United States of America v. Any and All Funds on Deposit in Account Number 0139874788, at Regions Bank, held in the name of Efans Trading Corporation et al
Filing
101
OPINION AND ORDER. While the Government may well have the better of the legal arguments, Claimants might nonetheless be able to persuade a reasonable jury that Efans acted without fraudulent intent. As a result, the Government's motion for summa ry judgment must be DENIED. The Clerk of Court is directed to terminate the motion at docket entry 77. The parties are further ORDERED to appear for a conference on Monday, September 26, 2016, at 3:00 p.m. in Courtroom 618 of the Thurgood Marshall U.S. Courthouse, at which time the Court will schedule a trial in this matter. SO ORDERED. re: 77 MOTION for Summary Judgment filed by United States of America. (Signed by Judge Katherine Polk Failla on 8/29/2016) (rjm).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
UNITED STATES OF AMERICA,
:
:
:
Plaintiff,
:
v.
:
:
ANY AND ALL FUNDS ON DEPOSIT IN
:
ACCOUNT NUMBER 0139874788, AT
:
REGIONS BANK, HELD IN THE NAME OF :
EFANS TRADING CORPORATION, et al.,
:
:
Defendants-in-rem. :
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: ______________
August 29, 2016
13 Civ. 7983 (KPF)
OPINION AND ORDER
KATHERINE POLK FAILLA, District Judge:
On November 8, 2013, the United States of America (the “Government”)
filed a verified complaint seeking civil forfeiture of 48 seized cars and funds
seized from four bank accounts. Claims over 47 of the cars and three of the
accounts (the “Defendants-in-rem”) have been filed by Unicorn Tire Corporation
(“Unicorn”) and Efans Trading Corporation (“Efans”) (collectively, “Claimants”).
On January 15, 2016, the Government moved for summary judgment. While it
is an exceptionally close call, the record evidence concerning Claimants’
knowledge of potential harms to the cars’ manufacturers implicates issues of
materiality and credibility, both of which foreclose summary judgment. For
these reasons, the Government’s motion is denied.
BACKGROUND 1
The Court presumes familiarity with the facts and procedural history set
forth in its prior decision denying Claimants’ motion to dismiss, United States
v. Any & all Funds on Deposit in Account No. 0139874788, at Regions Bank,
held in the name of Efans Trading Corp., No. 13 Civ. 7983 (KPF), 2015 WL
247391 (S.D.N.Y. Jan. 20, 2015) (“Efans I”). For convenience, the facts
relevant to this Opinion are set forth below.
A.
Factual History
1.
Claimants
a.
Unicorn Tire Corporation
Unicorn Tire Corporation is a tire importing business owned by Erxin
Zhou. (See Gov’t 56.1 ¶ 5; Cl. 56.1 ¶¶ 5, 100-01). Unicorn imports tires from
China, and then sells them to customers in the United States, Canada, Mexico,
1
The facts in this Opinion are drawn from the parties’ submissions in connection with
the motion for summary judgment, including the Government’s Local Rule 56.1
Statement (“Gov’t 56.1” (Dkt. #81)), Claimants’ Rule 56.1 Counter-Statement (“Cl. 56.1”
(Dkt. #88)), and various declarations from attorneys and witnesses (“[Name] Decl.” (Dkt.
#79-80, 89-92, 97)). Citations to a party’s Rule 56.1 Statement incorporate by reference
the documents and testimony cited therein. Where facts stated in a party’s Rule 56.1
Statement are supported by testimonial or documentary evidence, and denied with only
a conclusory statement by the other party, the Court finds such facts to be true. See
Local Civil Rule 56.1(c) (“Each numbered paragraph in the statement of material facts
set forth in the statement required to be served by the moving party will be deemed to
be admitted for purposes of the motion unless specifically controverted by a
corresponding numbered paragraph in the statement required to be served by the
opposing party.”); id. at 56.1(d) (“Each statement by the movant or opponent . . .
controverting any statement of material fact[] must be followed by citation to evidence
which would be admissible, set forth as required by Fed. R. Civ. P. 56(c).”).
For convenience, the Court will refer to the Government’s opening brief as “Gov’t Br.”
(Dkt. #78); Claimants’ opposition brief as “Cl. Opp.” (Dkt. #87); and the Government’s
reply brief as “Gov’t Reply” (Dkt. #96).
