Tang v. Qiao

Background

John Y. Tang sued former client Jianjun Qiao and several individuals and entities affiliated with Qiao. The defendants relevant to this motion included the Geng Defendants—Geng & Associates P.C., Ting Geng, and Sylvia P. Tsai—and the Bank Defendants—HSBC Bank USA, N.A.; HSBC Bank Canada; HSBC Hong Kong; HSBC Holdings PLC; UBS Bank USA; UBS AG Singapore Branch; UBS Group AG; and U.S. Bank N.A.

Tang’s Second Amended Complaint asserted a substantive civil claim under the Racketeer Influenced and Corrupt Organizations Act, a RICO conspiracy claim, and a claim that the Bank Defendants and Geng Defendants aided and abetted fraud. In an earlier order, the court dismissed those claims against the Bank Defendants and Geng Defendants. It found that Tang had not adequately alleged a RICO enterprise or a pattern of racketeering activity, and had not adequately alleged that those defendants knew about Qiao’s alleged fraudulent activities. The court allowed Tang to seek permission to amend again.

Proposed Third Amended Complaint

Tang asked for leave under Rule 15 of the Federal Rules of Civil Procedure to file a Third Amended Complaint. The proposed pleading divided the RICO claims into separate counts, added factual allegations concerning the Bank Defendants and Geng Defendants, expanded the civil-conspiracy claim to all defendants, and withdrew the aiding-and-abetting-fraud claim.

The court explained that amendment may be denied as futile when the proposed changes would not correct earlier defects or would still fail to state a claim under Rule 12(b)(6). A civil RICO claim requires allegations of a defendant’s participation in an enterprise through a pattern of racketeering activity, along with an injury to the plaintiff’s business or property. An association-in-fact enterprise must have a purpose, relationships among its members, and enough continued existence for the members to pursue that purpose.

RICO Claims

The court held that the proposed complaint still did not adequately allege that the Bank Defendants participated in a RICO enterprise. It did not provide specific facts showing that the banks shared a common fraudulent purpose with the other alleged participants, how the banks fit into an enterprise’s organization, how they profited from it, or what the alleged enterprise did apart from the alleged fraudulent acts. The court also found that the allegations that the banks transferred funds or provided other professional services were insufficient by themselves to show participation in a RICO enterprise.

The court likewise held that the proposed complaint did not adequately allege that the Geng Defendants participated in an association-in-fact enterprise. The pleading did not adequately explain their relationships with the alleged participants other than Qiao, what they did beyond providing legal representation, or how their actions benefited an enterprise separately from the alleged fraudulent acts. The court also noted an inconsistency between Tang’s statement that the Geng Defendants and Bank Defendants had no relationship and the proposed complaint’s allegation that they belonged to the same enterprise.

The court further held that the proposed complaint did not adequately allege a pattern of racketeering activity. The allegations against the Geng Defendants were mostly general and nonspecific, and their representation of Qiao in state-court lawsuits was not racketeering activity for purposes of a civil RICO claim. As to the Bank Defendants, the proposed complaint alleged that they helped transfer, hide, invest, or spend funds, but it did not adequately allege that they knew Qiao’s funds were connected to racketeering. The court concluded that the proposed complaint did not establish the required connection between the banks’ conduct and knowledge of the alleged crimes.

Because the proposed complaint did not adequately allege a substantive RICO claim, the court also denied leave to amend the RICO conspiracy claim. The court stated that a RICO conspiracy claim depends on adequately alleging a substantive RICO violation.

Civil Conspiracy Claim

The proposed complaint added a common-law civil-conspiracy claim against all defendants. The court explained that New York does not recognize civil conspiracy as an independent tort; a plaintiff must identify an underlying actionable tort and then show an agreement, an act advancing the agreement, intentional participation, and resulting injury.

The court denied leave to add this claim because Tang did not identify the underlying tort and did not adequately allege an agreement among the defendants to commit it. The court therefore found that the proposed civil-conspiracy claim could not proceed against any defendant.

Disposition

The court denied Tang’s Letter Motion for Leave to File a Third Amended Complaint. It stated that the motion was denied as to the substantive RICO claim, the RICO conspiracy claim, and the proposed common-law civil-conspiracy claim. The court left the Second Amended Complaint as the operative complaint, with Counts 3, 6, 7, 8, 9, and 10 live for adjudication. It dismissed all claims against the Bank Defendants and Geng Defendants, dismissed the Second Amended Complaint’s civil-conspiracy claim, and stated that Tang may proceed with the remaining claims against Qiao, Shilan Zhao, Yuxin Qiao, and Jane Doe. The clerk was directed to terminate the Bank Defendants and Geng Defendants from the case.