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CARLYLE (CARY) W. HALL III (CA Bar No. 184842; AZ Bar No. 026958) POLSINELLI SHUGHART PC Security Title Plaza 3636 N. Central Ave., Suite 1200 Phoenix, AZ 85012 TEL: (602) 650-2000 / FAX: (602) 264-7033 EMAIL: chall@polsinelli.com RYAN D. LAPIDUS (Bar No. 196838) DANIEL C. LAPIDUS (Bar No. 227170) LAPIDUS & LAPIDUS, PLC 177 South Beverly Drive Beverly Hills, California 90212 TEL: 310-550-8700 / FAX: 310-943-2471 EMAIL: dan@lapiduslaw.com INC., a/k/a KMD POWERSPORTS, a California corporation

9 Attorneys for Plaintiffs CONG WANG, an individual; SEASENG, 10 11 12 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA

CONG WANG, an individual; SEASENG, 14 INC., a/k/a KMD POWERSPORTS, a California corporation,
15 16 17 18 19 20 21 22 23 24 25 26 27 28

Case No. CV 09-7145-JFW (JEMx)

Plaintiffs, v. ZHEJIANG KANDI VEHICLES CO., LTD., a/k/a KANDI TECHNOLOGIES CORP, a foreign corporation; KANDI TECHNOLOGIES CORP., a Delaware Corporation, f/k/a STONE MOUNTAIN RESOURCES INC.; ZHEJIANG YONGKANG TOP IMPORT AND EXPORT CO. LTD., a/k/a DINGJI, a foreign corporation; ZHEJIANG MENGDELI ELECTRONIC CO., LTD.; a foreign corporation; XIAO MING HU, an individual; WANG YUAN HU, an individual, Defendants.

PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO MOTION TO DISMISS FIRST AMENDED COMPLAINT Date: January 25, 2010 Time: 1:30 p.m Courtroom: 16

PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO MOTION TO DISMISS FIRST AMENDED COMPLAINT
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I.

INTRODUCTION Defendants claim that the First Amended Complaint (“FAC”) is “thin on facts and

3 thick with bare conclusions and formulaic recitations of the elements of the claims.” 4 Motion, p. 7. That is a better description of Defendants’ motion, which persistently 5 mischaracterizes the FAC, and ignores key allegations in favor of repeatedly using terms 6 like “bare” and “conclusory.” 7

In fact, the FAC alleges in great detail a conspiracy by the Defendants to take over

8 Plaintiffs’ business through threats, extortion, threats, and other criminal and racketeering 9 activity.

The FAC sets forth multiple predicate RICO violations, properly alleges a

10 conspiracy, and identifies Plaintiffs’ damages arising from the Defendants’ scheme. 11

Accordingly, the FAC properly alleges claims for violation of RICO, and Because the state law claims

12 Defendants’ Rule 12(b)(6) motion should be denied.

13 alleged in the FAC share a common basis of operative facts with the RICO claims – and 14 Defendants do not contend otherwise – this Court has supplemental jurisdiction over 15 those claims, and Defendants’ motion to dismiss those claims for lack of jurisdiction 16 should be denied. 17 18

II.

FACTUAL ALLEGATIONS Contrary to Defendants’ mischaracterization, the FAC alleges in great detail the

19 criminal acts and racketeering activities of the Defendants. Among other things, the FAC 20 alleges that Defendants used threats, extortion, intimidation, harassment, and abuse of 21 legal process to attempt to take over Plaintiffs’ business. 22 23

A.

The Parties’ Distributorship Agreement.

Starting in 2006, Defendants Kandi, Kandi China, Zhejiang and/or Mengdeli

24 began expanding their presence in the United States, California, by reaching out to 25 various businesses who would be interested in selling Kandi products. See Complaint 26 ¶18.

Plaintiff Seaseng agreed to act as a distributor of Kandi products, in turn, PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO MOTION TO DISMISS FIRST AMENDED COMPLAINT
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27 Defendants Kani, Kandi China, Zhejiang and/or Mengdeli agreed to give Plaintiff 28

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Seaseng exclusive representation rights for Defendants’ products in California. Complaint ¶19.

