Qiao v. Chan

• Court: District Court, W.D. Washington
• Decided: December 23, 2020
• Docket: 2:20-cv-01821
• Status: Unknown

Opinion

6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE

9 YI QIAO, et al., Case No. C20-1821-RSM 10

Plaintiffs, 11 ORDER GRANTING PLAINTIFFS’ MOTION FOR TEMPORARY 12 v. RESTRAINING ORDER 13 RONGFANG “FLORA” CHAN, et al., 14 Defendants. 15

16 17 I. INTRODUCTION 18 This matter comes before the Court on Plaintiffs Yi Qiao, Ambleside Holdings USA, Inc. 19 (“Ambleside”) and De Xiang Holding, Ltd.’s Motion for Temporary Restraining Order. Dkt. 20 #11. Plaintiffs request that this Court temporarily enjoin Defendants from selling, transferring, 21 22 or encumbering certain properties until the Court rules on Plaintiffs’ pending motion for remand, 23 Dkt. #5. Defendants oppose Plaintiffs’ motion. Dkt. #14. Having considered Plaintiffs’ Motion, 24 Defendants’ Response, the attached exhibits and remainder of the record, the Court GRANTS 25 Plaintiffs’ Motion. 26 // 27 28 // II. BACKGROUND 1 2 Between 2016 and 2018, Plaintiff Qiao was allegedly enticed by Defendant Rongfang 3 “Flora” Chan into investing millions in a hotel construction project in Marysville, Washington. 4 Dkt. #1-1 at ¶ 1. Due to Defendant Chan’s alleged mismanagement and self-dealing, Plaintiff 5 Qiao invested, loaned, and/or personally guaranteed millions of dollars in support of the 6 construction project. After hiring attorneys and forensic accountants, Plaintiff Qiao discovered 7 8 “hundreds of thousands of dollars” flowing to Defendant Chan and companies she controlled. 9 Id. at ¶ 3. After the construction project fell through due to “ruinous construction defects,” 10 Defendant Chan sold her interest in the project and “washed her hands of it.” Id. 11 On November 30, 2020, Plaintiffs filed this action in King County Superior Court against 12 13 Defendants Chan, Washington Building Supplies Inc, Premium Place L.P., Garden Ridge LLC, 14 and Washington Hotel and Restaurant Development LLC, Silver Plaza, LLLP, Washington 15 Regional Center Management LLC, Zhongzhen (USA) Investment Limited, and Does 1-10 to 16 recover the sums lost through Defendant Chan’s alleged fraudulent activity. Dkt. #1-1. Plaintiffs 17 allege breach of contract, fraud, unjust enrichment, misappropriation and conversion, breach of 18 19 fiduciary duty, and breach of duty of good faith and fair dealing. Id. at ¶¶ 95-102. On December 20 2, 2020, the state court ordered Defendants to appear and show cause why writs of attachment 21 and garnishment should not issue. Dkt. #6-1. The state court scheduled its show cause hearing 22 for December 16, 2020. Id. 23 Starting December 11, 2020, Defendant Chan began filing documents with the 24 25 Washington secretary of state to change the ownership of the defendant entities in this lawsuit. 26 These changes included removing herself as the governor of Garden Ridge Investment, LLC and 27 Zhonghzhen (USA) Investment Limited and listing individuals who are not parties to the instant 28 lawsuit. See Dkt. #6-3 at 4-9, 16-21. Defendants’ counsel appeared at the scheduled show cause 1 2 hearing in King County Superior Court on December 16, 2020 and requested an extension for 3 purposes of providing “a substantive response to the writ of attachment motion.” Dkt. #6 at ¶ 8. 4 The superior court granted Defendants an extension on the condition that Defendants “affirm[ed] 5 that they would not seek to sell or encumber the properties” sought to be attached. Id. The court 6 then continued the hearing to December 18, 2020. Id. 7 8 Hours before the scheduled hearing, Defendants removed this action to the U.S. District 9 Court for the Western District of Washington based on the recent ownership changes to the entity 10 defendants. Dkt. #1. The superior court stated that it “will issue the Writ if the Court did not 11 lose jurisdiction,” Dkt. #12-1 at 3, but ultimately concluded, after hearing submissions from the 12 13 parties, that it lost jurisdiction as a result of Defendants’ removal. Id. at ¶ 13. 