S.C.

§ 1345; and over this action for forfeiture under

§ 1355(a).
BACKGROUND

The Government seeks forfeiture of certain real property and currency from three bank
accounts, which are alleged to be the unlawful proceeds traceable to the transportation,

transmittal, or transfer of money from China to the United States by Gengmin Qui (“Gengmin”),
that he knew was stolen, converted, or taken by fraud, in violation of criminal law provisions 18
U.S.C. § 2314, 1956, and 1957.
Gengwu, 52 BD, and Traveillome filed verified claims in this matter asserting an interest
in the property at issue. (See ECF Nos. 14, 16, 22). Specifically, Claimant Gengwu, the brother
of Gengmin, asserts an interest in the real property located at 1405 South Ocean Boulevard,
Myrtle Beach, South Carolina (the “Myrtle Beach Property”), and in the currency in the
following bank accounts: (1) Cathay Bank account number 665931796, held in the name of 52
BD (“52 BD 1796”); (2) Cathay Bank account number 675981237, held in the name of Gengwu
Qiu (“Gengwu 1237”); and (3) Cathay Bank account number 665934436, held in the name of
Gengwu Qiu (“Gengwu 4436”). (Verified Claim of Gengwu Qiu (“Gengwu Claim”) ¶91 2-5,
ECF No. 14). Claimant 52 BD, through Gengwu, the sole owner since September 5, 2011,
asserts an interest in the currency seized from the 52 BD 1796 account. (Verified Claim of 52
BD, Inc. (“52 BD Claim”) ¶91 2-3, ECF No. 16). Claimant TraveiHome, through Judy Tang, a
member and the manager of Traveillome, asserts an interest in the Myrtle Beach Property as the
legal and record owner of the real property. (Verified Claim of TraveiHome 1405, LLC
(“TraveiHome Claim”) ¶91 2-3, ECF No. 22). The property interests described in this paragraph
are referred to in this memorandum as the “defendant properties.”
As stated above, the Government asserts that the defendant properties are subject to
forfeiture because they are proceeds traceable to Gengmin’s alleged criminal activity. (See
generally Complaint, ECF No. 1). In this case, the vast majority of material facts are in dispute.’

1

Due to Claimants’ numerous objections, references to Government’s Statement of Material
facts are disputed, unless otherwise indicated.
2

(See generally Responses of Claimants Gengwu Qui, 52 BD Inc., and TraveiHome 1405, LLC to
Plaintiff’s Statement of Material Facts, ECF No. 110-1). According to the Government, the
criminal activity occurred in connection with Gengmin’ s collection and disbursement of a value
added tax (“VAT”) refund that was imposed by the Government of China.
Evidently, I.M. Skaugen (“Skaugen”), a Norwegian company, contracted with Taizhou
Wuzhou Shipbuilding Industry Co., Ltd. (“Wuzhou”) to build three ships for Skaugen.
(Government’s Statement of Material Facts Pursuant to Local Civil Rule 56.1 (“Govt’s SMF”) ¶
1, ECF No. 107-2). Certain material and equipment used in the construction of the ships were
subject to VAT. (See id. ¶ 2). Under the contract, Skaugen was entitled to receive a portion of
the VAT refund that resulted from the material and equipment purchased to build the ships. (See
Second Declaration of Peter W. Gaeta, Ex. B, Ship Building Contract, Article 1.4 at QIU
00400600, ECF No. 107-5).
Since the Chinese government does not assess VAT on goods that are exported, it
reimburses VAT to sellers in the supply chain that have already paid into the VAT once it
recovers proof that the goods were exported. (Compi. ¶ 14; Govt’s SMF ¶ 2). A business
practice in China is to retain an import/export broker: to apply for a VAT reimbursement; and to
subsequently transfer the VAT refund to the appropriate party. In this case, Skaugen and
Wuzhou contracted with Zheijang Changda Import and Export Co., Ltd. (“Changda”) to act as
broker. (Govt’s SMF ¶91 1, 3). Changda is controlled by Gengmin. (Id. ¶ 1). Changda’ s
responsibilities as broker allegedly included, inter alia, the accounting for the inventory of
materials subject to the VAT. (Id. ¶ 2). This type of accounting is generally maintained in a
ledger format known as a “redbook.” (Id.). Once a ship was constructed and exported, Changda
was contractually bound to apply for a reimbursement of VAT, which was to be reimbursed by

