Related Companies L.P. et al v. Ruthling et al

Filing 126

OPINION re: 57 FIRST AMENDED COMPLAINT. For the reasons stated above, the Court granted Skye Supply's motion dismissing plaintiffs' case against Skye Supply, and denied the remaining motions, permitting plaintiffs' case against the Ruthling defendants and Du to proceed, and as further set forth herein. (Signed by Judge Jed S. Rakoff on 12/15/2017) (ras)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

------------------------------------x

17-cv-4175

RELATED COMPANIES, L.P. and MBM
SUPPLY COMPANY LLC,

OPINION

Plaintiffs,

-vCARLETON RUTHLING, TESLA WALLS LLC,
HUDSON WALLS LLC, RELATED SUPPLY
LTD., JEANEAH PAIK, CHRISTOPHER DU,
SKYE HOLDINGS LTD., and SKYE SUPPLY
LLC,

Fil..ED 1.
;

Defendants.

------------------------------------x
JED S. RAKOFF, U.S.D.J.
Globalization

provides

the

advantages

of

a

worldwide

marketplace, but it also can provide a convenient cover for fraud,
as the allegations of the instant complaint illustrate.
By way of background, on February 17, 2017, plaintiffs Related
Companies,
filed

L.P.

suit

Systems,

("Related")

against

LLC

and MBM Supply Company LLC

defendants

("Tesla

Wal ls

LLC

Paik,

I"),

("Hudson") ,

Christopher Du,

Carleton

Ruthling,

Tesla Walls LLC

Related

Supply

("Tesla

Ltd.

Skye Holdings Ltd.

("MBM")

Tesla
II"),

("Supply") ,

Wall
Hudson

Jeaneah

("Skye Holdings"),

and

Skye Supply LLC ("Skye Supply") in Delaware state court. On April
3,

Tesla

I,

Tesla

II,

and Hudson

removed plaintiffs'

suit

to

Delaware federal court, see Notice of Removal, ECF No. 1, and on

1

June 5, 2017, the case was transferred, on consent, to the Southern
District of New York, see ECF Nos. 42, 44, 45.
On June 26, plaintiffs amended their complaint. ECF No. 57. 1
On

July

7,

Ruthling,

(collectively,
dismiss

the

plaintiffs'

Tesla

~Ruthling

II,

Hudson,

and
filed

defendants")

amended complaint,

Skye
a

see ECF No.

Holdings
motion

66,

as

to
did

Christopher Du, see ECF No. 60, and Skye Supply, see ECF No. 63.
After

full

consideration,

the Court,

by bottom-line Order

dated August 4, 2017, denied the Ruthling defendants' motion, but
granted Skye
plaintiffs

Supply's motion,

limited

discovery

and,
to

as

to

Du's motion,

determine

whether

Du

allowed
derived

substantial revenue from interstate or international commerce as
required to establish personal jurisdiction over Du in New York
pursuant to C.P.L.R.

§

302 (a) (3) (ii). See ECF No.

81. Plaintiffs

subsequently served supplemental requests for the production of
documents on Du and conducted a telephonic deposition. On August
21 and 23, plaintiffs and Du each submitted supplemental memoranda
of law. See ECF Nos. 83-86. Thereafter, the Court, by Order dated
August 25, denied Du's motion to dismiss. See ECF No. 88.
This Opinion explains the reasons for these rulings.
The

pertinent

allegations,

as

set

forth

in

plaintiffs'

amended complaint, are as follows:

1

On July 5, plaintiffs dismissed Tesla I
prejudice. See ECF No. 59.
2

from the case without

In

or

around

2007,

Related,

a

New

York-based

real

estate

conglomerate that oversees "development, acquisition, management,
finance, marketing, and sales for mixed-use,
and office properties," Am. Compl.
an

affiliate

of

Related,

id.

relationship with Carleton

<:ll.

<:ll.<:ll.

residential, retail,

4, 21, ECF No. 57, and MBM,

4,

entered

Ruthling,

an

into

individual

a

business

residing

in

Thailand, id.

<:ll.

23, and with Supply, a Samoan entity controlled by

Ruthling, id.

<:ll.

27. Ruthling and Supply agreed to supply high-end

glass fa9ade material (known as "curtain wall") from China and, at
see id.

times assisted by Ruthling's wife Jeaneah Paik,

<:ll.

3,

to

install it on the exterior of plaintiffs' U.S. building projects,
see id.

<:ll.<:ll.

38, 99.

On or about May 12,

2011,

Related awarded Supply a curtain

wall contract for 500 North Lake Shore Drive in Chicago,
("NLSD"),

one

of

Related' s

developments.

Id.

<:ll.

38.

Illinois

During

the

pendency of the NLSD project, Ruthling formed Tesla I, which, like
Supply, manufactured, transported, and installed curtain wall for
Related' s

buildings.

Id.

<:ll.

5.

Tes la

I

subsequently served as a

subcontractor on three Related real estate projects:
mentioned NLSD development;
Chicago,

the above-

the 111 Wacker Drive development

Illinois; and The Village at Santa Monica development in

Santa Monica, California (collectively, "the projects"). Id.
Ruthling
company,

in

id.

also
<:ll.

formed

Hudson,

a

Delaware

limited

<:ll.

6.

liability

26, which worked with Tesla I on the projects, id.

3

<JI

6,

and Skye Holdings,

which held Ruthling' s

a Hong Kong limited liability company,

ownership interest in Tesla I,

id.

<JI

28.

Though Ruthling was the Chairman and Chief Executive Officer of
Tesla I,

id.

<JI

23, and through his control of Skye Holdings,

controlling owner,
company,
right

id.

5,

<JI

Related also owned a

held a seat on its Board of Directors,

to approve certain corporate actions.

stake

its

in the

and possessed a

See Declaration of

Nicholas A. Gravante, Jr. in Support of Plaintiffs' Opposition to
Defendants' Carleton Ruthling, Tesla Walls LLC, Hudson Walls LLC,
Related Supply Ltd.,

and Skye Holdings Ltd.'s Motion to Dismiss

("Gravante Deel."), Ex. 6,

<JI

13.

According to the amended complaint,

Ruthling,

beginning in

2007 and continuing until mid-2014, was able through his control
of the above-mentioned entities to perpetrate a fraudulent scheme
to overbill and defraud Related. See Am. Compl.
between

2007

and 2012,

Ruthling

<JI

7. Specifically,

induced plaintiffs

to

advance

millions of dollars to Supply, conspired with Paik and others to
issue false
invoices,

invoices to Supply,

and caused Supply to pay those

improperly siphoning away plaintiffs' money.

See id.

<JI

1. Thereafter, after forming Hudson and Tesla I in 2012, Ruthling
and his associates continued their fraud by inducing plaintiffs to
advance

Hudson and Tesla

I

millions

of dollars,

issuing

false

invoices to Hudson and Tesla I, and causing Hudson and Tesla I to

4

pay these invoices, depleting Tesla I's assets and siphoning away
funds that were meant for the projects. Id. err 2.
In

furtherance

of

this

fraud,

Ruthling

also

allegedly

conspired with non-party Steve Gramling, the controlling owner of
defendant Skye Supply, a Nevada limited liability company based in
California,

id.

29,

err

to slow work on the projects in order to

extort additional cash advances, see id. err 51.
Ruthling also allegedly conspired with Christopher Du, a CPA
who provided accounting services to Tesla I.

Id.

err 16.

Du worked

closely with plaintiffs and sent them numerous emails requesting
additional

cash

reclassified
knowing

that

for

Tesla

Related' s
they

cash

were

I.

Id.

advances

advances;

47.

err

to

He

Tesla

also

allegedly

I

revenues,

misrepresented

as
as

expenses

payments by Tesla I that were unsupported by legitimate invoices;
and fabricated cash shortfalls to justify Tesla I's requests for
additional funds. Id.
For example,

<[

16.

Ruthling

initiated a

transaction whereby VAT

refunds Tesla I received for purchases made with plaintiffs' money
were transferred to Skye Holdings for no consideration, id.

<[

10,

a transaction whereby Ruthling used funds plaintiffs advanced to
Tesla I to form and capitalize a new shell company in Hong Kong
that never provided services or materials to Related's projects,
id. err 64, and a transaction whereby Ruthling used $564,000 obtained
from

plaintiffs'

transfers

to

Tesla

5

I

to

pay

himself

for

intellectual property that Related had already paid for and had a
significant ownership stake in,
also

involved

in

concealing

parties such as Paik. See id.
ill-gotten gains
fees,

set up a

to,

<JI

id.

65.

<JI

transactions

Du and Ruthling were
that

enriched

other

19. Defendants allegedly used their

inter alia,

pay Ruthling' s

sham entity in Hong Kong,

Ruthling's personal residence. See id.

<JI

personal

and pay the

legal

rent on

9.

DISCUSSION

On the basis of the foregoing allegations, plaintiffs bring
the

instant

action

under

the

Racketeer

Influenced and Corrupt

Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq., seeking to
recover the millions of dollars defendants allegedly stole, plus
treble damages, attorneys' fees, and costs. Plaintiffs also bring
state law counts of fraud, unjust enrichment, aiding and abetting
fraud, negligent misrepresentation, and breach of fiduciary duty.
As noted,
moved

to

six of the defendants, by three separate motions,

dismiss

complaint

plaintiffs'

on

various

grounds

including lack of personal jurisdiction, failure to state a claim,
and failure to plead fraud with particularity. 2 The Court hereby
reaffirms its bottom-line Orders denying two of these motions and
granting one, for the following reasons:

2

Paik and Supply have not entered appearances.
6

I. Personal Jurisdiction
Two defendants, Christopher Du, a resident of California, and
Skye Supply, a California-based bicycle parts company incorporated
in

Nevada,

move

to

dismiss

plaintiffs'

complaint

pursuant

to

Federal Rule of Ci vi 1 Procedure 12 (b) ( 2) .
Federal courts evaluate personal jurisdiction under the law
of the forum in which they sit, here New York. See Whitaker v. Am.
Telecasting,

Inc.,

Bensusan Rest.

Corp.

261
v.

F.3d
King,

196,

208

(2d

126 F.3d 25,

Cir.
27

2001)

(citing

(2d Cir.

1997)).

Plaintiffs bear the burden of establishing personal jurisdiction
over Du and Skye Supply in New York.

Id. At the pleading stage,

plaintiffs must make a prima facie showing of personal jurisdiction
and, on a motion to dismiss, the Court will construe the complaint
in the light most favorable to plaintiffs, resolving all doubts in
their favor. See id.
A. Defendant Christopher Du

Plaintiffs advance three separate bases for jurisdiction over
Du in New York, including New York's long-arm statute, C.P.L.R.
302(a) (3).

See

Memorandum

of

Law

in

Opposition

Christopher Du's Motion to Dismiss the Complaint

§

to

Defendant

("Pl.

Du Mem.")

at 1-2, ECF No. 70.
Under

§

302 (a) (3), plaintiffs can establish jurisdiction over

an out-of-state defendant by showing,

·
in t er a l'
ia,

defendant committed a tortious act outside New York;

7

that "(1)

the

(2) the cause

of action arose

from that

act;

(3)

the tortious act caused an

injury to a person or property in New York;

( 4)

expected

the

or

should

reasonably

have

expected

the defendant
act

to

have

consequences in New York; and (5) the defendant derived substantial
revenue from interstate or international
Trust v. Xiangchi Chen,

967 F.

commerce." Miller Inv.

Supp. 2d 686,

(S.D.N.Y. 2013)

694

(citing N.Y. C.P.L.R. § 302(a) (3) (ii)).
(1)
With

Tortious Act Outside New York
regard

to

the

C.P.L.R.'s

first

requirement

plaintiffs allege a tortious act outside New York -

that

Related and

MBM plead that Du made numerous misrepresentations regarding the
financial

condition

of

Tesla

I,

primarily

via

requests

for

additional funds sent by Du to New York from California. See, e.g.,
Am.

dire

Compl. 'II 47
cash

flow

("As you are aware, Tesla continues to experience
shortfalls

Without

additional

funding,

production in China will need to terminate as early as next week");
id.

