Kandi Technologies Opposition to Motion to Dismiss

8/7/2019 Kandi Technologies Opposition to Motion to Dismiss

http://slidepdf.com/reader/full/kandi-technologies-opposition-to-motion-to-dismiss 1/11

PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES INOPPOSITION TO MOTION TO DISMISS FIRST AMENDED

COMPLAINT

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2324

25

26

27

28

CARLYLE (CARY) W. HALL III (CA Bar No. 184842; AZ Bar No. 026958)POLSINELLI SHUGHART PCSecurity Title Plaza3636 N. Central Ave., Suite 1200Phoenix, AZ 85012TEL: (602) 650-2000 / FAX: (602) 264-7033

EMAIL: [email protected]

RYAN D. LAPIDUS (Bar No. 196838)DANIEL C. LAPIDUS (Bar No. 227170)LAPIDUS & LAPIDUS, PLC177 South Beverly DriveBeverly Hills, California 90212TEL: 310-550-8700 / FAX: 310-943-2471EMAIL: [email protected]

Attorneys for Plaintiffs CONG WANG, an individual; SEASENG,INC., a/k/a KMD POWERSPORTS, a California corporation

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CONG WANG, an individual; SEASENG,INC., a/k/a KMD POWERSPORTS, aCalifornia corporation,

Plaintiffs,

v.

ZHEJIANG KANDI VEHICLES CO., LTD.,a/k/a KANDI TECHNOLOGIES CORP, aforeign corporation; KANDITECHNOLOGIES CORP., a DelawareCorporation, f/k/a STONE MOUNTAINRESOURCES INC.; ZHEJIANGYONGKANG TOP IMPORT ANDEXPORT CO. LTD., a/k/a DINGJI, a foreigncorporation; ZHEJIANG MENGDELIELECTRONIC CO., LTD.; a foreigncorporation; XIAO MING HU, an individual;WANG YUAN HU, an individual,

Defendants.

Case No. CV 09-7145-JFW (JEMx)

PLAINTIFFS’ MEMORANDUM OFPOINTS AND AUTHORITIES INOPPOSITION TO MOTION TODISMISS FIRST AMENDEDCOMPLAINT

Date: January 25, 2010Time: 1:30 p.mCourtroom: 16

DOCS\2574776.01

Case 2:09-cv-07145-JFW-JEM Document 25 Filed 01/04/10 of 11 Page ID #:264



PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES INOPPOSITION TO MOTION TO DISMISS FIRST AMENDED COMPLAINT

1

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2324

25

26

27

28

I. INTRODUCTION

Defendants claim that the First Amended Complaint (“FAC”) is “thin on facts and

thick with bare conclusions and formulaic recitations of the elements of the claims.”

Motion, p. 7. That is a better description of Defendants’ motion, which persistentlymischaracterizes the FAC, and ignores key allegations in favor of repeatedly using terms

like “bare” and “conclusory.”

In fact, the FAC alleges in great detail a conspiracy by the Defendants to take over

Plaintiffs’ business through threats, extortion, threats, and other criminal and racketeering

activity. The FAC sets forth multiple predicate RICO violations, properly alleges a

conspiracy, and identifies Plaintiffs’ damages arising from the Defendants’ scheme.

Accordingly, the FAC properly alleges claims for violation of RICO, and

Defendants’ Rule 12(b)(6) motion should be denied. Because the state law claims

alleged in the FAC share a common basis of operative facts with the RICO claims – and

Defendants do not contend otherwise – this Court has supplemental jurisdiction over

those claims, and Defendants’ motion to dismiss those claims for lack of jurisdiction

should be denied.

II. FACTUAL ALLEGATIONS

Contrary to Defendants’ mischaracterization, the FAC alleges in great detail the

criminal acts and racketeering activities of the Defendants. Among other things, the FAC

alleges that Defendants used threats, extortion, intimidation, harassment, and abuse of

legal process to attempt to take over Plaintiffs’ business.