See

Sometime in early 2007, Defendant Xiao Ming and Plaintiff Wang agreed to swap shares in their respective companies so that Defendants Kandi China and Zhejiang would take ownership interest in Plaintiff Seaseng. See Complaint ¶22. Plaintiff Wang would then take 30% ownership interest in Defendants Kandi China and Zhejiang. Complaint ¶22. On February 7, 2007, Defendant Zhejiang issued a one-paragraph document titled “Certificate” stating that Plaintiff Wang owns a 30% interest in Zhejiang. See Complaint ¶23. As part of the agreement, Defendants Kandi and Top agreed to contribute See

$300,000.00 in working capital to Plaintiff Seaseng on or before June 1, 2007 for purposes of advertising and promotion of Kandi products. See Complaint ¶24. Plaintiff Wang assisted Defendant Wang Yuan in obtaining a manufacturer’s occupational license [# 68885] from the California Department of Motor Vehicles on June 4, 2007. See Complaint ¶26. On June 25, 2007, Plaintiff Wang obtained a

distributor’s occupational license [#68886] to be able to market and sell Kandi products. See Complaint ¶27. Between June 2007 through December 2007, Defendants Kandi, Kandi China and/or Zhejiang shipped 126 containers (totaling $7 million in product) to Plaintiff Seaseng for which Plaintiff Seaseng used its funds to clear customs, pay duties, and store the goods and then began marketing the product. See Complaint ¶¶28-31. B. Defendants’ Takeover Attempts

The parties began negotiating another stock exchange deal in December 2007. See

24 Complaint ¶¶32-34. Defendants Kandi, Kandi China and/or Zhejiang used Plaintiffs 25 Wang and Seaseng to help them set up their own presence and business in California, to 26 train their employees and then began looking for ways to take over Plaintiff Seaseng’s 27 business and fire Plaintiff Wang. See Complaint ¶¶35-37. 28

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When Plaintiff Wang refused to surrender control over his company to Defendants

2 or to disclaim his interest in the profits earned or to be earned through the sale of Kandi 3 products; Defendants Kandi, Kandi China and/or Zhejiang (in or before February 2008) 4 stole Plaintiff Seaseng’s corporate documents, including but not limited to customer 5 contact lists, customer invoice lists, Seaseng corporate documents and unsigned Seaseng 6 stock certificates – an event caught on camera. See Complaint ¶¶38-41. 7

On or about February 13, 2008, Defendant Zhejiang filed a lawsuit, case number

8 KC052313 (“First Lawsuit”), in the Superior Court of California, County of Los Angeles, 9 10 11 12 13 14 15

against Plaintiff Wang and Plaintiff Seaseng, stating claims for fraud, conversion, breach of fiduciary duty, appointment of receiver, accounting, constructive trust, equitable lien, injunctive and declaratory relief and seeking to take control over Plaintiff Seaseng. See Complaint ¶44. The First Lawsuit, however, was never served on Plaintiffs and was later dismissed. See Complaint ¶¶45-46. C. Defendants’ Threats, Intimidation, and Harassment

In addition to Defendants’ theft of Plaintiff Seaseng’s corporate documents, in

16 February, 2008, Plaintiff Wang learned that his relatives in China were harassed and 17 physically threatened by Defendants’ representatives.

See Complaint ¶42.

Also,

18 Defendants Xiao Ming and Wang Yuan, on or about January 15, 2009, caused a warrant 19 to be issued for Plaintiff Wang’s arrest in China under the theory that Plaintiff Wang was 20 an employee of Defendants Kandi, Kandi China and/or Zhejiang and that Plaintiff Wang 21 misappropriated company documents from the Defendants. See Complaint ¶43. None of 22 this was true. 23

At approximately midnight on February 27, 2008, Defendant Xiao Ming called

24 Plaintiff Wang’s father and threatened Plaintiff Wang’s personal safety. See Complaint 25 ¶47. At approximately 4:00 a.m. on February 28, 2008, Defendant Xiao Ming demanded 26 that Plaintiff Wang meet him to sign a promissory note and settlement agreement drafted 27 by Xiao Ming and/or his attorneys or else face physical violence. Id. 28

