UNITED STATES OF AMERICA, Plaintiff, v. ANY AND ALL FUNDS ON DEPOSIT IN ACCOUNT NUMBER 0139874788, AT REGIONS BANK, HELD IN THE NAME OF EFANS TRADING CORPORATION, et al., Defendants-in-rem.
13 Civ. 7983 (KPF)
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
August 29, 2016
KATHERINE POLK FAILLA, District Judge
USDC SDNY DOCUMENT ELECTRONICALLY FILED DOC #: _________________ DATE FILED: August 29, 2016
On November 8, 2013, the United States of America (the “Government“) filed a verified complaint seeking civil forfeiture of 48 seized cars and funds seized from four bank accounts. Claims over 47 of the cars and three of the accounts (the “Defendants-in-rem“) have been filed by Unicorn Tire Corporation (“Unicorn“) and Efans Trading Corporation (“Efans“) (collectively, “Claimants“). On January 15, 2016, the Government moved for summary judgment. While it is an exceptionally close call, the record evidence concerning Claimants’ knowledge of potential harms to the cars’ manufacturers implicates issues of materiality and credibility, both of which foreclose summary judgment. For these reasons, the Government‘s motion is denied.
The Court presumes familiarity with the facts and procedural history set forth in its prior decision denying Claimants’ motion to dismiss, United States v. Any & all Funds on Deposit in Account No. 0139874788, at Regions Bank, held in the name of Efans Trading Corp., No. 13 Civ. 7983 (KPF), 2015 WL 247391 (S.D.N.Y. Jan. 20, 2015) (“Efans I“). For convenience, the facts relevant to this Opinion are set forth below.
A. Factual History
1. Claimants
a. Unicorn Tire Corporation
Unicorn Tire Corporation is a tire importing business owned by Erxin Zhou. (See Gov‘t 56.1 ¶ 5; Cl. 56.1 ¶¶ 5, 100-01). Unicorn imports tires from China, and then sells them to customers in the United States, Canada, Mexico,
b. Efans Trading Corporation
In early 2011, Zhou‘s husband, Yifan Kong, started an auto-export business, which he named Efans Trading Corporation. (Cl. 56.1 ¶ 104). Between 2011 and 2013, Efans purchased approximately 2,000 luxury cars from dealerships in the United States and then sent these cars to customers in China. (See Gov‘t 56.1 ¶¶ 2-3). The Chinese customers paid Efans for each car, often by wiring money to an account that Efans held at Regions Bank (the “Efans Regions Account“). (Id. at ¶ 13). Efans earned roughly $200 to $3,000 in profits for each vehicle exported. (Id. at ¶ 4).
c. Links Between Unicorn and Efans
Unicorn and Efans shared an office building, and shared some staff. (See Gov‘t 56.1 ¶ 1 (noting Unicorn and Efans’ shared address); id. at ¶ 8 (explaining that Zhou did some work for Efans, in addition to her work for Unicorn)). In addition, Unicorn frequently used its resources to help support Efans. For example, all Efans employees used Unicorn Tire email addresses and were paid from Unicorn‘s bank accounts. (Id. at ¶ 6). Moreover, Unicorn occasionally transferred funds from its own bank account to the Efans Regions
2. Dealerships
Mercedes-Benz USA, LLC (“MBUSA“), Jaguar Land Rover North America (“Jaguar Land Rover“), BMW North America (“BMW“), and Ford Motor Company (“Ford“) (collectively, the “Manufacturers“) supply luxury cars to dealerships across the United States. (See Gov‘t 56.1 ¶¶ 19-20). The dealerships then sell the vehicles to individual drivers. (See id. at ¶ 20). Dealerships are required to maintain accurate lists of the drivers who buy their cars and to share these lists with the Manufacturers. (Id. at ¶ 23).
