DONNA M. RYU, Magistrate Judge.
Plaintiff Shuting Kang moves pursuant to Federal Rules of Civil Procedure 15(a) and 19(a) to file an amended complaint. [Docket No. 27.] Defendants oppose the motion. On November 30, 2017, the court ordered Kang to file a reply to Defendants' opposition, which she timely filed. [Docket Nos. 37, 39 (Reply).] This matter is suitable for resolution without a hearing. Civ. L.R. 7-1(b). For the following reasons, the motion is granted.
Kang is a "Chinese investor who is seeking a legal path to U.S. residency." She alleges that Defendants Sophie Harrison, Shengrun International Industry Group, Inc., Sino-USA Entrepreneur Association, Inc. ("Sino-USA" or "Sino-USA Entrepreneur Association"), and ten Doe Defendants "perpetuated an investment scheme to exploit a federal visa program" to defraud her.
Specifically, Kang alleges that she and her son traveled to California from China in January 2015 for a meeting with Sophie Harrison at her San Mateo, California office. During the meeting, Sophie Harrison described the 229 Project to Kang as an "EB-5 investment apartment complex project," and described floor plans and other information about the project. Id. at ¶ 16. Sophie Harrison "promised [Kang] that as long as she would invest $500,000 in the `229 Project,' she would be able to complete the EB-5 application for [Kang] and file the applications for temporary residence status" before Kang's son turned 21 in 2016. Id. at ¶ 17. Sophie Harrison "assured [Kang] that they would get their temporary green cards" in or around June 2017. Id. Additionally, she told Kang that the 229 Project would be completed by June 2017, and that Kang would "get a condo unit from the project with rental income" so that Kang could "recover her $500,000 investment" and "receive profits." Id. at ¶ 18.
Kang alleges that following the presentation, Sophie Harrison "made [Kang] sign an immigration service retainer contract." Id. at ¶ 19. The agreement, which is Exhibit A to the complaint, is on Sino-USA Entrepreneur Association letterhead and is titled "Investment Immigration Retainer Agreement." [Docket No. 1-1 (Retainer Agreement).] The agreement contains two parts; the first is in Chinese and the second appears to be the English translation. The first part contains two signatures. The second contains shows two typewritten signatures: "Sophie," on behalf of Party A, defined as Sino-USA Entrepreneur Association; and "Shuting Kang," listed as the "Signature of party B representative." The agreement contains the following description of the parties' obligations:
Retainer Agreement at ECF p. 5. It provides that "party B" will pay an "investment immigration fee" of $80,000, which includes attorneys' fees and application fees, in addition to the $500,000 investment. Id. at ECF pp. 7-8.
According to Kang, Sophie Harrison also "made [Kang] sign a `House Purchase Deposit Agreement' . . . which provides that [Kang] is a buyer of a `to-be-built' condo unit" in the 229 Project "for a price of $650,000.00 with a $10,000.00 deposit." Id. at ¶ 20. Kang asked why no lawyer was named in the agreements. In response, Sophie Harrison assured Kang that "everything is legal and reiterated that the `229 Project' was approved by the [U.S. Citizenship and Immigration Services] and designated for EB-5 investor immigration purposes." Id. at ¶ 21.
In January and February 2015, Sophie Harrison met with Kang "several times" in Shenzhen, Guanzhou, and other places in China, and "urged [Kang] to make the first deposit of $10,000," which Kang paid by wire transfer. Id. at ¶ 22. Between January 2015 and April 2015, she also "persistently urged [Kang] to wire $520,000" to her bank account under the name of "Sino-USA Entrepreneur Association," and "repeatedly assured [Kang] that she and her son would timely get their US green cards." Id. at ¶ 23. Kang again asked Sophie Harrison "why there was no lawyer involved in the process," to which she replied "[Kang] should just trust her and that's the only way that Defendant [Sophie] Harrison could best help [Kang]." Id. Relying on Sophie Harrison's promises and assurances, Kang wired $520,000 in April 2015 to Sophie Harrison's account under the name Sino-USA Entrepreneur Association. Id. at ¶ 24.