("please send funds as soon as possible as both Tesla and Skye

Holdings

are

effectively

out

of

cash

and

manufacturing and installation"); see also id.
emails of this

kind).

can
'II

According to plaintiffs,

no

longer

fund

55 (quoting other
Tesla I

was not

short on cash at these times, or, to the extent Tesla I may have
been short on cash, it was only because defendants had fraudulently
conveyed Tesla I's assets with Du's knowledge and assistance. See
id. 'II'II 35, 41.

8

Plaintiffs further cite numerous instances in which Du and
Ruthling conspired to cover up allegedly improper disbursements by
~~

Tesla I. See id.

9,

16, 75-78. For example,

in an October 22,

2013 email from Ruthling to Du, Ruthling asked Du about "572K for
curtain wall development costs" listed in operational expenses. Du
responded

that

the

"$564

is

included

in Opex."

The

"564"

was

allegedly an improper $564,000 charge for intellectual property,
not an operational expense. Id.

~

65.

Plaintiffs also point to communications between Ruthling and
Du that suggest that Du created false accounting records for Tesla
I. For example, plaintiffs cite an August 27, 2013 email from Du
to

Ruthling,

in

which

Du

[P]andora's box by send[ing]
id.

~

which

wrote

"I

think

we

may

have

opened

the bank statements" to plaintiffs,

77, and a September 12, 2013 email from Du to Ruthling,
Du asked,

"Do you st i 11 want

to

go down

them???? More info means more questions," id.
In another

email

thread,

'TI

in

this path with

78.

Ruthling asked Du

to produce

an

accounting record to send to plaintiffs with the "money we borrowed
to date[.]" Id.

~

75.

"[N]eed a clean story," Ruthling told Du,

"once you send me the numbers lets discuss." Id. And, in an email
sent on June 16, 2014, Du wrote "[i]n regards to the A/R schedule,
this is for you [Ruthling] to review and not intended to be shared
to Related. All they will see are the actual financials which will
no longer show the amount owed to MBM." Id.

9

~

16.

Taken together,

these pleadings plainly satisfy the

law's

requirement that plaintiffs allege a tortious act committed by Du
outside New York.

(2)

Cause of Action Arose From That Act

Du does not contest that plaintiffs'

claims against him for

common law fraud, negligent misrepresentation, unjust enrichment,
RICO

fraud,

and

RICO

conspiracy

all

arise

out

of

the

above-

mentioned acts.
(3)

Injury In New York

With respect to the third prong argues

that plaintiffs

fail

to allege

injury in New York that

the

situs

of

Du

their

injury is New York.
In a case such as this one,

where plaintiffs allege fraud,

"the critical question [under prong (iii)] is . . . where the first
effect of the tort was located that ultimately produced the final
economic

injury."

Bank

Brussels

Lambert

v.

Fiddler

Gonzalez

&

Rodriguez, 171 F.3d 779, 792 (2d Cir. 1999).
While it is clear that the mere experience of economic injury
in New York is not a sufficient basis

for

jurisdiction under

§

302(a)(3), see Whitaker, 261 F.3d at 209, the "New York Court of
Appeals has not specifically analyzed the situs of injury in an
action where the plaintiff alleges injury due to its reliance on
an out-of-state defendant's misrepresentation," Miller Inv. Trust,
967 F. Supp. 2d at 696. A number of cases in this Circuit, however,

10

have held that

the

original

event

leading to

misrepresentation action is plaintiffs'
misrepresentation.

See Bank Brussels,

that

event

the

original

causing

the

injury in a

reliance on defendant's
171 F. 3d at

injury was

7 92

(holding

in New York where

plaintiff relied on defendant's misrepresentation by disbursing
funds in New York); Hargrave v. Oki Nursery,
900 (2d Cir. 1980)
was

in

New

Inc.,

636 F.2d 897,

(holding that the original event causing injury

York

where

plaintiffs

relied

on

defendant's

misrepresentations by purchasing grape vines with funds

in New

York); Marine Midland Bank v.

488 F.

Supp.

703

699,

(S.D.N.Y.

Keplinger
1980)

&

As socs.,

(holding

Inc.,

that

"since

all

were made by [plaintiff] in New York, the situs

disbursements

of the injury was New York") .
Here,

Du

contends

that

the

"original

events"

were

Du's

accounting services, which were provided in California and relied
on by Tesla I outside of New York. See Defendant Christopher Du's
Memorandum of Law in Support of Motion to Dismiss the Complaint
("Du Mero.")

at 7,

ECF No.

62. The mere fact that plaintiffs are

located in New York and accordingly experienced harm there,
argues,
302

is

(a) (3).

not

sufficient

to

establish

jurisdiction

under

Du
§

Id.

But it is not plaintiffs'

presence in New York alone which

gives rise to their injury in New York. The first effect of Du's
out-of-state misrepresentation -

11

i.e.,

the

original event

that

caused the injury -

was plaintiffs'

which reliance manifested in the

detrimental reliance on it,

issuance of cash advances and
~~

cash payments from New York. See Am Compl.

56-57. Du may have

been supplying accounting services to Tesla I, but he directed his
alleged misrepresentations on Tesla I's behalf to plaintiffs in
New York, with language expressly requesting that plaintiffs rely
on

these

representations

by

disbursing

funds

from

New

York.

Assuming for purposes of this motion that plaintiffs' allegations
are true,

the situs of their injury is therefore New York.

See,

e.g., Bank Brussels, 171 F.3d at 792.
(4)

Reasonable Foreseeability

Next,

the law requires plaintiffs to show that Du "'expects

or should reasonably expect'
New York." Ferri v.
2009)
(2d

Berkowitz,

(quoting Kernan v.
Cir.

1999)).

subjective,

id.,

his actions to have consequences in

This

678 F.

Supp.

Kurz-Hastings,
test,

requires

which

is

plaintiffs

2d 66,

Inc.,

78

175 F.3d 236,

objective,
to

(E.D.N.Y.

show

rather

"a

241
than

purposeful

availment of the benefits of the laws of New York such that the
defendant

may

reasonably

anticipate

being

court." Forties B LLC v. Am. W. Satellite,
428, 434

(S.D.N.Y. 2010)

haled
Inc.,

into

New

York

725 F. Supp. 2d

(quoting Kernan, 175 F.3d at 241)). And,

under New York law, a party sending fraudulent misrepresentations
into New York should reasonably expect the act to have consequences

12

in New York.

See Gabriel

Capital,

L. P.

v.

Caib

Investmentbank

Aktiengesellschaft, 814 N.Y.S.2d 66, 68 (App. Div. 2006).
Here,

Du repeatedly directed false statements via email to

plaintiffs in New York and the content of those messages plausibly
suggests that Du knew and intended his actions to have consequences
in New York. See, e.g., Am. Compl. 91 16 ("Du reclassified Related's
advances to Tesla I as revenues, knowing they were advances"); id.
(Du emailed Ruthling, "[i]n regards to the A/R schedule, this is
for

you

[Ruthling]

Related");

id.

91

to

47

review and not

intended to be shared to

(Du emailed Related,

"please send funds as

soon as possible as both Tesla and Skye Holdings are effectively
out

of

cash

and

can

no

longer

manufacturing

fund

and

installation"); id. 91 77 (Du emailed Ruthling "I think we may have
opened

[P]andora's

box

by

send[ing]

the

bank

statements"

to

plaintiffs); id. 91 65 (Du miscategorized $564,000 in intellectual
property costs as operational expenses) .
These pleadings are sufficient to show Du reasonably expected
his conduct to have consequences in New York, most particularly in
the form of plaintiffs issuing cash advances to Tesla I. See, e.g.,
Hargrave, 636 F.2d at 900.

(5)

Substantial Revenue

New York
derived

law

further

substantial

requires

revenue

from

plaintiffs
interstate

to
or

show that

Du

international

commerce. This requirement "narrows the long-arm reach to preclude

13

the exercise of jurisdiction over nondomiciliaries who might cause
direct,

foreseeable injury within

[New York]

but whose business

operations are of a local character." AmTrust Fin. Servs., Inc. v.
Lacchini, 260 F. Supp. 3d 316 (S.D.N.Y. 2017)

(quoting Ingraham v.

Carroll, 687 N.E.2d 1293, 1296 (N.Y. 1997)).
Though plaintiffs' complaint includes no specific allegations
regarding

Du's

jurisdiction

revenues,

is

"dismissal

inappropriate

under

for

lack

of

302 (a) (3) (ii),

personal

even

there is no proof that a defendant derives substantial

where

revenue

from interstate or international commerce, where that knowledge is
peculiarly under the control of

[the defendant], and may come to

light in the course of [s]ubsequent discovery." See Energy Brands
Inc. v. Spiritual Brands, Inc., 571 F. Supp. 2d 458, 468 (S.D.N.Y.
2008)

(internal quotation omitted). Therefore, prior to ruling on

Du's motion,

the Court granted plaintiffs discovery limited to

this issue. See ECF No. 81.
Du,

it

international
argues,

turns

out,

commerce

derives

no

in

individual

his

revenue

from

interstate

capacity.

Thus,

and
Du

in the absence of alter ego or corporate veil piercing

allegations, the out-of-state revenues derived by his wholly-owned
business Summit CPA,

Inc.

("Summit")

cannot be attributed to him

for jurisdictional purposes. See Supplemental Memorandum of Law,
ECF No.

84;

Additionally,

Supplemental Reply Memorandum of
even

if

the

Court

14

attributes

Law,

ECF No.

Summit's

85.

business

revenues

to

him,

Du

argues

that

Summit's

revenues

are

not

sufficiently "substantial" within the meaning of the statute to
permit jurisdiction by New York courts. Id.
In support of his position, Du cites a 1975 Southern District
case declining to attribute the revenue of a corporate defendant
to its sole shareholder,

an individual defendant,

this would constitute piercing the

corporate veil,

only be done if the plaintiff could show,
to observe corporate formalities.
Birenbaum,

389 F.

Supp.

798,

805

reasoning that
which could

for example, a failure

Lehigh Valley Indus.,
(S.D.N.Y.

Inc.

v.

1975), aff'd sub nom.

Lehigh Val. Indus., Inc. v. Birenbaum, 527 F.2d 87 (2d Cir. 1975).
Du also cites a 1983 case, which relies on Lehigh Valley, finding
that "it is the individual,

and not his corporate employer,,

who

must derive 'substantial revenue' for jurisdiction to attach under
section 302 (a) (3) (ii)." Bulk Oil
Co., 584 F. Supp. 36, 41

(USA)

Inc.

v.

Sun Oil Trading

(S.D.N.Y. 1983).

But the reasoning in these cases was repudiated by the New
York Court of Appeals in a 1988 case called Kreutter v. McFadden
Oil

Corp.,

71

N.Y.2d

460,

470

(1988).

Kreutter

explicitly

overturned prior trial court decisions that had applied the socalled

"fiduciary

shield

doctrine"

to

the

N. Y.

C.P.L.R.

jurisdictional provisions. According to the Court of Appeals,
conducting an analysis under § 302,
desirable

to

adopt

the

fiduciary

15

in

it is "neither necessary nor

shield doctrine," which would

prevent an individual from being subject to jurisdiction in cases
where

his

dealings

capacity.

Id.

statute's

language

suggests

with

New

Specifically,

that

the

or

the

York

were

solely

in

a

corporate

the Court reasoned,

nothing "in the

legislative

relating

Legislature

history

intended

to

accord

any

to

it

special

treatment to fiduciaries acting on behalf of a corporation or to
insulate them from long-arm jurisdiction for acts performed in a
corporate
question

capacity."
of

Id.

substantial

Though
revenue

Kreutter
under

did

not

address

302 (a) (3) (ii),

the

Kreutter

effectively rejected the basis for the court's finding in Lehigh.
Following Kreutter,

a

Southern District

earlier decision in a case called Faci t,

Inc.

court vacated
v.