MBUSA, Jaguar Land Rover, and BMW all have “no-export” policies, which provide that their dealerships may be penalized for selling new vehicles to exporters. (See Gov‘t 56.1 ¶ 21). Similarly, Ford penalizes dealerships that sell “to ‘brokers’ or ‘resellers,‘” including “brokers and/or individuals who ultimately export [Ford] vehicles.” (Paul Decl., Ex. 12; accord Gov‘t 56.1 ¶ 22). The penalties take a variety of forms, including: (i) monetary fines, which are sometimes called “charge-backs“; and (ii) reductions in the number of vehicles that the dealerships are allowed to sell. (Gov‘t 56.1 ¶¶ 21-22).
3. Efans’ Alleged Fraud
It is undisputed that Efans supplied Mercedes-Benz, Land Rover, BMW, and Ford vehicles to customers in China. (See Gov‘t 56.1 ¶ 3). Under Efans’ business model, a Chinese customer would contact Efans and place an order
One of the brokers who purchased vehicles on behalf of Efans customers was Shane Martin. (See Gov‘t 56.1 ¶ 51). Mr. Martin had a home improvement business until 2011, when he met Kong and Zhou. (See id. at ¶ 52; Cl. 56.1 ¶ 52). At that point, Martin began purchasing vehicles for Efans customers at several car dealerships. (See Paul Decl., Ex. 4 at 29). Martin bought some of these vehicles in his own name. (Id.). On other occasions, Martin bought a vehicle in the name of “a friend” because the dealership had “request[ed] ... a purchaser that live[d] in their area.” (Id. at 30). And “a lot of times, the dealerships would help supply the buyer” if Martin had the money to purchase a vehicle, but “was unable to meet all the [dealership‘s] requests.” (Id.). Efans paid Martin approximately $1,000 for each car that he acquired — in his own name or a third party‘s name — for Efans’ customers. (See Gov‘t 56.1 ¶ 54).
On November 8, 2013, the Government initiated this forfeiture action against 48 seized vehicles and the contents of four bank accounts. (Dkt. #1; see Dkt. #21 (amended complaint)). According to the Government, these assets were either: (i) the products of wire fraud, as that offense is defined in
On December 11, 2013, Claimants submitted claims for the Defendants-in-rem, which comprise the Efans Regions Account, the Unicorn Regions Account, the Unicorn Renasant Account, and 47 vehicles that Efans attempted to export. Nearly two months later, on February 3, 2014, Claimants filed a motion to dismiss the forfeiture action. (Dkt. #15). The Court dismissed this motion in an Opinion and Order dated January 20, 2015. See Efans I.
On January 15, 2016, the Government filed the instant motion for summary judgment as to the Defendants-in-rem. (Dkt. #77-82). Claimants filed their opposition papers on February 4, 2016 (Dkt. #87-94), and the Government concluded the briefing with its reply dated February 12, 2016 (Dkt. #95).2
A. Applicable Law
1. Motions for Summary Judgment
Under
The moving party bears the initial burden of demonstrating “the absence of a genuine issue of material fact.” Celotex, 477 U.S. at 323. A fact is “material” if it “might affect the outcome of the suit under the governing law,” and is genuinely in dispute “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248; see also Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir. 2005) (citing Anderson). The movant may discharge this burden by showing that the nonmoving party has “fail[ed] to make a showing sufficient to establish the existence of an element essential to that party‘s case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322; see also Selevan v. N.Y. Thruway Auth., 711 F.3d 253, 256 (2d Cir. 2013) (finding summary judgment appropriate where the non-moving party fails to “come forth with evidence sufficient to permit a reasonable juror to return a verdict in
If the moving party meets this burden, the nonmoving party must “set forth specific facts showing that there is a genuine issue for trial” using affidavits or otherwise, and cannot rely on the “mere allegations or denials” contained in the pleadings. Anderson, 477 U.S. at 248; see also Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009). In other words, the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts,” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), and cannot rely on “mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment,” Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986).