2
Europe, and Japan. (Cl. 56.1 ¶ 101). Unicorn maintains an office in Memphis,
Tennessee, and is associated with two U.S. bank accounts that are at issue in
this matter: (i) an account at Regions Bank, ending in the digits 3099 (the
“Unicorn Regions Account”); and (i) an account at Renasant Bank, ending in
the digits 6888 (the “Unicorn Renasant Account”). (Gov’t 56.1 ¶¶ 1, 10).
b.
Efans Trading Corporation
In early 2011, Zhou’s husband, Yifan Kong, started an auto-export
business, which he named Efans Trading Corporation. (Cl. 56.1 ¶ 104).
Between 2011 and 2013, Efans purchased approximately 2,000 luxury cars
from dealerships in the United States and then sent these cars to customers in
China. (See Gov’t 56.1 ¶¶ 2-3). The Chinese customers paid Efans for each
car, often by wiring money to an account that Efans held at Regions Bank (the
“Efans Regions Account”). (Id. at ¶ 13). Efans earned roughly $200 to $3,000
in profits for each vehicle exported. (Id. at ¶ 4).
c.
Links Between Unicorn and Efans
Unicorn and Efans shared an office building, and shared some staff.
(See Gov’t 56.1 ¶ 1 (noting Unicorn and Efans’ shared address); id. at ¶ 8
(explaining that Zhou did some work for Efans, in addition to her work for
Unicorn)). In addition, Unicorn frequently used its resources to help support
Efans. For example, all Efans employees used Unicorn Tire email addresses
and were paid from Unicorn’s bank accounts. (Id. at ¶ 6). Moreover, Unicorn
occasionally transferred funds from its own bank account to the Efans Regions
3
Account. (Id. at ¶ 14). Finally, Unicorn obtained a loan from Regions Bank to
aid both its own business and Efans’ business. (Cl. 56.1 ¶ 15).
2.
Dealerships
Mercedes-Benz USA, LLC (“MBUSA”), Jaguar Land Rover North America
(“Jaguar Land Rover”), BMW North America (“BMW”), and Ford Motor Company
(“Ford”) (collectively, the “Manufacturers”) supply luxury cars to dealerships
across the United States. (See Gov’t 56.1 ¶¶ 19-20). The dealerships then sell
the vehicles to individual drivers. (See id. at ¶ 20). Dealerships are required to
maintain accurate lists of the drivers who buy their cars and to share these
lists with the Manufacturers. (Id. at ¶ 23).
MBUSA, Jaguar Land Rover, and BMW all have “no-export” policies,
which provide that their dealerships may be penalized for selling new vehicles
to exporters. (See Gov’t 56.1 ¶ 21). Similarly, Ford penalizes dealerships that
sell “to ‘brokers’ or ‘resellers,’” including “brokers and/or individuals who
ultimately export [Ford] vehicles.” (Paul Decl., Ex. 12; accord Gov’t 56.1 ¶ 22).
The penalties take a variety of forms, including: (i) monetary fines, which are
sometimes called “charge-backs”; and (ii) reductions in the number of vehicles
that the dealerships are allowed to sell. (Gov’t 56.1 ¶¶ 21-22).
3.
Efans’ Alleged Fraud
It is undisputed that Efans supplied Mercedes-Benz, Land Rover, BMW,
and Ford vehicles to customers in China. (See Gov’t 56.1 ¶ 3). Under Efans’
business model, a Chinese customer would contact Efans and place an order
4
for a particular vehicle. (See id. at ¶ 49). Then, Efans would hire a broker to
purchase the vehicle from a dealership in the United States. (Id.). The broker
would purchase the vehicle in his or her own name, or in the name of a third
party who lived close to the dealership. (Id. at ¶ 56). However, the broker
would often pay for the car using a cashier’s check drawn on Efans’ bank
account. (Id. at ¶ 12). Once the broker obtained the car from the dealership,
the car was immediately exported to the Chinese customer who ordered it.
(See id. at ¶ 49).
One of the brokers who purchased vehicles on behalf of Efans customers
was Shane Martin. (See Gov’t 56.1 ¶ 51). Mr. Martin had a home improvement
business until 2011, when he met Kong and Zhou. (See id. at ¶ 52; Cl. 56.1
¶ 52). At that point, Martin began purchasing vehicles for Efans customers at
several car dealerships. (See Paul Decl., Ex. 4 at 29). Martin bought some of
these vehicles in his own name. (Id.). On other occasions, Martin bought a
vehicle in the name of “a friend” because the dealership had “request[ed] … a
purchaser that live[d] in their area.” (Id. at 30). And “a lot of times, the
dealerships would help supply the buyer” if Martin had the money to purchase
a vehicle, but “was unable to meet all the [dealership’s] requests.” (Id.). Efans
paid Martin approximately $1,000 for each car that he acquired — in his own
name or a third party’s name — for Efans’ customers. (See Gov’t 56.1 ¶ 54).
