226 F. Supp. 3d 1141
D. Or.2016Background
- Plaintiffs (U.S. distributors) allege defendants (Zongshen family companies and individuals) solicited a joint venture to import motorbikes, delivered two containers, and a third was seized for failing EPA emissions; Plaintiffs allege defendants falsified emissions certifications and sold defective bikes.
- Plaintiffs filed multiple actions consolidated here (Rubicon I, II, III); district court originally entered default judgments, then vacated them for service/jurisdiction issues; Ninth Circuit partially reinstated but vacated again for failure to hold a damages hearing and remanded for a factual damages determination.
- On remand the court held an evidentiary hearing on damages; defendants were allowed limited participation (cross-examine and present evidence on damages only).
- Plaintiffs sought lost profits (~$45 million), lost investment (≈$505,550), trebled under RICO/ORICO, and punitive damages; damages hearing produced evidence largely based on Plaintiffs’ 2004 business plan and expert testimony.
- The court found Plaintiffs proved lost investment of $305,550 (after a $200,000 offset) and, if RICO liability stood, trebled damages would equal $916,650, but concluded Plaintiffs failed to adequately plead their claims and therefore precluded entry of default judgment and awarded no damages, while granting leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Right of defaulting defendants to participate in damages hearing | Defendants should be barred to avoid strategic delay | Defaulting parties retain the right to be heard on damages (cross-examine, mitigate) | Defendants may participate but only on damages; participation did not affect court’s damages analysis |
| Adequacy of proof of future lost profits | Lost profits supported by 2004 business plan and expert Rucker — plan assumptions reasonable | Plan assumptions speculative; plaintiffs’ experts did not perform independent analysis; defendants’ experts showed assumptions unreasonable | Future lost profits not proved with reasonable certainty; claim fails |
| Proof of lost investment (compensatory damages) | Investors’ accounts and witness testimony establish $505,550 invested | Defendants argued lack of documentary detail on expenditures | Court found testimonial and documentary evidence sufficient; reduced award to $305,550 after $200,000 settlement credit |
| Whether default judgment may be entered given pleading sufficiency (RICO, ORICO, fraud, contract) | Plaintiffs: prior default/mandate preclude re-litigation of sufficiency now | Defendants: claims are legally insufficient and may be challenged on remand | Court held claims are insufficiently pleaded (RICO, ORICO, fraud, contract); precluded default judgment and awarded no damages; granted leave to amend |
Key Cases Cited
- H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229 (1989) (defines RICO "pattern" and continuity requirement)
- Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158 (2001) (corporate officer and corporation are distinct persons for RICO distinctiveness)
- Odom v. Microsoft Corp., 486 F.3d 541 (9th Cir. 2007) (requirements for associated-in-fact enterprise under RICO)
- Living Designs, Inc. v. E.I. Du Pont de Nemours & Co., 431 F.3d 353 (9th Cir. 2005) (RICO distinctiveness discussion)
- Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 (9th Cir. 2003) (Rule 9(b) pleading requirements for fraud)
- DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847 (9th Cir. 2007) (district court may refuse default judgment where pleadings are deficient)
- Alan Neuman Productions, Inc. v. Albright, 862 F.2d 1388 (9th Cir. 1988) (defendant may contest sufficiency of complaint despite default)
- TeleVideo Systems, Inc. v. Heidenthal, 826 F.2d 915 (9th Cir. 1987) (damages hearing required before entering default judgment where damages are not liquidated)
- Davis v. Fendler, 650 F.2d 1154 (9th Cir. 1981) (same; default judgment on uncertain sums requires hearing)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: no mere labels and conclusions)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ticor Title Insurance Co. v. Florida, 937 F.2d 447 (9th Cir. 1991) (damages under RICO must be established by competent proof)