“When ruling on a summary judgment motion, the district court must construe the facts in the light most favorable to the non-moving party and must resolve all ambiguities and draw all reasonable inferences against the movant.” Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 780 (2d Cir. 2003). However, in considering “what may reasonably be inferred” from witness testimony, the court should not accord the non-moving party the benefit of “unreasonable inferences, or inferences at war with undisputed facts.” Berk v. St. Vincent‘s Hosp. & Med. Ctr., 380 F. Supp. 2d 334, 342 (S.D.N.Y. 2005) (citing County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1318 (2d Cir. 1990)).
19 U.S.C. § 1595a(d)
The Government brought this case pursuant to
Merchandise exported or sent from the United States or attempted to be exported or sent from the United States contrary to law, or the proceeds or value thereof, and property used to facilitate the exporting or sending of such merchandise, the attempted exporting or sending of such merchandise, or the receipt, purchase, transportation, concealment, or sale of such merchandise prior to exportation shall be seized and forfeited to the United States.
Under this provision, merchandise may be “exported ... contrary to law” if the merchandise is obtained and exported in a fraudulent manner. See Efans I, 2015 WL 247391, at *7.
When a court evaluates a forfeiture claim under
Consequently, in evaluating this motion for summary judgment, the Court must first ask whether the Government has demonstrated probable cause to believe that the defendant vehicles and funds are subject to forfeiture. Then, construing the evidence in the light most favorable to Claimants, the
B. Analysis
The Government maintains that Efans exported vehicles “contrary to law” because Efans obtained its vehicles in violation of the wire fraud statute,
While the wire fraud statute does not define a “scheme to or artifice to defraud,” see
1. Deceptive Conduct
When the evidence in the record is construed in the light most favorable to Claimants, it suggests that Efans acquired some of its vehicles honestly and others deceptively. According to Kong, Zhou, and Martin, Efans’ brokers were instructed to purchase cars from dealerships that were interested in selling to exporters. (Cl. 56.1 ¶ 112). Martin also stated that, as an Efans broker, he always “told the dealership personnel with whom [he] interacted that the cars [he] was purchasing were for export.” (Martin Decl. ¶ 7). In addition, the record suggests that Martin purchased some cars in his own name (Paul Decl., Ex. 4 at 29), and he was not always required to sign a contract stating that the vehicle would not be exported (see Gov‘t 56.1 ¶ 83; Def. 56.1 ¶ 83). In light of this evidence, a reasonable jury could conclude that, at least on some
However, any reasonable jury would have to conclude that, on at least some occasions, Efans brokers utilized deceptive tactics to purchase vehicles for export and Efans condoned this deception. Martin explicitly testified that, on multiple occasions, he had a “friend” or another third party sign for the vehicles he purchased on behalf of Efans’ customers. (Paul Decl., Ex. 4 at 29). Martin insists that dealership personnel often encouraged him to buy cars in the names of third parties who lived close to the dealerships, and sometimes dealership personnel went so far as to identify individuals who could serve as the named buyers on the vehicles that Martin purchased. (See id.; Martin Decl. ¶ 15). But Martin did not dispute that he was a willing participant in the plan to utilize straw buyers. (See Paul Decl., Ex. 4 at 29-30; Martin Decl. ¶ 15). Nor is there any dispute that Kong — the individual who owned and operated Efans — knew that Efans’ brokers were using straw buyers to acquire vehicles on behalf of Efans’ customers. (Gov‘t 56.1 ¶ 77; Cl. 56.1 ¶ 77). It is also clear that, on multiple occasions, Efans’ employees asked Regions Bank to print a straw buyer‘s name on a cashier‘s check that was used to pay for a vehicle. (See Gov‘t 56.1 ¶¶ 64, 67; Cl. 56.1 ¶¶ 64, 67). Finally, there is clear evidence that, on some occasions, straw buyers contractually agreed that they
Taken together, this evidence strongly suggests that, for many of the vehicles that Efans acquired, Efans either: (i) worked with individual dealership employees to deceive the dealership about the identity of the person who was purchasing the vehicle; or (ii) worked with the dealership as a whole to deceive the Manufacturers about the identity of the person who was purchasing the vehicle. Nevertheless, the Court is not prepared to say, as a matter of law, that Efans harbored an intent to harm the dealerships or the Manufacturers.