5
B.
Procedural History
On November 8, 2013, the Government initiated this forfeiture action
against 48 seized vehicles and the contents of four bank accounts. (Dkt. #1;
see Dkt. #21 (amended complaint)). According to the Government, these assets
were either: (i) the products of wire fraud, as that offense is defined in 18
U.S.C. § 1343; or (ii) used to facilitate wire fraud. (See id.; see generally Gov’t
Br.).
On December 11, 2013, Claimants submitted claims for the Defendantsin-rem, which comprise the Efans Regions Account, the Unicorn Regions
Account, the Unicorn Renasant Account, and 47 vehicles that Efans attempted
to export. Nearly two months later, on February 3, 2014, Claimants filed a
motion to dismiss the forfeiture action. (Dkt. #15). The Court dismissed this
motion in an Opinion and Order dated January 20, 2015. See Efans I.
On January 15, 2016, the Government filed the instant motion for
summary judgment as to the Defendants-in-rem. (Dkt. #77-82). Claimants
filed their opposition papers on February 4, 2016 (Dkt. #87-94), and the
Government concluded the briefing with its reply dated February 12, 2016
(Dkt. #95). 2
2
The Government has clarified that it intends to proceed separately, by default judgment
application, to forfeit the contents of one bank account and one vehicle as to which no
one has filed a claim. (Gov’t Br. 1 n.1).
6
DISCUSSION
A.
Applicable Law
1.
Motions for Summary Judgment
Under Federal Rule of Civil Procedure 56(a), summary judgment may be
granted only if all the submissions taken together “show that there is no
genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986); accord Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986).
The moving party bears the initial burden of demonstrating “the absence
of a genuine issue of material fact.” Celotex, 477 U.S. at 323. A fact is
“material” if it “might affect the outcome of the suit under the governing law,”
and is genuinely in dispute “if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248; see also
Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir. 2005) (citing
Anderson). The movant may discharge this burden by showing that the
nonmoving party has “fail[ed] to make a showing sufficient to establish the
existence of an element essential to that party’s case, and on which that party
will bear the burden of proof at trial.” Celotex, 477 U.S. at 322; see also
Selevan v. N.Y. Thruway Auth., 711 F.3d 253, 256 (2d Cir. 2013) (finding
summary judgment appropriate where the non-moving party fails to “come
forth with evidence sufficient to permit a reasonable juror to return a verdict in
7
his or her favor on an essential element of a claim” (internal quotation marks
omitted)).
If the moving party meets this burden, the nonmoving party must “set
forth specific facts showing that there is a genuine issue for trial” using
affidavits or otherwise, and cannot rely on the “mere allegations or denials”
contained in the pleadings. Anderson, 477 U.S. at 248; see also Wright v.
Goord, 554 F.3d 255, 266 (2d Cir. 2009). In other words, the nonmoving party
“must do more than simply show that there is some metaphysical doubt as to
the material facts,” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 586 (1986), and cannot rely on “mere speculation or conjecture as to the
true nature of the facts to overcome a motion for summary judgment,” Knight v.
U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986).
“When ruling on a summary judgment motion, the district court must
construe the facts in the light most favorable to the non-moving party and
must resolve all ambiguities and draw all reasonable inferences against the
movant.” Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 780 (2d Cir.
2003). However, in considering “what may reasonably be inferred” from
witness testimony, the court should not accord the non-moving party the
benefit of “unreasonable inferences, or inferences at war with undisputed
facts.” Berk v. St. Vincent’s Hosp. & Med. Ctr., 380 F. Supp. 2d 334, 342
(S.D.N.Y. 2005) (citing County of Suffolk v. Long Island Lighting Co., 907 F.2d
1295, 1318 (2d Cir. 1990)).
8
2.
Forfeiture Actions Under 19 U.S.C. § 1595a(d)
The Government brought this case pursuant to 19 U.S.C. § 1595a(d),
which provides:
Merchandise exported or sent from the United States or
attempted to be exported or sent from the United States
contrary to law, or the proceeds or value thereof, and
property used to facilitate the exporting or sending of
such merchandise, the attempted exporting or sending
of such merchandise, or the receipt, purchase,
transportation, concealment, or sale of such
merchandise prior to exportation shall be seized and
forfeited to the United States.