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Plaintiff Wang then met with Defendant Xiao Ming who purported to represent the interests of Defendants Kandi, Kandi China, Zhejiang and Mengdeli. See Complaint ¶48. Plaintiff Wang sought to address any miscommunications, restore control over his company Plaintiff Seaseng, and to settle any disputes with Defendants. See Complaint ¶48. The parties entered into a Settlement Agreement. See Complaint ¶¶49-53. In July 2008, Defendant Zhejiang filed another lawsuit against Plaintiff Wang and Plaintiff Seaseng, case number CIVRS 806472 (“The Second Lawsuit”) in the Superior Court of California, County of San Bernardino, making essentially the same allegations as in its First Lawsuit, including stating that Plaintiff Wang was a salaried employee of Defendants Kandi, Kandi China and/or Zhejiang, and that he had a fiduciary duty to make Seaseng the wholly-owned subsidiary of Defendant Zhejiang, and claiming that the

12 Settlement Agreement should be declared void and rescinded; this suit was later 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

withdrawn as well. See Complaint ¶¶54-56. Because Defendant Zhejiang denied the validity of the Settlement Agreement when it filed the Second Lawsuit in July 2008, Plaintiff Seaseng suspended his August payment to Defendants Kandi China and Zhejiang under the Payment Plan. See

Complaint ¶57. On or about October 30, 2008, Plaintiffs Seaseng and Wang received a letter from the California DMV stating that their distributor license was canceled; and that these Plaintiffs were not unauthorized to sell Kandi vehicles as of September 2008. See Complaint ¶58. Around the same time, Plaintiffs Seaseng and Wang began receiving numerous complaints from the ultimate purchasers of Kandi products regarding their poor quality and performance, missing parts and defects who were seeking Plaintiff Seaseng’s assistance with obtaining new parts or receiving refunds; Defendants did not respond to Plaintiffs concerns and business and reputation began to suffer. Complaint ¶¶59-63. Plaintiff Seaseng had no choice but to liquidate the Kandi products to distributors See

in Mexico at heavy losses. See Complaint ¶64. PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN 28 OPPOSITION TO MOTION TO DISMISS FIRST AMENDED COMPLAINT
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D.

Defendants’ Continued Threats of Violence

On or about December 23, 2008, Hong Feng Zhu (“Zhu”), a bodyguard and driver for Defendant Xiao Ming, appeared at Plaintiff Seaseng’s place of business to physically threaten Plaintiff Wang. See Complaint ¶65. Mr. Zhu first met with Neng Da Hu, Plaintiff Wang’s friend, and told him that he was “warning” Plaintiff Wang, and that Defendant Xiao Ming had already made a deposit with someone to “take care of Mr. Wang.” See Complaint ¶66. Plaintiff Wang was out of the office when this happened but when he came back to the office, Mr. Zhu was still at this office and made the same threats of violence and physical harm personally to Plaintiff Wang. See Complaint ¶67. December 24, 2008, Plaintiff Wang filed a police report regarding the threats. See Complaint ¶68. On or about June 8, 2009, Defendants Kandi China and Zhejiang filed yet another lawsuit, case number CIVRS 906194 (“The Third Lawsuit”) in the Superior Court of California, County of San Bernardino, seeking to now enforce the terms of the Settlement Agreement, which these Defendants previously repudiated, and seeking to compel Plaintiffs Seaseng and Wang to pay for the balance of the Kandi products, which they previously refused to accept or service, let alone allow Plaintiffs to distribute. See Complaint ¶69. III. THE FIRST AMENDED COMPLAINT ALLEGES A VALID RICO CLAIM A. The FAC Alleges Predicate Acts Under RICO

The predicate acts necessary for stating a civil RICO claim are found in 18

24 U.S.C.A. § 1961(1), which states that the “racketeering activity” means: 25 26 27 28

(A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in narcotic or other dangerous drugs, which is chargeable under State law PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO MOTION TO DISMISS FIRST AMENDED COMPLAINT
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and punishable by imprisonment for more than one year; (D) any offense involving fraud connected with a case under title 11, fraud in the sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in narcotic or other dangerous drugs, punishable under any law of the United States, or