2. Intent to Cause Harm
A finder of fact may infer that a defendant intends to cause harm if the defendant‘s conduct “necessary[il]y” causes harm. D‘Amato, 39 F.3d at 1257. Here, the Government contends, Efans’ deceptive conduct was necessarily harmful to dealerships and manufacturers. The Court will consider the alleged harm to each of these groups in turn.
a. Intent to Harm Dealerships
The Second Circuit has “drawn a fine line” between schemes that induce victims to enter into “transactions that they would otherwise avoid” — which do not necessarily cause harm — and schemes that “depend for their completion on a misrepresentation of an essential element of [a] bargain” — which necessarily hurt their victims. Binday, 804 F.3d at 570-71 (quoting Shellef, 507 F.3d at 108). A misrepresentation of an “essential element” is a
The Government contends that Efans (perhaps in concert with a handful of unscrupulous employees at various dealerships) perpetrated a scheme in which straw buyers were asked to misrepresent an “essential element” of the bargain that they struck with dealerships. (See Gov‘t Br. 19-20). More specifically, straw buyers were asked to make a false representation that they were purchasing cars for their own use. (See id.). According to the Government, this false representation created a discrepancy between the benefits that dealerships reasonably anticipated from the sale of their cars and the benefits they actually received. (See id.). As noted above, when dealerships sell their cars to local buyers, they can rest assured that they will not have to pay “charge-backs” or other penalties to the manufacturers. In addition, dealerships selling to local customers can reasonably expect that the customers will return to the dealership to buy replacement parts and services for their vehicles. According to the Government, when dealerships sold vehicles to Efans’ straw buyers — with the belief that those vehicles would remain close by — the dealerships received more liabilities and fewer assets than they bargained for. (See id.).
Nor can the Court conclude, as a matter of law, that the dealerships received fewer benefits than they “reasonably anticipate[d]” from their deals with the straw purchasers. Starr, 816 F.2d 94 at 98-99. Some of the non-export policies in this case only prohibited export or re-sale of vehicles for 12 months. (See Paul Decl., Ex. 9 ¶ 5 (noting that, during the relevant time period, MBUSA‘s policy prohibited export for up to 12 months); Thau Decl., Ex. A (describing a BMW dealership‘s prohibition on exports “for a period of one year“)). And while some local customers who purchased vehicles from the relevant dealerships might later return to those dealerships within one year for replacement parts or maintenance, the Court has not seen evidence that all local customers later return to the dealerships to buy additional products and services in such a short period of time, or even at all. The Court also agrees with Claimants’ common-sense observations that genuine local buyers may decide to sell their cars after driving them for a few years (Cl. 56.1 ¶ 22), and that not all car owners bring their cars to dealerships (as distinguished from unaffiliated auto repair shops) for repair work or servicing. Consequently, the Court believes that a jury should decide whether it was “reasonable[]” for the
Finally, and most importantly, there is ample evidence in the record for a jury to conclude that the dealerships involved in this case were working with Efans to sell cars to Chinese customers through the use of straw buyers. Martin testified that dealerships often supplied straw buyers to help move inventory they could not otherwise sell. (Paul Decl., Ex. 4 at 30). This testimony has been corroborated by correspondence between Martin and dealership personnel that suggests that dealerships were willing to provide information that Martin needed for “customs.” (Martin Decl., Ex. 1-3). In light of this evidence, a jury could conclude that dealerships were selling custom-order cars or cars lingering on their lots to exporters, for a profit, and lying about the identity of the individuals purchasing the cars (both in the paperwork submitted to manufacturers and during this litigation) so that they would not have to pay charge-backs. If dealerships were deliberately using straw buyers to fill orders for Efans customers, then there is no reason to believe that this practice was believed to be, or was in fact, harmful to their business.