3

the Chinese government directly to the broker (i.e., Changda). (See Id.). Changda was then
responsible for distributing the refund to the appropriate party under the contract (i.e., Skaugen).
(See Ship Building Contract, Article 1.4).
Upon the completion and delivery of the first ship to Skaugen in March 2009, Changda
sought and obtained from the Chinese government a VAT reimbursement of approximately $4
million. (Govt’s SMF ¶ 8). Per the contract, Changda made a disbursement of the VAT refund
to Skaugen. (Id.

¶ 9). It is undisputed that Changda complied with all requirements as the

import/export broker concerning the delivery of the first ship and made the appropriate transfers
of the VAT refund. (Id.).
In October 2009, the second ship was delivered to Skaugen; however, Changda never
remitted any portion of the VAT refund to Skaugen. (Compl.

¶91 18,

23).2

On or about January

25, 2010, the VAT refund of approximately $3.7 million was transferred from the Government
of China to an account at the Agricultural Bank of China (“ABC”) in Changda’s name. (Govt’s
SMF ¶ 21). In February 2010, Gengmin, as principal of Changda, transferred approximately
$1.7 million to a bank account in the United states held in the name of BD Global Corp. (“BD
Global”), a company formed by Gengmin (“BD Global 6099”). (Id.

¶ 23). Subsequently, the

monies were completely transferred out of the BD Global 6099 account; and then transferred
among several bank accounts in the United States and used to purchase the Myrtle Beach
Property described above, inter alia. (See Compl.

2

¶91 25, 28-66).

In May 2010, the third ship was completed and available for delivery. Delivery, however, was
delayed because Changda had not assisted with the customs and export requirements. Skaugen
resolved the customs issues without Changda, and the third ship was delivered in September
2011. (Compl. ¶ 24).
4

Gengwu and Chun Yan, the brother and sister of Gengmin, contend that none of their
assets can be traced to the funds that Gengmin allegedly acquired by fraud. It is undisputed that
in November 2008, Gengmin transferred all of his interest in Taizhou City Bid Da Industrial
Trading Co., Ltd. (“Bi Da”) to Gengwu and Chun Yan. (Govt’s SMF ¶ 7). On or about June 8,
2011, Gengwu and Chun Yan sold Bi Da for $2.3 million. (Id.

¶ 33). Through a series of

transactions, these funds were transferred from China to the United States via Dubai, United
Arab Emirates. (Id.). It is undisputed that the funds were deposited into a business checking
account ending in 6610 held by East International, Inc. (“East International 6610”), a company
incorporated by Gengmin with an address in South River, New Jersey. (Id.

¶91 29, 33). It is

undisputed that between June and July 2011, approximately $2,555,850 was received into the
East International account from an account of Green Stem Trading LLC located in Dubai. (Id.

¶91 34, 35). Subsequently, the monies were allegedly transferred to the accounts of either
Gengmin or Gengwu, or companies they controlled, and used to purchase real and personal
property in the United States. (See id.

¶91 35, 36, 37, 38, 43).

In opposition, Claimants contend that there are three “principal disputes of fact” arising
from the Government’s Statement of Material Facts:
•

Claimants dispute whether any portion of the VAT refund transferred into the
United States had been stolen, converted, or taken by fraud;

•

Claimants dispute whether Skaugan was entitled to receive the entire VAT
refund; and

•

Claimants dispute whether the funds that Gengwu transferred into the United
States included any portion of the VAT refund.

