Dandong Old N.-East Agric. & Animal Husbandry Co. v. Gary Ming Hu, No. 15 Civ. 10015 (S.D.N.Y. Aug. 3, 2017) [click for opinion]

Plaintiff Dandong Old North-East Agriculture & Animal Husbandry Co., Ltd. ("Dandong") sued its former executive, Gary Ming Hu, his ex-wife Yuhua Wang, and his daughter, Esther Hu Mangan, for violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO") and related New York law. The basis of these claims was an alleged conspiracy to defraud Dandong (requiring Dandong to pay above-market prices for tons of soybeans), and a laundering of the proceeds of that fraud through New York real estate purchases.

At the time of the complaint, Mr. Hu was incarcerated in China for certain criminal violations relating to the underlying complaint and had not appeared in the matter. However, Defendants Wang and Mangan both appeared and moved to dismiss the complaint for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). Mangan, a citizen of Seattle, also moved to dismiss the complaint for lack of personal jurisdiction under Rule 12(b)(2).

The district court first rejected Mangan's argument that it did not have personal jurisdiction over her. Specifically, the district court found that the RICO statute provided a jurisdictional hook for Dandong's complaint against Mangan—notwithstanding her tenuous connection to the forum state—because the statute includes a provision allowing for nationwide service of process in RICO disputes. The court also found that it could exercise personal jurisdiction under New York's long-arm statute (CPLR § 302(a)(1)), which allows for personal jurisdiction over a non-domiciliary defendant who, either "in person or through an agent ... transacts any business within the state or contracts anywhere to supply goods or services in the state." The court found Mangan had been involved in a real estate purchase in New York which satisfied the low bar set by the long-arm statute. Finally, the district court found that Mangan had not established that hailing her into court in New York violated the Constitution's due process clause under traditional notions of fair play and substantial justice.

However, the district court granted both defendants' motion to dismiss under Rule 12(b)(6). Central to the court's discussion was whether Dandong had successfully pled a plausible "domestic injury," as required under the RICO statute. Defendants argued that since Dandong is a domestic Chinese corporation, the extent of the harm was felt abroad, and not domestically in New York. In response, Dandong argued that it suffered any and all of the following domestic injuries: (1) substantial reputational harm as a result of Defendants' alleged violation of the RICO statute; (2) damage to its relationships with actual or prospective customers in the United States; (3) reputational injury among its United States suppliers, recoverable under RICO because it resulted in "concrete economic, contractual or business losses"; and (4) the costs of investigating and litigating the present case in the United States. The district court rejected each of these grounds based on Second Circuit precedent, which focuses on where the plaintiff suffered the injury. For economic harm to a business, this occurs at the business's principal place of business or place of incorporation.

Having granted Defendants' motion to dismiss for failure to state a claim under Rule 12(b)(6), the district court declined to extend supplemental jurisdiction over Dandong's remaining state law claims. Generally, under 28 U.S.C. § 1367(c)(3), a court retains discretion to exercise supplemental jurisdiction over state-law claims even when it has "dismissed all claims over which it has original jurisdiction." However, the district court noted that the Second Circuit "counsels against exercising supplemental jurisdiction in such a situation." Accordingly, the district court declined to exercise supplemental jurisdiction over Dandong's state-law claims and dismissed the complaint without prejudice to Dandong refiling it in state court.