Krueger,

its

Inc.,

657 F. Supp. 1069 (S.D.N.Y. 1987)

(hereinafter Facit I), vacated,

732 F. Supp. 1267 (S.D.N.Y. 1990)

(hereinafter Facit II). Whereas

Facit I invoked the fiduciary shield doctrine to protect the sole
owner of a

corporation

from personal

jurisdiction in New York

("[t]he fiduciary shield doctrine prevents reliance on corporate
earnings

as

a

means

of

asserting

long-arm

jurisdiction

over

individual defendants," 657 F. Supp. at 1073), Facit II attributed
the company's sales to the individual defendants. 732 F. Supp. at
1272-73.
Although subsequent cases have declined to extend Facit II,
they have not disturbed its central holding.

For example, Siegel

v. Holson Co., did not impute the revenue of a corporate entity to

16

its president for jurisdictional purposes on the grounds that "he
is a non shareholding officer of the corporation." 768 F.
444,

446

(S.D.N.Y.

grounds that,
subject

to

1991),

in Faci t
personal

Supp.

but it distinguished Facit II on the

I I,

"the officers of a corporation were

jurisdiction

because

they

were

major

shareholders of the company for whom they were employed," id.
More recently, in Pincione v. D'Alfonso, the court noted that
"if a corporation derives substantial revenue from interstate or
international

commerce,

that

revenue

cannot

be

imputed

to

the

company's non-shareholding officers." No. 10 Civ. 3618 (PAC), 2011
WL 4089885, at *10 (S.D.N.Y. Sept. 13, 2011), aff'd, 506 F. App'x
22

(2d Cir. 2012)

(citing Siegel, 768 F. Supp. at 446; Bulk Oil,

584 F. Supp. at 41). Siegel and Pincione, however, both reiterate
Facit

TI' s

holding that

corporate out-of-state revenues can be

imputed to shareholding officers. 3
Here, Du personally received 100% of Summit's profits as the
100% owner of its stock. He is also its president, secretary, and
sole manager. See ECF No. 84, Ex. B. Moreover, Du is the accountant
who performed the work at issue in this case and who engaged in

3 McKinney's
treatise on the C.P.L.R.
also summarizes this
doctrine, noting that "when a corporation and one of its officers
are both sued for a tortious act under C.P.L.R. §302 (a) (3) (ii),
the company's interstate revenue cannot be imputed to the
individual for jurisdictional purposes if he or she is not a major
shareholder."

17

much of the wrongdoing alleged by plaintiffs.
were paid by plaintiffs to Tesla I,

Summit's revenues

a Delaware corporation,

and

then to Summit and to Du. Hence, as in Facit II, Du's interstate
revenues are connected to the cause of action. Thus, this is not
a case where defendants' only interstate revenues are attributable
to an unrelated corporation earning monies by conducting unrelated
activities.
In

New

York

the

law

is

clear:

"[i]nasmuch

as

the

constitutional and statutory safeguards sufficiently alleviate the
equitable concerns posed by long-arm jurisdiction,

there

is no

convincing reason why the mere fact of corporate employment should
alter the

jurisdictional calculus." Kreutter,

71

N.Y.2d at

471

(internal quotation omitted). Thus, the Court attributes Summit's
revenues

to

Du

for

purposes

of

determining whether

Du derives

substantial revenue from interstate or international commerce.
With regard to whether these revenues are substantial within
the

meaning

of

the

statute,

"[t]here

is

no

bright-line

rule

regarding when a specific level of revenue becomes substantial for
purposes
Brands,
Light v.

of
Inc.,

302 (a) (3) (ii)."
571 F.

Taylor,

No.

Supp.

Energy
2d 458,

05 Civ.

5003

Brands
468

(WHP),

Inc.

(S.D.N.Y.

v.

Spiritual

2008)

2007 WL 274798,

(S.D.N.Y. Jan. 29, 2007), aff'd, 317 F. App'x 82

(citing
at *4

(2d Cir. 2009)).

To determine whether revenue is substantial, courts look either to
the percentage of a party's overall revenue derived from interstate

18

commerce,

or

to

the absolute

amount

of

revenue

party's activities in interstate commerce,

generated by a

with each case to be

decided on its own facts. City of New York v. A-1 Jewelry & Pawn,
Inc., 501 F. Supp. 2d 369, 417 (E.D.N.Y. 2007)

(citations omitted).

"[T]he main concern" in a substantial revenue analysis,

"is the

overall nature of the defendant's business and the extent to which
he can fairly be expected to defend lawsuits in foreign forµms."
Light, 2007 WL 274798, at *4

(internal quotations omitted).

The substantiality prong,
requirement."
"substantial

See

687

Ingraham,

revenue"

as

in effect,
N.E.2d

essentially

a

represents a
at

1296

"bigness

(describing

"'bigness

requirement'

designed to assure that the defendant is 'economically big enough'
to defend suit in New York")
N.Y. Prac.

§

(quoting David D.

Siegel,

88, at 136)). Large amounts of revenues

Siegel's

(revenues in

excess of $1,000,000) are presumptively substantial. See Hamilton
v. Accu-Tek,

32 F. Supp. 2d 47, 68-69 (E.D.N.Y. 1998)

(collecting

cases). For example, in Allen v. Canadian Gen. Elec. Co., the Court
sustained

jurisdiction

where

the

1%

of

defendant's

transacted in New York amounted to $8. 79 million.

business

65 A.D.2d 39,

41-43 (N.Y. App. Div. 1978), aff'd, 409 N.E.2d 998 (N.Y. 1980). In
reaching this determination,

the court reasoned that "[i]t would

be difficult to convince an economist that sales of approximately
$9 million were not substantial regardless of their ratio to total
sales." Id. at 43.

19

Where a defendant earns less than seven figures of out-ofstate revenues, courts look to the overall percentage of revenue
derived

from

out-of-state

sources,

and

consider

whether

the

defendant seeks to engage in interstate or international commerce.
See, e.g., United Bank of Kuwait,
766 F.

Supp.

113,

117-18

PLC v.

(S.D.N.Y.

James M. Bridges, Ltd.,

1991)

For example,

in Cable

News Network, L.P. v. GoSMS.com, Inc. the court found that $60,000
in

revenue

from

Europe

and

Israel

was

sufficient

to

confer

jurisdiction where "GoSMS.com's operations are international and
in no way limited to California." No. 00 Civ. 4812 (LMM), 2000 WL
1678039,

at

(S.D.N.Y.

*5

Nov.

6,

2000).

Other cases have found

that interstate revenue was substantial where, as a percentage of
total revenue,
e.g.,

that revenue was greater than five percent.

United Res.

Avalon Expl.,

1988-I Drilling & Completion Program,

Inc.,

No.

91 Civ.

8703

(RPP),

See,

L.P.

1994 WL 9676,

v.

at *4

( S . D. N. Y. Jan. 1 0, 1 9 9 4)
Du argues that Summit,

a small,

California-based accounting

practice that never had more than four accountants working for it
at any given time, is the type of non-domiciliary that the doctrine
is meant to exclude.

Du cites for this proposition a series of

cases where parties have

fa i 1 ed the "bigness" test.

Light, 2007 WL 274798, at *5
the

five

prior

commissions

on

years,

the

total

sales

See,

e.g.,

(no "substantial revenue" where,
defendant
of

20

had

$1,523"

"earned only $336
received

through

in
in
his

website); Ronar,
1986)

Inc. v. Wallace, 649 F. Supp. 310, 317 (S.D.N.Y.

(finding that

~an

individual near retirement with $6,500 of

annual income from international commerce
entities

that

fundamental

can,

consistently

fairness,

be

called

with

upon

to

is not among the
the

requirements

bear

the

of

expense

and

inconvenience of litigating in distant forums").
But unlike the situations in Ronar and Light, Du markets to
clients

throughout

the

United

States

and

has

derived

tens

of

thousands of dollars of revenue from at least eleven states and
four countries. See Summit CPA, Inc. Revenue Summary, ECF No. 84,
Ex.

D.

For example,

Du's

gross

revenues between 2012

and 2016

ranged from approximately $250,000 to $310,000. Even excluding the
work

Du

performed

for

Tesla

I,

Summit's

revenues

from

non-

California clients ranged from around $4,000 to $7,000 per year
for 9 to 14 clients. And between 2012 and 2014, when Du worked for
Tesla

I,

out-of-state

revenues

totaled

$41,585,

$58,460,

and

$48,437 yielding overall percentages of 16.8%, 19.8%, and 15.5%. 4
Thus,

Du's work for Tesla

revenues and those

I

generated material

revenues are highly relevant

interstate

to the Court's

determination of whether Du could be expected to defend this suit

Du also derives revenue from an export company that he owns with
his wife, called Pangaea. According to Du, Pangaea generates a
couple hundred thousand dollars per year. For purposes of deciding
Du's motion, the Court does not reach the question of whether these
revenues should also be attributed to Du.
4

21

in New York.

Indeed,

Du generally sought to do business out of

state, and during the years in which he did do such business for
Tesla I,

that business was a significant portion of his overall

activity.

Moreover,

it is not without consequence that,

accountant for Tesla I,

as the

Du was well aware that his primary role

was to provide financial statements to Related, based in New York,
which he did directly, and to review the flow of funds into Tesla
I from Related. As a result, Du was clearly aware that Tesla I's
revenues

were

derived

from

Related

in

New

York

and

that

the

payments from Tesla I to his accounting practice were from Related
in New York.
Taking

into

account

all

of

these

factors,

therefore,

the

substantial revenue prong is met in the instant case.
(6)

Due Process Considerations

Next,

plaintiffs must

show

that

jurisdiction

in

New York

passes constitutional muster.
A district court's exercise of personal jurisdiction over a
nonresident defendant comports with due process only if
nonresident

defendant

has

purposefully

contacts with the forum state and (ii)

established

(i)

the

minimum

the quality and nature of

the party's contacts are such that the maintenance of the suit
does not offend traditional notions of fair play and substantial
justice.
560,

Metro.

567-68

Life Ins.

(2d Cir.

1998)

Co.

v.

Robertson-Ceco Corp.,

(citing Int'l Shoe Co.

22

v.

84 F.3d
State of

Wash.,

Office of Unemployment Comp.

& Placement,

66 S. Ct.

154,

158 (1945)).
In cases where

the

"conduct

that

forms

controversy occurs entirely out-of-forum,
jurisdictional
effects

harmful

contacts
to

the

with

the

forum

plaintiff,"

the basis

for

the

and the only relevant
are

"the

therefore

exercise

of

in-forum
personal

jurisdiction may be constitutionally permissible if the defendant
expressly aimed its conduct at the forum." Licci ex rel. Licci v.
Lebanese Canadian Bank,

SAL,

732

F.3d 161,

173

(2d Cir.

2013)

(citing Calder v. Jones, 465 U.S. 783, 789 (1984)).
Here,

Du

intentionally

telephone calls to New York,

directed

dozens

of

emails

and

allegedly in order to convey false

and misleading information to plaintiffs so as to induce plaintiffs
to disburse funds from New York. See Arn. Compl.

~

35. Du therefore

"expressly aimed" his conduct at New York and purposely availed
himself of its laws.
Moreover, Du does not present "a compelling case," - or indeed
any case - "that the presence of some other considerations would
render jurisdiction unreasonable." Burger King Corp. v. Rudzewicz,
471

U.S.

462,

477

(1984).

While

Du

is

an

individual

residing

several thousand miles away from this Court, New York has a strong
interest in adjudicating this action and the judicial system has
as a strong interest in trying plaintiffs'
defendants in as few forums as possible.

23

claims against these

In

short,

plaintiffs'

amended

complaint

establishes

this

Court's jurisdiction over Du in New York under New York's longarm statute and is consistent with the due process requirements of
the federal Constitution.5
B. Defendant Skye Supply

Skye Supply also moves to dismiss plaintiffs'
lack

of

designer

personal
and

jurisdiction

distributor

operating out of Gardena,

in

of

New

York.

bicycle

Skye

parts

and

complaint for
Supply

is

a

accessories

California and is majority owned and

controlled by non-party Steve Gramling,

who lives and works in

California. See Declaration of Steven Gramling ("Gramling Deel.")
~~

2, 9, 11, ECF No. 65. Skye Supply never entered into a contract

with plaintiffs or submitted an invoice for payment to them, never
conducted business in New York,

and is not controlled by any of

the other defendants in this case. Id.

