Guang Zu Wang v. Xiao Ling (In re Xiao Ling)
| Decision Date | 20 October 2022 |
| Docket Number | Case No. 20-23376-EPK,Adv. Proc. No. 21-01089-EPK |
| Parties | IN RE: Xiao LING, Debtor. Guang Zu Wang, Plaintiff, v. Xiao Ling, Defendant. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida |
Jianyin Liu, Palmetto Bay, FL, for Plaintiff.
Eric N. Klein, Kunal A. Mirchandani, Boca Raton, FL, for Defendant.
Erik P. Kimball, Judge This adversary proceeding came before the Court for trial on May 26 and 27, 2022, upon the Amended Complaint [ECF No. 77] (the "Complaint") filed by Guang Zu Wang against Xiao Ling.
In late 2016, Mr. Wang and Mr. Ling agreed to form US Fine Foods, a joint venture for exporting live crabs to China. Consistent with a written agreement and promissory notes, Mr. Wang advanced a total of $148,109.51 to Mr. Ling in the form of investments in and advances on behalf of US Fine Foods and personal loans to Mr. Ling. Mr. Wang never received anything back from the joint venture or from Mr. Ling.
Mr. Ling filed a voluntary chapter 7 petition on December 8, 2020. Through this adversary proceeding, Mr. Wang seeks to have his claim against Mr. Ling excepted from discharge under 11 U.S.C. §§ 523(a)(2)(A) and (B). Among other things, Mr. Wang alleges that, from the start, Mr. Ling never intended to perform his contractual obligations relating to the joint venture, never intended to repay Mr. Wang's personal loans, hid the extent of his financial distress, and made a false written statement regarding Mr. Ling's or an insider's financial condition.
The Court considered the evidence presented at trial, the arguments of counsel, and post-trial briefs. ECF Nos. 123 and 124. The Court finds that Mr. Ling enticed Mr. Wang to invest in and otherwise support a supposed joint venture and to loan substantial funds to Mr. Ling personally, with promises that Mr. Ling would provide necessary equipment and his substantial expertise to further the joint venture, and with promises to repay the personal loans, but Mr. Ling never intended to follow through on the joint venture and never intended to pay Mr. Wang back. Mr. Wang relied on these false agreements and representations to his detriment. For these reasons, as discussed more fully below, the Court will except Mr. Wang's claim from the discharge in this case.
The following constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052.
While Mr. Wang is the plaintiff in this case and a party to the relevant written agreement and promissory notes with Mr. Ling, Mr. Wang's spouse, Hui Fang Li, interacted with Mr. Ling for Mr. Wang. The parties do not dispute that she passed Mr. Ling's statements on to her husband and that she acted on Mr. Wang's behalf during the events giving rise to this litigation. Any actions she took are attributable to Mr. Wang. In the Court's findings of fact, Ms. Li's statements and actions are treated as statements and actions of Mr. Wang and Mr. Ling's communications with Ms. Li are treated as communications with Mr. Wang.
Beginning in the mid-2000s, Mr. Ling developed a successful business as a seafood supplier and exporter under the corporate name Euam Fisheries. At times, Mr. Ling brought home $300,000 to $400,000 per year. Mr. Wang and Ms. Li owned a restaurant and sourced seafood from Mr. Ling. The parties first met in 2013.
Mr. Ling's business suffered a significant setback in 2016. In April 2016, Euam Fisheries was sued for $1.5 million. As the year progressed, faced with impending financial ruin, Mr. Ling desperately needed cash. In December 2016, Mr. Ling proposed a joint venture to combine investment from Mr. Wang with Mr. Ling's claimed significant experience and his existing equipment for the purpose of exporting live blue crabs to China, in what Mr. Ling described as a lucrative market. In furtherance of this new joint venture, Mr. Ling and Mr. Wang executed the Agreement between Xiao Ling and Guang Zu Wang in Joint Operation of Export of Blue Crabs to Chinese Market dated December 16, 2016 (the "Joint Venture Agreement"). The joint venture company was to be called US Fine Foods.
Under the Joint Venture Agreement, Mr. Wang agreed to initially invest $40,000 to be used by Mr. Ling to upgrade his existing equipment and purchase inventory for the joint venture. This was to be followed by an additional $20,000 investment in the new enterprise. In return, conditioned on receipt of the initial $40,000, Mr. Ling promised to provide cultivating equipment, refrigerators, and freezers for use by the joint venture. Mr. Wang and Mr. Ling agreed to share the profits equally.