Kang also alleges that she was also induced by Sophie Harrison to loan money to Sophie Harrison's company, Defendant Shengrun International Industry Group, Inc. ("Shengrun"). In late January 2015, Kang loaned Shengrun "RMB 5 million at a monthly interest of RMB 150,000.00." Id. at ¶ 25.
In or around the end of May 2015, Kang called Sophie Harrison and asked about the status of her EB-5 visa application. Sophie Harrison told Kang "that there [was] a hitch because [Kang's] son would age-out as a follow-to-join dependent," but that "she would have her son apply for the investor immigration as a principal applicant and would not therefore be subject to the 21-year-old time limit." Id. at ¶ 26. She "reassured [Kang] that there [was] no problem in their arrangement and there [was] nothing to worry about." Id.
Kang alleges that Sophie Harrison told her "many times that the construction work" for the 229 Project had started in June 2015. In September 2015, Kang learned from a friend that "the designated location [was] just an empty piece of land." Id. at ¶ 27. When confronted, Sophie Harrison "admitted that there was a problem with the project, that she had not done anything on the immigration application of [Kang] and her son, and that she had already spent [Kang's] money for personal benefits." Id. Further, with respect to the loan to Shengrun, Kang alleges that Sophie Harrison had paid the specified monthly interest on the loan to Kang until March 2016, and thereafter had "stopped paying its obligation to [Kang] altogether." Id. at ¶ 28. At some point, Kang traveled to the United States to "negotiate with Defendants for the return of her immigration investment money" and repayment of the loan, "but her demands fell on deaf ears." Id. at ¶ 29. She alleges that she has lost over $1,500,000 due to Defendants' actions. Id. at ¶ 30.
Kang alleges twelve claims for relief against all defendants: 1) fraud, based on "illegal brokering of EB-5 investments"; 2) fraud, based on "misusing EB-5 investments" in the amount of $530,000; 3) violations of sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933, which Kang alleges prohibits "fraud and misrepresentations in the offer or sale of securities," including investment contracts (Compl. ¶¶ 45, 49) (see 15 U.S.C. § 77q(a)(1), (3)); 4) violation of section 17(a)(2) of the Securities Act of 1933, based on Defendants' "false and misleading statements in enticing [Kang] to invest in the sham `229 Project'" (Compl. ¶ 55) (see 15 U.S.C. § 77q(a)(2))
The proposed amended complaint adds Jarrod Harrison as a defendant on all claims. To support the allegations against Jarrod Harrison, Kang alleges that Jarrod Harrison is Sophia Harrison's husband and is also the honorary president of Defendant Sino-USA. [Docket No. 27-2 (Prop. Am. Compl.) ¶ 14.] She further alleges that the Investment Immigration Retainer Agreement signed by Sophie Harrison and Kang is on Sino-USA letterhead. Id. at ¶ 21. Under her sixth claim for violation of RICO, Kang alleges that Sophia Harrison, Jarrod Harrison, Sino-USA, Shengrun, and third party Guangzhou Bozhi Trading Company "[c]onniv[ed] and plot[ed] together . . . [to] engage[] in dishonest and fraudulent business dealings, specifically, fraud in the sale of securities" and the loan of RMB 5 Million Yuan. Id. at ¶ 72.