~~

9, 13, 18.

In addition to its bicycle parts business, Skye Supply "acted
as a third party vendor that arranged customs brokers to clear
products
drivers

through
and/or

entities." Id.

customers
other

~

and brokered

shipping

services

the

services

for

of

truck

Ruthling-related

18. Among those entities was Tesla I, the joint-

venture between plaintiffs and Carleton Ruthling.

5 Therefore, the Court need not reach the alternative questions of
whether plaintiffs properly allege jurisdiction over Du under 18
U.S.C. § 1965(b) or§ 302(a) (2) of the C.P.L.R.

24

Plaintiffs
Supply

in

assert

three

connection with

bases

these

for

jurisdiction

services

-

none

over

Skye

of which are

sufficient:
N.Y. Long Arm Jurisdiction

(1)

As discussed above,
a defendant

under

in order to establish jurisdiction over

302(a) (3) (ii)

§

of the New York C.P.L.R.,

plaintiff must show that the defendant
act outside New York,
(3)

which

defendant

caused

(1)

committed a tortious

(2) which gave rise to the instant action,

injury

inside

New

York,

and

(4)

reasonably should have expected to have

which

substantial

revenue

from

interstate

or

the

consequences

here. Additionally, a plaintiff must show that the defendant
derived

a

(5)

international

commerce. See Miller Inv. Trust, 967 F. Supp. 2d at 694.
(a)

Tortious Act Outside New York

As an initial matter, Skye Supply argues that plaintiffs fail
to allege any tortious act committed by Skye Supply.
answering papers,

In their

plaintiffs point to eight paragraphs in their

complaint, which they claim allege tortious acts. See Memorandum
of Law in Opposition to Defendant Skye Supply LLC' s

Motion to

(citing 'lI'lI 9,

Dismiss

("Pl. Skye Mem.") at 7, ECF No. 72

36, 40,

46, 51, and 56). Seven of the eight paragraphs, however,

amount

to

nothing

more

than

conclusory

15, 17,

allegations

and

impermissible group pleading. See Mills v. Polar Molecular Corp.,
12 F.3d 1170,

1175

(2d Cir.

1993)

25

("Rule 9(b)

is not satisfied

where

the

complaint

statements to

vaguely

at tributes

'defendants'")

the

alleged

(citations omitted);

fraudulent

380544 Canada,

Inc. v. Aspen Tech., Inc., 544 F. Supp. 2d 199, 218 (S.D.N.Y. 2008)
("indiscriminate

defendant

'clumping'

does

not

particularity standards of Fed. R. Civ. P. 9(b)")

adhere

to

the

(quoting Dresner

v. Utility.com, Inc., 371 F. Supp. 2d 476, 493-94 (S.D.N.Y. 2005)).
See also Grika v. McGraw, 57 N.Y.S.3d 675 (Sup. Ct. 2016)
C.P.L.R.

§

(citing

3016(b)).

For example, plaintiffs allege that "Skye Holdings and Skye
Supply

intentionally

submitted

false

invoices

to

Supply

Co.,

Hudson, and Tesla I to extract Plaintiffs' advances." Am. Compl.
'1I

17.

But nowhere

in their complaint do plaintiffs

identify a

single invoice submitted by Skye Supply (or by any other defendant)
to Supply, Hudson, or Tesla I, false or otherwise.
Plaintiffs

also

argue

that

Supply

Skye

"misrepresentations" to plaintiffs in New York,
7,

but

plaintiffs

do

not

identify

a

single

communicated by Skye Supply to plaintiffs
al though plaintiffs

allege

that

"Skye

communicated

Pl. Skye Mem. at
misrepresentation

in New York.

Indeed,

Supply directed numerous

communications to Related in New York," they cite only one email
dated August 8, 2008 "from Gramling to Related regarding Gramling
filing
account

his
for

name

as

the

importer of

record

on Tesla

the shipment of Related' s materials." Am.

26

I's

FedEx

Compl.

<JI

37. 6 Furthermore,

nowhere in their complaint do plaintiffs state

or even imply that there was anything improper or fraudulent about
this communication.
Plaintiffs cite four paragraphs to support their allegation
that Skye Supply "accept[ed] assets fraudulently conveyed by its
co-conspirators." Pl. Skye Mem. at 7. But these paragraphs merely
include Skye Supply in group pleading. See Am. Compl.

<JI

9 ("Skye

Holdings transferred these funds to Ruthling and Paik, as well as
to Skye Supply, a company owned in part by Ruthling, pursuant to
yet another round of fraudulent invoices"); id.

<JI

40 {"[A] dditional

capital was required only because Defendants fraudulently conveyed
assets from Supply Co.
Du, and Paik"); id.
from Tesla
Paik") ;

id.

I

to
<JI

<JI

to Skye Holdings,

Ruthling,

46 ("Defendants fraudulently conveyed assets

Skye Holdings,

56

Skye Supply,

( "Ruthl ing

Skye Supply,

then

wired

the

Ruthling,
money

Du,

from

and

these

accounts to himself, Du, Paik, Skye Supply, and Skye Holdings").
As plaintiffs never identify or suggest specific evidence of
a fraudulent transfer of assets to Skye Supply, plaintiffs cannot
rely on these "conclusory statements without any supporting facts,
as such allegations would 'lack the factual specificity necessary
to confer jurisdiction.'" Lewis v. Madej, No. 15 Civ. 2676 (DLC),

6 Plaintiffs'
complaint includes a list of eight communications,
but seven of the eight are emails from either Ruthling or Related,
not from Gramling or Skye Supply. See Am. Compl. <JI 37.

27

2015 WL 6442255, at *3 (S.D.N.Y. Oct. 23, 2015)

(quoting Jazini v.

Nissan Motor Co., Ltd., 148 F.3d 181, 185 (2d Cir. 1998)).
Paragraph
unavailing.

15

It

of

states

plaintiffs'
that

complaint

"[o]n multiple

is

similarly

occasions,

Ruthling

caused Skye Supply and Skye Holdings to delay shipments of critical
supplies

to the

Projects until

funding requests." Am.

Compl.

Related approved his additional
15.

I][

But this sentence does not

allege a tortious act by Skye Supply; it alleges a tortious act by
Ruthling who "caused Skye Supply .
This leave paragraph 51,

to delay shipments." Id.

the one paragraph of the complaint

that alleges a potential tortious act by Skye Supply, to wit, that
Skye Supply "deliberately delay[ed the] delivery of goods [to Tesla
I] to extort payments from plaintiff." Pl. Skye Mem. at 7.
Paragraph 51 regards a shipment of materials from non-party
AIT

Worldwide

Logistics

to

Tesla

I,

which

Tesla

allegedly

l

intended to use to supply one of Related's building projects
either California or Illinois)

and which,

plaintiffs'

(in

complaint

alleges, Ruthling "conspired" with Skye Supply to "delay." See Am.
Compl.

I][

51. Among other things, paragraph 51 quotes an email sent

on April 28,
I

2014

(after Related had informed Ruthling and Tesla

of its intention to end their business relationship)

employee of Tesla

I

to Related stating that "Steve

from an

G [rambling]

still has not released AIT, maybe one of you can reach out to Steve
and

see

why

he

hasn't

released

28

AIT.

At

this

time

I'm

still

restricted from getting the materials tomorrow." Id. Paragraph 51
also cites an email

from a Related employee to Du and Ruthling

stating "I have been notified that AIT is holding release of these
materials pending word from Steve Gramling that this payment was
received." Id.
According to plaintiffs,

Gramling -

intending to email the

employee at AIT to give instructions on how to respond to Tesla
I's inquiry - inadvertently emailed Tesla I saying "don't answer.
If he [the Tesla I employee] gets you on the phone, tell him he' 11
have to talk to Carleton. Any further questions are ask Carleton.
I think [the Tesla I employee]

is one of the good ones, but this

stuff still needs to be capped and he doesn't know the mine field
he's walking in." Id.
Gramling was clearly writing this email in his capacity as
principal

of

Skye

Supply

and

in

furtherance

of

Skye

Supply's

business coordinating shipments for Tesla I. Further, in the email,
Gramling instructed an AIT employee to ignore potential inquiries
from a Tesla I employee and to redirect such requests to Carleton
Ruthling. Nonetheless,

it is not apparent from the pleadings that

this message actually concealed any information from plaintiffs
that they did not already have.

Indeed,

other emails quoted by

plaintiffs in the very same paragraph suggest that Tesla I

and

Related were already aware that ''AIT is holding release of these
materials pending word from Steve Gramling that this payment was

29

received." Id.

Plaintiffs nowhere allege what "this payment" was

and whether it was or was not

improper for AIT to hold release

until it was received. Ruthling and Gramling may simply have sought
to

halt

bills.

these

shipments

Moreover,

there

because plaintiffs
is

nothing

had not

obviously

paid

tortious

their
about

instructing someone to ask their boss about a business matter.
But

taking

the

pleadings

in

the

light

most

favorable

to

plaintiffs, Gramling's suggestion that employees at Tesla I don't
know the

"mine

field"

they are walking in supports plaintiffs'

contention that Gramling was delaying shipments to Tesla I for an
improper purpose in order to assist Ruthling. Thus, if only barely,
plaintiffs meet their burden of alleging a tortious act - delaying
a shipment by AIT to Tesla I

-

committed by Skye Supply outside

New York.
(b)

Injury in New York

Plaintiffs cannot,

however,

meet their burden to show that

this allegedly tortious act outside New York caused injury in New
York. As discussed previously, "the critical question [in a prong
3 analysis] is . . . where the first effect of the tort was located
that

ultimately

produced

the

final

economic

injury."

Bank

Brussels, 171 F.3d at 792. The mere experience of economic injury
in New York is not a

sufficient basis

for

3 0 2 ( a ) ( 3 ) . See Wh i taker , 2 61 F . 3 d at 2 0 9 .

30

jurisdiction under §

Plaintiffs argue that the injury from Gramling's act was the
economic harm felt in New York when Related advanced funds to Tesla
I. See Pl. Skye Mem. at 9. But the first effect of Gramling's tort
would have been in California where presumably Tesla I

did not

receive certain shipments on time, or in Nevada or Delaware, where
Tesla I is based. Gramling, indeed, never emailed Related, and did
not even intend to email Tesla I. According to plaintiffs, Gramling
only intended to email an employee at AIT Logistics in furtherance
of an alleged scheme to delay the receipt by Tesla I of a shipment
from AIT Logistics. The first effect of these acts was not in New
York.
Assuming plaintiffs'

allegations in paragraph 51 are true,

Skye Supply conspired with an out-of-state entity, AIT,

in order

to aid a scheme intended to induce an in-state entity, Related, to
advance

additional

funds

to

Tesla

I.

But

plaintiffs

cite

no

authority for the proposition that jurisdiction can extend to an
out-of-state defendant in a situation where the immediate effect
of the out-of-state defendant's allegedly tortious act was to harm
another

out-of-state

third party.

As

Supply's act was outside of New York,

the

first

effect

of

Skye

personal jurisdiction over

Skye Supply cannot be established under section 302(a) (3).
"Under either prong of CPLR

§

302(a) (3),

'each element

is

essential and if plaintiffs fail to proffer sufficient evidence of
any element it is dispositive of the issue of personal jurisdiction

31

under this provision.'" Adamou v. Cty. of Spotsylvania, Virginia,
No. 12 Civ. 7789 (ALC), 2016 WL 1064608, at *6 (S.D.N.Y. Mar. 14,
2016)

(quoting Overseas Media,

Inc. v. Skvortsov, 407 F. Supp. 2d

5 6 3, 5 7 5 ( S . D. N. Y. 2 0 0 6) , a ff' d, 2 7 7 F. App' x 9 2 ( 2 d Cir . 2 0 0 8 ) ) .
The Court, therefore, need not reach the question of whether
plaintiffs'
derived

injury was reasonably foreseeable or if Skye Supply

substantial

revenue

from

interstate

or

international

commerce.
(2)

As

N.Y. Conspiracy Jurisdiction

a

separate

basis

for

jurisdiction

over

Skye

Supply,

plaintiffs point to C.P.L.R. § 302 (a) (2), which provides that "a
court may exercise personal jurisdiction over any non-domiciliary
who in person or through an agent .