Mr. Wang also agreed to make a personal loan to Mr. Ling in the amount of $20,000, ostensibly to provide Mr. Ling with working capital for Euam Fisheries. Mr. Ling claimed Euam Fisheries was suffering from temporary cash flow concerns but was otherwise healthy. This was far from the truth.
In mid-December 2016, Mr. Wang provided the $20,000 personal loan to Mr. Ling in cash and received a promissory note from Mr. Ling. A little over a month later, in late January 2017, Mr. Wang completed the initial $40,000 deposit into the bank account of US Fine Foods, which triggered Mr. Ling's obligations under the Joint Venture Agreement to provide cultivating equipment, refrigerators, and freezers to the joint venture.
Based on the evidence admitted in this case, from the start Mr. Ling had no intention to make good on his promises in the Joint Venture Agreement or to repay Mr. Wang's personal loans. Cash starved and greatly in debt, but concealing this situation from Mr. Wang, Mr. Ling's goal was to get Mr. Wang's money and use it as he saw fit. That is exactly what he did. Mr. Wang never received a dime from Mr. Ling.
Mr. Ling testified that he never provided use of the equipment he promised for the joint venture because Mr. Wang's $40,000 initial investment did not entitle Mr. Wang to fifty percent ownership of equipment that Mr. Ling valued at $314,000 to $500,000. But Mr. Wang has never claimed entitlement to a fifty percent ownership interest in any equipment. Mr. Wang required only that Mr. Ling make the cultivating equipment, refrigerators, and freezers available to the joint venture as the parties agreed in the Joint Venture Agreement. Mr. Ling's testimony on this issue was not credible and was not supported by the parties’ own written agreement.
Mr. Ling also testified that he had no obligations under the Joint Venture Agreement because Mr. Wang had not notified Mr. Ling that he had completed the $40,000 initial deposit into the joint venture account. This testimony was laughably not credible. The Joint Venture Agreement requires no such formal notice. It is obvious that Mr. Ling knew that the initial $40,000 investment was completed because he took all of the money for himself. Mr. Wang's investments were the only source of funds in the joint venture account. As soon as Mr. Wang made deposits into the joint venture account, Mr. Ling transferred the funds to his personal bank account or made cash withdrawals. Mr. Ling used those funds for his own business, Euam Fisheries, and for personal expenses, and not for the joint venture as he had promised.
In the first week of January 2017, even before Mr. Wang had completed the initial $40,000 joint venture deposit, Mr. Ling asked for an additional $60,000 personal loan. Mr. Wang was only able to provide $40,000, which came from his son's college savings account and a $17,000 loan from a friend. In exchange, Mr. Ling provided two additional promissory notes in the aggregate amount of $40,000. At the time, Mr. Wang had no reason to believe Mr. Ling was other than an honest businessman with temporary cash flow concerns. Mr. Wang knew nothing of Mr. Ling's dire financial status or the enormous lawsuit against Euam Fisheries.
In February 2017, Mr. Ling submitted an application for seafood export to the National Oceanic and Atmospheric Administration ("NOAA") on behalf of US Fine Foods. The NOAA Seafood Inspection Program certifies the safety and quality of seafood exports from the United States to many countries including China. NOAA rejected US Fine Foods’ application. Mr. Ling testified that NOAA rejected the application because the Food and Drug Administration ("FDA") had not certified US Fine Foods’ plant as US Fine Foods did not own the plant and its operation was less than six months old. Mr. Ling testified that he did not know of the futility of US Fine Foods's application to NOAA as he did not realize there were new seafood import regulations for China. This makes no sense as, based on Mr. Ling's own testimony on the reasons NOAA rejected US Fine Foods’ application, whether China placed new restrictions on seafood import had no bearing on whether NOAA would even consider US Fine Foods’ application. Mr. Ling did not initially inform Mr. Wang of the application to NOAA or its denial.
Mr. Ling's application to NOAA on behalf of US Fine Foods was his sole act in furtherance of the joint venture. The Court does not believe that Mr. Ling ever expected the application to be successful. In light of all the other evidence admitted in this case, it appears that Mr. Ling filed the application only so that he could later say that he had done something in furtherance of the joint venture.
With US Fine Foods unable to export seafood from the United States, Mr. Ling decided to seek NOAA certification for his existing business, Euam Fisheries. Euam Fisheries already had FDA certification, a pre-requisite to application to the NOAA Seafood Inspection Program. Amazingly, Mr. Ling sought and obtained Ms. Li's assistance in the Euam Fisheries application. Ms. Li had a food safety certification and wanted to learn more about the export business. But Mr. Ling hid from Ms. Li his intent to export blue crabs using Euam Fisheries rather than US Fine Foods. When Ms. Li discovered his intent, Mr. Ling assured her that he would pursue...
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