Under this provision, merchandise may be “exported … contrary to law” if the
merchandise is obtained and exported in a fraudulent manner. See Efans I,
2015 WL 247391, at *7.
When a court evaluates a forfeiture claim under 19 U.S.C. § 1595a(d), it
must apply the standard set forth in 19 U.S.C. § 1615. See United States v.
Davis, 648 F.3d 84, 96 (2d Cir. 2011). Under that standard, the Government
bears the initial burden of demonstrating probable cause to believe that the
property is subject to forfeiture. See id. at 95-96. The burden then shifts to
the claimants to show, by a preponderance of the evidence, that the property is
not subject to forfeiture. See id.
Consequently, in evaluating this motion for summary judgment, the
Court must first ask whether the Government has demonstrated probable
cause to believe that the defendant vehicles and funds are subject to forfeiture.
Then, construing the evidence in the light most favorable to Claimants, the
9
Court must ask whether a reasonable jury could find that Claimants have
proven a defense to forfeiture by a preponderance of the evidence. See United
States v. One Parcel of Prop. Located at 15 Black Ledge Drive, Marlborough,
Conn., 897 F.2d 97, 102 (2d Cir. 1990) (applying the summary judgment rules
articulated in Anderson to a forfeiture case involving the § 1615 burdenshifting scheme).
B.
Analysis
The Government maintains that Efans exported vehicles “contrary to law”
because Efans obtained its vehicles in violation of the wire fraud statute, 18
U.S.C. § 1343. Under that statute, it is unlawful to “devise any scheme or
artifice to defraud” someone out of “money or property” through the use of any
“wire, radio, or television communication in interstate or foreign commerce.”
18 U.S.C. § 1343; see also United States v. Binday, 804 F.3d 558, 569 (2d Cir.
2015) (explaining that the “essential elements” of wire fraud are: “[i] a scheme
to defraud, [ii] money or property as the object of the scheme, and [iii] use of
the … wires to further the scheme”). The Government contends that there is
adequate evidence in the record to say — as a matter of law — that Efans’
conduct satisfies all the elements of the wire fraud statute. The Court is not as
convinced.
While the wire fraud statute does not define a “scheme to or artifice to
defraud,” see 18 U.S.C. § 1343; United States v. Autuori, 212 F.3d 105, 115 (2d
Cir. 2000), the Second Circuit has explained that a scheme to defraud is
10
characterized by deceptive conduct and an intent to cause harm, see Autuori,
212 F.3d at 115 (explaining that a “scheme to defraud” is characterized by
“trick, deceit, chicane or overreaching” (quoting McNally v. United States, 483
U.S. 350, 358 (1987))); United States v. D’Amato, 39 F.3d 1249, 1257 (2d Cir.
1994) (“[T]he deceit must be coupled with a contemplated harm to the victim.”
(internal quotation marks and citation omitted)); United States v. Shellef, 507
F.3d 82, 107-08 (2d Cir. 2007) (same). In this case, when the evidence is
construed in the light most favorable to Claimants, it suggests that: (i) Efans
used deceptive conduct to acquire at least some of its vehicles; but (ii) when
Efans engaged in this deception, it lacked the requisite intent to cause harm.
1.
Deceptive Conduct
When the evidence in the record is construed in the light most favorable
to Claimants, it suggests that Efans acquired some of its vehicles honestly and
others deceptively. According to Kong, Zhou, and Martin, Efans’ brokers were
instructed to purchase cars from dealerships that were interested in selling to
exporters. (Cl. 56.1 ¶ 112). Martin also stated that, as an Efans broker, he
always “told the dealership personnel with whom [he] interacted that the cars
[he] was purchasing were for export.” (Martin Decl. ¶ 7). In addition, the
record suggests that Martin purchased some cars in his own name (Paul Decl.,
Ex. 4 at 29), and he was not always required to sign a contract stating that the
vehicle would not be exported (see Gov’t 56.1 ¶ 83; Def. 56.1 ¶ 83). In light of
this evidence, a reasonable jury could conclude that, at least on some
11
occasions, Martin disclosed that he was purchasing a car for export, and then
purchased the car in his own name, without signing a “no-export” agreement.
In other words, a reasonable jury could conclude that, on at least some
occasions, Martin acquired vehicles for Efans in an honest manner.
However, any reasonable jury would have to conclude that, on at least
some occasions, Efans brokers utilized deceptive tactics to purchase vehicles
for export and Efans condoned this deception. Martin explicitly testified that,
on multiple occasions, he had a “friend” or another third party sign for the
vehicles he purchased on behalf of Efans’ customers. (Paul Decl., Ex. 4 at 29).