(Claimants’ Opp. Br. at 4, ECF No. 110). In addition, to rebut the Government’s Statement of
Material Facts, Claimants filed the Declaration of Claimant Gengwu Qui (“Gengwu Deci.”).
Among other things, the Gengwu Declaration states that Gengwu “was not involved in any way
5

in the sale of the ships or the application for the refund”; he never “had an interest in Changda”;
and “no portion of the VAT refund was transferred to Gengwu or to any company controlled by
Gengwu.” (Gengwu Deci. ¶91 23, 24, ECF No. 110).
On July 17, 2014, a federal grand jury returned a 38-count criminal indictment charging
Gengmin with conspiring to transport stolen property across state lines, with interstate
transportation of stolen property, with conspiring to launder money and engage in transactions in
criminally derived property, and with engaging in monetary transactions in criminally derived
property. United States ofAmerica v. Gengmin Qiu, l4-cr-401 (PGS), ECF No. 21. However,
on May 26, 2016, Gengmin pled guilty to only a one-count superseding information that charged
him with criminal contempt in violation of 18 U.S.C. § 402 and 2. Id., ECF No. 143.
LEGAL STANDARDS

Summary judgment is appropriate under Federal Rule of Civil Procedure 56(c) when the
moving party demonstrates that there is no genuine issue of material fact and the evidence
establishes the moving party’s entitlement to judgment as a matter of law. Celotex Corp. v. Catrett,
477 U.s. 317, 322-23 (1986). A factual dispute is genuine if a reasonable jury could return a
verdict for the non-movant, and it is material if, under the substantive law, it would affect the
outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In considering a
motion for summary judgment, a district court may not make credibility determinations or engage
in any weighing of the evidence; instead, the non-moving party’s evidence “is to be believed and
all justifiable inferences are to be drawn in his favor.” Marino v. Indus. Crating Co., 358 F.3d
241, 247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).
Once the moving party has satisfied its initial burden, the party opposing the motion must
establish that a genuine issue as to a material fact exists. Jersey Cent. Power & Light Co. v. Lacey

6

Twp., 772 F.2d 1103, 1109 (3d Cir. 1985). The party opposing the motion for summary judgment
cannot rest on mere allegations and instead must present actual evidence that creates a genuine
issue as to a material fact for trial. Anderson, 477 U.S. at 248; Siegel Transfer, Inc. v. Carrier
Express, Inc., 54 F.3d 1125, 1130-31 (3d Cir. 1995). “[U]nsupported allegations.

.

.

and pleadings

are insufficient to repel summary judgment.” Schoch v. First Fid. Bancorp., 912 F.2d 654, 657
(3d Cir. 1990); see also Fed. R. Civ. P. 56(e) (requiring nonmoving party to “set forth specific
facts showing that there is a genuine issue for trial”).
“These [summary judgment] standards are applicable when deciding a summary judgment
motion in a forfeiture action.” U.S. v. 2000 Toyota Celica, No. CV 04-3063 LRS, 2005 WL
1502902, at *4 (E.D. Wash. June 23, 2005) (citation omitted); United States v. Two Real Properties
Situated in Bluefield, No. CIVA 1:06-0532, 2009 WL 3181453, at *3 (S.D.W. Va. Sept. 29, 2009);
United States v. Eleven Vehicles, 836 F. Supp. 1147, 1151 (E.D. Pa. 1993).
In civil forfeiture cases, “the burden of proof is on the Government to establish, by a
preponderance of the evidence, that the property is subject to forfeiture.” 18 U.S.C.

§ 983(c)(1);

United States v. $7,599,358.09, 953 F. Supp. 2d 549, 557 (D.N.J. 2013). Under the relevant
forfeiture statute—18 U.S.C.

§ 981—property is subject to forfeiture if a crime occurred and there

is a “substantial connection between the property and [that] offense.” See 18 U.S.C.