14 In response to the removal, Plaintiffs filed a motion titled “emergency motion for remand” 15 in this Court on the basis that Defendants’ removal attempt is prima facie baseless and was made 16 solely to create delay. Dkt. #5. The Court determined that Plaintiffs’ filing failed to comply with 17 Fed. R. Civ. P. 65 and re-noted Plaintiffs’ motion for January 15, 2021 pursuant to this Court’s 18 19 local rules. Dkt. #10. Plaintiffs now seek emergency relief from this Court during the pendency 20 of the motion for remand. Dkt. #11 (“TRO Motion”). Specifically, Plaintiffs seek to prevent 21 Defendants from disposing of the assets sought to be attached in Plaintiffs’ Writ of Attachment 22 motion. 23 III. DISCUSSION 24 25 A. Legal Standard 26 To succeed on a motion for temporary restraining order, the moving party must show: (1) 27 a likelihood of success on the merits; (2) a likelihood of irreparable harm to the moving party in 28 the absence of preliminary relief; (3) that a balance of equities tips in the favor of the moving 1 2 party; and (4) that an injunction is in the public interest. Winter v. Natural Res. Def. Council, 3 Inc., 555 U.S. 7, 20, 129 S. Ct. 365, 172 L. Ed. 2d 249 (2008). The Ninth Circuit employs a 4 “sliding scale” approach, according to which these elements are balanced, “so that a stronger 5 showing of one element may offset a weaker showing of another.” Alliance for the Wild Rockies 6 v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011). However, the moving party must still make at 7 8 least some showing that there is a likelihood of irreparable injury and that the injunction is in the 9 public interest. Id. at 1135. Plaintiffs have met these requirements here. 10 1. Likelihood of Success on the Merits 11 Plaintiffs argue they are likely to succeed on their remand motion because Defendants’ 12 13 removal is “prima facie baseless.” Dkt. #11 at 8. When a case is filed in state court, removal is 14 typically proper if the complaint raises a federal question or where there is diversity of citizenship 15 between the parties and an amount in controversy exceeds $75,000. 28 U.S.C. §§ 1331, 1332(a). 16 Typically, it is presumed “that a cause lies outside [the] limited jurisdiction [of the federal courts] 17 and the burden of establishing the contrary rests upon the party asserting jurisdiction.’” Hunter 18 19 v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009). 20 Here, Defendants claim diversity of citizenship pursuant to 28 U.S.C. § 1332(a). Dkt. #1. 21 Diversity jurisdiction requires diversity of citizenship between the parties and an amount in 22 controversy exceeding $75,000. 28 U.S.C. § 1332(a). Diversity of citizenship requires 23 “complete diversity,” meaning that “each defendant must be a citizen of a different state from 24 25 each plaintiff.” In re Digimarc Corp. Derivative Litigation, 549 F.3d 1223, 1234 (9th Cir. 2008). 26 Crucially, “diversity jurisdiction does not encompass a foreign plaintiff suing foreign 27 defendants.” Nike, Inc. v. Comercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987, 991 28 (9th Cir. 1994) (citing Cheng v. Boeing Co., 708 F.2d 1406, 1412 (9th Cir.), cert. denied, 464 1 2 U.S. 1017, 104 S. Ct. 549, 78 L.Ed.2d 723 (1983). 3 Defendants’ notice of removal attempts to construct diversity jurisdiction by erasing all 4 Washington-based parties from the litigation and leaving only foreign-based parties. 5 Specifically, Defendants argue that Plaintiff Ambleside, a Washington citizen, is a “sham 6 plaintiff,” and the remaining plaintiffs—Qiao and De Xian Holding, Ltd.—are a Canadian citizen 7 8 and Samoan corporation, respectively. Dkt. #1 at 3-4. Defendants also contend that the 9 Washington-based corporate defendants are “nominal parties” and should not be considered, 10 leaving only Defendant Chan—a Canadian citizen. Id. at 4-5. Defendants alternatively argue 11 that even if these corporate defendants are considered, forthcoming corporate disclosure 12 13 statements will reveal that these companies are owned by various combinations of Chinese, Hong 14 Kong, and Canadian citizens. Id. at 5. Thus, Defendants’ stated grounds for removal is diversity 15 of jurisdiction between two foreign-based Plaintiffs, Qiao and De Xian Holding, Ltd., and either 16 one foreign-based Defendant, Chan, or multiple foreign-based defendants. Because a lawsuit by 17 foreign plaintiffs against foreign defendants does not meet the “complete diversity” requirement, 18 19 Nike, Inc., 20 F.3d at 991, Defendants’ claimed basis for removal fails as a matter of law. In 20 response, Defendants do not address the facial deficiencies in their notice of removal. Instead, 21 they offer only the conclusory assertion that Plaintiffs’ basis for remand is “mistaken” without 22 further explanation. See Dkt. #14 at 3. 