3BTech Inc. v. Garelick

• Decision Date: 09 November 2021
• Docket Number: 3:21-CV-34 JD
• Parties: 3BTECH INC, DC 3B, LLC, HOVERZON, LLC, Plaintiffs, v. MARC HARRIS GARELICK, Defendant.
• Court: U.S. District Court — Northern District of Indiana

3BTECH INC, DC 3B, LLC, HOVERZON, LLC, Plaintiffs,
v.
MARC HARRIS GARELICK, Defendant.

No. 3:21-CV-34 JD

United States District Court, N.D. Indiana, South Bend Division

November 9, 2021

OPINION AND ORDER

JON E. DEGUILIO, CHIEF JUDGE UNITED STATES DISTRICT COURT.

Now before the Court is a motion to dismiss Plaintiffs' Amended Complaint. (DE 30.) Plaintiffs filed a complaint bringing two federal claims under RICO, as well as two claims under state tort law. (DE 29.) Defendant, Marc Harris Garelick, argues that the complaint must be dismissed for lack of subject matter jurisdiction and because it fails to state a claim upon which relief can be granted. The Court now dismisses Plaintiffs' RICO claims, finding that they did not adequately plead a pattern of racketeering activity. Because federal question jurisdiction was the only ground alleged by Plaintiffs to establish subject matter jurisdiction, the Court also dismisses Plaintiffs' remaining state law claims.

A. Factual Background

The facts of this case stem from a contentious, ongoing California divorce proceeding between one of Mr. Garelick's clients, Jie Wang, and an owner of 3BTech Inc., Mr. Jianqing Zhu. (DE 29 ¶¶ 1-4) Mr. Garelick represents Ms. Wang in this divorce proceeding. (Id. ¶ 1.) In order to gain leverage and generate excessive legal fees, Plaintiffs allege that Mr. Garelick directed Ms. Wang to engage in multiple acts of fraud by transferring money away from 3BTech

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and its affiliates, DC 3B, LLC, and Hoverzon, LLC. (Id. ¶¶ 3, 87.) Over 1.8 Million dollars is alleged to have been misappropriated from 3BTech, DC 3B, and Hoverzon over the course of multiple fraudulent transactions in July of 2020, all at the direction of Mr. Garelick. (DE 29 ¶¶ 1, 87.)

According to Plaintiffs, Ms. Wang served as the accounting manager for 3BTech, DC 3B, and Hoverzon and used this position to transfer Plaintiffs' property to her own accounts. (Id. ¶ 19.) The transactions at issue appear to have started around July 15, 2020. (Id. ¶ 43.) On that day, Plaintiffs allege that Mr. Garelick directed Ms. Wang to funnel money away from 3BTech and one of their affiliates, Hoverzon. (Id. ¶ 42.) The Amended Complaint asserts that Ms. Wang transferred $200, 000 from 3BTech to Hoverzon accounts located in Indiana without authorization to do so. (Id. ¶ 43.) She proceeded to transfer this $200, 000 from the Hoverzon accounts to her family trust account located in California. (Id. ¶ 43.)

Plaintiffs further allege that Ms. Wang continued to abuse her fiduciary position as accounting manager, engaging in multiple other fraudulent transactions in July of 2020. The largest of these transactions occurred on July 21, 2020. (Id. ¶ 26.) On that day, Plaintiffs allege that Ms. Wang fraudulently transferred $1, 600, 000 from another affiliate of 3BTech, DC 3B, to her personal bank accounts. (Id. ¶ 25.)

As this is the most significant fraudulent transaction alleged, the Court recounts the circumstances surrounding it in greater detail. DC 3B had previously sold a property (the “Vorden Property”) for $1, 600, 000. (Id. ¶¶ 14, 16.) This money was then held by DC 3B for the purchase of the “Walker Property” by 3BTech. (Id. ¶ 16.) DC 3B existed in order to help 3BTech with this kind of real estate transaction. (Id. ¶ 15.) As the accounting manager, Ms. Wang was responsible for coordinating the payments to close escrow on the Walker Property. (Id. ¶ 19.)

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However, instead of paying this amount to close on the Walker Property, Plaintiffs allege that Ms. Wang transferred the $1, 600, 000 from the DC 3B bank account in Indiana to her family trust account located in California through an electronic transfer. (Id. ¶¶ 25-26.) Then, Ms. Wang transferred $1, 580, 000 from the J&J Trust account to her personal bank account in California. (Id. ¶ 26.) Plaintiffs allege that all this activity occurred without any authorization from Mr. Zhu, who owned 3BTech, and that Ms. Wang's withdrawal of the $1, 600, 000 caused the purchase of the Walker Property to be cancelled. (Id. ¶ 28.)