Martin insists that dealership personnel often encouraged him to buy cars in
the names of third parties who lived close to the dealerships, and sometimes
dealership personnel went so far as to identify individuals who could serve as
the named buyers on the vehicles that Martin purchased. (See id.; Martin
Decl. ¶ 15). But Martin did not dispute that he was a willing participant in the
plan to utilize straw buyers. (See Paul Decl., Ex. 4 at 29-30; Martin Decl.
¶ 15). Nor is there any dispute that Kong — the individual who owned and
operated Efans — knew that Efans’ brokers were using straw buyers to acquire
vehicles on behalf of Efans’ customers. (Gov’t 56.1 ¶ 77; Cl. 56.1 ¶ 77). It is
also clear that, on multiple occasions, Efans’ employees asked Regions Bank to
print a straw buyer’s name on a cashier’s check that was used to pay for a
vehicle. (See Gov’t 56.1 ¶¶ 64, 67; Cl. 56.1 ¶¶ 64, 67). Finally, there is clear
evidence that, on some occasions, straw buyers contractually agreed that they
12
would not export the vehicles purchased in their name, even as they planned to
give the vehicle to Efans for export. (See Gov’t 56.1 ¶ 92; Cl. 56.1 ¶ 92).
Taken together, this evidence strongly suggests that, for many of the
vehicles that Efans acquired, Efans either: (i) worked with individual dealership
employees to deceive the dealership about the identity of the person who was
purchasing the vehicle; or (ii) worked with the dealership as a whole to deceive
the Manufacturers about the identity of the person who was purchasing the
vehicle. Nevertheless, the Court is not prepared to say, as a matter of law, that
Efans harbored an intent to harm the dealerships or the Manufacturers.
2.
Intent to Cause Harm
A finder of fact may infer that a defendant intends to cause harm if harm
if the defendant’s conduct “necessary[il]y” causes harm. D’Amato, 39 F.3d at
1257. Here, the Government contends, Efans’ deceptive conduct was
necessarily harmful to dealerships and manufacturers. The Court will consider
the alleged harm to each of these groups in turn.
a.
Intent to Harm Dealerships
The Second Circuit has “drawn a fine line” between schemes that induce
victims to enter into “transactions that they would otherwise avoid” — which do
not necessarily cause harm — and schemes that “depend for their completion
on a misrepresentation of an essential element of [a] bargain” — which
necessarily hurt their victims. Binday, 804 F.3d at 570-71 (quoting Shellef,
507 F.3d at 108). A misrepresentation of an “essential element” is a
13
misrepresentation that creates a discrepancy between the benefits that a victim
“reasonably anticipate[s]” from a bargain and the “actual benefits received.”
United States v. Starr, 816 F.2d 94, 98-99 (2d Cir. 1987); accord D’Amato, 39
F.3d at 1257; Shellef, 507 F.3d at 108.
The Government contends that Efans (perhaps in concert with a handful
of unscrupulous employees at various dealerships) perpetrated a scheme in
which straw buyers were asked to misrepresent an “essential element” of the
bargain that they struck with dealerships. (See Gov’t Br. 19-20). More
specifically, straw buyers were asked to make a false representation that they
were purchasing cars for their own use. (See id.). According to the
Government, this false representation created a discrepancy between the
benefits that dealerships reasonably anticipated from the sale of their cars and
the benefits they actually received. (See id.). As noted above, when dealerships
sell their cars to local buyers, they can rest assured that they will not have to
pay “charge-backs” or other penalties to the manufacturers. In addition,
dealerships selling to local customers can reasonably expect that the
customers will return to the dealership to buy replacement parts and services
for their vehicles. According to the Government, when dealerships sold
vehicles to Efans’ straw buyers — with the belief that those vehicles would
remain close by — the dealerships received more liabilities and fewer assets
than they bargained for. (See id.).
14
Unfortunately for the Government, there are some ambiguities in the
record that prevent the Court from concluding as a matter of law that the
dealerships received more liabilities than they “reasonably anticipate[d].” First,
the Government suggests that the dealerships at issue here were making all
reasonable efforts to sell to local buyers, but were tricked (by rogue employees
and/or crafty brokers) into selling to straw buyers (see Gov’t Reply 4-5); if this
is true, the dealerships might not be subject to chargebacks or other penalties.