A. The Parties’ Distributorship Agreement.

Starting in 2006, Defendants Kandi, Kandi China, Zhejiang and/or Mengdelibegan expanding their presence in the United States, California, by reaching out to

various businesses who would be interested in selling Kandi products. See Complaint

¶18. Plaintiff Seaseng agreed to act as a distributor of Kandi products, in turn,

Defendants Kani, Kandi China, Zhejiang and/or Mengdeli agreed to give Plaintiff

DOCS\2574776.01





3

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2324

25

26

27

28

When Plaintiff Wang refused to surrender control over his company to Defendants

or to disclaim his interest in the profits earned or to be earned through the sale of Kandi

products; Defendants Kandi, Kandi China and/or Zhejiang (in or before February 2008)

stole Plaintiff Seaseng’s corporate documents, including but not limited to customercontact lists, customer invoice lists, Seaseng corporate documents and unsigned Seaseng

stock certificates – an event caught on camera. See Complaint ¶¶38-41.

On or about February 13, 2008, Defendant Zhejiang filed a lawsuit, case number

KC052313 (“First Lawsuit”), in the Superior Court of California, County of Los Angeles,

against Plaintiff Wang and Plaintiff Seaseng, stating claims for fraud, conversion, breach

of fiduciary duty, appointment of receiver, accounting, constructive trust, equitable lien,

injunctive and declaratory relief and seeking to take control over Plaintiff Seaseng. See

Complaint ¶44. The First Lawsuit, however, was never served on Plaintiffs and was later

dismissed. See Complaint ¶¶45-46.

C. Defendants’ Threats, Intimidation, and Harassment

In addition to Defendants’ theft of Plaintiff Seaseng’s corporate documents, in

February, 2008, Plaintiff Wang learned that his relatives in China were harassed and

physically threatened by Defendants’ representatives. See Complaint ¶42. Also,

Defendants Xiao Ming and Wang Yuan, on or about January 15, 2009, caused a warrant

to be issued for Plaintiff Wang’s arrest in China under the theory that Plaintiff Wang was

an employee of Defendants Kandi, Kandi China and/or Zhejiang and that Plaintiff Wang

misappropriated company documents from the Defendants. See Complaint ¶43. None of

this was true.

At approximately midnight on February 27, 2008, Defendant Xiao Ming calledPlaintiff Wang’s father and threatened Plaintiff Wang’s personal safety. See Complaint

¶47. At approximately 4:00 a.m. on February 28, 2008, Defendant Xiao Ming demanded

that Plaintiff Wang meet him to sign a promissory note and settlement agreement drafted

by Xiao Ming and/or his attorneys or else face physical violence. Id.

DOCS\2574776.01





4

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2324

25

26

27

28

Plaintiff Wang then met with Defendant Xiao Ming who purported to represent the

interests of Defendants Kandi, Kandi China, Zhejiang and Mengdeli. See Complaint ¶48.

Plaintiff Wang sought to address any miscommunications, restore control over his

company Plaintiff Seaseng, and to settle any disputes with Defendants. See Complaint ¶48. The parties entered into a Settlement Agreement. See Complaint ¶¶49-53.

In July 2008, Defendant Zhejiang filed another lawsuit against Plaintiff Wang and

Plaintiff Seaseng, case number CIVRS 806472 (“The Second Lawsuit”) in the Superior

Court of California, County of San Bernardino, making essentially the same allegations

as in its First Lawsuit, including stating that Plaintiff Wang was a salaried employee of

Defendants Kandi, Kandi China and/or Zhejiang, and that he had a fiduciary duty to

make Seaseng the wholly-owned subsidiary of Defendant Zhejiang, and claiming that the

Settlement Agreement should be declared void and rescinded; this suit was later

withdrawn as well. See Complaint ¶¶54-56.