A third unauthorized transfer of funds is alleged to have occurred “in or about July of 2020.” (Id. ¶ 37.) Ms. Wang is alleged to have “transferred a wage and salary commission in the amount of $30, 000 to a family-owned joint account, and subsequently electronically transferred that money to her own personal account at the direction of Garelick.” (Id.) Plaintiffs allege that each of the previous three unauthorized transfers of funds constituted wire fraud in violation of 18 U.S.C. §§ 1343 and 2314. (Id. ¶ 87.)

Plaintiffs also allege that Ms. Wang used 3BTech's corporate credit card without authorization on two occasions, in violation of 18 U.S.C. § 1029(a)(2). (Id.) Each use is alleged to have occurred sometime in July of 2020, but Plaintiffs do not provide specific dates. (Id. ¶¶ 32-34.) The first unauthorized use of 3BTech's corporate credit card occurred when Ms. Wang retained Mr. Garelick with a $25, 000 payment. (Id.) The second unauthorized use occurred when Ms. Wang paid a forensic accountant $7, 500 with a 3BTech corporate credit card. Plaintiffs allege that the corporate credit card originated out of Indiana, while both purchases were processed in California. (Id.)

In addition to these transactions, Plaintiffs allege that Ms. Wang improperly seized control of 3BTech bank accounts, corporate books, corporate records, bank fobs, and also locked

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out the company's principals and managers from the accounts. (Id. ¶¶ 38-39.) However, like the credit card transactions, Plaintiffs assert generally that this conduct occurred sometime in July of 2020. (Id.)

The Amended Complaint alleges that Mr. Garelick directed Ms. Wang to perform these acts in “an effort to increase leverage [in her divorce proceeding] and generate excessive legal fees.” (Id. ¶¶ 3, 24, 88). According to Plaintiffs, on July 24, 2020, 3BTech contacted Mr. Garelick about these transfers and demanded its funds be returned. (Id. ¶ 29-30.) However, Mr. Garelick refused to return the misappropriated funds and also “threatened to withhold Plaintiffs' assets indefinitely unless Mr. Zhu agreed to certain unfavorable terms in the divorce action.” (Id. ¶ 31.) Plaintiffs claim that this act constituted federal extortion, in violation of 18 U.S.C. § 1951(a). (Id. ¶ 87.)

On January 14, 2021, 3BTech filed a complaint against Mr. Garelick and his law firm Meyer, Olson, Lowry & Meyers, LLP (“MOLM”). (DE 1.) An amended complaint was then filed by 3BTech as well as two subsidiaries, DC 3B and Hoverzon. (DE 29.) The Amended Complaint names Mr. Garelick as the sole defendant. (Id.) It asserts four claims of relief:

Count I - Tortious Conversion (DE 29 ¶¶ 53-61)

Count II - Tortious Interference (Id. ¶¶ 62-68);

Count III - Civil RICO, 18 U.S.C. § 1962(c) (Id. ¶¶ 69-93);

Count IV - Civil RICO, 18 U.S.C. § 1962(d) (Id. ¶¶ 94-101).

Mr. Garelick then moved to dismiss for lack of subject matter jurisdiction and for failure to state a claim for relief. (DE 30.)

B. Standard of Review

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Rule 12(b)(1) authorizes dismissal of claims over which the Court lacks subject matter jurisdiction. In analyzing a motion to dismiss, the Court must accept as true all well-pled factual allegations and must draw all reasonable inferences in favor of the plaintiff. Long v. Shorebank Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999). Further, “[t]he district court may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.” Id. (citations omitted). The burden of establishing proper federal subject matter jurisdiction rests on the party asserting it. Muscarello v. Ogle Cty. Bd. of Comm'rs, 610 F.3d 416, 425 (7th Cir. 2010).

In reviewing a motion to dismiss for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6), the Court construes the complaint in the light most favorable to the plaintiff, accepts the factual allegations as true, and draws all reasonable inferences in the plaintiff's favor. Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir. 2010). A complaint must contain only a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). That statement must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face, Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and raise a right to relief above the speculative level. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). However, a plaintiff's claim need only be plausible, not probable. Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 935 (7th Cir. 2012). Evaluating whether a plaintiff's claim is sufficiently plausible to survive a motion to dismiss is “‘a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'” McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011) (quoting Iqbal, 556 U.S. at 678).

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A special rule applies for pleading fraud: under Rule 9(b), “a party must state with particularity the circumstances constituting fraud . . . .” Fed.R.Civ.P. 9(b) (emphasis added). “This ordinarily requires describing the ‘who, what, when, where, and how' of the fraud . . . .” AnchorBank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011). However, “malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). Rule 9(b) applies to any claim “that is premised upon a course of fraudulent conduct.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 737 (7th Cir. 2014). Therefore, even claims that are not definitionally fraudulent torts may “sound in fraud, ” as long as they are premised upon a course of fraudulent conduct. See Borsellino v. Goldman Sachs...