(See, e.g., Paul Decl., Ex. 13 (“In cases where it can be determined [that a]
dealership followed sound sales processes and acted responsibly about delivery
verification, an exemption from [MBUSA’s] export charges may be granted.”);
id., Ex. 15 (explaining that BMW will impose penalties on dealerships that sell
to exporters if the dealership cannot provide documentation showing that the
vehicles were delivered by a dealership employee “in compliance with the BMW
of North America policy”); id., Ex. 12 ¶ 9 (explaining that Ford “may impose
charge backs” and “may impose other actions” on dealerships that sell to
brokers (emphasis added))). In addition, in at least some instances, Efans’
straw buyers contractually agreed to cover the cost of chargebacks or other
penalties that might be imposed by the Manufacturers. (See, e.g., Thau Decl.,
Ex. A (“If the Dealership is required by the Vehicle manufacturer to forfeit or
repay any manufacturer incentives, allowance and/or special pricing, or if the
Dealership suffers any loss or harm as a result of Purchaser’s breach of [the
no-export] provision, Purchaser agrees to indemnify and hold the Dealership
15
harmless from any such cost, loss or harm suffered as a result of the
Purchaser’s breach.”)). Consequently, the Court cannot say, as a matter of law,
that all of the dealerships at issue here incurred more liabilities than they
reasonably expected.
Nor can the Court conclude, as a matter of law, that the dealerships
received fewer benefits than they “reasonably anticipate[d]” from their deals
with the straw purchasers. Starr, 816 F.2d 94 at 98-99. Some of the nonexport policies in this case only prohibited export or re-sale of vehicles for 12
months. (See Paul Decl., Ex. 9 ¶ 5 (noting that, during the relevant time
period, MBUSA’s policy prohibited export for up to 12 months); Thau Decl.,
Ex. A (describing a BMW dealership’s prohibition on exports “for a period of one
year”)). And while some local customers who purchased vehicles from the
relevant dealerships might later return to those dealerships within one year for
replacement parts or maintenance, the Court has not seen evidence that all
local customers later return to the dealerships to buy additional products and
services in such a short period of time, or even at all. The Court also agrees
with Claimants’ common-sense observations that genuine local buyers may
decide to sell their cars after driving them for a few years (Cl. 56.1 ¶ 22), and
that not all car owners bring their cars to dealerships (as distinguished from
unaffiliated auto repair shops) for repair work or servicing. Consequently, the
Court believes that a jury should decide whether it was “reasonable[]” for the
16
dealerships in this case to expect that the straw buyers would give them the
benefit of future business.
Finally, and most importantly, there is ample evidence in the record for a
jury to conclude that the dealerships involved in this case were working with
Efans to sell cars to Chinese customers through the use of straw buyers.
Martin testified that dealerships often supplied straw buyers to help move
inventory they could not otherwise sell. (Paul Decl., Ex. 4 at 30). This
testimony has been corroborated by correspondence between Martin and
dealership personnel that suggests that dealerships were willing to provide
information that Martin needed for “customs.” (Martin Decl., Ex. 1-3). In light
of this evidence, a jury could conclude that dealerships were selling customorder cars or cars lingering on their lots to exporters, for a profit, and lying
about the identity of the individuals purchasing the cars (both in the
paperwork submitted to manufacturers and during this litigation) so that they
would not have to pay charge-backs. If dealerships were deliberately using
straw buyers to fill orders for Efans customers, then there is no reason to
believe that this practice was believed to be, or was in fact, harmful to their
business.
b.
Intent to Harm Manufacturers
The Government also suggests that straw buyers — acting on Efans’
behalf — made false statements that created a discrepancy between the
benefits that the Manufacturers expected to receive from the sale of their cars,
17
and the benefits that the Manufacturers actually received. (Gov’t Br. 19-20).
To evaluate this argument properly, it is important to bear in mind that the
sale of each car in this case involved a two-step process: (i) the Manufacturer
sold the car to a dealership; and then (ii) the dealership sold the car to a retail
customer. (See Gov’t 56.1 ¶¶ 19-20). Thus, while the Manufacturers
negotiated sales contracts with various dealerships, the Manufacturers never
negotiated sales contracts with retail customers (including straw customers).
