Vasquez v. Hong Kong & Shanghai Banking Corp.

• Decision Date: 10 August 2020
• Docket Number: 18 Civ. 1876 (PAE)
• Parties: Rigoberto VASQUEZ and Eva Garcia, on behalf of themselves and all others similarly situated, Plaintiffs, v. HONG KONG AND SHANGHAI BANKING CORPORATION, LTD., a foreign company, and Does 1 Through 100, Defendants.
• Court: U.S. District Court — Southern District of New York

477 F.Supp.3d 241

Rigoberto VASQUEZ and Eva Garcia, on behalf of themselves and all others similarly situated, Plaintiffs,

v.HONG KONG AND SHANGHAI BANKING CORPORATION, LTD., a foreign company, and Does 1 Through 100, Defendants.

18 Civ. 1876 (PAE)

United States District Court, S.D. New York.

Signed August 10, 2020

Michael E. Adams, Law Offices of Michael E. Adams, Redwood City, CA, Steven Nunez, Smn Law Group APC, San Diego, CA, Julio Joaquin Ramos, Law Offices of Julio J. Ramos, San Francisco, CA, for Plaintiff Rigoberto Vasquez.

Steven Nunez, Smn Law Group APC, San Diego, CA, Julio Joaquin Ramos, Law Offices of Julio J. Ramos, San Francisco, CA, for Plaintiff Eva Garcia.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

Plaintiffs Rigoberto Vasquez and Eva Garcia bring this putative class action against Hong Kong and Shanghai Banking Corporation Ltd. ("HSBC Hong Kong") and Does 1 through 100, in connection with HSBC Hong Kong's alleged facilitation of international bank transfers of money used to perpetrate a Ponzi scheme called "WCM777." Plaintiffs’ federal claims are brought under the federal racketeering statute 18 U.S.C. § 1961 et seq. ("RICO"). Plaintiffs also bring, under state law, three common law claims for aiding and abetting fraud, breach of fiduciary duty, and conversion.

The Court previously denied HSBC Hong Kong's motion to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), without prejudice, while authorizing "jurisdictional discovery as to the issue of personal jurisdiction, so as to enable the Court to resolve" that motion. Dkt. 85, published at Vasquez v. H.K. & Shanghai Banking Corp. ("Vasquez I "), No. 18 Civ. 1876 (PAE), 2019 WL 2327810, at *19 (S.D.N.Y. May 30, 2019). HSBC Hong Kong then filed a motion to reconsider the Court's authorization of jurisdictional discovery, which the Court denied. Dkt. 92, published at Vasquez v. H.K. & Shanghai Banking Corp. ("Vasquez II "), No. 18 Civ. 1876 (PAE), 2019 WL 3252907 (S.D.N.Y. July 19, 2019).

Jurisdictional discovery is now complete. The Court accordingly now considers, in light of that discovery, HSBC Hong Kong's renewed motion to dismiss the Amended Complaint ("AC") for lack of personal jurisdiction under Rule 12(b)(2). For the reasons that follow, the Court grants HSBC Hong Kong's motion.

I. Background

A. Factual Background¹

The Court incorporates by reference the factual background set out in its May 30, 2019 Opinion and Order. See Vasquez I , 2019 WL 2327810, at *1–5. The Court provides background only to the extent necessary to resolve the pending motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2).

1. The Parties

Vasquez and Garcia are residents of California. AC ¶¶ 3–4.

HSBC Hong Kong is a Hong Kong corporation with its principal place of business in Hong Kong, China. Id. ¶ 5.

Former defendant HSBC Bank USA ("HSBC USA")—dismissed as a party by the Court's May 30, 2019 Opinion—is a federally charted bank, headquartered in Virginia, with its principal place of business in New York, New York. Id. ¶ 6; see also Vasquez I , 2019 WL 2327810, at *13–19 (dismissing claims against HSBC USA). Relevant here, HSBC USA maintains a correspondent bank account² in the United States which is used by HSBC Hong Kong. AC ¶¶ 6, 33.

2. The Scheme and HSBC Hong Kong's Alleged New York Connections

Plaintiffs allege that HSBC Hong Kong helped perpetrate a Ponzi scheme called WCM777. Id. ¶ 2. In brief, WCM777—run by persons not alleged to be affiliated with any HSBC entity—marketed and sold various cloud-based computing services packages. Id. ¶ 17(d), (f). In addition to the computing services, these packages also promised a 100% return to investors who purchased them: Within 100 days, the investors were to receive the value of their original investment back, half paid in cash and half paid in points. Id. ¶ 17(d), (g). Investors could redeem the points for goods or services with WCM777 or convert them into equity in other companies WCM777 allegedly planned to bring public. Id. ¶ 17(e). Investors could also earn additional cash and points by referring new investors or by being passive. Id. WCM777, however, was a pyramid scheme, which used the initial investor funds to make payments for the returns of other investors. Id. ¶ 17(h). Aside from the income it received from new investors, it had no other sources of revenue, and it used most of these funds to pay cash for real property in the United States. Id. ¶ 17(h)–(j).

WCM777 Ltd. was based in the British Virgin Islands and was later incorporated in Hong Kong and registered with the California Secretary of State as WCM777 Enterprises, Inc. (collectively, "WCM777"). Id. ¶ 14. WCM777 maintained a main office in California, where its Chief Financial Officer worked. Id. ¶¶ 27, 29. In July 2013, WCM777 opened a "Business Vantage foreign currency" account at HSBC Hong Kong, which allowed for the deposit of U.S. dollars. Id. ¶ 26; see also id. ¶ 15. HSBC Hong Kong employees frequently communicated via email and telephone with WCM777's Chief Financial Officer, to coordinate transactions and verify payments. Id. ¶ 29.

