Opinion
G054554
07-30-2018
SURF CITY AUTO GROUP, INC., Plaintiff and Respondent, v. MARK LIN et al., Defendants and Appellants.
Law Offices of Bin Li, Bi Li and Yichang Chen for Defendants and Appellants. Burkhalter Kessler Clement & George, Alton G. Burkhalter and Rosamund M. Lockwood for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2014-00728314) OPINION Appeal from a judgment of the Superior Court of Orange County, Theodore R. Howard, Judge. Affirmed. Law Offices of Bin Li, Bi Li and Yichang Chen for Defendants and Appellants. Burkhalter Kessler Clement & George, Alton G. Burkhalter and Rosamund M. Lockwood for Plaintiff and Respondent.
I. INTRODUCTION
A jury found Mark Lin and his company, AM Legend, Inc. (collectively Lin), liable to Surf City Auto Group (Surf City) for treble damages under a federal law colloquially referred to as civil RICO (standing for the Racketeer Influenced and Corrupt Organizations Act, see 18 U.S.C. §§ 1961-1968 (RICO)). Lin was also found liable for state common law fraud. The jury determined he had hoodwinked Surf City into selling him some 117 Dodge Ram Trucks under the guise they were destined for a fleet operator in Nevada, when they were actually being sold for export to customers in the People's Republic of China.
Duped into thinking it was selling to a domestic Nevada buyer and not an exporter, Surf City extended to Lin some $405,717 in manufacturer rebates and incentives that it would not have extended if the truth about the ultimate destination of the vehicles had been disclosed, and ended up having to pay that money back to Chrysler.
Lin's argument on appeal is that there was insufficient evidence he knowingly participated in a scheme to defraud Surf City. We disagree. On review we find sufficient evidence of Lin's knowing participation in the fraud on Surf City, including his long-time involvement in the vehicle export trade; his knowledge of the need to avoid the word "international" in his bank accounts so as to conceal the Chinese location of his customers; his knowledge of the need to pay off a Surf City insider to facilitate the sales; and his knowledge of the need to use different vehicle haulers to deceive the dealership into thinking the trucks were being delivered inland, instead of to a port. We therefore affirm the aggregate judgment of $1,828,596.
II. FACTS
Surf City's most explanatory witness was an expert in the automotive industry who testified that all American car manufacturers have a policy against their American dealers selling to customers who plan to export the cars abroad. The reason, he said, is to protect each manufacturer's "global network." The expert noted that in Surf City's case, if Chrysler were to catch it selling to an exporter, Surf City would face a $3,100 penalty for each vehicle exported, back charges for all incentives extended to it by Chrysler, and, in a worst case scenario, actual termination of the dealership franchise itself. Most of the rest of the trial centered on the details of the 2013 sale of some 117 Dodge Ram trucks at around $50,000 each by Surf City to a buyer ostensibly known as Quadrant Armored Sales and Leasing (Quadrant Armored).
A federal judge in Ohio took a somewhat dyspeptic view of the manufacturers' policy in another RICO case also arising out of the export of American cars purchased from a domestic dealership: "It appears to the Court that the primary concern of the manufacturers is guarding their foreign market profits from competition from domestic automobile brokers." (United States v. Contents of Wells Fargo Bank Account XXX5826 in the name of Automotive Consultants of Hollywood, Inc. (S.D. Ohio, Apr. 1, 2014, No. 1:13-CV-716) (Consultants of Hollywood).) There are large price differentials for vehicles sold by American dealers in America and the same vehicles sold in China - the Chinese pay much higher prices. However, while there have been a few cases challenging the manufacturers' policy as a restraint of trade (see In re Automobile Antitrust Cases I & II (2016) 1 Cal.App.5th 127 [American customers complaining against manufacturers' policy against export into America of cheaper cars purchased in Canada]; cf. Kaufman v. Audubon Ford/Audubon Imps., Inc. (La. App. 2005) 903 So.2d 486, 491-492 [dealer's non-export rule not a violation of state unfair trade practices law]), no such issues are before us in this appeal.
Lin supplied us with a voluminous record but has failed to have the exhibits transmitted to us for this appeal. Precise details as to how many trucks were sold at exactly what times appear to be in those exhibits. We can only approximate dates and numbers in our narrative.
In 2013, Lin was in the business of exporting new American vehicles to China, under the corporate aegis of AM Legend, Inc. Lin used Bryan Van Cleave as an intermediary to obtain vehicles for exportation, and ordered through a company controlled by Van Cleave. Lin paid Van Cleave a percentage of the profit.