Because Defendant Zhejiang denied the validity of the Settlement Agreement

when it filed the Second Lawsuit in July 2008, Plaintiff Seaseng suspended his August

payment to Defendants Kandi China and Zhejiang under the Payment Plan. See

Complaint ¶57. On or about October 30, 2008, Plaintiffs Seaseng and Wang received a

letter from the California DMV stating that their distributor license was canceled; and

that these Plaintiffs were not unauthorized to sell Kandi vehicles as of September 2008.

See Complaint ¶58. Around the same time, Plaintiffs Seaseng and Wang began receiving

numerous complaints from the ultimate purchasers of Kandi products regarding their

poor quality and performance, missing parts and defects who were seeking Plaintiff

Seaseng’s assistance with obtaining new parts or receiving refunds; Defendants did notrespond to Plaintiffs concerns and business and reputation began to suffer. See

Complaint ¶¶59-63.

Plaintiff Seaseng had no choice but to liquidate the Kandi products to distributors

in Mexico at heavy losses. See Complaint ¶64.

DOCS\2574776.01





5

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2324

25

26

27

28

D. Defendants’ Continued Threats of Violence

On or about December 23, 2008, Hong Feng Zhu (“Zhu”), a bodyguard and driver

for Defendant Xiao Ming, appeared at Plaintiff Seaseng’s place of business to physicallythreaten Plaintiff Wang. See Complaint ¶65. Mr. Zhu first met with Neng Da Hu,

Plaintiff Wang’s friend, and told him that he was “warning” Plaintiff Wang, and that

Defendant Xiao Ming had already made a deposit with someone to “take care of Mr.

Wang.” See Complaint ¶66.

Plaintiff Wang was out of the office when this happened but when he came back

to the office, Mr. Zhu was still at this office and made the same threats of violence and

physical harm personally to Plaintiff Wang. See Complaint ¶67. December 24, 2008,

Plaintiff Wang filed a police report regarding the threats. See Complaint ¶68.

On or about June 8, 2009, Defendants Kandi China and Zhejiang filed yet another

lawsuit, case number CIVRS 906194 (“The Third Lawsuit”) in the Superior Court of

California, County of San Bernardino, seeking to now enforce the terms of the Settlement

Agreement, which these Defendants previously repudiated, and seeking to compel

Plaintiffs Seaseng and Wang to pay for the balance of the Kandi products, which they

previously refused to accept or service, let alone allow Plaintiffs to distribute. See

Complaint ¶69.

III. THE FIRST AMENDED COMPLAINT ALLEGES A VALID RICO

CLAIM

A. The FAC Alleges Predicate Acts Under RICO

The predicate acts necessary for stating a civil RICO claim are found in 18U.S.C.A. § 1961(1), which states that the “racketeering activity” means:

(A) any act or threat involving murder , kidnapping, gambling, arson,

robbery, bribery, extortion , dealing in obscene matter, or dealing in

narcotic or other dangerous drugs, which is chargeable under State law

DOCS\2574776.01





6

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2324

25

26

27

28

and punishable by imprisonment for more than one year;

(D) any offense involving fraud connected with a case under title 11,

fraud in the sale of securities , or the felonious manufacture,

importation, receiving, concealment, buying, selling, or otherwisedealing in narcotic or other dangerous drugs, punishable under any law

of the United States, or

18 U.S.C.A. § 1961(1) (emphasis added).

Defendants’ threats of violence to Plaintiff Wang and his family members

constitutes extortion under California law as required by 18 U.S.C.A. § 1961(1). See CA

Penal § 518 (“Extortion is the obtaining of property from another, with his consent, or the

obtaining of an official act of a public officer, induced by a wrongful use of force or fear,

or under color of official right”); § 520 (extortion is punishable by two, three, or four

years in state prison).