b. Intent to Harm Manufacturers
The Government also suggests that straw buyers — acting on Efans’ behalf — made false statements that created a discrepancy between the benefits that the Manufacturers expected to receive from the sale of their cars,
Nevertheless, this does not end the Court‘s inquiry. It is still possible that Efans committed fraud against the Manufacturers by causing false
First, while it is clear that Efans compromised the Manufacturers’ ability to locate their cars in the event of a safety recall, it is not clear that Efans thereby exposed the Manufacturers to additional monetary liability. Cf. Binday, 804 F.3d at 571 (noting that the Second Circuit has upheld convictions for mail or wire fraud where the “defendants’ misrepresentations ... exposed the lender or insurer to unexpected economic risk“). The Government has not introduced any cases or evidence suggesting that an auto company could be held liable for an accident caused by faulty manufacturing, if the company used reasonable recall procedures, but the recall notice did not reach a customer solely because the customer deliberately concealed his or her identity. Nor is there any evidence that a concerted effort on the part of a
In addition, Claimants have cast doubt on the Government‘s assertion that Efans cost Manufacturers the opportunity to sell replacement parts to the owners of their cars. Shane Martin stated that many of the vehicles that he purchased for Efans customers were either vehicles that were special-ordered on behalf of Chinese customers or vehicles that the dealerships were unable to sell to local customers. (Martin Decl. ¶ 8). Consequently, a jury might conclude that Efans was not taking cars out of the hands of U.S. customers who would have bought additional parts and services from the Manufacturers. Nor has the Government excluded the possibility that the ultimate purchasers of these vehicles would have purchased the parts from the Manufacturers in China.
The Court finds this argument persuasive, and it might have been dispositive, had there not been record evidence that Efans personnel consulted with several attorneys regarding their business practices. (See generally Cl. 56.1 ¶¶ 93-95).4 At his deposition, Shane Martin recalled speaking with an attorney named Randy Fishman, who told him that it was a “legal practice to purchase cars in the names of third parties.” (Paul Decl., Ex. 4 at 105). He recalled additional communications with an attorney named “Blair or Blaine” who had been referred to him by David Lee at Passport BMW. (Id. at 106-10).5 This second attorney advised Martin that “there is nothing illegal about buying or selling cars for a first party, second party or third party” (id. at 108-09), and that it was “legal to export automobiles in the United States” (id. at 109).
The Government has identified certain admissions in Martin‘s averments about his communications with counsel, including the facts that (i) Martin‘s meeting with Fishman was more “friendly” than “legal,” and lasted less than 30 minutes; (ii) Martin did not retain Fishman for this advice; and (iii) Fishman has no specialty in this area of the law. (See Gov‘t 56.1 ¶¶ 93-95). To these curiosities the Court adds its observation of, for lack of a better term, the selective precision with which Martin answered deposition questions concerning his (and Efans‘) understandings that their respective conduct was lawful. That said, it is not the province of the Court to weigh the credibility of a party‘s witness. Construing all of this evidence in the light most favorable to Claimants, the Court finds that a reasonable jury could conclude that Efans was taking good faith (if perhaps inadequate) steps to ensure that it was not defrauding the dealerships or the Manufacturers. See United States v. Certain Funds on Deposit in Scudder Tax Free Inv. Account No. 2505103, 998 F.2d 129, 131 (2d Cir. 1993) (noting that “questions of intent” are “especially unsuitable for summary judgment“). This evidence forecloses the Government‘s motion.
CONCLUSION
In sum, while the Government may well have the better of the legal arguments, Claimants might nonetheless be able to persuade a reasonable jury that Efans acted without fraudulent intent. As a result, the Government‘s
The parties are further ORDERED to appear for a conference on Monday, September 26, 2016, at 3:00 p.m. in Courtroom 618 of the Thurgood Marshall U.S. Courthouse, at which time the Court will schedule a trial in this matter.
SO ORDERED.
Dated: August 29, 2016
New York, New York
KATHERINE POLK FAILLA
United States District Judge