At some time prior to the sale of the 117 trucks, Van Cleave's company was BVC Motors, Inc. However, for the sale of the 117 trucks, Van Cleave used another company, Quadrant Armored. The reason for the change-over was, as Van Cleave himself testified, that BVC had already been blacklisted by Chrysler as an exporter of vehicles. Van Cleave admitted that Quadrant Armored had been specifically formed to be the ostensible buyer of the Dodge Ram trucks.
Lin's operation generally went like this: He would receive orders over the phone from his contacts in China, mainly two companies, Beijing Chinlongjing and Beijing International. That money would be wired to AM Legend's account at a bank - originally East West Bank, later GBC International Bank - and from there it would go into an account for I Auto Dealer, another company controlled by Lin. From I Auto Dealer the money would be used to pay an American dealer, presumably (though Lin did not directly say this on the stand) using the name of whichever company Van Cleave was using at the time. Van Cleave's company would then buy the vehicle from the dealer, which it would pick up using a trucking service not known to be connected to the export trade. That trucking service would then bring the vehicle to the yard of a vehicle exporter for loading onto a ship to China.
The truck sales at issue in this case began when Van Cleave called Surf City's fleet sales manager, Bryan Hopkins, to ask if Hopkins was "open" to "helping [him] with some cars" that "will be exported." Van Cleave had known Hopkins for some time previously, the two of them having worked together at Huntington Beach Dodge. Hopkins was indeed open to selling for export, but said - out loud - he would need a number of forged documents for Surf City's files. Specifically, Hopkins needed documents that would indicate the vehicles were not being sold for export. Hopkins wanted Van Cleave to put together those false documents.
Which Van Cleave did. He unabashedly testified that he made up the necessary documents in order to help Hopkins and Surf City fool Chrysler. "It's not my job to defraud the dealer," Van Cleave would later tell the jury. "It's my job to protect the dealer from anything bad." The false documents included forged bills of lading to show a destination other than a port, false evidence of insurance, and perhaps most ominously, faked Arizona DMV registrations. Van Cleave also testified he and Hopkins used Federal Express to exchange these documents. One of the reasons for the need for such documents was so that Surf City could credibly obtain MSO's ("manufacturer's statement of origin") from Chrysler. Because MSO's are absolutely necessary for export, a request for one by a dealer can trigger manufacturer scrutiny. On the other hand, MSO's are also necessary for registrations in other states, hence the need to falsely suggest the vehicles were destined for Arizona.
The buyer for the trucks was ostensibly Quadrant Armored, a name chosen, as Van Cleave testified, to give dealers "plausible deniability" from any imputation of exportation. Van Cleave asked his girlfriend, Heidi Corral, to be the signatory for Quadrant Armored because Van Cleave himself was already a suspected exporter. Corral signed the sales contracts that showed sales made for security conscious customers in Nevada. To that end, a number of the cars had to be outfitted with bullet proof windows.
The trucks got to Lin, that is, AM Legend, via two different hauling companies. They were put on the boat by a firm known as Edward Transit, ostensibly shipping for AM Legend. Lin himself provided the MSO's to Edward Transit. However, Edward Transit does not deal directly with auto dealerships because it is known to be involved in the export trade, so Van Cleave told Lin that he needed to pay Edward Transit to then pay another firm, Bob & Dave's Towing, to actually pick up the trucks.
Van Cleave wanted the best possible pricing on the trucks. He admitted on cross-examination that manufacturer rebates were important to his operation. With regard to the Ram Trucks, however, his quest for the best possible price hit a snag. At the time, Chrysler was offering a $500 rebate on the trucks and Surf City's Hopkins wanted $200 of it. Van Cleave told Lin the "dealer now wanted an additional $200 for an export fee" which Lin agreed to pay.
At his deposition (read into the record at trial), Van Cleave admitted he told Hopkins that Lin was his "business partner." At trial, however, Van Cleave described Lin as merely a "good customer for a long time."
Lin makes much of Van Cleave's attempt to exculpate him. The weight of that testimony was not for us, but the jury to decide. It did not carry the day there, so it cannot here.
The chickens came home to roost in the spring of 2014, when Chrysler audited Surf City. Surf City's executive manager, Peter Shaver, had previously suspected the sales to Quadrant Armored were for export after a google search, and the audit confirmed it. The most dramatic evidence was when the auditor informed Shaver the sales had been for export to China, and Shaver then called the Arizona DMV to verify they were really domestic, only to discover the registration numbers in his possession did not have enough digits to be legitimate Arizona registrations.
