Preview
1 ANDREW S. AZARMI (Bar No. 241407)
andrew.azarmi@dentons.com
2 MENGMENG ZHANG (Bar No. 280411)
mengmeng.zhang@dentons.com 8/5/2020
3 DENTONS US LLP
One Market Plaza, Spear Tower, 24th Floor
4 San Francisco, California 94105
Telephone: (415) 267-4000
5 Facsimile: (415) 267-4198
6 Attorneys for Plaintiffs CNE (USA) Corporation,
CNE California Holdings USA,
7 China New Era Group Corporation and
China CNE Limited
8
9 SUPERIOR COURT OF THE STATE OF CALIFORNIA
10 COUNTY OF SAN MATEO
UNLIMITED JURISDICTION
11
12 CNE (USA) Corporation, CNE California Case No. 18CIV04571
Holdings USA, China New Era Group
13 Corporation and China CNE Limited, FIRST AMENDED COMPLAINT FOR:
14 Plaintiffs, 1. FRAUDULENT
MISREPRESENTATION;
15 v. 2. FRAUDULENT CONCEALMENT;
3. BREACH OF THE DUTY OF
16 Fang Duanmu, Guozhen Liu, Qiaoling Xie, Jun LOYALTY;
Fu, and Yu Zhao, and DOES 1-10, and 4. CONVERSION;
17 DOES 1-10, 5. BREACH OF FIDUCIARY DUTY;
6. NEGLIGENCE;
18 Defendants. 7. CIVIL CONSPIRACY;
8. CIVIL THEFT (PENAL CODE § 496)
19 9. DECLARATORY RELIEF
20 DEMAND FOR JURY TRIAL
21
22 Plaintiffs CNE (USA) Corporation, CNE California Holdings USA, China New Era
23 Group Corporation, and China CNE Limited (collectively, “Plaintiffs”), allege:
24 PARTIES
25 1. Plaintiff CNE California Holdings USA (“CNE California”) is a California
26 corporation which is authorized to conduct business in California, with headquarters in Santa
27 Clara, California.
28 2. Plaintiff CNE (USA) Corporation (“CNE USA”) is a Delaware corporation which
-1-
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 is authorized to conduct business in California, with headquarters in Santa Clara, California.
2 CNE USA is the sole shareholder of CNE California.
3 3. Plaintiff China New Era Group Corporation (“CNEGC”) is a China-based holding
4 company that, through itssubsidiaries, invests in health, new energy and material development,
5 international engineering and trade. CNEGC is a Chinese corporation with its headquarters in
6 Beijing, People’s Republic of China. CNEGC is the parent company and sole shareholder of CNE
7 USA.
8 4. Plaintiff China CNE Limited (“CNE Limited”) is a Hong Kong limited liability
9 company and a wholly-owned subsidiary of CNEGC, with its headquarters in Hong Kong,
10 People’s Republic of China. CNEGC is the parent company and sole shareholder of CNE
11 Limited.
12 5. Defendant Fang Duanmu aka Frieda Duanmu (“Duanmu”) is an individual
13 residing in San Mateo County.
14 6. Defendant Guozhen Liu (“Liu”) is an individual residing in China and conducting
15 business in California at relevant times.
16 7. Defendant Qiaoling Xie aka Jenny Xie (“Xie”) is an individual residing in
17 Alameda County.
18 8. Defendant Jun Fu (“Fu”) is an individual residing in Alameda County.
19 9. Defendant Yu Zhao (“Zhao”) is an individual residing in San Mateo County.
20 10. The true names and capacities of DOES 1 through 10, inclusive, whether
21 individual, corporate, associate or otherwise, are unknown to Plaintiffs at this time, which
22 therefore sues these defendants by such fictitious names. When the true names, capacities, and
23 relationships of such defendants are ascertained, Plaintiffs will ask leave of Court to amend this
24 Complaint to insert the same.
25 JURISDICTION AND VENUE
26 11. Jurisdiction is proper in the Superior Court for the County of San Mateo pursuant
27 to Section 410.10 of the California Code of Civil Procedure because it has general subject matter
28 jurisdiction and no statutory exceptions to jurisdiction exist. The amount in controversy exceeds
-2-
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 the jurisdictional minimum of this Court.
2 12. Venue is proper in this County pursuant to Section 395(a) of the California Code
3 of Civil Procedure because Defendants Duanmu and Zhao are residents of San Mateo County,
4 and many of the events giving rise to this action occurred within San Mateo County.