23 Accordingly, Plaintiffs have demonstrated likelihood of success on the merits of their 24 25 motion for remand. 26 Defendants also argue that Plaintiffs have failed to show a likelihood of success on the 27 merits of their claims, given that the TRO motion focuses on their likelihood to succeed on their 28 motion to remand—not the likelihood of success on the claims in their complaint. As a result, 1 2 their motion “contains no evidence with respect to how any claims might be proven, let alone 3 how they are likely to be proven.” Dkt. #14 at 4. The Court disagrees for the reasons set forth 4 below. 5 In addition to discussing their remand motion, Plaintiffs also argue they are likely to 6 succeed on their motion for writ of attachment. Dkt. #11 at 11-12. To prevail on a motion for 7 8 issuance of prejudgment writ of attachment, plaintiffs must establish that (1) there is probable 9 cause to believe that the alleged statutory ground for attachment exists, and (2) the probable 10 validity of the claims. RCW 6.25.070(1); see L.C. v. Gilbert, Case No. C09–5586 BHS, 2010 11 WL 2650603 (W.D. Wash. 2010). The second factor, probable validity of their claims, relies on 12 13 the same evidence supporting a finding that Plaintiffs are likely to succeed on the merits of their 14 breach of contract claims. INX, LLC v. Music Grp. Servs. U.S., Inc., No. C13-2126RAJ, 2013 15 WL 6729612, at *3, n.2 (W.D. Wash. Dec. 19, 2013). 16 Here, Plaintiffs argue that the state court record supports the validity of their breach of 17 contract claims. Dkt. #11 at 11. The Court agrees. The record, which includes copies of the 18 19 agreements entered into between the parties, supports Plaintiffs’ claims that the parties entered 20 into valid written agreements, that Defendants owe Plaintiff debts and obligations pursuant to 21 these contracts, and that Plaintiffs have suffered harm as a result of Defendants’ refusal to pay. 22 See Dkt. #2 at 20-25, 49-105. Accordingly, Plaintiffs have demonstrated likelihood of success 23 on the elements of their breach of contract claim. See Lehrer v. State, Dept. of Social & Health 24 25 Servs., 101 Wash.App. 509, 516, 5 P.3d 722 (Wash. App. 2000) (“Generally, a plaintiff in a 26 contract action must prove a valid contract between the parties, breach, and resulting damage.”). 27 Because Plaintiffs bring this action under breach of contract, see Dkt. #1-1 at ¶¶ 95-100, in 28 addition to other claims, Plaintiffs have demonstrated a likelihood of success on the merits of 1 2 their claims. 3 Finally, Defendants object that Plaintiffs’ motion is not “clear who they wish to restrain” 4 as it “lumps all Defendants together for purposes of seeking relief.” Dkt. #14 at 4. The Court 5 finds this argument unavailing, as the target of the proposed injunction is the list of properties 6 under Appendix A—not the individuals or entities that own them. 7 8 2. Irreparable Harm 9 Next, Plaintiffs have demonstrated a likelihood of irreparable harm absent injunctive 10 relief. Plaintiffs fear that Defendants “are attempting to liquidate assets as quickly as possible to 11 frustrate Plaintiffs’ efforts to recover on an eventual judgment.” Dkt. #11 at 7. Defendants 12 13 respond that Plaintiffs have offered no evidence that Defendants are disposing of property before 14 a court can rule on Plaintiffs’ motion for Writ of Attachment. The Court disagrees. Plaintiffs 15 cite to their state court motion for writ of attachment, which identifies Defendant Chan’s sales of 16 multiple Washington properties over the past year and current efforts to sell Silver Plaza. See 17 Dkt. #2 at 424:23-27, 425:1-2. Defendants do not meaningfully dispute these claims, but instead 18 19 contend that Plaintiffs’ reference to arguments raised in their state court motion cannot constitute 20 “evidence.” Dkt. #14 at 5. However, the state court record includes the sworn declaration from 21 Plaintiff Qiao filed in support of Plaintiffs’ motion for writ of attachment. See Dkt. #2 at 20. 