§ 983(c)(3).

Under the present circumstances, the Government satisfies the preponderance of the evidence
standard by establishing that the “relevant facts are more likely true than not.”

Two Real

Properties Situated in Bluefield, 2009 WL 3181453, at *3 (citations omitted).
In sum, here, the Government in not entitled to summary judgment because there are
genuine disputes of material fact as to whether the defendant properties are subject to forfeiture.
(See Government’s Moving Br. at 25, ECF No. 107-1).

7

ANALYSIS

I.

GOVERNMENT’S CROSS-MOTION FOR SUMMARY JUDGMENT

In order to be entitled to summary judgment in this civil forfeiture proceeding under 18
U.S.C.

§ 981, the Government must demonstrate by a preponderance of the evidence that the

defendant properties are subject to forfeiture. See 18 U.S.C.

§ 983(c)(l). In other words, the

evidence adduced in connection with the instant motion must be such that “no reasonable jury
could fail to find the Government had established both that a crime occurred and that the
defendant property had the required nexus to the crime.” (Government’s Moving Br. at 24
(collecting cases)). Indeed, “the Government may use evidence gathered after the filing of a
complaint for forfeiture to establish, by a preponderance of the evidence, that property is subject
to forfeiture.” 18 U.S.C.

§ 983(c)(2).

In this case, the Government contends that the defendant properties are subject to
forfeiture because they are proceeds with a nexus to Gengmin’s alleged criminal conduct.
“Under the civil forfeiture statute, ‘proceeds’ means property of any kind obtained directly or
indirectly, as the result of the commission of the offense giving rise to the forfeiture.” United
States v. $72,050.00 in U.S. Currency, 587 F. App’x 241, 243 (6th Cir. 2014) (citing 18 U.S.C.

§

98 1(a)(2)). Courts generally apply a “but for” test to determine whether proceeds are forfeitable.
See, e.g., United States v. Farkas, 474 F. App’x 349, 359 (4th Cir. 2012) (collecting cases);
United States v. Sum of $70,990,605, 4 F. Supp. 3d 189, 207 (D.D.C. 2014). Under that test,
“funds are considered proceeds and therefore deemed forfeitable if ‘a person would not have [the
funds] but for the criminal offense.” Id. (citation omitted) (emphasis in original).
The Government specifically argues that the defendant properties are proceeds traceable
to Gengmin’s violation of three criminal statutes—18 U.S.C.

8

§ 2314, 18 U.S.C. § 1956, and 18

U.S.C.

§ 1957. (Compi. ¶‘lI 29, 30). Again, in order to be entitled to summary judgment, the

Government is required to establish beyond a preponderance of the evidence, that Gengmin
violated these laws and that the defendant properties are traceable to those offenses.
To provide an overview of the three criminal statutes allegedly violated by Gengmin;
first, 18 U.S.C.

§ 2314 makes illegal the interstate transportation of property that was stolen,

converted, or taken by fraud. Id.; see also United States v. Wright, 363 F.3d 237, 244 (3d Cir.
2004). Second, in order to establish a violation of 18 U.S.C.

§ 1956(a), the Government must

demonstrate: (1) that Gengmin conducted (or attempted to conduct) a financial transaction,
which affected interstate commerce; (2) that Gengmin conducted the financial transaction with
the proceeds of a specified unlawful activity; (3) that Gengmin knew the transaction involved the
proceeds of some form of unlawful activity; and (4) that Gengmin intended to promote the
carrying on of the specified unlawful activity; or Gengmin conducted the financial transaction
with knowledge that the transaction was designed in whole or in part to conceal or disguise the
nature, location, source, ownership or control of the proceeds of the specified unlawful activity.
See Third Circuit Model Criminal Jury Instructions, 6.18.l956A. And, third, 18 U.S.C.