. commits a tortious

act within the state [.]" Under § 302 (a) (2), acts committed in New
York by a co-conspirator of an out-of-state defendant pursuant to
a

conspiracy

may

subject

the

out-of-state

jurisdiction of New York courts.

defendant

to

See Chrysler Capital Corp.

the
v.

Century Power Corp., 778 F. Supp. 1260, 1266 (S.D.N.Y. 1991).
Skye Supply argues,

first,

that § 302 (a) (2)

does not apply

here as plaintiffs do not explicitly mention§ 302(a) (2)
amended complaint.

See Reply Brief in Support of Defendant Skye

Supply LLC' s Motion to Dismiss
But plaintiffs'

in their

("Skye Reply")

at 5,

ECF No.

74.

amended complaint does plead that the "Court has

personal jurisdiction over .

. Skye Supply .

32

. also because

[Skye Supply]
II,

engaged in a conspiracy with Tesla I,

Tesla

and Ruthling to steal millions of dollars from Related." Am.

Compl. 'JI 37. And, in any event, under New York law, a "' [c] omplaint
need

not

expressly

allege

participation

jurisdictional purposes." Biz2Credit,

Inc.

in

a

conspiracy'

v.

Kular,

No.

8223 (ER), 2015 WL 2445076, at *7 (S.D.N. Y. May 21, 2015)
Lachapelle v. Torres, 1 F. Supp. 3d 163, 170
What New York law does require,

for

14 Civ.
(quoting

(S.D.N.Y. 2014)).

however,

is that plaintiffs

plead (1) "a prima facie showing of conspiracy," and (2) "specific
facts warranting the inference that the defendant was a member of
the conspiracy."

Sea Trade Maritime Corp. v. Coutsodontis, No. 09

Civ. 488, 2012 WL 3594288, at *7 (S.D.N.Y. Aug. 16, 2012)

(quoting

Chrysler Capital Corp., 778 F. Supp. at 1266)).
Here plaintiffs fall short:

(a)

Prima Facie Conspiracy

A prima facie showing of conspiracy consists of four elements:
"(a) a corrupt agreement between two or more persons,
act in furtherance of the conspiracy,

(b) an overt

(c) the parties' intentional

participation in the furtherance of a plan or purpose, and (d) the
resulting damage or injury." Chrysler Capital Corp., 778 F. Supp.
at

1267.

To

establish

conspiracy

jurisdiction

in

New

York,

plaintiffs must allege at least one overt act in furtherance of
the conspiracy in New York.
Supp. 1260, 1267

See Chrysler Capital

(S.D.N. Y. 1991).

33

Corp.,

778

F.

Skye Supply argues

that plaintiffs

fail

to establish that

Skye Supply entered into an agreement to defraud plaintiffs. See
Skye Reply at 6. The law, however, does not require plaintiffs, at
this stage,

to prove participation,

just to allege it. Moreover,

even "disconnected acts, when taken together, may satisfactorily
establish a

conspiracy."

Pittsburgh v.
443-44

First

Fed.

Oppenheim, Appel,

(S.D.N.Y.

1986)

Savings

Dixon

&

and Loan Assn.

Co.,

629 F.

Supp.

(internal citations omitted).

of
427,

Plaintiffs

plead that Skye Supply deliberately caused materials to be withheld
from plaintiffs'

projects

Ruthling. See Am. Compl.

~

to

aid

a

conspiracy masterminded by

51. These allegations are sufficient at

the pleading stage. See Sea Trade Mar. Corp. v. Coutsodontis, No.
09 Civ. 488 (BSJ)
2012)

(finding

(HBP), 2012 WL 3594288, at *7 (S.D.N.Y. Aug. 16,

that,

at

the

pleading

stage,

it

is

enough

for

plaintiff to allege "acts to suggest" a corrupt agreement between
defendants).
(b)

Defendant's Role in the Conspiracy

plaintiffs

Next,

must

demonstrate

that

Skye

Supply's

membership in the conspiracy confers jurisdiction by showing:

(a)

"the out-of-state co-conspirator had an awareness of the effects
of the activity in New York";
activity

in

New York was

for

(b)

"the New York co-conspirator's

the

benefit

of

the

out-of-state

conspirators"; and (c) "that the co-conspirators in New York acted

34

at the behest of or on behalf of, or under the control of the outof-state co-conspirators." Biz2Credit, 2015 WL 2445076, at *8.
Before an "agency relationship will be held to exist under
section 302 (a) (2), a showing must be made that the alleged agent
acted

in New York

for

the benefit

of,

with

the

knowledge

and

consent of, and under some control by, the nonresident principal."
Grove Press,

Inc.

v. Angleton,

649 F.2d 121,

122

(2d Cir.

(collecting cases) . See al so First Capital Asset Mgmt.,
Brickellbush,

Inc.,

218

F.

Supp.

2d

369,

395

1981)

Inc.

(S.D.N.Y.

v.

2002)

(rejecting conspiracy jurisdiction where plaintiff offered only
"conclusory

allegations"

that

an

in-state

co-conspirator

was

controlled by an out-of-state co-conspirator) .
Here,
favorable

taking
to

all

of

plaintiffs,

the
Skye

allegations
Supply

acted

in

the

at

the

light

most

behest

of

Ruthling, the purported in-state co-conspirator, not the other way
around.

See Am.

Supply

Compl.
to

Projects");
to assist

'JI

delay

id. 'JI 37

15

(noting that Ruthling "caused Skye

shipments

of

critical

supplies

to

the

(alleging that Ruthling "used [Skye Supply]

him in the

scheme

alleged herein").

Even plaintiffs

conceive of Skye Supply's out-of-state tortious act - Gramling's
email

involving AIT

Logistics

and Tesla

I

as

being

for

the

benefit of Ruthling. See id. 'JI 51.
As plaintiffs fail to allege that Ruthling or any other coconspirators' in-state activities were undertaken for the benefit

35

of Skye Supply or that Ruthling or any other co-conspirators acted
at the behest of Skye Supply,

302 (a) (2)

§

jurisdiction over Skye

Supply under cannot be maintained. Grove Press, 649 F.2d at 122.
(3)

Due Process Considerations

Even were plaintiffs to properly allege personal jurisdiction
over

Skye

Supply

302 (a) (3),

in

New

the exercise of

York

pursuant

such

to

302 (a) (2)

§

jurisdiction would not

or

§

comport

with due process under the federal Constitution.
According to plaintiffs,

Skye Supply has sent,

at most,

a

handful of emails to New York over many years, only one of which
they cite in their complaint. See Am. Compl. ':II 37

("An August 8,

2008 email from Gramling to Related regarding Gramling filing his
name as the importer of record on Tesla I's FedEx account for the
shipment· of Related's materials."). Plaintiffs do not allege that
any of Skye Supply's emails to New York were fraudulent.
the only email

Instead,

they cite was transparently a byproduct of work

that Skye Supply provided to other entities, based outside of New
York,

and for projects located outside of New York.

None of the

allegations against Skye Supply - that it inf lated its invoices to
Tesla I

(a conclusory statement for which plaintiffs provide no

evidence) or that it conspired with co-defendants to halt shipping
to Tesla I Nor

has

substantial

involve conduct expressly aimed at New York.
Skye

Supply

contacts

with

physically

entered

New

York

or

had

New

Furthermore,

none

of

the

York.

36

alleged harms took place in New York, as the shipment Skye Supply
was allegedly involved in delaying was destined for a project in
another state. Skye Supply was not in privity with plaintiffs, it
did not

expressly direct

its

activity

into

New

York,

and

its

alleged tortious acts were not made in New York or have their first
effects in New York.
Thus, the "conduct that forms the basis for the controversy"
- Skye Supply's shipping services to Tesla I and its communications
with

Tesla

I

circumstance,

occurred
the

exercise

entirely
of

out-of-forum.

personal

In

such

jurisdiction

may

a
be

constitutionally permissible only if the defendant expressly aimed
its conduct at New York. See Calder, 465 U.S. at 789. A handful of
unrelated emails sent to recipients in New York, in the absence of
any other direct connection between defendant's allegedly tortious
conduct and New York, are insufficient to show that the defendant
expressly aimed its conduct here. See Barron Partners, LP v. Lab
123,

Inc.,

No.

07

Civ.

11135

(JSR),

2008

WL

290218,

at

*11

(S.D.N.Y. July 25, 2008).
(4)

RICO Jurisdiction

Federal law provides that, when the "ends of justice" require
it,

plaintiffs can assert "nationwide service and jurisdiction"

over RICO defendants. 18 U.S.C.

§

1965(b).

Congress, however, "has expressed a preference in

§

1965 to

avoid, where possible, haling defendants into far flung fora." PT

37

United Can Co. v. Crown Cork & Seal Co., 138 F.3d 65, 72 (2d Cir.
1998).

Thus,

it

is

generally accepted

that

"ends

of

justice"

jurisdiction is authorized only "where the RICO claim could not
otherwise be tried in a single action because no district court
could exercise personal jurisdiction over all of the defendants."
Elsevier Inc. v. W.H.P.R., Inc., 692 F. Supp. 2d 297, 315 (S.D.N.Y.
2010)

(collecting cases) . See also Zito v. Leasecomm Corp., No. 02

Civ. 8074 (GEL), 2004 WL 2211650, at *20 (S.D.N.Y. Sept. 30, 2004)
(finding

that

impracticable
action

"this

to bring all

because

jurisdiction
Anderson v.

requirement

no

over

of

court

them")

Indiana Black Expo,

(S.D.N.Y. 2000)

met

co-defendants

district

all

is

where
together

could

81

in

would
a

be

single

exercise

F.

personal

quotation

(internal
Inc.,

it

omitted);

Supp.

2d 494,

505

(finding that "to the extent that Section 1965(b)

authorizes national service of process on other defendants 'if the
ends of justice [so]
to

mean

that

§

jurisdiction if,

require,'

1965(b)

this phrase has been 'interpreted

authorizes

an

assertion

of

personal

otherwise,

the entire RICO claim could not be

tried in one civil action'")

(citing Daly v. Castro Llanes, 30 F.

Supp.

2d

407,

PriceWaterhouse

413

(S.D.N.Y.

Coopers

LLP,

1998));
No.

03

2848524, at *7 (S.D.N.Y. Dec. 9, 2004)

Nuevo
Civ.

Mundo

0613

Holdings

(GBD),

2004

v.
WL

(finding that the "ends of

justice" requirement means that "the statute authorizes personal

38

jurisdiction if,

otherwise,

tried in one civil action")

the entire RICO claim could not be
(citations omitted).

Plaintiffs in this case assert that "there may be no other
forum where all Defendants are subject to
Mem.

at

16,

and

that

"it

is

jurisdiction," Pl.

highly unlikely that most

of

Du
the

Defendants subject to jurisdiction here would concede jurisdiction
in

California,

which

is

the

only

location

where

Skye

Supply

apparently believes it could be sued," Pl. Skye Mem. at 19.
But

plaintiffs

make

no

effort

to

show

that

the

other

defendants would not be subject to suit in California, and their
contention that Skye Supply could only be sued in California is
belied by the fact that Skye Supply is uncontestably subject to
suit in Nevada,

where it is incorporated. Moreover,

and fatally

for plaintiffs' position here, plaintiffs themselves brought this
same suit in Delaware

(where Tesla I and MBM are domiciled), and

alleged

over

jurisdiction

all

defendants

there.

Plaintiffs,

therefore, fail to allege extraordinary circumstances which would
require the Court to invoke "ends of justice" jurisdiction.
II.