7 18 U.S.C.A. § 1961(1) (emphasis added). 8

Defendants’ threats of violence to Plaintiff Wang and his family members

9 constitutes extortion under California law as required by 18 U.S.C.A. § 1961(1). See CA 10 Penal § 518 (“Extortion is the obtaining of property from another, with his consent, or the 11 obtaining of an official act of a public officer, induced by a wrongful use of force or fear, 12 or under color of official right”); § 520 (extortion is punishable by two, three, or four 13 years in state prison). 14

Defendants’ theft of Plaintiffs’ corporate records is a violation of California Penal

15 Code § 484 (“Every person who shall feloniously steal, take, carry, lead, or drive away 16 the personal property of another, or who shall fraudulently appropriate property which 17 has been entrusted to him or her, or who shall knowingly and designedly, by any false or 18 19 20 21 22 23 24 25

fraudulent representation or pretense, defraud any other person of money, labor or real or personal property . . .is guilty of theft.”). Finally, Defendants’ false representations in furtherance of their scheme to defraud Plaintiffs violate 18 U.S.C. § 1341 (mail fraud) and § 1343 (wire fraud). Defendants attempt to brush aside their criminal conduct with fatuous arguments that their threats did not “connect any threat with the subject matter of this action,” that “[t]he very nature of the alleged threat are all left to surmise,” and that it could be “a personal dispute of unknown nature.” Motion, p. 13. According to the Defendants, no

26 threat is actionable under RICO unless the defendant is foolish enough to spell out in 27 complete detail the nature of the threat and the reasons for it. Defendants claim that they 28

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can, with impunity, threaten to “take care of” someone, and boast of having already “made a deposit” to do so, because they did not say specifically, “we have hired someone to kill or hurt you.” This is specious. The FAC clearly alleges that Defendants threatened Plaintiffs and their family with physical harm, and that these threats were made in the context of, and in furtherance of, Defendants’ attempts to take over Plaintiffs’ business. Certainly a finder of fact could reasonably infer that the alleged threats were for this purpose. If Defendants wish to defend this case on the theory that their agents were merely threatening violence related to some unknown personal dispute, they are welcome to present any evidence in support of such a theory to the finder of fact. But the standard for pleading a valid claim under Rule 12 does not require Plaintiffs to conclusively negate in their pleading any defense theory, no matter how fanciful, that Defendants can conjure up. B. The FAC Alleges a Pattern of Racketeering Activity

All Defendants are either the parent companies, owners or subsidiaries of the other

16 Defendants. All Defendants constitute the enterprise as they build market share as one 17 entity and sought to acquire Plaintiff Seaseng from Plaintiff Wang. 18

Defendants Kandi, Kandi China, Zhejiang, Mengdeli, Xiao Ming and Wang Yuan

19 combined their efforts as one partnership, association or enterprise (“RICO enterprise”) 20 for purposes of: 21 22 23 24 25 26

1) Increasing their share in the market for ATVs, UTVs, and go-karts in the United States through expansion of their operations in the United States; and 2) Acquiring, by means of fraud, securities fraud, extortion and harassment, the United States companies who would store, market, distribute, service and be otherwise responsible for Kandi products. See Complaint ¶72. Defendants Kandi, Kandi China, Zhejiang, Mengdeli, Xiao Ming and Wang Yuan PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO MOTION TO DISMISS FIRST AMENDED COMPLAINT
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27 engaged in racketeering activity when they: 28

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1) Threatened Plaintiff Wang and his family members with physical violence in order to extort his cooperation; 2) Abused process by filing a series of frivolous actions against Plaintiffs Seaseng and Wang for ulterior reasons of harassment, extortion, and interference with Plaintiffs’ business; 3) Sought to deprive Plaintiff Wang of his ownership and management rights in Plaintiff Seaseng without valid consideration, essentially ousting him from his own company by means of fraud, intimidation and harassment. See Complaint ¶73.