22 This declaration plainly states that on or around November 13, 2020, Plaintiff “learned that Chan 23 is soliciting buyers for Silver Plaza.” Dkt. #2 at 24. For that reason, the Court finds that Plaintiffs 24 25 have supported their fears with more than mere assertions. Cf. Reno Air Racing Ass’n, Inc. v. 26 McCord, 452 F.3d 1126, 1131 (9th Cir. 2006) (“[T]he applicant must do more than assert that 27 the adverse party would dispose of evidence if given notice.”) (internal citation omitted). 28 Furthermore, Plaintiffs have presented troubling evidence of Defendants’ efforts to 1 2 frustrate prosecution of this action through evasion and delay. Defendants’ maneuvers include 3 (1) dodging service of process, which required Plaintiffs to obtain an order permitting alternative 4 service; (2) transferring ownership interest in defendant entities within the past weeks; and (3) 5 removing this action to federal court on a facially improper basis. See Dkt. #2 at 454; Dkt. #6-3 6 at 4-9, 16-21; Dkt. #6 at ¶ 12. Again, Defendants fail to meaningfully address any of these issues 7 8 in their response. In light of this evidence, the Court finds that Plaintiffs have demonstrated a 9 likelihood that Defendants may continue attempting to frustrate prosecution and recovery in this 10 action—which reasonably includes liquidation of their assets during the pendency of this removal 11 proceeding. 12 13 Finally, Plaintiffs have demonstrated that irreparable harm would result if Defendants 14 dispose of assets sought to be attached in Plaintiffs’ Writ of Attachment motion. Defendants 15 contend that no exigency exists, given that any economic injury “can be remedied by a damage 16 award.” Dkt. #14 at 5 (citing Rent–A–Center, Inc. v. Canyon Television & Appliance Rental, 17 Inc., 944 F.2d 597, 603 (9th Cir. 1991)). Yet the irreparable harm Plaintiffs face is more than 18 19 mere “economic injury alone” that can be recovered through damages. Here, if Defendants sell, 20 transfer or encumber the property before the Court rules on Plaintiffs’ motion to remand, 21 Plaintiffs will lose the ability to attach the property and consequently have no recourse for 22 recovering on an eventual judgment. A plaintiff losing her ability to recover a money judgment 23 constitutes irreparable harm warranting temporary injunctive relief. See INX, LLC, 2013 WL 24 25 6729612, at *3 (Finding irreparable harm if defendant disposes of “only significant asset in 26 Washington, which would result in an inability to collect money judgment”); see also In re Estate 27 of Ferdinand Marcos, 25 F.3d 1467, 1480 (9th Cir. 1994) (“We join the majority of circuits in 28 concluding that a district court has authority to issue a preliminary injunction where the plaintiffs 1 2 can establish that money damages will be an inadequate remedy due to impending insolvency of 3 the defendant or that defendant has engaged in a pattern of secreting or dissipating assets to avoid 4 judgment.”). 5 Accordingly, Plaintiffs have demonstrated likelihood of irreparable harm. 6 3. Balance of the Equities and Public Interest 7 8 Balancing the equities requires the Court to “balance the competing claims of injury and 9 must consider the effect on each party of the granting or withholding of the requested relief.” 10 Winter, 555 U.S. at 24. “In exercising their sound discretion, courts of equity should pay 11 particular regard for the public consequences in employing the extraordinary remedy of 12 13 injunction.” Id. 14 Defendants have failed to identify any specific harm they would suffer if the Court 15 granted Plaintiffs’ TRO until it resolved the motion to remand. Instead, they highlight Plaintiffs’ 16 failure to mention any surety bond in their motion and offer the conclusory assertion that “[t]here 17 is no reason why the balance of equities would favor Plaintiffs more than Defendants in this 18 19 situation.” Dkt. #14 at 6. Because this temporary injunction simply preserves the status quo 20 until the motion to remand is resolved, the Court finds no significant injury to Defendants. 21 Moreover, to the extent the injunction temporarily limits “Defendants’ rights to manage their real 22 properties,” this injury is greatly outweighed by the injury Plaintiffs would suffer if Defendants 23 dispose of their assets while this removal is pending. See INX, LLC, 2013 WL 6729612, at *3 24 25 (Finding defendant’s injury “significantly outweighed by the substantial injury [plaintiff] would 26 suffer if defendant could dispose of its only significant asset prior to the court’s ruling on the 27 attachment motion.”). 