Consequently, to the extent the Government is arguing that the Manufacturers
entered sales contracts without a clear understanding of the benefits that
would be received from those contracts, the Government must point to some
false information that was presented to the Manufacturers during its
negotiations with the dealerships. But the Government has presented no such
evidence. Instead, the Government suggests that: (i) the Manufacturers knew
that exporters occasionally used straw buyers to purchase their cars; and
(ii) they received a commitment from the dealerships that the dealerships
would try to avoid doing business with these straw buyers. (See Gov’t Reply 5
(“[A]t most, … an individual salesperson or other employee at [each] Dealership
was aware of Efans’ fraudulent scheme”) (emphasis in original)). Thus, the
Court cannot conclude that the Manufacturers were fraudulently induced to
enter into any agreement.
Nevertheless, this does not end the Court’s inquiry. It is still possible
that Efans committed fraud against the Manufacturers by causing false
18
information to be transmitted to the Manufacturers, with the knowledge that
the false information would “necessary[il]y” cause the Manufacturers financial
harm. D’Amato, 39 F.3d at 1257. The Government suggests that Efans’
deceptive conduct necessarily caused such harm because: (i) Efans
compromised Manufacturers’ ability to locate their cars in the event of a safety
recall; (ii) Efans cost Manufacturers the opportunity to sell replacement parts
and services to the owners of their cars; and (iii) Efans tricked Manufacturers
into paying bonuses to dealerships that were not actually entitled to receive
those bonuses. (See Gov’t Br. 4). The third has the most traction, but, as
explained below, narrowly fails as a basis for granting the Government’s
motion.
First, while it is clear that Efans compromised the Manufacturers’ ability
to locate their cars in the event of a safety recall, it is not clear that Efans
thereby exposed the Manufacturers to additional monetary liability. Cf.
Binday, 804 F.3d at 571 (noting that the Second Circuit has upheld
convictions for mail or wire fraud where the “defendants’ misrepresentations …
exposed the lender or insurer to unexpected economic risk”). The Government
has not introduced any cases or evidence suggesting that an auto company
could be held liable for an accident caused by faulty manufacturing, if the
company used reasonable recall procedures, but the recall notice did not reach
a customer solely because the customer deliberately concealed his or her
identity. Nor is there any evidence that a concerted effort on the part of a
19
Manufacturer to get such notice out — which effort failed solely because of the
deceptive conduct of a third-party exporter that was unknown to the
Manufacturer — would be so damaging to that Manufacturer’s reputation that
the company’s bottom line would be harmed. 3
In addition, Claimants have cast doubt on the Government’s assertion
that Efans cost Manufacturers the opportunity to sell replacement parts to the
owners of their cars. Shane Martin stated that many of the vehicles that he
purchased for Efans customers were either vehicles that were special-ordered
on behalf of Chinese customers or vehicles that the dealerships were unable to
sell to local customers. (Martin Decl. ¶ 8). Consequently, a jury might
conclude that Efans was not taking cars out of the hands of U.S. customers
who would have bought additional parts and services from the Manufacturers.
Nor has the Government excluded the possibility that the ultimate purchasers
of these vehicles would have purchased the parts from the Manufacturers in
China.
3
Of course, a manufacturer could decide that it wants to do everything in its power to
prevent accidents caused by ineffective recall procedures, regardless of whether any
accident would have an effect on its bottom line. Such a manufacturer might negotiate
a very rigid contract with dealerships (i.e., a contract that requires dealerships to take
many steps to guard against the use of straw buyers). Cf. United States v. Binday, 804
F.3d 558, 570 (2d Cir. 2015) (suggesting that property rights include a right to dictate
the terms of a transfer of ownership). But once that contract has been forged, and the
manufacturer has transferred its cars to the dealership — in accordance with the
contract — the manufacturer’s lingering desire to prevent accidents is not a property
interest that is protected by the wire fraud statute. Thus, even if Efans’ deceptive
behavior made accidents more likely, that alone is not enough to show that Efans
defrauded any of the Manufacturers in this case. Rather, there must be some evidence
that Efans’ deceptive behavior affected the Manufacturers’ financial situation.