§ 1957

generally prohibits the knowing engagement or attempted engagement in monetary transactions
in criminally derived property of a value greater than $10,000 that is derived from unlawful
activity. Id.
The Government argues that the undisputed facts establish that the defendant properties
are linked to Gengmin’s violation of the foregoing criminal laws. Specifically, the defendant
properties, the Government contends, are the direct and indirect proceeds of Gengmin’s “scheme
to defraud Skaugen by stealing an approximately $3.6 million VAT [refund) payment he was not
entitled to retain.” (Government’s Moving Br. at 28-32; see also Government’s Reply Br. at 4-5,

9

ECF No 113). The “scheme” allegedly violated of 18 U.S.C.

§ 2314 because Gengmin purportedly

knew these funds were stolen when he transferred them from China to the United States. (Id.).
The Government furthers: “The transactions of direct and indirect proceeds between accounts held
in the names of various companies and individuals associated with Gengmin were meant to conceal
and disguise the nature and source of the VAT theft proceeds,” in violation of the money
laundering statutes (18 U.S.C.

§ 1956 and 1957). (See id. at 32-36).

To show how Gengmin perpetrated this “methodical scheme” (Government’s Reply Br. at
4), as well to illustrate the complicated web of transactions allegedly intended to conceal and
disguise the illegal proceeds, the Government primarily relies on the allegations set forth in its
Complaint and the “Government’s Response to the Court Ordered Interrogatory on April 16, 2016”
(the “Interrogatory Response”) (ECF No. 107-6).

?

The Interrogatory Response was provided by

a Special Agent of the Federal Bureau of Investigation and purports to provide a lengthy narrative
describing Gengmin’s unlawful “disbursement of the second value added tax of approximately
$3,671,030.65.” (See generally id.).
In opposing summary judgment, Claimants argue that the Government has failed to
demonstrate that Gengmin transferred into the United States money derived from the VAT refund
“knowing that the money had been stolen, converted, or taken by fraud.” (Claimants’ Opp. Br. at
13-18).

At most, Claimants argue, Gengmin committed a breach of contract but not theft,

conversion, or fraud. (Id. at 18-2 1). Claimants also contend that the Government cannot trace the
VAT refund for the second ship to the defendant properties (id. at 24-27); and argue that the funds

Claimants, however, raise a factual and legal dispute as to whether the Government properly
verified these documents. (Claimants’ Sur-reply at 9-12, ECF No. 120). Since the present
motion will be denied for the reasons set forth herein, this argument shall be adjudicated in
subsequent motion practice, if at all.
10

that Gengwu transferred into the United States did not include any portion of the VAT refund for
the second ship (id. at 27-31).
After carefully reviewing the submissions of the parties, and in considering the arguments
set forth by counsel on the record on January 21, 2020, there are genuine issues of material fact
that preclude summary judgment. See Celotex, 477 U.S. at 322-23. For example, Claimants
submit that the Government’s motion presents “deeply flawed theories” regarding how it traces
Gengmin’s alleged criminal conduct to the defendant properties. (Sur-reply at 5-7). Specifically,
Claimants argue that the Government failed to account for approximately $1.6 million of the VAT
refund that Changda was lawfully entitled to retain when attempting to trace Gengmin’s alleged
scheme to the defendant properties. (See id.).
Moreover, Claimants filed the Gengwu Declaration allegedly establishing, inter alia:
1. The money Gengwu transferred from his account at Agricultural Bank of China
into the United States was money that he had accumulated from his business
activities, and all of it was his money. None of the money that Gengwu transferred
was money that Gengmin had given or transferred to Gengwu.
*

*

*

3. Changda, Gengmin’s company, received the VAT refund. Gengwu has never
had an interest in Changda, and no portion of the VAT refund was transferred to
Gengwu or any company he controlled.
(Claimants’

Opp.