The sales to Quadrant Armored had entailed various incentives and rebates paid to Surf City and passed on to AM Legend, so the initial result of Chrysler's audit was a demand that Surf City pay Chrysler $844,967.50. After an internal appeal process within Chrysler that entailed Shaver making a trip back to Detroit, and the incurrence of some $37,261 in legal fees, Surf City managed to whittle that figure down to $405,000. But they had also incurred a loss of some $106,132 in the course of reselling certain undelivered trucks that were "too well equipped" for the American market after Quadrant Armored had been caught sending trucks on for export.
Lin's defense was that his only "point of contact" with Surf City was Van Cleave, and he never told Van Cleave to conceal his intention to export the trucks. Lin believed Surf City was willing to sell him vehicles for export given that he knew Hopkins was open for such sales. Elaborating, he testified there were two kinds of dealers in his experience: Those that would sell vehicles on the sly - providing MSO's for export - but working under a kind of code of don't-ask-don't-tell silence. And the other kind were those that were "expressly" open for export, and he thought Surf City was of the latter type.
The jury did not accept Lin's explanation and found him liable for $1,828,596, of which $1,463,408 was for liability under the RICO statute, and the balance, $365,188, was for state law fraud in the form of intentional misrepresentation or concealment. Lin has timely appealed from the judgment.
III. DISCUSSION
While Lin's opening brief is framed in terms of three separate challenges to the judgment, in fact he presents but one: There was insufficient evidence to show he knowingly participated in a scheme to defraud Surf City of money or property under RICO. The key question is thus not whether there is evidence that Van Cleave actually told Lin about his lying and falsifying documents in order to inveigle Surf City into selling the trucks; the question is whether Lin knew that Van Cleave would have to resort to fraud to obtain those trucks. And there was only one answer to that: yes.
The opening brief has three headings that only deal with general topics: (1) vicarious liability, (2) aiding and abetting, and (3) RICO wire fraud. Neither vicarious liability or aiding and abetting are apposite, since the jury's verdict was predicated on RICO and state common law fraud. Lin's brief does not mention state common law fraud or concealment as statutorily embodied in Civil Code sections 1709 and 1710, or otherwise. We are thus left with but one issue - the attack on the RICO verdict. (See Consolidated Irrigation Dist. v. City of Selma (2012) 204 Cal.App.4th 187, 201 [argument "forfeited" by not presenting it "in an appellate brief under a separate heading"].)
The R in RICO stands for racketeering, and the statutory scheme begins by defining "racketeering" to include mail fraud under 18 U.S.C. section 1341 and wire fraud under 18 U.S.C. section 1343. (See 18 U.S.C. § 1961(1).) Mail fraud and wire fraud both require a specific, knowing intent to defraud. (See United States v. Parse (2d Cir. 2015) 789 F.3d 83, 121 [mail fraud] and United States v. Brooks (5th Cir. 2012) 681 F.3d 678, 799 [wire fraud]; see generally Consultants of Hollywood, supra [need for specific intent to deprive victim of money or property in context of wire and mail fraud for exportation of cars purchased from American dealers].) Pointing out there was no direct evidence that he knew of the Van Cleave-Hopkins arrangements to obtain trucks from Surf City by false pretenses, Lin now argues that the jury could not reasonably infer such conscious knowledge from the evidence before it.
RICO requires at least two predicate acts to constitute at pattern of racketeering activity which includes mail or wire fraud. (See Gervase v. Superior Court (1995) 31 Cal.App.4th 1218, 1232 (Gervase).) The mail fraud statute includes the use of private interstate carriers like Federal Express. (18 U.S.C. § 1341 uses the phrase: "any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier[.]") (Italics added.) Given the extensive use of Federal Express by Van Cleave and Hopkins, Lin makes no argument that the need for a pattern of racketeering activity has not been satisfied. (See Gervase, supra, 31 Cal.App.4th at p. 1232 [discussing pattern element].)
We should also note that Lin received the money from customers in China via wire transfers, which were themselves innocent. Lin, however, does not argue that the innocence of those transfers precludes RICO application. Schmuck v. United States (1989) 489 U.S. 705, 714715 is clear that mailings that themselves do not contain any false information still satisfy the mailing element as regards the mail fraud statute, and the same is presumed for wire fraud. (See Wang v. Ochsner Medical CenterKenner, L.L.C. (E.D. La., Dec. 7, 2017, No. CV 175134) 7.)