20
The Government’s most persuasive claim is that Efans’ deceptive conduct
was necessarily harmful because it induced Manufacturers to pay bonuses to
various dealerships that sold cars to Efans’ straw buyers; the Manufacturers
would not have paid these bonuses if they knew that the dealerships were
really selling to an exporter. (See Gov’t Br. 4-5; Gov’t 56.1 ¶ 29). The Court
agrees that tricking a company into paying bonuses to individuals or entities
who have not earned them is necessarily harmful conduct. And Efans appears
to have been a knowing participant in that harmful conduct. See United States
v. Abrams, 539 F. Supp. 378, 383 (S.D.N.Y. 1982) (suggesting that a
participant in a fraud ring can only be convicted if he knew he was engaged in
harmful conduct). Both Martin and Kong were aware that dealerships
preferred to have local individuals sign as the buyers for Efans’ vehicles, even
though the cars were ordered on behalf of Chinese customers. (Gov’t 56.1
¶ 77; Cl. 56.1 ¶ 77). According to Claimants, dealership employees told Efans
that the local buyers were needed to comply with the “dealership[s’] internal
protocol.” (Cl. 56.1 ¶ 77). Such an explanation is inherently suspect; any
reasonable person who heard that straw buyers were needed to comply with
“protocol” would at least wonder whether the dealerships (or dealership
employees) were obtaining some sort of (unearned) financial benefit by creating
a false impression that particular cars would be driven locally. Consequently,
when Efans learned that straw buyers were needed to comply with “protocol,” it
should have asked the dealerships what the protocol was and why it existed.
21
But the record reflects that instead of taking this simple step, Efans closed its
eyes to the possibility that it was helping the dealerships obtain unearned
monetary benefits. See United States v. Carlo, 507 F.3d 799, 802 (2d Cir.
2007) (suggesting that a defendant may be considered a knowing participant in
a fraud if the defendant “was aware of a high probability” that he was part of a
fraud ring, but “consciously avoided confirming that suspicion”).
The Court finds this argument persuasive, and it might have been
dispositive, had there not been record evidence that Efans personnel consulted
with several attorneys regarding their business practices. (See generally Cl.
56.1 ¶¶ 93-95). 4 At his deposition, Shane Martin recalled speaking with an
attorney named Randy Fishman, who told him that it was a “legal practice to
purchase cars in the names of third parties.” (Paul Decl., Ex. 4 at 105). He
recalled additional communications with an attorney named “Blair or Blaine”
who had been referred to him by David Lee at Passport BMW. (Id. at 106-10). 5
This second attorney advised Martin that “there is nothing illegal about buying
or selling cars for a first party, second party or third party” (id. at 108-09), and
that it was “legal to export automobiles in the United States” (id. at 109).
4
Claimants also note that Martin conducted some internet research to see if Efans’
business model was legal. (See, e.g., Cl. 56.1 ¶¶ 93, 95). The Court does not believe
that Martin, who had an eleventh-grade education and no legal training, could convince
a reasonable jury that his internet research alone was a meaningful indicator of good
faith. (See Paul Decl., Ex. 4 at 8).
5
In fact, the second attorney’s name was Hal Blatt, and at the time the motion was filed,
he worked as the Finance Manager at Bob Davidson Ford Lincoln. (See Cl. 56.1 ¶ 94).
22
Martin attests that he then shared the fruits of these communications with
others at Efans. (Id. at 115; see Cl. 56.1 ¶ 93).
The Government has identified certain admissions in Martin’s averments
about his communications with counsel, including the facts that (i) Martin’s
meeting with Fishman was more “friendly” than “legal,” and lasted less than 30
minutes; (ii) Martin did not retain Fishman for this advice; and (iii) Fishman
has no specialty in this area of the law. (See Gov’t 56.1 ¶¶ 93-95). To these
curiosities the Court adds its observation of, for lack of a better term, the
selective precision with which Martin answered deposition questions
concerning his (and Efans’) understandings that their respective conduct was
lawful. That said, it is not the province of the Court to weigh the credibility of a
party’s witness. Construing all of this evidence in the light most favorable to
Claimants, the Court finds that a reasonable jury could conclude that Efans
was taking good faith (if perhaps inadequate) steps to ensure that it was not
defrauding the dealerships or the Manufacturers. See United States v. Certain
Funds on Deposit in Scudder Tax Free Inv. Account No. 2505103, 998 F.2d 129,
131 (2d Cir. 1993) (noting that “questions of intent” are “especially unsuitable
for summary judgment”). This evidence forecloses the Government’s motion.
CONCLUSION
In sum, while the Government may well have the better of the legal
arguments, Claimants might nonetheless be able to persuade a reasonable jury
that Efans acted without fraudulent intent. As a result, the Government’s
23
motion for summary judgment must be DENIED. The Clerk of Court is
directed to terminate the motion at docket entry 77.
The parties are further ORDERED to appear for a conference on
Monday, September 26, 2016, at 3:00 p.m. in Courtroom 618 of the
Thurgood Marshall U.S. Courthouse, at which time the Court will schedule a
trial in this matter.
SO ORDERED.
Dated:
August 29, 2016
New York, New York
__________________________________
KATHERINE POLK FAILLA
United States District Judge
24
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