AMA Sys. v. 3B Tech, Inc.
| Decision Date | 14 June 2022 |
| Docket Number | DLB-21-1472 |
| Parties | AMA SYSTEMS, LLC, et al., Plaintiffs, v. 3B TECH, INC., et al., Defendants. |
| Court | U.S. District Court — District of Maryland |
Plaintiffs AMA Systems, LLC (“AMA”) and Bluemar Promotions LLC (“Bluemar”) filed suit against defendants 3B Tech, Inc. (“3B Tech”), Pro-Com Products, Inc (“Pro-Com”), Salusen, Inc. (“Salusen”), Jian Qing “Johnny” Zhu Brett Barbour, and Michael Johnson, and any unknown affiliated entities or persons acting in concert. ECF 1. In their amended complaint, plaintiffs allege defendants engaged in and continue to engage in a conspiracy to manufacture, market, and sell fraudulently certified personal protective equipment during the COVID-19 pandemic. ECF 33. Against all defendants, plaintiffs claim a civil violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c) (Count I); conspiracy to violate RICO (Count II); and common law fraudulent misrepresentation (Count III). Against 3B Tech, plaintiffs claim breach of contract (Count IV). Plaintiffs also claim breach of contract against 3B Tech, Salusen, Zhu, and Barbour (Count V).
Defendants move to dismiss the two RICO counts for failure to state a claim. ECF 36. The motion has been fully briefed. ECF 37 & 38. No hearing is necessary. See Loc. R. 105.6. For the following reasons, the motion to dismiss is granted.
Near the onset of the COVID-19 pandemic, the strain on the healthcare system and the unprecedented increase in demand across all sectors of healthcare resulted in a severe shortage of personal protective equipment (“PPE”). ECF 33, ¶ 5. Face masks or filtering facepiece respirators are a form of PPE. Id. ¶ 6. Face masks may be designated by certifying marks that indicate conformance to certain standards of effectiveness. Id. ¶ 9. Relevant to this action are three types of certifications applicable to face masks manufactured in China: compliance with the requirements of emergency use authorizations (“EUAs”) issued by the Food and Drug Administration (“FDA”), conformance to KN95 standards indicating similarity to N95 masks commonly used in the United States, and CE certification or FFP2 conformance indicating compliance with the requirements of European Union directives and regulations. Id. ¶¶ 6-9. Face masks identified with these certifications can be sold for higher prices. Id. ¶ 10. Manufacturers of face masks have their products independently tested to obtain these certifications. Id. ¶ 9.
Plaintiff AMA provides “analysis and deployment services” for its clients. Id. ¶ 13. Plaintiff Bluemar provides “logistics and distribution of products, among other services.” Id. ¶ 14. In late March 2020, AMA reached out to Bluemar about securing PPE, including face masks. Id. ¶ 59. Bluemar, in turn, entered discussions with 3B Tech to purchase PPE. Id. ¶ 60. Each defendant represented to plaintiffs that face masks manufactured in China under the Salusen label had been tested by one or more of four different independent testing entities and that the products had passed those tests and could be identified with the above certifications. Id. ¶¶ 9, 35. Bluemar ordered face masks from 3B Tech, paid for them through a series of wire transfers to 3B Tech, and delivered the masks to AMA. Id. ¶ 46. Plaintiffs later discovered the masks did not comply with FFP2 technology, were not CE or FDA certified as represented, and were stamped with fraudulent certifications. Id.
3B Tech is an Indiana-based importer, distributor, and seller of various products, including products manufactured in China. Id. ¶ 16. Pro-Com is a California-based importer and distributor specializing in consumer electronics and packaged goods. Id. ¶ 17. Salusen is an Indiana-based online retailer of PPE. Id. ¶ 20. Zhu is the incorporator, president, owner, and former CEO of 3B Tech; an owner of Pro-Com; and an owner of Salusen. Id. ¶¶ 16-17, 20. Zhu is also an owner of non-party Shenzhen Centurion Technology Company (“SCT”), a manufacturing plant in China that produces healthcare supplies including face masks. Id. ¶ 15. Barbour is the vice president, registered agent, and former interim CEO of 3B Tech; an owner of Pro-Com; and an owner, as well as the incorporator, president, and resident agent, of Salusen. Id. ¶¶ 20, 25. Johnson is the senior vice president of Pro-Com and may have a role with 3B Tech and/or Salusen. Id. ¶¶ 27, 30. Essentially, as relevant to plaintiffs' claims, SCT manufactures face masks, and 3B Tech and ProCom import and distribute the masks under the brand Salusen. Id. ¶¶ 15-34. The individual defendants collectively own and/or operate the entity defendants. Id. Plaintiffs also sue “Does 110” and anticipate amending their complaint to add the names and capacities of other involved in the alleged scheme when they become known. Id. ¶ 31.