Under Federal Rule of Civil Procedure 15(a), leave to amend should be granted as a matter of course, at least until the defendant files a responsive pleading. Fed. R. Civ. P. 15(a)(1). After that point, Rule 15(a) provides generally that leave to amend the pleadings before trial should be given "freely . . . when justice so requires." Fed. R. Civ. P. 15(a)(2). "This policy is to be applied with extreme liberality." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (quotation omitted). In the absence of an "apparent reason," such as undue delay, bad faith or dilatory motive, prejudice to the opposing party, futility of the amendments, or repeated failure to cure deficiencies in the complaint by prior amendment, it is an abuse of discretion for a district court to refuse to grant leave to amend a complaint. Foman v. Davis, 371 U.S. 178, 182 (1962); Lockheed Martin Corp. v. Network Sols., Inc., 194 F.3d 980, 986 (9th Cir.1999). These factors do not "merit equal weight," and "it is the consideration of prejudice to the opposing party that carries the greatest weight." Eminence Capital, 316 F.3d at 1052. "Granting leave to amend does not necessarily mean that the underlying allegations ultimately have merit." FlatWorld Interactives LLC v. Apple Inc., 12-CV-01956-WHO, 2013 WL 6406437, at *3 (N.D. Cal. Dec. 6, 2013). "Rather, `[a]bsent prejudice, or a strong showing of any of the remaining [ ] factors, there exists a presumption under Rule 15(a) in favor of granting leave to amend.'" Id. (quoting Eminence Capital, 316 F.3d at 1052).
In her brief eight-line motion, Kang asserts that after filing the original complaint, she determined that the name of one of the Doe Defendants is Jarrod Harrison. She now seeks to file an amended complaint either substituting him for a Doe Defendant and/or adding Jarrod Harrison as a defendant. In a declaration filed in support of the motion, Kang's attorney asserts that the Immigration Investment Retainer Agreement was "entered into between Sino-USA Entrepreneur Association, Inc., as `Party A' and Plaintiff Kang, as `Party B,'" and that Sino-USA "was the recipient of the $520,000 loan from Plaintiff Kang due to Defendant Sophie Harrison's representation."
Defendants oppose the motion on grounds of futility, undue prejudice, and bad faith. As to futility, they argue that Kang's fraud and fraud-based claims must be pleaded with particularity pursuant to Federal Rule of Civil Procedure 9(b). They argue that the proposed amended complaint fails to satisfy this standard as it contains no details of Jarrod Harrison's alleged involvement with the wrongdoing alleged by Kang.
A proposed amendment may be denied as futile "if no set of facts can be proved under the amendment to the pleadings that would constitute a valid and sufficient claim or defense." Miller v. Rykoff-Sexton, 845 F.2d 209, 214 (9th Cir. 1988). "Under futility analysis, `[d]ismissal without leave to amend is improper unless it is clear, upon de novo review, that the complaint could not be saved by any amendment.'" United States v. Corinthian Colleges, 655 F.3d 984, 995 (9th Cir. 2011) (quoting Krainski v. Nevada, 616 F.3d 963, 972 (9th Cir. 2010) (quotation omitted)). "Denial of leave to amend on [the ground of futility] is rare," Netbula, LLC v. Distinct Corp., 212 F.R.D. 534, 538-39 (N.D. Cal. 2003), and if it is "not clear beyond doubt that amendment of [a] complaint would be futile," a court should permit a party to amend its complaint rather than deny leave to amend on the basis of futility. See Ctr. for Biological Diversity v. Veneman, 394 F.3d 1108, 1114 (9th Cir. 2005). Ordinarily, "courts will defer consideration of challenges to the merits of a proposed amended pleading until after leave to amend is granted and the amended pleading is filed." Netbula, LLC, 212 F.R.D. at 539 (citation omitted).
Under Rule 9(b), allegations of fraud must be stated with "specificity including an account of the `time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations.'" Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (quoting Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004)); see also Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (averments of fraud must include "the who, what, when, where, and how" of the misconduct charged). Vague or conclusory allegations are insufficient to satisfy Rule 9(b)'s particularity requirement. Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989). "A party alleging fraud must `set forth more than the neutral facts necessary to identify the transaction.'" Kearns, 567 F.3d at 1124 (quoting In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994)). The Rule 9(b) heightened pleading standard also applies to claims for which fraud is not a necessary element but that are nonetheless "grounded in fraud." Vess, 317 F.3d at 1103. Where a plaintiff alleges "that the defendant has engaged in fraudulent conduct," including "a unified course of fraudulent conduct and rel[ies] entirely on that course of conduct as the basis of a claim . . . the claim is said to be `grounded in fraud' or to `sound in fraud,' and the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b)." Id.