He's wrong. The evidence reveals a number of items from which the jury could reasonably infer knowledge that Surf City would have refused to sell to Quadrant Armored without being fooled into believing that the cars were destined only for the domestic market.
As Paul Simon would ask, "now who do, who do you think you're fooling?" We begin with the most obvious problem with Lin's argument, the rather large elephant in the room: A reasonable jury could find it impossible to believe that in 2013 any exporter of American cars to China was not aware that auto manufacturers will not allow their dealers to sell for export, and thus some sort of subterfuge would be necessary to obtain vehicles from them for export. The contradictions in Lin's own testimony are damning: He testified that back in 2004 (when, apparently, manufacturers' non-export policies were looser) 50 percent of dealers allowed purchase for export. The unspoken but logically undeniable corollary of that admission is that he knew 50 percent would not even by 2004, but even that testimony contradicted Lin's deposition testimony that dealers only "seldomly" did not want to sell for export. But then Lin came up with a third description of his knowledge: that prior to this lawsuit Lin had never heard that manufacturers selling in the United States did not want their vehicles exported to buyers to China. A jury could readily divine from Lin's tripartite tissue of contradictions that he was quite conscious of manufacturers' policies against exportation and that any intention to export would thus have to be actively concealed from any dealers from whom he was trying to obtain vehicles.
"Loves Me Like a Rock."
The most dramatic confirmation of that inference is exhibit 14, heavily emphasized by Surf City at trial. Exhibit 14 was an e-mail from Lin to Van Cleave that conveyed Lin's instructions to Van Cleave not to tell a certain Ford dealership that vehicles Van Cleave was purchasing were for export. While Lin argued the email was irrelevant because it concerned another manufacturer and dealership, the jury could reasonably infer a recognition on Lin's part that if the ultimate destination of the vehicles he was buying for his Chinese customers had to be concealed from a Ford dealership, he also knew that destination would have to be concealed from another of the one-time "big three" Detroit automakers.
Exhibit 14 is enough by itself to show knowledge of a need to conceal an intention to export. By not supplying this court with the trial exhibits, Lin has in effect conceded that those exhibits contain enough evidence to support the verdict. (See Maguire v. Lees (1946) 74 Cal.App.2d 697, 709.)
We must also note here, as Surf City's expert testified, that the subject of exportation is a hot topic in the automotive world. Lin testified that he had formed AM Legend to export vehicles in 2004, and had been in the exporting business since then through 2014. He also testified that two or three times he had tried to buy cars directly from dealers for export, but was quoted "very expensive" prices. That evidence allowed a reasonable jury to put two-and-two together and conclude that Lin realized he would have to resort to subterfuge in order to obtain cars at a price he deemed acceptable. That inference was further confirmed by Lin's own testimony that he didn't approach dealers directly for export, since every time he had the result was reception of a "very expensive" and "not realistic" offer. Lin's experience in the auto trade would thus correspondingly give rise to the inference that in order to convince a dealer to ignore its manufacturers' policy against exportation, he would have to pay a premium - a premium he did not want to pay and was willing to engage in deception to avoid.
See Selling vehicles for export angers automakers, but is it illegal? (Automotive News July 21, 2014) [http://www.autonews.com/article/20140721/LEGALFILE/307219975/selling-vehicles-for-export-angers-automakers-but-is-it-illegal%3F] (as of June 6, 2018). The article notes the large price differentials that exist between the U.S. prices of certain luxury cars and what they go for in China. --------
The jury could also reasonably infer Lin's knowing participation in the Van Cleave-Hopkins deceptions from two sets of duplicities inherent in the way Lin set up his own operations in regard to banking and transit. As to banking, there was direct testimony by Van Cleave that he urged Lin to drop GBC International Bank since the word international was a dead give-away of an intention to export. That comment necessarily alerted Lin to the fact that dealers, reasonably including Surf City, had to be fooled into thinking the vehicles he was buying were not destined for export. The same can be said for transit, as Van Cleave told Lin about the need to pay two different haulers so as to avoid the one known to deal in exportation showing up at the dealership to collect the trucks.
Finally, there was the need to pay off Hopkins with an "export fee." The jury could infer that Lin was not so naive as to believe that the deal was on the up-and-up when a rebate had to be kicked back to an insider at the dealership. All in all, there was an abundance of evidence.
IV. DISPOSITION
The judgment is affirmed. Respondent Surf City is awarded costs on appeal.
BEDSWORTH, ACTING P. J. WE CONCUR: MOORE, J. ARONSON, J.