Defendants’ theft of Plaintiffs’ corporate records is a violation of California Penal

Code § 484 (“Every person who shall feloniously steal, take, carry, lead, or drive away

the personal property of another, or who shall fraudulently appropriate property which

has been entrusted to him or her, or who shall knowingly and designedly, by any false or

fraudulent representation or pretense, defraud any other person of money, labor or real or

personal property . . .is guilty of theft.”).

Finally, Defendants’ false representations in furtherance of their scheme to

defraud Plaintiffs violate 18 U.S.C. § 1341 (mail fraud) and § 1343 (wire fraud).

Defendants attempt to brush aside their criminal conduct with fatuous arguments

that their threats did not “connect any threat with the subject matter of this action,” that“[t]he very nature of the alleged threat are all left to surmise,” and that it could be “a

personal dispute of unknown nature.” Motion, p. 13. According to the Defendants, no

threat is actionable under RICO unless the defendant is foolish enough to spell out in

complete detail the nature of the threat and the reasons for it. Defendants claim that they

DOCS\2574776.01





7

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2324

25

26

27

28

can, with impunity, threaten to “take care of” someone, and boast of having already

“made a deposit” to do so, because they did not say specifically, “we have hired someone

to kill or hurt you.”

This is specious. The FAC clearly alleges that Defendants threatened Plaintiffsand their family with physical harm, and that these threats were made in the context of,

and in furtherance of, Defendants’ attempts to take over Plaintiffs’ business. Certainly a

finder of fact could reasonably infer that the alleged threats were for this purpose. If

Defendants wish to defend this case on the theory that their agents were merely

threatening violence related to some unknown personal dispute, they are welcome to

present any evidence in support of such a theory to the finder of fact. But the standard

for pleading a valid claim under Rule 12 does not require Plaintiffs to conclusively negate

in their pleading any defense theory, no matter how fanciful, that Defendants can conjure

up.

B. The FAC Alleges a Pattern of Racketeering Activity

All Defendants are either the parent companies, owners or subsidiaries of the other

Defendants. All Defendants constitute the enterprise as they build market share as one

entity and sought to acquire Plaintiff Seaseng from Plaintiff Wang.

Defendants Kandi, Kandi China, Zhejiang, Mengdeli, Xiao Ming and Wang Yuan

combined their efforts as one partnership, association or enterprise (“RICO enterprise”)

for purposes of:

1) Increasing their share in the market for ATVs, UTVs, and go-karts in the United

States through expansion of their operations in the United States; and

2) Acquiring, by means of fraud, securities fraud, extortion and harassment, theUnited States companies who would store, market, distribute, service and be

otherwise responsible for Kandi products. See Complaint ¶72.

Defendants Kandi, Kandi China, Zhejiang, Mengdeli, Xiao Ming and Wang Yuan

engaged in racketeering activity when they:

DOCS\2574776.01





8

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2324

25

26

27

28

1) Threatened Plaintiff Wang and his family members with physical violence in

order to extort his cooperation;

2) Abused process by filing a series of frivolous actions against Plaintiffs Seaseng

and Wang for ulterior reasons of harassment, extortion, and interference withPlaintiffs’ business;

3) Sought to deprive Plaintiff Wang of his ownership and management rights in

Plaintiff Seaseng without valid consideration, essentially ousting him from his

own company by means of fraud, intimidation and harassment. See Complaint

¶73.

The following are some of the predicate criminal acts which constitute a pattern of

racketeering activity and which Defendants knowingly committed:

1) Acting for Defendants Kandi, Kandi China, Zhejiang, or Mengdeli, Defendants

Xiao Ming and/or Wang Yuan stole corporate documents and/or

misappropriated trade secrets from Plaintiffs Seaseng and Wang.

2) Acting for Defendants Kandi, Kandi China, Zhejiang, or Mengdeli, Defendants

Xiao Ming and/or Wang Yuan made and/or directed death threats and threats

of bodily harm to Plaintiff Wang and/or his relatives, which are punishable as

criminal offenses. See Complaint ¶74.