PLAINTIFFS' RICO CLAIMS

Turning to

the

seven counts

of plaintiffs'

complaint,

Court next considers the sufficiency of plaintiffs'

federal

the
law

RICO claims (counts IV and V), which Du and the Ruthling defendants
both move - pursuant to Rule 12(b) (6)
A. Count IV: Section 1962(c)

39

- to dismiss.

To

state

defendants

a

(2)

RICO

through

constituting a pattern
or

claim,

indirectly

the
(4)

invested

plaintiffs

must

commission of

plead

two or more

of racketeering activity

in,

or

(1)

maintained

an

that

acts

(5)

(3)

directly

interest

in,

or

participated in the conduct of (6) an enterprise (7) the activities
of which af feet
Stanley Inc.,

interstate or foreign commerce.

719 F.2d 5,

17

(2d Cir.

1983)

Moss v.

Morgan

(citing 18 U.S.C.

§

1962(a)-(c)). In a case such as this one, based on predicate acts
of mail and wire fraud, plaintiffs must plead these elements with
particularity.

F.R.C.P.

arising under 18 U.S.C.

9(b).
§

And,

in

a

civil

cause of

action

1962, plaintiffs must further establish

standing to seek relief in Court by adequately alleging an injury
proximately caused by the RICO violation.
The

Ruthling

defendants

argue

that

plaintiffs

fail

to

adequately plead two of the elements of a RICO claim - predicate
acts

and

Ruthling,

a

pattern

of

racketeering.

Tesla Walls LLC,

See

Defendants

Hudson Walls LLC,

Carleton

and Skye Holdings

Ltd.' s Memorandum of Law in Support of their Motion to Dismiss
("Ruthling

Def.

defendants

argue

Mem.")
that

at

11-14,

ECF

No.

plaintiffs

fail

to

67.

Additionally,

allege

reasonable

reliance, which, they contend, is an element of a RICO claim based
on fraud.

Id. at 15.

Du, moving separately, argues that plaintiffs have failed to
plead predicate acts of fraud with particularity, the existence of

40

an enterprise, his scienter, or his participation in the alleged
enterprise. See Du Mem. at 14-19.
The Court considers each of these arguments in turn:

(1)

Plaintiffs' Standing

To establish standing in a RICO action, plaintiffs must allege
"an injury to business or property" and "causation of the injury
by the violation." Hecht v.

Commerce Clearing House,

Inc.,

897

F.2d 21, 23 (2d Cir. 1990). See also First Nationwide Bank v. Gelt
Funding Corp., 27 F.3d 763, 767

(2d Cir. 1994). These two prongs,

sometimes referred to as "RICO standing," are "a more rigorous
matter than standing under Article III." Denney v.

Deutsche Bank

AG, 443 F.3d 253, 266 (2d Cir. 2006).
The Ruthling defendants argue that plaintiffs fail to allege
an injury to business or property because their purported losses
are not

"clear and definite."

See Ruthling Def.

Mem.

at

9-11;

Denney, 443 F.3d at 266. Indeed, RICO damages are "speculative" or
"unprovable" where

"contractual

or other

legal

remedies

remain

which hold out a real possibility that the debt, and therefore the
injury, may be eliminated or significantly reduced." In re Merrill
Lynch Ltd.
Mortg.

P' ships Litig.,

Capital,

Inc.

v.

154 F.3d 56,

Kontogiannis,

59

(2d Cir.

726 F.

Supp.

1998);

DLJ

2d 225,

237

(E.D.N.Y. 2010). According to the Ruthling defendants such a real
possibility exists here as plaintiffs are, essentially, creditors
attempting to recover certain cash advances made to Tesla I, claims

41

they are already pursuing against Tesla I in New York State Supreme
Court. Thus,

they argue, plaintiffs' alleged injury in this case

depends upon the outcome of the New York state action, which has
already resulted in a $15 million judgment that is stayed pending
appeal.

As

"conceivable

plaintiffs'

losses,

contingencies"

defendants

argue,

exist

that

might

their

RICO

abate

claims

are

unripe. Ruthling Def. Mem. at 10.
But "[w] hen a

corporation fraudulently is

caused to

issue

debt and stripped of its assets in a manner that obviously will
leave the creditors unpaid, those creditors have standing" to sue
under RICO. GICC Capital Corp. v. Tech. Fin. Grp.,

Inc.,

30 F.3d

289, 293 (2d Cir. 1994). Though GICC Capital is an "anomalous case
where the primary injured party lacks the ability to sue," Jackson
Nat. Life Ins. Co. v.

Ligator,

this is also such a case.

949 F.

Supp. 200, 206 (S.D.N.Y. 1996).
As
party,"

in

GICC

here

Capital,

Related,

"[s]uit

"may be

the

by

the

derivatively

only means

to

an

injured

equitable

resolution." Id. Also, as in GICC Capital, "there exists no risk
of double

recovery."

injured party,

Id.

That

is because Tesla

I,

the primary

lacks the ability to sue defendants as defendants

are its majority owners and controlling members.

Tesla I

going to sue its controlling owners to recover the funds

is not
those

owners allegedly stole. The fact that plaintiffs might be able to
recover from Tesla I if Tesla I is able to recover assets in other

42

lawsuits is not a bar to plaintiffs pursuing the instant action.
Courts routinely take into account recoveries from other sources
when a plaintiff has claims against multiple parties.

A double

recovery would occur only if both Related and Tesla I were awarded
judgments against the Ruthling defendants.
Moreover,

even

were

plaintiffs

required

to

pursue

their

contractual and other legal remedies before bringing their RICO
claims against defendants, they have done so here. Plaintiffs tried
their case against Tesla I to a final judgment in New York state
court. Tesla I, which has appealed from that judgment, currently
has

no

assets

and

owes

$2.3

million

to

its

attorneys.

See

Memorandum of Law in Opposition to Defendants' Carleton Ruthling,
Tesla Walls LLC, Hudson Walls LLC, Related Supply Ltd., and Skye
Holdings Ltd.'s Motion to Dismiss ("Pl. Ruthling Mem.") at 12, ECF
No.

68.

Though Tesla I won a

judgment against Michael Budd,

its

former employee, that action is pending a retrial on damages.
The law does not require plaintiffs to wait to see if Tesla
I

is one day able to make good on its debts;

it only requires

plaintiffs to exhaust their legal remedies.
Thus,
where

the

this case is not like Motorola Credit Corp.
plaintiff

had

not

yet

obtained

a

final

v.

Uzan,

judgment

in

arbitrations relating to the underlying transactions. 322 F.3d 130,
135-37

(2d Cir. 2003)

Master

Fund

I,

Ltd.

Nor is it like Harbinger Capital Partners
v.

Wachovia

43

Capital

Markets,

LLC,

where

plaintiff

sought

funds

that

could

be

awarded

in

an

ongoing

bankruptcy proceeding. 347 F. App'x 711, 713 (2d Cir. 2009).
It is also distinguishable from DLJ Mortg. Cap, 726 F. Supp.
2d at 238-39

(where plaintiff had not pursued claims to enforce

the mortgages

defendants

claimed were fraudulent)

sold to

them and which plaintiff

and Sky Med. Supply Inc. v. SCS Support

Claims Servs., Inc., 17 F. Supp. 3d 207, 231 (E.D.N.Y. 2014)
plaintiff

was

now

concurrently

litigating

and

(where

arbitrating

the

allegedly fraudulent denials of its insurance claims).
Here,

plaintiffs

are

not

secured creditors;

the re

is

"no

collateral on which to foreclose, or any other contractual remedy."
Motorola Credit Corp.,

322 F.3d at 136. Plaintiffs gave value to

Tesla I at a time when defendants'

were allegedly engaged in an

undisclosed fraud to loot Tesla I. See Kirschner v. Bennett, No.
07

Civ.

2011),

8165

(JSR),

2011 WL 1875449,

at

*5

(S.D.N.Y.

report and recommendation adopted sub nom.,

Inc. Sec. Litig., No.

07 MDL 1902

(S.D.N.Y. May 16, 2011)

(JSR),

Feb.

14,

In re Refco,

2011 WL 1899758, at *5

(applying GICC Capital, explaining: "This

is a case in which the FX Customers gave value at a time when an
undisclosed fraud 'undermine[d] the possibility of repayment.'").
Thus,

plaintiffs'

injury

is

sufficiently

clear,

definite,

proximate for purposes of demonstrating RICO standing.
(2)

Predicate Acts

44

and

Turning

next

to

plaintiffs'

substantive

RICO

claim,

defendants argue that plaintiffs fail to allege "the existence of
a fraudulent scheme," McLaughlin v. Anderson,
91

962 F.2d 187, 190-

(2d Cir. 1992), or to provide a "detailed description" of that

scheme and how it was connected to mail or wire communications, In
re Sumitomo Copper Litig., 995 F. Supp. 451, 456 (S.D.N.Y. 1998).
According

to

defendants,

plaintiffs'

complaint

rests

on

allegations that defendants billed Tesla I countless "fraudulent
invoices,"
Related,

which

were

improperly paid with

cash

advances

from

and yet plaintiffs do not identify a single fraudulent

invoice paid by Tesla I. As a result, defendants argue, plaintiffs'
complaint alleges no specific predicate acts of fraud. See Ruthling
Def. Mem. at 12.
But defendants' "invoices" were only one means allegedly used
to affect

the

fraud at

issue. 7 Plaintiffs also allege

numerous

specific examples of fraudulent transfers such as:
(i)

a transaction whereby VAT refunds Tesla I

purchases made with plaintiffs'

money were

Holdings for no consideration, see Am. Compl.
(ii)

a

received for

transferred to Skye
~

transaction whereby Ruthling used

10;
funds

plaintiffs

advanced to Tesla I to form and capitalize a new shell company in

Furthermore, the invoices are "peculiarly within the defendant's
knowledge and control." United States v. Lab. Corp. of Am.
Holdings, No. 07 Civ. 5696 (ALC) (RLE), 2015 WL 7292774, at *4
(S.D.N.Y. Nov. 17, 2015).
7

45

Hong Kong that never provided services or materials to Related's
projects, see id.

64; and,

~

(iii) a transaction whereby Ruthling used funds obtained from
plaintiffs' to pay himself for intellectual property that Related
had already paid for and had significant ownership stake in due to
Related's ownership interest in Tesla I, see id.
Moreover,

~

65.

plaintiffs properly plead the nature,

scope,

and

contours of the fraudulent scheme as required by law. They allege
that,

between 2007 and 2012,

they advanced Supply $5 million in

response to defendants' requests for additional funding, and that
between

2012

and

2014,

they

advanced

response to similar requests. See id.
wired

from

plaintiffs'

accounts

Tesla

~~

to

I

$15

million

in

52, 55. These monies were
Tesla

I's

accounts

and,

according to plaintiffs, Ruthling subsequently caused these funds
to be improperly wired to himself, Du, Paik, Skye Supply, and Skye
Holdings.

Id.

~

56.

Indeed, though plaintiffs do not produce the

fraudulent invoices that supported the payment of these funds from
Tesla

I

defendants,

to

Grafman,

fraudulent
655

with

adequate

the specific circumstances constituting the

particularity
overall

"delineate,

they

F.

scheme."

Supp.

2d

State
212,

Farm Mut.

227

Auto.

(E.D.N.Y.

Ins.

2009)

Co.

v.

(internal

quotation omitted). For example, plaintiffs allege that Ruthling
and Du mispresented Tesla I's activities and expenses,
by "cleaning up" its financial statements. Am. Compl.

46

including
~~

7 5,

7 6.

These allegations are sufficient at the pleading stage to sustain
plaintiffs' claims.

Pattern of Racketeering

(3)

Next,

defendants

argue

that plaintiffs

fail

to plead with

particularity a pattern of racketeering, which requires that they
allege "(l) at least two predicate acts of racketeering occurring
within a ten-year period; (2) that these predicate acts are related
to each other; and (3) that these predicate acts amount to or pose
a

threat

Inc.

v.

of continuing criminal
Fisher,

No.