28 Finally, Defendants contend that there is no public interest at stake, given that this action 1 2 is merely a private dispute between parties. Dkt. #14 at 7. The Court disagrees. Temporarily 3 enjoining Defendants from disposing of their properties during the pendency of Plaintiffs’ motion 4 to remand serves the public’s interest in “protecting creditors from fraudulent or wrongful 5 disposal of property by a debtor.” INX, LLC, 2013 WL 6729612, at *3 (citing Thompson v. 6 DeHart, 84 Wash.2d 931, 937, 530 P.2d 272 (Wash. 1975). 7 8 For these reasons, the balance of equities and public interest weigh heavily in favor of 9 granting Plaintiffs’ requested injunction. 10 B. Required Security under Rule 65(c) 11 “The Court may issue a preliminary injunction or a temporary restraining order only if 12 13 the movant gives security in an amount that the court considers proper to pay the costs and 14 damages sustained by any party found to have been wrongfully enjoined or restrained.” Fed. R. 15 Civ. P. 65(c). The Ninth Circuit has recognized that Rule 65(c) “invests the district court with 16 discretion as to the amount of security required, if any.” Johnson v. Couturier, 572 F.3d 1067, 17 1086 (9th Cir. 2009) (internal quotations omitted). The district court may therefore “dispense 18 19 with the filing of a bond when it concludes that there is no realistic likelihood of harm to the 20 defendant from enjoining his or her conduct.” Id. 21 Plaintiffs have not addressed the issue of security. Defendants claim that a bond should 22 be imposed of “not less than $100,000 to protect Defendants’ interests, which represents ten (10) 23 percent of the alleged property values” stated in Appendix A. Dkt. #14 at 6, n.4. Because the 24 25 Court is not fully informed on the issue of security, the Court will direct the parties to meet and 26 confer about this issue and file separate briefing. 27 // 28 IV. CONCLUSION 1 2 The Court, having considered Plaintiffs’ Motion, the declarations and exhibits in support 3 thereof, and the remainder of the record, hereby finds and ORDERS: 4 (1) Plaintiffs’ Motion for Temporary Restraining Order, Dkt. #11, is GRANTED. 5 (2) Effective as of the date of this order, all Defendants, including any corporate entities 6 under their control, are hereby ENJOINED AND RESTRAINED from selling, transferring, 7 8 encumbering, or otherwise altering their interest in the properties identified on Appendix A to 9 Plaintiffs’ motion for writ of attachment. See Dkt. #2, at 430 of 571 (the “Appendix A 10 Properties”). The Appendix A Properties are reproduced herein below: 11 Parcel ID Owner/ Address Assessed Latest Estimated 12 Taxpayer Value Unexpunged Remaining 13 Mortgage(s) Equity 062205-9001 Garden 19221, $1,002,000 $1,000,000 as $0 14 and 062205- Ridge 19223, (comprising of January 26, 9061 Investment and 19225 $236,000 2017 15 LLC Talbot and 16 Road S, $766,000 $3,000,000 as Renton, respectively) of December 17 WA 15, 2017 98055, 18 USA 19 28052000203000 Silver 10521 19th $3,442,300 $290,000 $912,300 20 Plaza AVE SE, as of March LLLP Everett, 10, 2015 21 WA 22 98208, $2,240,000 as USA of July 2, 23 2018

24 300509-003-041- Premium 11432 41st $976,600 Judgment for Possible 25 00, Place LP Drive (comprising sale of remaining 300509-003-004- Northeast, $30,400, property on proceeds of 26 00, and Marysville, $753,000 September 4, $113,674.45 27 300509-003-003- WA 98271 and 2020 for debt 00 $193,200 of 28 respectively) $862,925.55 Parcel ID Owner/ Address Assessed Latest Estimated 1 Taxpayer Value Unexpunged Remaining 2 Mortgage(s) Equity

3 4 5 Total: $7,392,925.55 $1,025,974.45 6 7 (3) This injunction is effective as of the date of this Order and will remain in effect until 8 resolution of Plaintiffs’ pending motion for remand, Dkt. #5, or as otherwise directed by the 9 Court. 10 11 (4) The Court DIRECTS the parties to meet and confer, then file supplemental briefing, 12 not to exceed six (6) pages, as to the necessity of security under Rule 65(c). This briefing is due 13 no later than seven (7) days from the date of this Order. 14

15 16 DATED this 23rd day of December, 2020. 17 18 A 19 20 RICARDO S. MARTINEZ CHIEF UNITED STATES DISTRICT JUDGE 21

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