Tatung Co. v. Shu Tze Hsu
| Decision Date | 02 September 2014 |
| Docket Number | Case No. SACV 13–1743–DOC ANx. |
| Citation | 43 F.Supp.3d 1036 |
| Court | U.S. District Court — Central District of California |
| Parties | TATUNG COMPANY, LTD. v. SHU TZE HSU, et al. |
Benjamin L. Wagner, Daniel Thomas Pascucci, Eric Joseph Eastham, Joseph R. Dunn, Mintz Levin Cohn Ferris Glovsky and Popeo, San Diego, CA, Joseph S. Wu, Usasia Law, La Jolla, CA, Peter A. Biagetti, Mintz, Levin Cohn Ferris Glovsky and Popeo P.C., Boston, MA, for Tatung Company, Ltd.
John A. Kithas, Christopher Land, Law Offices of John A. Kithas, San Francisco, CA, Gary A. Pemberton, Shulman Hodges and Bastian LLP, Paul L. Gale, Troutman Sanders LLP, Irvine, CA, Gopi K. Panchapakesan, Karis Ann–Yu Chi, Paul S. Chan, Bird Marella Boxer Wolpert Nessim Drooks and Lincenberg LLP, Los Angeles, CA, Carol S. Zaist, Robyn E. Frick, Newmeyer & Dillion LLP, Newport Beach, CA, Joshua David Mendelsohn, Keith A. Sipprelle, Van Etten Suzumoto and Sipprelle LLP, Westlake Village, CA, Daniel Sakaguchi, Armstrong Teasdale LLP, St. Louis, MO, for Shu Tze Hsu, et al.
WDE Solution, Inc., pro se.
Bollington Enterprises, Ltd., pro se.
Before the Court are three matters: Defendant Chin–Ying Hsu's Motion to Dismiss (Dkt. 58), Defendants Shu Tze Hsu, Shou–Por Houng, and Jui–Ling Hsu's Motion to Dismiss (Dkt. 109), and Defendant Westinghouse Digital LLC's Motion to Dismiss. Having considered the written submissions, the Court DENIES Shu Tze Hsu, Shou–Por Houng, and Jui–Ling Hsu's Motion to Dismiss, GRANTS in part and DENIES in part Chin–Ying Hsu's Motion to Dismiss, and GRANTS in part and DENIES in part Westinghouse Digital LLC's Motion to Dismiss.
The following is a summary of the allegations contained in the First Amended Complaint (“FAC”) (Dkt. 49).
Plaintiff Tatung Company, Ltd. (“Tatung”) is a corporation formed under the laws of the Republic of China, Taiwan. FAC ¶ 4. Tatung operates manufacturing facilities in Asia (including Taiwan and the People's Republic of China), producing consumer electronic goods for customers around the world. FAC ¶ 4.
Tatung brings suit against twenty-eight defendants, broadly categorized as the “Houng Family Defendants,” the “Operational Defendants,” and a variety of business entities. See FAC 3–14. The defendants are all related, in one way or another, to Richard Houng and WDE. See generally FAC. Richard Houng and WDE are not parties to this action and a judgment of over $26.7 million has previously been entered against them. FAC ¶ 1.
Defendants Shu Tze Hsu, Shou–Por Houng, Chin–Ying Hsu, Jui–Ling Hsu1 , Jack Houng, and Howard Houng (together, “Houng Family Defendants”) are all Taiwanese nationals. FAC ¶¶ 6–11. The Court will break down the relations generationally: Chin–Ying Hsu is the mother of Shu Tze Hsu and Jui–Ling Hsu, FAC ¶ 8; Shu Tze Hsu and Shou–Por Houng are married, and their children are Jack Houng, Howard Houng, and non-party Richard Houng, FAC ¶¶ 6–7, 9–11.
Defendants Douglas Woo, Benson Lin, John Araki, David Chen, Arthur Moore, and Juan Salcedo are all U.S. citizens and residents of California. FAC ¶¶ 14, 16–20. Defendants Jennifer Huang and Yu Hui Chen are Taiwanese nationals. FAC ¶¶ 17, 21.
Defendants RH Holdings, LLC, Nexcast, LLC, and Westinghouse Digital, LLC are limited liability companies organized under the laws of the State of Delaware with their principal place of business in Orange County, California. FAC ¶¶ 13, 25–26. Li Fu Investment Co., Westinghouse Digital (Taiwan), Ltd., and ChiMei Trading Co., Ltd. are companies organized under the laws of Taiwan. FAC ¶¶ 22, 27, 29. WDE Solution, Inc., Gorham Investment Holding Co., Ltd., Bollington Enterprises, Ltd., and NEO Star Development, Ltd. are companies organized under the laws of the British Virgin Islands. FAC ¶¶ 24, 28, 31, 34. Northwood Partners, Ltd. is a company organized under the laws of Hong Kong. FAC ¶ 33. Rich Demander, Ltd. is a company organized under the laws of Vietnam. FAC ¶ 30. Peak Paradise Enterprises Co., Ltd. is a company organized under the laws of Samoa. FAC ¶ 32. Finally, Hung–Wen Chen is a Taiwanese national who is the director of Northwood Partners, Ltd. FAC ¶ 35.