Bluemar made three purchase orders with 3B Tech for SCT-produced masks. First, on April 6, 2020, Bluemar ordered 50, 000 “K95 Masks-FDA approved” at a cost of $100, 000. Id. ¶ 64. Prior to this initial purchase, Zhu (on behalf of 3B Tech) informed Bluemar that SCT had begun manufacturing PPE products and could supply certified PPE; that Zhu was chartering planes to bring SCT's face masks to the United States; and that he had the White House as a customer for SCT's masks. Id. ¶¶ 60, 62-63. At the time, SCT's website stated the KN95 face masks it manufactures have “CE and FDA certification issued by DEKRA, Germany, ASTM, level3 and other international test reports.” Id. ¶ 61. Zhu and 3B Tech confirmed in an April 13 email to Bluemar that the ordered KN95 face masks were FDA and CE certified and had passed filtration tests required for identification as FFP2. Id. ¶ 65.
Bluemar placed a second purchase order on April 15 for 250, 000 “KN95 Disposable Face Mask-Packaged 50 per carton in sleeves of 10 each, ” at a cost of $500, 000. Id. ¶ 67. The order required the masks be marked KN95, be manufactured by Salusen, and be FDA and CE certified with specific certificates. Id. Bluemar requested photographs of the masks to forward to AMA, and 3B tech provided images of the masks and the inner packaging and cartons. Id. ¶ 69. After reviewing these images, AMA raised questions, which Bluemar emailed to Barbour. Id. ¶¶ 6970. Specifically, Bluemar asked to confirm the FDA certification and inquired whether all the packaging would be branded with the Salusen logo, whether all the images were of the Salusen product, and whether the masks would be stamped with the certifications. Id. ¶ 70. Over email, Barbour and Zhu explained the masks and packaging would not be identified with the Salusen label or logo to save time and cut costs, but that the masks were still Salusen KN95 masks and the universal product code would remain the same. Id. ¶ 71. Bluemar responded on April 19, indicating it would move forward with the second purchase but revising the purchase order to reflect the parties' discussion. Id. ¶¶ 73-75. Bluemar made its third and final purchase order on April 29, for 500, 000 face masks KN95 disposable masks, FDA and CE certified and marked KN95, at a cost of $1, 000, 000. Id. ¶¶ 76-78.
3B Tech shipped 250, 000 face masks on April 27; 50, 000 on April 28; and 250, 000 on May 4. Id. ¶ 79. Each delivery was shipped from Pro-Com to AMA, with freight costs paid by Bluemar and passed on to AMA. Id. The delivered masks were stamped with what appeared to be CE certification and a FFP2 stamp of approval; additionally, the packaging contained the designation “FFP2 Europe EN 149:20001 + A1:2009 Classified” and “FDA N10066564.” Id. ¶¶ 80, 83. The stamps and statements on the packaging were false. Id. ¶¶ 81, 84. Plaintiffs allege that each defendant knew the stamps and statements on the packaging were false as the deliveries passed through their hands. Id. ¶¶ 82, 85. Between April 7 and May 21, AMA wired funds to Bluemar, and Bluemar wired funds to 3B Tech. Id. ¶ 86.
Between March and June, defendants made multiple false representations to plaintiffs regarding the masks. Id. ¶¶ 101-92. These representations occurred over telephone, email, and Skype calls. Id. The false representations were generally responses to plaintiffs' questions and concerns and were meant to reassure plaintiffs about the certification status of the masks and defendants' and SCT's compliance with various regulatory requirements. Id. The complaint contains detailed allegations, but a handful of examples will suffice for now. First, when asked for an FDA Certification, defendants provided an FDA Registration (a different document that does not certify the product is authentic or conforming). Id. ¶¶ 107-10. When plaintiffs attempted to contact the private registration agent identified in the FDA Registration, they received no answer. Id. ¶ 111. When a potential customer of AMA called the agent, a recording stated: “[W]e are not a PPE company.” Id. ¶ 112. Second, defendants provided reports from SMQ and DEKRA, two testing entities, that indicated the face masks had passed certain tests. Id. ¶¶ 128, 147. When Bluemar later contacted SMQ and DEKRA, they each responded that the reports did not conform with the originals-that the masks had not passed the tests and the reports had been altered to show they had. Id. ¶¶ 132, 154. Third, defendants provided a second set of test results and a CE Certificate, and Bluemar later learned the Certificate and some test results concerned different products and the remaining test results could not be linked to the masks sold to plaintiffs. Id. ¶¶ 136-142, 175-192.
Following these revelations, plaintiffs demanded a refund. Id. ¶ 193. 3B Tech and Zhu initially agreed to provide a refund, but later...
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