Beginning in September 2013, WCM777 advised its investors to wire money to its HSBC Hong Kong accounts. Id. ¶ 2. Plaintiffs allege that most of these transfers went through HSBC Hong Kong's correspondent bank account at HSBC USA in New York. Id. Although not used for these transfers, HSBC Hong Kong also has a U.S. correspondent account with Bank of America. Dkt. 115 ("Yiu Decl.") ¶ 13.

Between July 22, 2013 and August 14, 2013, WCM777 accounts with HSBC Hong Kong received more than 174 deposits, totaling more than $3.5 million. AC ¶ 35. In July 2013, HSBC USA flagged a wire transfer to one of the WCM777 accounts held by HSBC Hong Kong for review and consulted HSBC Hong Kong for additional information about WCM777. See id. ¶¶ 36–37. On or around September 30, 2013, HSBC USA learned, through Internet research, of allegations that WCM777 was a Ponzi scheme, and concluded that it "reasonably appeared that they [WCM777] are engaged in pyramid/ponzi scheme." Id. ¶ 2; see also id. ¶¶ 39–40. On October 2, 2013, HSBC USA shared these findings with HSBC Hong Kong via email. Id. ¶ 41.

After HSBC USA told HSBC Hong Kong that WCM777 was an alleged Ponzi scheme, plaintiffs allege, more than $30 million worth of transactions occurred involving WCM777 accounts at HSBC Hong Kong, before the scheme was shut down on March 27, 2014. See id. ¶¶ 1–2. These included three transfers from plaintiffs. Specifically, on October 11 and 15, 2013, Garcia transferred a total of $4,000 to WCM777's account at HSBC Hong Kong, via the correspondent account at HSBC USA. Id. ¶ 57. On October 21, 2013, Vasquez transferred $100,000 in the same manner. Id. ¶ 56. Plaintiffs did not receive any money from WCM777. See Dkt. 117 ("Calabrese Decl.") ¶ 7.

After jurisdictional discovery, plaintiffs contend that between July 2013 and March 2014, HSBC Hong Kong used the HSBC USA New York-based correspondent bank account more than 2,500 times to facilitate more than $25 million worth of incoming and outgoing wire transfers on behalf of WCM777. See Dkt. 119 ("Pl. Mem.") at 3; Dkt. 138 (Ramos Decl., Ex. 6) ("Outgoing Transfers Spreadsheet"); Dkt. 139 (Ramos Decl., Ex. 8) ("Incoming Transfers Spreadsheet"). Although transactions in U.S. dollars can be cleared by HSBC Hong Kong in Hong Kong—as opposed to through a U.S.-based correspondent account—defendants, in jurisdictional discovery, did not produce evidence that any WCM777 transfers had been processed in Hong Kong. See Dkt. 124-5 (Ramos Decl., Ex. 16) ("Yiu Dep.") at 59; see also Yiu Decl. ¶¶ 14–15 (use of correspondent account not required to transfer U.S. dollar payments to HSBC Hong Kong).

As to incoming transfers to the correspondent account, plaintiffs contend that HSBC Hong Kong credited WCM777 accounts with the proceeds of more than 2,500 wire transfers, totaling over $19,270,000. Pl. Mem. at 3; Incoming Transfers Spreadsheet.

For outgoing transfers from the HSBC USA correspondent account, plaintiffs contend that HSBC Hong Kong routed 24 WCM777 wire transfers, totaling $5.8 million, through that account. Pl. Mem. at 3; Outgoing Transfers Spreadsheet. All but $26,000 of the outgoing transfers took place on or after October 2, 2013—the date when HSBC USA allegedly notified HSBC Hong Kong that WCM777 appeared to be a Ponzi scheme.³ See Outgoing Transfers Spreadsheet. Three of these transfers, totaling $200,000, were to Global Payouts Inc., an entity that plaintiffs allege made "lulling payments" to investors, to help them "be assured that their investment was safe and secure."⁴ See Pl. Mem. at 3; Outgoing Transfers Spreadsheet; AC ¶ 45.

Based on these alleged transactions, plaintiffs propose to represent a class of investors in WCM777 whose transfers were routed through the HSBC USA New York correspondent account between June 1, 2013 and May 31, 2014. AC ¶ 55.

3. The California Litigation

On November 16, 2015, three plaintiffs (not overlapping with those here) brought a substantially similar putative class action in the United States District Court for the Central District of California, suing both HSBC Hong Kong and HSBC USA. Dkt. 114 ("Def. Mem.") at 6–8; Dkt. 118 ("Korman Decl.") ¶ 3.

On October 21, 2016, the court dismissed the California plaintiffs’ claim against HSBC Hong Kong for lack of personal jurisdiction. See Korman Decl. ¶ 16; Giron v. H.K. & Shanghai Banking Corp. , No. 15 Civ. 08869 (ODW), 2016 WL 11585001 (C.D. Cal. Oct. 21, 2016). Plaintiffs alleged—without specifying the location—that HSBC USA had maintained a correspondent account for HSBC Hong Kong, and the court credited this allegation for purposes of the motion to dismiss.⁵ See Korman Decl., Ex. B (original California complaint) ¶ 35; id. , Ex. C (third amended California complaint) ¶ 34; Giron , 2016 WL 11585001, at *3. The court, however, described HSBC Hong Kong's contacts with...