Br. at 28 (citing Gengwu Deci. ¶(J[ 11, 18, 27)). In addition to these

specific passages, the Gengwu Declaration purports to raise other factual disputes
regarding the nexus between Gengmin’s alleged criminal conduct and the defendant
properties in which Gengwu maintained an interest.
In short, at present, summary judgment cannot be entered in favor of the
Government, in light of the factual disputes raised by Claimants. Indeed, the record is
replete with disputed facts. (See, e.g., Responses of Claimants Gengwu Qui, 52 BD Inc.,

11

and Traveihome 1405, LLC to Government’s Statement of Material Facts, ECF No. 110-1
(disputing nearly every material fact)). Accordingly, the Court denies the Government’s
cross-motion for summary judgment.
II.

CLAIMANTS’ MOTION FOR A PRETRIAL ORDER CLARIFYING THE SCOPE OF THE
CONSENT ORDER

Claimants move under Fed. R. Civ. P. 16 for a pretrial order clarifying the scope and
legal effect of the Consent Order. (ECF No. 99). “Rule 16 governs the scheduling and
management of pretrial conferences. The purpose of the rule is to provide for judicial control
over a case at an early stage in the proceedings” to streamline the trial process. Newton v. A. C.
& S., Inc., 918 F.2d 1121, 1126 (3d Cir. 1990); see also Fed. R. Civ. P. 16(a).
Specifically, “Rule 16 addresses pretrial conferences, pretrial orders, and the activities
that courts may require as part of the pretrial case management process.” Rule 16.Pretrial
Conferences; Scheduling; Management, 1 Federal Rules of Civil Procedure, Rules and
Commentary Rule 16. Regarding pretrial orders, Rule 16(d) states that “[a]fter any conference
under this rule, the court should issue an order reciting the action taken.” Fed. R. Civ. P. 16(d);
l526Procedural Aspects of the Pretrial Conference—Pretrial Orders, 6A Fed. Prac. & Proc. Civ.

§ 1526 (3d ed.).
Here, Claimants’ motion for a pretrial order to clarify the scope of the Consent Order
does not fall within the parameters of Rule 16. That is, Rule 16 is a case management tool—not
a tool to decide substantive legal issues. See Fed. R. Civ. P. 16. “The intent and spirit of Rule
16 is to allow courts to actively manage the timetable of case preparation so as to expedite the
speedy disposition of cases.” Chiropractic All, of New Jersey v. Parisi, 164 F.R.D. 618, 620
(D.N.J. 1996) (citations omitted).

12

§

Finally, in any event, the Court has difficulty in discerning the utility of this motion, as
both parties agreed at oral argument that no matter how the Court were to rule on this
application, Claimants’ claims with respect to the defendant properties should remain pending
before the Court. (See Govt’s Moving Br. at 22). Accordingly, for all of these reasons,
Claimants’ motion under Rule 16 is denied.
CoNcLusIoN

Based on the foregoing facts and law, Claimants’ motion for a pretrial order (ECF
No. 99) is DENIED; and the Government’s cross-motion for summary judgement (ECF
No. 107) is DENIED.

13

ORDER

THIS MATTER having come before the Court on Claimant Gengwu Qui’s (“Gengwu”),
52 BD, Inc.’s (“52 BD”), and TraveiHome 1405, LLC’s (“TraveiHome”) (collectively,
“Claimants”) motion for a pretrial order (ECF No. 99) and on a cross-motion for summary
judgment filed by Plaintiff United States of America (the “Government”); and the Court having
carefully reviewed and taken into consideration the submissions of the parties, including the
arguments set forth by counsel orally on January 21, 2020; and for the foregoing reasons; and for
good cause shown;
IT IS on this 2_ô day of February, 2020,
ORDERED that Claimants’ motion for a pretrial order (ECF No. 99) is DENIED; and it
is further
ORDERED that the Government’s cross-motion for summary judgment (ECF No. 99) is
DENIED.

PETER G. SHERIDAN, U.S.D.J.

14