Khan Funds Management America, Inc. v. Nations Technologies Inc.

Background

Khan Funds Management America, Inc. and Xuefeng Dai sued Nations Technologies Inc., Nations Technologies (USA) Inc., Shenzhen Qianhai Nations Investment Management Co. Ltd., several individuals, HuaXia General Processor Technologies, Optimum Semiconductor Technologies Inc. doing business as General Processor Technologies, and others. The amended complaint asserted claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), RICO conspiracy, common-law fraud, and the Computer Fraud and Abuse Act.

Plaintiffs alleged that Defendants used a proposed investment partnership to pressure them to invest in semiconductor businesses, finance an alleged enterprise connected to Chinese military technology efforts, and participate in money laundering and other unlawful conduct. Plaintiffs also alleged that Defendants later retaliated against and intimidated them after Dai reported the alleged enterprise to U.S. authorities. These allegations were considered at the motion-to-dismiss stage, not resolved as proven facts.

The Nations Defendants’ Motion

The Nations Defendants moved under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction, Rule 12(b)(5) for insufficient service of process, and Rule 12(b)(6) for failure to state a claim.

The court found that service on Nations, a Chinese company, had not yet been completed under the Hague Convention on service abroad. But Plaintiffs had begun the service process and represented that it was ongoing. Because proper service could still be obtained, the court held that dismissal for insufficient service was premature. The court therefore did not reach the Nations Defendants’ personal-jurisdiction or failure-to-state-a-claim arguments, which depended on proper service and jurisdiction.

As to Nations USA, the court found factual questions about whether a person identified as “John Doe” was actually its director, Jie “Jay” Liang, and whether an office manager or receptionist had authority to accept service for its registered agent. Rather than resolve those questions through an evidentiary hearing, the court exercised its discretion to quash the prior service and directed Plaintiffs to serve Nations USA properly under Federal Rule of Civil Procedure 4.

The court denied the Nations Defendants’ motion to dismiss without prejudice. The opinion states that proper service remains possible and warns that Nations USA could not avoid litigation by obstructing service.

OST’s Motion

OST moved under Rule 12(b)(6) to dismiss the two RICO claims against it. The court granted the motion.

For the substantive civil RICO claim, the court held that Plaintiffs did not adequately allege that OST was part of the alleged RICO enterprise. Allegations that OST served as a base for enterprise activities, hosted meetings, helped arrange a meeting about Plaintiffs’ possible investment, and was involved in other activities did not sufficiently allege that OST actively directed the enterprise’s affairs.

The court also held that Plaintiffs did not adequately plead that OST committed a pattern of racketeering activity. The complaint attributed wire fraud to OST, but the other alleged predicate acts were attributed only to “Defendants” collectively. Because a RICO claim requires allegations that each defendant committed at least two predicate acts, the court dismissed the RICO claim against OST on this independent ground as well.

The court did not decide whether Plaintiffs adequately pleaded proximate cause because the RICO claim was already subject to dismissal for failure to plead OST’s participation in an enterprise and a pattern of predicate acts.

The court also dismissed Plaintiffs’ RICO-conspiracy claim against OST. It explained that the failure to state a substantive RICO claim ordinarily defeats the related conspiracy claim. In addition, the allegations that OST executives met with Luo, that Plaintiffs were encouraged to invest in OST, and that Luo and OST chairman Keyi Li had longstanding ties did not sufficiently show that OST knew of the alleged RICO scheme and agreed to facilitate it.

Disposition

The Nations Defendants’ motion to dismiss was denied without prejudice. OST’s motion to dismiss was granted. The Clerk was directed to terminate both motions, and the parties were directed to appear for a telephonic conference on November 3, 2023.