01 Civ.

(S.D.N.Y. July 10, 2002)
Prong three satisfied

either

activity."

8028

(WHP),

D.R.S.

Trading Co.,

2002 WL 1482764,

at

*3

(citing GICC Capital, 67 F.3d at 465).

known as the "continuity requirement" - can be
by

racketeering activity

showing
(i.e.,

a

"closed-ended"

of

pattern

a series of related predicate acts

extending over a substantial period of time) - or by demonstrating
an

"open-ended"

threat

of

pattern

of

racketeering

continuing criminal

492 U.S. 229,

241-42

that

poses

a

conduct beyond the period during

which the predicate acts were performed.
Tel. Co.,

activity

H.J.

Inc.

(1989); Kilkenny v.

Cushner & Garvey, L.L.P., No. 08 Civ. 588

v.

Nw.

Bell

Law Office of

(KMK), 2012 WL 1638326,

at *6 (S.D.N.Y. May 8, 2012).
"Closed-ended continuity is primarily a

temporal concept."

Spool v. World Child Int'l Adoption Agency, 520 F.3d 178, 184
Cir. 2008)

(2d

(internal quotation omitted). And, "[s] ince the Supreme

47

Court decided H.J.

Inc.,

[the Second Circuit has]

never held a

period of less than two years to constitute a substantial period
of

time."

Id.

(internal

quotation

marks

omitted);

see

also

Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 242
(2d Cir. 1999)

(noting that the Second Circuit has "never held a

period of less than two years to constitute a 'substantial period
of time'"); Grimes v. Fremont Gen. Corp., 785 F. Supp. 2d 269, 301
(S.D.N. Y.

2011)

(holding that plaintiffs "have not sufficiently

alleged close-ended continuity, because they have not adequately
pled predicate acts over a period of at least two years").
Though the two-year requirement is not a "bright-line" rule,
"it will be rare that conduct persisting for a shorter period of
time establishes closed-ended continuity." Spool, 520 F.3d at 184.
This

is

particularly

involved only a

the

handful

case

where

"'the

of participants'

activities

and do not

'complex, multi-faceted conspiracy.'" Id.

alleged

involve a

(quoting GICC Capital,

67 F.3d at 468).
Defendants argue that, here, the complaint alleges a scheme
that falls at most sometime between 2012 and 2014,

less than two

years. Generally, "[w]hen the fraudulent conduct alleged involves
such a limited number of perpetrators,
and

limited goal,

it

cannot

support

small number of victims,
a

claim of

open-ended or

closed-ended continuity." D.R.S. Trading Co., 2002 WL 1482764, at
*4

(citing GICC Capital,

67

F.3d at

48

468

(finding that

single-

victim acts by a handful of participants was not a "multi-faceted
scheme" sufficient to meet continuity requirement); Price v. Gast,
No.

98 Civ. 7769

2000)

(WHP), 2000 WL 369381, at *9 (S.D.N.Y. Apr. 11,

(finding that "short-lived,

inherently terminable schemes

with a few criminal acts and few victims do not show a threat of
continuity sufficient to plead a RICO pattern");
of New York v.
287-88

Standard Chartered Bank,

(S.D.N.Y. 1997)

against

981 F.

Supp.

282,

(finding that although a number of acts of

misconduct were alleged,
defendant

PLC,

China Trust Bank

one

they were all carried out by a single

victim,

pursuant

to

a

single

scheme

and

thereby failed both open and close-ended continuity requirements);
Airlines Reporting Corp. v. Aero Voyagers, Inc., 721 F. Supp. 579,
583

(S.D.N.Y.

closed-ended,

1989)

(holding that a

single

scheme

complaint which alleged "a

involving

three

perpetrators,

(a

company and two of its directors), one victim, and an uncomplicated
transaction (essentially relating to a simple breach of contract,"
over a thirteen month period failed to plead continuity)). Indeed,
all but two of the wire transfers plaintiffs made by plaintiffs to
Tesla I fell within a 20-month period between 2013 and 2014. See

Am. Compl.
But

~

57.

defendants

fail

to

note

that

one

of

the

early

wire

transfers to Tesla I, made in February 2012, was for $2.9 million.
Id. In addition, plaintiffs allege a scheme prior to the creation
of

Tesla

running

from

2007

through

49

2012

during

which

time

defendants

induced

Related

to

advance

money

to

Supply,

which

defendants conveyed to themselves by issuing fraudulent invoices
to Supply.

See id.

particularly

~

much

59. Although plaintiffs do not plead with

of

the

pre-2012

fraudulent

activity,

the

complaint does allege at least two specific pre-2013 fraudulent
wires, to wit,

improper payments of $10,750 and $5,093.25 to Ms.
~

Paik in early 2012. See id.
It may turn out that,

63.
ultimately,

plaintiffs cannot prove

continuity, but plaintiffs' amended complaint includes sufficient
allegations

of

continuity

to

survive

defendants'

motion

dismiss. As the Court put it in Gerstenfeld v. Nitsberg,
purpose

of

threefold:

Rule
( 1)

9(b)'s

from

the

claims;

pending

particularized basis; and
the

threat

settlement

of

RICO

190

F.R.D.

(2)

requirements

to protect

charges
(3)

that

to derail

liability

negotiations

racketeering."

pleading

"[t]he
is

to enable the defendant to defend himself through

adequate notice of
reputation

heightened

to

in
127,

is

used

business
131

the defendant's

are

without

'strike suits'
to

increase

disputes

(S.D.N.Y.

any

in which

leverage

unrelated

1999)

in
to

(collecting

cases). Here, all three purposes are satisfied as plaintiffs have
provided adequate notice of their claim, plead the overall claim
with particularity, and plausibly alleged facts and circumstances
by

stringing

together

various

50

emails

and

other

records

suggesting the possibility of a racketeering enterprise designed
to defraud plaintiffs out of millions of dollars.
(4)

Reasonable Reliance

Defendants

next

argue

that

plaintiffs

fail

to

allege

reasonable reliance. While the mail and wire fraud statutes do not
contain a reasonable reliance component, defendants argue that the
Second Circuit has

imported one

into the causation element

for

RICO claims that plead predicate acts of mail or wire fraud. See
Ruthling Def. Mem. at 15. Thus, according to defendants, "in order
to prevail in a civil RICO action predicated on any type of fraud
. . . the plaintiff [s] must establish 'reasonable reliance' on the
defendants'

purported misrepresentations or omissions." Bank of

China, N.Y. Branch v. NBM LLC, 359 F.3d 171, 178 (2d Cir. 2004).
But, subsequently,

in 2008, the Supreme Court held in Bridge

v. Phoenix Bond & Indemnity Co., that first-party reliance by the
plaintiff is not an element of a RICO claim premised on mail or
wire fraud.

553 U.S.

639,

658

(2008).

Thus,

asserting a RICO claim predicated on mail
either

as

an

establishing

element
proximate

of

its

claim

causation,

or
that

today,

"a plaintiff

fraud need not
as

a
it

show,

prerequisite
relied

on

to
the

defendant's alleged misrepresentations." Id. at 661. Instead, the
central question is whether the alleged violation led directly to
the plaintiff's injuries. Id. at 654.

51

Moreover, even if Bank of China applied, plaintiffs would not
be required at this stage to prove the reasonableness of their
reliance to survive defendants' motion to dismiss. See Glidepath
Holding B.V. v. Spherion Corp., 590 F. Supp. 2d 435, 459 (S.D.N.Y.
2007)

(noting that reasonable reliance is "a fact-specific inquiry

generally considered inappropriate for determination on a motion
to

dismiss"

plaintiffs

(internal
allege

quotation

reasonable

omitted)).

reliance,

It

and

is

here

enough
they

do

that
so

adequately by detailing the steps which defendants took to deceive
them. See, e.g., Am. Compl.
(5)

existence

scienter,

65, 75, 76.

Du's Participation in a RICO Enterprise

Moving separately,
the

~~

of

a

Du argues that plaintiffs do not allege

RICO

enterprise,

see

Du

Mem.

at

19,

Du's

see id. at 17, or Du's participation in "the operation

or management of [the] enterprise through a pattern of racketeering
activity," see id. at 14; Reves v.

Ernst

&

Young,

507 U.S.

170,

184 (1993).
A RICO enterprise may be,

inter alia,

"'a group of persons

associated together for a common purpose of engaging in a course
of conduct,'

the existence of which is proven 'by evidence of an

ongoing organization, formal or informal, and by evidence that the
various associates function as a continuing unit.'" First Capital
Asset Mgmt.,

Inc. v. Satinwood,

Inc.,

385 F.3d 159, 173

(2d Cir.

2 O0 4 ) ( quot in g Uni t e d St ates v . Turke t t e , 4 5 2 U . S . 5 7 6 , 5 8 3 (1 9 8 1 ) ) .

52

"The enterprise must be separate from the pattern of racketeering
activity . . . and distinct from the person conducting the affairs
of the enterprise." Id.

(internal citations omitted) . Moreover,

plaintiffs may not "circumvent the distinctiveness requirement 'by
alleging

an

enterprise

that

consists

merely

of

a

corporate

defendant associated with its own employees or agents[.]'" Anatian
v. Coutts Bank (Switzerland) Ltd., 193 F.3d 85, 89 (2d Cir. 1999)
(quoting Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A.,
30 F.3d 339, 344
According

(2d Cir. 1994).
to

Du,

other

than

alleging

that

he

"provided

accounting services in connection with the Projects," plaintiffs
fail "to allege, in a non-conclusory fashion, that Du . . . worked
together with the other members of the purported enterprise." Du
Mem.

at

19.

But

Du's

arguments

do

not

address

many

of

the

allegations in plaintiffs' complaint that tie him to the conspiracy.
See, e.g., Am. Compl.

<Jr

65 (alleging Du's role in stealing $564,000

from plaintiffs through falsifying accounting statements);
78

(alleging Du's concern about

id.

<Jr

providing plaintiffs with more

information regarding Tesla I's financial statements as it would
raise more

questions

Du would be

unable

to

answer);

id.

<Jr

16

(quoting a June 16, 2014 email from Du in which he implies that he
maintained two different versions of Tesla I's books and records,
only one of which he shared with plaintiffs).

53

These allegations

clearly

suggest

that

Du

worked

to

advance

the

goals

of

the

not

just by upper

enterprise and to defraud plaintiffs.
Moreover,
management

"[a] n enterprise is

but

also

by

the

'operated'

lower

rung

participants

in

the

enterprise who are under the direction of upper management." Reves,
507 U.S.

at 184. "[O]utsiders" may be liable under § 1962(c)

if

they are "associated with" an enterprise and participate in the
conduct of its affairs. Id. at 185.
Taking the pleadings
purpose

of

plaintiffs.

the

in the complaint as true,

association

of

Du

and

Ruthling

While Du may be able to show,

was

the common
to

defraud

following discovery,

that his conduct was limited to his role as an accountant for Tesla
I, and plaintiffs may be unable to substantiate the allegations in
their complaint,

at the pleading stage plaintiffs'

complaint is

sufficient to state a§ 1962(c) claim for relief against Du.
B. Count V: Section 1962 (d)

Du and the Ruthling defendants each move to dismiss count V
of

the complaint

-

plaintiffs'

RICO conspiracy claim

on the

grounds that plaintiffs do not allege the existence of a corrupt
agreement. See Ruthling Def. Mem. at 18

(arguing that plaintiffs

do not allege "when the agreement was made, how the agreement came
about,

or what was agreed upon");

Du Mem.

at

20

(arguing that

plaintiffs' complaint "fails to allege specific facts to show that

54

Du

entered

into

a

corrupt

agreement

to

commit"

the

alleged

predicate acts of fraud) .
"Because the core of a RICO civil conspiracy is an agreement
to commit predicate acts,

a RICO civil conspiracy complaint,

at

the very least, must allege specifically such an agreement." Hecht
v. Commerce Clearing House,

Inc., 897 F.2d 21, 25

(2d Cir. 1990).

However, plaintiffs need not allege when the agreement was made or
how it came about.