Senior members of the Houng Family Defendants—Shou–Por Houng, Shu Tze Hsu, Chin–Ying Hsu, and Jui–Ling Hsu—have long been involved in international manufacturing and trade through a family-operated, multinational conglomerate operating under the “Chi Mei” name (the “Chi Mei Companies”). FAC ¶ 72. Throughout the 1990s, non-party Richard Houng, the eldest son of Defendants Shu Tze Hsu and Shou–Por Houng, was groomed by the Chi Mei Companies and served as general manager of the China subsidiaries of one of the Chi Mei Companies. FAC ¶ 73.
By late 2003, senior members of the Houng Family Defendants began expanding the influence of the Chi Mei Companies into the United States consumer electronics market, particularly in the fields of LCD computer monitors and televisions. FAC ¶ 73. Richard Houng, a then-recent business graduate of the University of Southern California, was tasked by the Houng Family Defendants to launch the “Sham Enterprise,” which is the network of business entities built around non-party Westinghouse Digital Electronics (“WDE”). FAC ¶ 73.
In 2004, WDE was projected to operate at or above $250 million in annual revenue. FAC ¶ 74. The Houng Family Defendants designed the “Sham Enterprise” to meet two goals: (1) shift the risk of capitalizing their venture onto its creditors and (2) deliver any profits or business opportunities from the United States back to the larger Chi Mei Companies. FAC ¶ 74.
With the help of the Operational Defendants, many of them being legal and accounting professionals, the Houng Family Defendants employed a complex financing scheme, which left WDE undercapitalized, while making it appear to be a well-capitalized stand-alone United States company. FAC ¶¶ 75–77. Off-shore entities were created in well-known tax havens to infuse WDE with “uncharacterized” funds on an “as-needed” basis. FAC ¶ 77. Assets and profits were kept in those off-shore entities while WDE bore all of the liabilities. FAC ¶ 77.
The “Sham Enterprise” was established in such a way that when it was time to execute the bust out scheme, all available cash in WDE could be laundered into a separate investment enterprise, which consisted of Defendants Li Fu Investment Co., WDE Solution, Inc., and RH Holdings, LLC (together, the “Investment Enterprise”). FAC ¶¶ 79, 94.
From 2008 to 2010, tens of millions of dollars were moved from WDE to the Investment Enterprise for the benefit of the Houng Family Defendants. FAC ¶ 98. This movement occurred in three ways. FAC ¶ 98. First, WDE's business profits and other benefits were diverted off shore to WDE Solution, Inc., an entity incorporated in the British Virgin Islands. FAC ¶¶ 99–104. Second, WDE transferred its interest in a lucrative business opportunity involving small LCD monitors to Defendant Nexcast, LLC without consideration. FAC ¶¶ 105–07. Along the way, WDE bore all of the costs of operating Nexcast and the Operational Defendants, at the direction of the Houng Family Defendants, fabricated backdated corporate records. FAC ¶¶ 105–07. Finally, through a variety of elaborate schemes, the remaining WDE funds were transferred to the Investment Enterprise. FAC ¶¶ 108–121.
As a result of the “Sham Enterprise” and relying on WDE's ostensible solvency, Tatung extended increasing amounts of credit to WDE. FAC ¶ 76.
This case comes to this Court after three years of litigation involving two arbitrations, four superior court disputes, two superior court confirmation hearings, and a non-dischargeability case in the U.S. bankruptcy court. FAC ¶ 60.
In 2009, Tatung initiated arbitration against non-parties WDE, Richard Houng, and Nexis to recover the unpaid debt that WDE owed Tatung. FAC ¶ 133. Tatung's discovery efforts were obstructed, and days before the arbitrator's deadline to produce documents, Richard Houng and Nexis both filed for bankruptcy, triggering an automatic bankruptcy stay. FAC ¶ 134. After further obstruction in the bankruptcy court, the stay was lifted in February 2011. FAC ¶ 136. After the arbitrator compelled discovery, Richard Houng moved to disqualify the arbitrator. FAC ¶ 136. The three-person arbitration panel rejected Richard Houng's request, noting that, “[i]t seems patently obvious to this tribunal that [Richard Houng's] Demand is frivolous[.]” FAC ¶ 137.
In May 2010, the arbitrator issued an award of nearly $22 million to Tatung and against WDE. See FAC Ex. 3 at 2. In September 2011, the arbitrator issued his final award against Richard Houng, finding him liable as the alter ego of WDE. See FAC Ex. 4 at 1–22. In issuing this award, the arbitrator noted:
In a nearly four-decade long judicial career, this Arbitrator recalls no case in which a litigant engaged in more bad-faith, dilatory and deceptive practices as Mr. Houng has here, including repeated ‘willful disobedience’ of statutory [discovery] obligations and this Arbitrator's orders, including ‘willful suppress[ion]’ by Houng ‘and the various entities he controlled.
FAC ¶ 142. The arbitrator ultimately found that Richard Houng and the Houng Family Defendants deliberately kept WDE balance sheets insolvent until WDE executed an assignment in April 2010. FAC ¶ 62.
Tatung asserts several claims against Defendants, including: Racketeer Influenced and Corrupt Organizations Act (“Civil RICO”), 18 U.S.C. §§ 1961, 1962, FAC ¶¶ 147–72; fraud, FAC ¶¶ 173–85; civil conspiracy to commit fraud, FAC ¶¶ 186–90; avoidance and recovery of fraudulent transfer, FAC ¶¶ 191–208; conspiracy to fraudulently transfer, FAC ¶¶ 209–14; breach of fiduciary duty, FAC ¶¶ 215–31; and alter ego liability, FAC ¶¶...
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