The above-referenced actions of Defendants Kandi, Kandi China, Zhejiang, Mengdeli,

Xiao Ming and Wang Yuan have sufficient continuity so as to pose a threat of continued

criminal activity. See Complaint ¶75.

The above-referenced acts of racketeering, occurring within ten years of one

another, constitute a pattern of racketeering activity within the meaning of 18 U.S.C. §1961(5). See Complaint ¶76.

C. The FAC Adequately Alleges Damages

Defendants’ motion ignores the allegations of the FAC that clearly set forth

Plaintiffs’ damages. Plaintiffs Seaseng and Wang were injured in their business and

DOCS\2574776.01





9

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2324

25

26

27

28

property by reason of this violation of 18 U.S.C.A. § 1962, in that, as a direct and

proximate result of Defendants’ complained acts, Plaintiffs suffered damages, including

damages to their business, property and person.

As a result of actions of Defendants Kandi, Kandi China, Zhejiang, Mengdeli,Xiao Ming and Wang Yuan, Plaintiff Wang suffered emotional distress from concern for

his own safety and that of his family; Plaintiffs Seaseng and Wang’s business reputation

and trade name were tarnished; Plaintiffs Seaseng and Wang lost their customers and

opportunity to continue as a distributor of the Kandi products in California; and Seaseng

and Wang sustained other monetary losses arising from Defendants’ breach of

distributorship, ownership, settlement agreements and/or outright scheme by these

Defendants to defraud Plaintiffs. In addition, Defendants used extortion and fraud to

induce Plaintiffs to sign the Settlement Agreement, and to make payments of $90,000,

$164,256, and $181,850 under that agreement. See Complaint, ¶¶ 47-52.

D. The FAC Adequately Alleges a Conspiracy

Defendants’ attack on the FAC’s allegations of violation of §1962(d), conspiracy

to violate the RICO statute, largely rest on Defendants’ claim that the FAC does not

allege predicate acts. As set forth above, the FAC does in fact adequately allege

predicate acts, so this argument fails.

Defendants also claim that the FAC only alleges an agreement to commit predicate

acts rather than to join the conspiracy. This is also without merit. The FAC clearly

alleges that the Defendants joined together to attempt to take over Plaintiffs’ business by

unlawful means. Among other things, the FAC alleges that the Defendants “combined

their efforts as one partnership, association or enterprise (“RICO enterprise”) forpurposes of: (a) Increasing their share in the market for ATVs, UTVs, and go-karts in the

United States through expansion of their operations in the United States; and (b)

Acquiring, by means of fraud, securities fraud, extortion and harassment, the United

States companies who would store, market, distribute, service and be otherwise

DOCS\2574776.01





10

1

2

3

45

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

2324

25

26

27

28

responsible for Kandi products.” FAC, ¶ 74. The FAC further alleges that “Defendants .

. . knowingly agreed or conspired to operate or manage their combined activities as a

RICO enterprise” FAC, ¶ 91.

IV. SUPPLEMENTAL JURISDICTION EXISTS OVER THE STATE LAWCLAIMS

Defendants’ claim that this Court lacks jurisdiction over the non-RICO claims is

premised on their argument that the FAC does not adequately plead a RICO claim.

Defendants do not dispute that the state law claims share a common nucleus of operative

facts with the RICO claims. Because Defendants’ attacks on the RICO claims fail for the

reasons shown above, Defendants’ argument as to supplemental jurisdiction likewise

fails.

V. CONCLUSION

For the reasons set forth above, the Court should deny Defendants’ motion to

dismiss. In the alternative, if the Court grants the motion to dismiss, Plaintiffs request

leave to amend.

DATED: January __, 2010 POLSINELLI SHUGHART PC

By: ______________________________Carlyle (Cary) Hall III

Attorneys for Plaintiff


Kandi Technologies Opposition to Motion to Dismiss

Documents

Transcript of Kandi Technologies Opposition to Motion to Dismiss