All of Kang's claims rely entirely on "a unified course of fraudulent conduct" and are therefore subject to Rule 9(b)'s heightened pleading standard. See id. While "there is no absolute requirement that where several defendants are sued in connection with an alleged fraudulent scheme, the complaint must identify false statements made by each and every defendant . . . Rule 9(b) does not allow a complaint to merely lump multiple defendants together but require[s] plaintiffs to differentiate their allegations when suing more than one defendant . . . and inform each defendant separately of the allegations surrounding his alleged participation in the fraud." Swartz, 476 F.3d at 764-65 (quotation omitted) (emphasis removed). At a minimum, a plaintiff must "identif[y] the role of [each] defendant[ ] in the alleged fraudulent scheme." Id. at 765 (quoting Moore, 885 F.2d at 541). The proposed amended complaint does not satisfy that requirement as to Jarrod Harrison. The allegations about Harrison are scant; Kang alleges only that Jarrod Harrison is Sophie Harrison's husband and the "honorary president" of Defendant Sino-USA; that the Investment Immigration Retainer Agreement signed by Sophie Harrison and Kang is on Sino-USA letterhead; and that Sophie Harrison, Jarrod Harrison, Sino-USA, Shengrun, and third party Guangzhou Bozhi Trading Company "[c]onniv[ed] and plot[ed] together . . . [to] engage[] in dishonest and fraudulent business dealings, specifically, fraud in the sale of securities" and the loan of RMB 5 Million Yuan. Prop. Am. Compl. ¶¶ 14, 21, 72. These allegations are vague and conclusory. They are insufficient for purposes of Rule 9(b).
In her reply, Kang advances numerous theories about how Jarrod Harrison could be liable for her claims based on his role as a corporate officer or executive of Defendant Sino-USA, including the theories that Jarrod Harrison may be liable for Sophie Harrison and Sino-USA's fraud if he had "ultimate authority" over their statements, see Janus Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142 (2011), or if he "directly or indirectly . . . control[led]" any person liable for violating the securities laws. See 15 U.S.C. § 78t(a). While these may be viable theories supporting Jarrod Harrison's liability for Securities Act violations (and the court expresses no opinion about the viability of those theories), the proposed amended complaint does not support either of those theories, since it contains virtually no facts about Jarrod Harrison's control over any defendant or ultimate authority over any fraudulent statements.
While the proposed amended complaint does not satisfy Rule 9(b)'s particularity requirement or plead facts to support alternative theories of liability for Securities Act violations, the Ninth Circuit has instructed that "[t]he standard for granting leave to amend is generous" and that leave to amend should be granted when a court can "conceive of facts that would render [a] plaintiff's claim viable." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 701 (9th Cir. 1988) (quotation omitted). Here, the court can conceive of additional facts that could support Kang's claim that Jarrod Harrison is liable for at least some of the claims in the proposed amended complaint. Since it is possible that Kang can correct the defects in the proposed amended complaint, the court does not find that amendment would be futile.
Defendants' remaining arguments are undue prejudice and bad faith. Neither is persuasive. Their undue prejudice argument rests on the insufficiency of the allegations as to Jarrod Harrison and is duplicative of their futility argument. As to bad faith, Defendants present no evidence of bad faith, only attorney argument that Kang seeks to amend the complaint to "up the ante for Defendants" and use the amendment as "an abusive, bludgeoning tactic." Opp'n 4.
Accordingly, Kang's motion for leave to amend the complaint is granted. Kang is granted leave to file a revised amended complaint
For the foregoing reasons, Kang's motion for leave to amend the complaint is granted. Any revised amended complaint shall be filed
15 U.S.C. § 77q(a).
15 U.S.C. § 78j(b).
Commission Rule 10b-5 states
17 C.F.R. § 240.10b-5.