10 The following are some of the predicate criminal acts which constitute a pattern of 11 racketeering activity and which Defendants knowingly committed: 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

1) Acting for Defendants Kandi, Kandi China, Zhejiang, or Mengdeli, Defendants Xiao Ming and/or Wang Yuan stole corporate documents and/or

misappropriated trade secrets from Plaintiffs Seaseng and Wang. 2) Acting for Defendants Kandi, Kandi China, Zhejiang, or Mengdeli, Defendants Xiao Ming and/or Wang Yuan made and/or directed death threats and threats of bodily harm to Plaintiff Wang and/or his relatives, which are punishable as criminal offenses. See Complaint ¶74. The above-referenced actions of Defendants Kandi, Kandi China, Zhejiang, Mengdeli, Xiao Ming and Wang Yuan have sufficient continuity so as to pose a threat of continued criminal activity. See Complaint ¶75. The above-referenced acts of racketeering, occurring within ten years of one another, constitute a pattern of racketeering activity within the meaning of 18 U.S.C. § 1961(5). See Complaint ¶76. C. The FAC Adequately Alleges Damages

Defendants’ motion ignores the allegations of the FAC that clearly set forth PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO MOTION TO DISMISS FIRST AMENDED COMPLAINT
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27 Plaintiffs’ damages. Plaintiffs Seaseng and Wang were injured in their business and 28

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property by reason of this violation of 18 U.S.C.A. § 1962, in that, as a direct and proximate result of Defendants’ complained acts, Plaintiffs suffered damages, including damages to their business, property and person. As a result of actions of Defendants Kandi, Kandi China, Zhejiang, Mengdeli, Xiao Ming and Wang Yuan, Plaintiff Wang suffered emotional distress from concern for his own safety and that of his family; Plaintiffs Seaseng and Wang’s business reputation and trade name were tarnished; Plaintiffs Seaseng and Wang lost their customers and opportunity to continue as a distributor of the Kandi products in California; and Seaseng and Wang sustained other monetary losses arising from Defendants’ breach of distributorship, ownership, settlement agreements and/or outright scheme by these Defendants to defraud Plaintiffs. In addition, Defendants used extortion and fraud to induce Plaintiffs to sign the Settlement Agreement, and to make payments of $90,000, $164,256, and $181,850 under that agreement. See Complaint, ¶¶ 47-52. D. The FAC Adequately Alleges a Conspiracy

Defendants’ attack on the FAC’s allegations of violation of §1962(d), conspiracy

16 to violate the RICO statute, largely rest on Defendants’ claim that the FAC does not 17 allege predicate acts.

As set forth above, the FAC does in fact adequately allege

18 predicate acts, so this argument fails. 19

Defendants also claim that the FAC only alleges an agreement to commit predicate

20 acts rather than to join the conspiracy. This is also without merit. The FAC clearly 21 alleges that the Defendants joined together to attempt to take over Plaintiffs’ business by 22 unlawful means. Among other things, the FAC alleges that the Defendants “combined 23 their efforts as one partnership, association or enterprise (“RICO enterprise”) for 24 purposes of: (a) Increasing their share in the market for ATVs, UTVs, and go-karts in the 25 United States through expansion of their operations in the United States; and (b) 26 Acquiring, by means of fraud, securities fraud, extortion and harassment, the United 27 States companies who would store, market, distribute, service and be otherwise 28

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responsible for Kandi products.” FAC, ¶ 74. The FAC further alleges that “Defendants . . . knowingly agreed or conspired to operate or manage their combined activities as a RICO enterprise” FAC, ¶ 91. IV. SUPPLEMENTAL JURISDICTION EXISTS OVER THE STATE LAW CLAIMS Defendants’ claim that this Court lacks jurisdiction over the non-RICO claims is

7 premised on their argument that the FAC does not adequately plead a RICO claim. 8 Defendants do not dispute that the state law claims share a common nucleus of operative 9 facts with the RICO claims. Because Defendants’ attacks on the RICO claims fail for the 10 reasons shown above, Defendants’ argument as to supplemental jurisdiction likewise 11 fails. 12 13

V.

CONCLUSION For the reasons set forth above, the Court should deny Defendants’ motion to

14 dismiss. In the alternative, if the Court grants the motion to dismiss, Plaintiffs request 15 leave to amend. 16 17 18 19 20 21 22 23 24 25 26 27 28

DATED: January __, 2010

POLSINELLI SHUGHART PC

By: ______________________________ Carlyle (Cary) Hall III Attorneys for Plaintiff

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