"Assuming that a RICO enterprise exists,

the

government must prove only that the defendants know the general
nature of the conspiracy and that the conspiracy extends beyond
their individual roles." United States v.
72,

99

(2d Cir.

2000)

Z ichet te llo,

208

F. 3d

(internal quotation omitted). Nonetheless,

plaintiffs must show that the defendants "embraced the objective
of the alleged conspiracy, and agreed to commit predicate acts in
furtherance thereof." Id.
Bristol-Myers Squibb Co.,

(internal quotation omitted);

see also

948 F. Supp. 2d at 345 (plaintiffs must

allege that defendants "agreed to commit at least two predicate
acts

in

furtherance

of a pat tern of

that these agreed-upon acts,

racketeering activity,

and

if carried out, would have formed a

pattern of racketeering activity")

(internal quotation omitted).

Here, plaintiffs allege that Ruthling conspired with Du and
Paik to overbill Related and to induce Related to advance cash to
Supply and Tesla

I.

The

complaint

includes

examples

of

Ruthling communicating in order to further this scheme.

55

Du and
See Am.

Compl.

~~

16, 65. It also includes examples of Ruthling using the

defendant entities to further this scheme,

and his knowledge can

be imputed to them for purposes of showing their involvement in
the conspiracy.

See Ser in v.

N.

1625,

7823216,

*14

2009

WL

at

Leasing Sys.,
(S.D.N.Y.

Inc.,

Dec.

No.

18,

06 Civ.

2009).

As

plaintiffs have shown that defendants knew of the general nature
of

the

conspiracy

conspiracy
involving

to

extended
multiple

defraud

beyond
parties

Related

each
and

of

and

that

their

multiple

the

alleged

individual.

entities,

roles,

plaintiffs

sufficiently plead conspiracy under 1962(d).

III. STATE LAW CLAIMS
Turning now to plaintiffs'

state

law claims,

the Ruthling

defendants move pursuant to Rule 12(b) (6) to dismiss counts I, VI,
and VII of the complaint,

plaintiffs'

fraud,

breach of fiduciary

duty, and unjust enrichment claims, and Du moves pursuant to Rule
12(b) (6) to dismiss counts I and VII as well as counts II and III,
plaintiffs'

aiding

and

abetting

fraud

and

negligent

misrepresentation claims.
A. Count I: Fraud

Under New York Law, plaintiffs must allege five elements to
state a common law fraud claim:
or omission of fact

(1)

a material misrepresentation

(2) made by defendants with knowledge of its

falsity (3) and intent to defraud, which (4) plaintiffs reasonably

56

relied on,

(5)

resulting in damage to plaintiffs. Herzfeld v.

JP

Morgan Chase Bank, N.A., 354 F. App'x 488, 489 (2d Cir. 2009).
Du and the Ruthling defendants argue that plaintiffs have not
alleged a material misrepresentation of fact because they have not
specified any fraudulent

invoices submitted to and

(improperly)

paid by Tesla I. See Ruthling Def. Mem. at 19; Du Mem. at 22. But
plaintiffs need not,

at this stage, produce the actual invoices

defendants sent to Tesla I,

as long as plaintiffs can point to

other specific facts supporting their contention that defendants'
various

representations

previously,

were

false

or misleading.

As

discussed

plaintiffs have done so by quoting from emails and

describing specific transactions
that defendants'

that support their allegations

statements regarding the financial condition of

Tesla I were misleading. See, e.g., Am. Compl.

~~

10, 16, 64, 65,

75-78.
Additionally,
plaintiffs

the

Ruthl ing

defendants

reasonably relied on defendants'

See Ruthling Def.

Mem.

at 19.

dispute

whether

misrepresentations.

To properly allege

reliance,

New

York law does not require plaintiffs to undertake an independent
investigation of facts that are uniquely within the defendants'
knowledge.
Grp.,

See Basis Yield Alpha Fund

Inc., 115 A.D.3d 128, 139

(Master)

(N.Y. App.

v.

Goldman Sachs

Div. 2014). Moreover,

the reasonableness of plaintiffs' reliance on defendants' alleged
misrepresentations

is

a

fact-intensive

57

inquiry and defendants'

motion

merely

challenges

the

adequacy

of

the

pleadings.

As

plaintiffs plausibly plead that the fraudulent nature of Tesla I's
requests for cash advances, generally made through Ruthling or Du,
turned on information about the financial circumstances of Tesla
I - which defendants controlled and manipulated in order to deceive
Related

their complaint

is

sufficient

~

relief. See, e.g., Am. Compl.

to state a

claim for

78.

B. Count VII: Unjust Enrichment

Both Du and the Ruthling defendants move to dismiss count VII
of plaintiffs' amended complaint.
To prevail on a claim for unjust enrichment in New York,
"plaintiff

must

plaintiff's

show

expense,

that
and

the

that

other
it

is

party

was

against

enriched,

equity

and

a
at

good

conscience to permit the other party to retain what is sought to
be recovered." Georgia Malone

&

406, 408

(internal quotation omitted).

(N.Y. App. Div. 2011)

Co.,

Inc.

v.

Rieder,

86 A.D.3d

The Ruthling defendants argue that plaintiffs' claim here is
governed by a contract between Related and Ruthling that sets out
Related' s

rights

to recover its cash advances to Tesla

document,

defendants argue,

bars plaintiffs'

I.

This

attempt to recover

these advances in quasi-contract. See Ruthling Def. Mem. at 20.
But plaintiffs' unjust enrichment claim against defendants is
different from plaintiffs' contractual claims against Tesla I. The
former

alleges

that

defendants

58

fraudulently

transferred

or

received the assets of Tesla I, and the latter alleges that Tesla
I failed to pay back cash advances from Related.
were enriched at plaintiffs'
out of Tesla I
plaintiffs.

Defendants here

expense because they drained funds

that would have otherwise been used to pay back

These allegations are sufficient to state an unjust

enrichment claim against the Ruthling defendants.
Moving separately, Du argues that plaintiffs fail to state a
claim of unjust enrichment against him because there is no specific
allegation in the complaint supporting plaintiffs' contention that
he was the recipient of fraudulent transfers from Tesla I. While
Du may prevail on this point following discovery, at the motion to
dismiss phase plaintiffs need merely plausibly allege that there
were

transfers

from Tesla

I

to

Du

that

were

fraudulent.

Here,

plaintiffs plead generally that Du received fraudulent transfers
from Tesla I and other Ruthling-controlled entities, see Am. Compl.
'11'11

40,

46,

transferring

56,

and with particularity that

funds

improperly

to

Hong

Du was

Kong,

see

involved in
id.

'1I

64.

Plaintiffs further argue that even if Du's only financial gain was
through hourly fees from Tesla I

for his "accounting services,"

some of the "services" he provided to Tesla I were meant to assist
Ruthling in defrauding plaintiffs,

as pleaded with particularity

in several paragraphs of the complaint, and thus Du's associated
compensation was

ill-gotten.

These allegations,

59

taken together,

and in the context of the overall

complaint,

are sufficient to

state a claim for unjust enrichment.
C. Count II: Aiding and Abetting Fraud
Du argues that plaintiffs fail to state an aiding and abetting
fraud claim,

as

they do not plead with particularity predicate

acts of fraud. See Du Mem. at 22.
To establish liability for aiding and abetting fraud in New
York, plaintiffs must show "(1) the existence of a fraud;
defendant's
provided

knowledge of the
substantial

fraud;

assistance

commission." Pension Comm.

of Univ.

and

(3)

that

to

advance

of Montreal

Banc of Am. Sec., LLC, 592 F. Supp. 2d 608,

(2)

[the]

the defendant
fraud's

the

Pension Plan v.

625 (S.D.N.Y. 2009).

Du argues that plaintiffs fail to allege fraudulent acts with
particularity, because they do not cite any specific invoices. See
Du Mem.
specific

at 22.

But,

emails

as discussed previously,

suggesting

that

Du

plaintiffs do cite

conspired with

"clean" Tes la I's financial records. See Am. Compl.

Ruthling
<JI

7 5,

77,

to
98.

These allegations are sufficient, at this staqe, to state a claim
for aiding and abetting fraud.
D. Count III: Negligent Misrepresentation
Du

also

argues

that

plaintiffs

fail

to

state

a

negligent

misrepresentation claim. See Du Mem. at 23.
To state a negligent misrepresentation claim plaintiffs must
allege

that

(1)

Du

had

a

duty,

60

as

a

result

of

a

special

relationship,

to give correct

information;

(2)

Du made a

misrepresentation that he should have known was correct;

false

(3)

the

information supplied in the representation was known by Du to be
desired

by

plaintiffs

for

a

serious

intended to rely and act upon it; and

purpose;
(5)

(4)

plaintiffs

plaintiffs reasonably

relied on it to their detriment. Hydro Investors, Inc. v. Trafalgar
Power, Inc., 227 F.3d 8, 20 (2d Cir. 2000).
Du

contests

prong

( 1),

arguing

that,

because

he

provided

accounting services to Tesla I, the joint venture, he did not have
a duty to Related. See Du Mem. at 23.
But Du undeniably had a duty to Tesla I, for which he was the
accountant. And, while Du was not directly in privily with Related,
there are numerous allegations tending to support the notion that
he was "'so close as to approach'" it. Eaves v. Designs for Fin.,
Inc.,

785 F.

Supp.

2d 229,

255

(S.D.N.Y.

2011)

(citing Ossining

Union Free Sch. Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417,
424 (1989)). Tesla I had two owners, one of which was Related, and
Related depended on Du to receive correct

financial

information

about Tesla I.
As part of his job,

Du allegedly sent hundreds of messages

directly to Related and MBM regarding Tesla I's financial position.
By

sending

plaintiffs,

inaccurate information,

part-owners

of

Tesla

I,

allegedly

Du plausibly breached his duty to them.

These allegations are sufficient to state a claim for negligent

61

misrepresentation.

See

Suez

Dominion Bank,

250 F.3d 87,

determination

of

essentially
defendant

a

103

whether

factual

vouched

Equity

a

(2d Cir.

special

inquiry,

for

Inv'rs,

the

L.P.

2001)

v.

("[g]iven that a

relationship

these

veracity

exists

allegations
of

Toronto-

is

[that

allegedly

the

deceptive

information] are sufficient to overcome a motion to dismiss") .
E. Count VI: Breach of Fiduciary Duty

For common

law breach of

fiduciary duty claims,

New York

courts apply the law of the state of incorporation. Marino v. Grupo
Mundial Tenedora, S.A., 810 F. Supp. 2d 601, 607

(S.D.N.Y. 2011).

Tesla I - the fiduciary here - is incorporated in Delaware. Under
Delaware law, the elements of a claim for breach of fiduciary duty
include (i) the existence of a fiduciary duty and (ii) a breach of
that duty. Id.

(citations omitted). Though minority members of an

LLC do not owe fiduciary duties,
owe

fiduciary

duties

to

other

"controlling members of an LLC
members."

Id.

at

608

( citation

omitted).
Plaintiffs
fiduciary

duty

members in a
development

plead
to

that

Related,

Ruthling

and

Skye

Holdings

because

they

were

the

had

a

control ling

joint venture to supply curtain wall for Related's
projects.

See

Compl.

Am.

<JI

28.

Skye

Holdings

and

Ruthling allegedly breached their duty by lying to Related about
Tesla

I's

funding

needs,

using

their

control

over

Tesla

I

to

fraudulently transfer assets to themselves at Related's expense,

62

'

.

~

and

siphoning assets

from Tesla

I

for

their personal

benefit.

Defendants provide no grounds for the Court to dismiss plaintiffs'
breach claim. See Ruthling Def. Mem. Therefore, the Court declines
to dismiss it.

IV.

CONCLUSION
For the reasons stated above, the Court granted Skye Supply's

motion dismissing plaintiffs' case against Skye Supply, and denied
the

remaining motions,

permitting plaintiffs'

case against

the

Ruthling defendants and Du to proceed.

Dated:

JE~O(fi. D. J.

New York, NY
December ti._, 2017

63