5 INTRODUCTION
6 13. This is a case involving egregious fraud and stealing of corporate assets. Plaintiff
7 CNEGC is a Chinese company which provides engineering, EPC (engineering, procurement,
8 construction) and environmental services, participating and investing in development projects
9 around the world. CNEGC explored various business opportunities in the United States, and in
10 2015 entered into an agreement with various US-based parties to pursue a mixed use real estate
11 development project valued in the hundreds of millions of dollars.
12 14. CNEGC entrusted Defendant Guozhen Liu, a senior executive close to retirement
13 with experience in international business, with the task of setting up and overseeing CNEGC’s
14 pursuit of business ventures in the United States. With the assistance of and in conspiracy with
15 Duanmu and the other Defendants, Liu abused his position of trust and control. This ultimately
16 culminated with Duanmu’s brazen theft of $2,023,562.16 in late 2017 and early 2018, as well as a
17 series of destructive actions taken by the Defendants which has cost Plaintiffs hundreds of
18 thousands of dollars in additional losses. What is known of Defendants’ misconduct is detailed
19 below, though this is of course subject to supplementation as discovery and investigation reveal
20 additional facts.
21 FACTUAL ALLEGATIONS
22 15. In 2014, CNEGC investigated possible investment opportunities in the United
23 States, including a mixed-use real property development project called Museum Place in San
24 Jose, California (“Project”). In 2015, CNEGC entered into agreements concerning the Project
25 with various third-parties.1
26
27 1
CNEGC entered into written agreements with various third-parties to pursue the Project
opportunity, under which CNEGC agreed to finance the Project and act as its EPC (engineering,
28
procurement and construction) general contractor should the Project come to fruition, subject to
-3-
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 16. To move forward with its agreements concerning the Project, CNEGC authorized
2 formation of CNE USA and CNE California to pursue the Project. Plaintiffs CNE USA and CNE
3 California were formed under the laws of Delaware and California, respectively. Plaintiffs
4 CNEGC and CNE Limited capitalized those subsidiary entities with millions of dollars, engaging
5 a number of third-party US-based architects, attorneys, development companies and accounting
6 firms. CNEGC appointed its then Deputy General Manager,2 Defendant Guozhen Liu, as the sole
7 officer and director of CNE USA and CNE California.
8 17. In 2016, after receiving two comprehensive economic analyses from Ernst &
9 Young, Plaintiffs concluded that the Project did not meet profitability standards and therefore
10 decided not to proceed with the Project any further, exercising a contractual discretion clause
11 expressly permitting it to do so. By mid-2016, Plaintiffs had notified the developer of the Project
12 that it would not finance the Project. By early 2017, Plaintiffs had given clear unequivocal notice
13 to the developer of the Project that it did not intend to proceed with the Project in any capacity.
14 18. In or about 2015, Liu traveled to the United States to set up the subsidiaries. He
15 was assisted by Defendants Fang Duanmu (a.k.a. Fang Duan Mu, a.k.a. Frieda Duanmu) and
16 Qiaoling Xie (a.k.a Jenny Xie). Duanmu was a former employee of CNEGC, but was no longer
17 employed by CNEGC at the time she accompanied Liu to the United States. Duanmu purchased
18 real property in San Mateo County in approximately August 2015. Xie was an accountant who
19 resides in the Bay Area, and a United States green card holder. Liu and Xie were made authorized
20 signatories to CNE USA’s Wells Fargo bank accounts, as well as CNE California’s Bank of
21 America bank accounts. Duanmu was not added as a signatory to either bank account.
22 19. Though Plaintiffs were not informed of itat the time, Liu also formed two more
23 California entities at approximately the same time he formed CNE California: CNE Edifice
24 Construction, LLC (“CNE Edifice”) and Cypress Mountain Management, LLC (“Cypress
25
CNEGC’s contractual right to have an independent third-party appraise the project’s investment
26 suitability (CNEGC directly engaged accounting firm Ernst & Young for this purpose).
27 2
Deputy General Manager is an executive officer position in Chinese companies, equivalent to a
vice president position.
28
-4-
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 Mountain”), which were both California limited liability companies.3 Plaintiffs are informed and
2 believe and on that basis allege that Duanmu, Xie and Zhao provided substantial assistance in
3 setting up these two additional, initially undisclosed entities, for which Bank of America bank
4 accounts were also opened (Plaintiffs were initially not told about these accounts). Liu and Xie
5 were also made authorized signatories for the Bank of America bank accounts for CNE Edifice
6 and Cypress Mountain. The CNE Edifice and Cypress Mountain bank accounts were funded with
7 CNE USA and CNE California’s money.
8 20. At the time the CNE USA and CNE California bank accounts were opened, Liu
9 represented to CNEGC that the banks required a green card holder to be an authorized signatory
10 on Plaintiffs’ US entities’ bank accounts, which was why Xie needed to be a signatory on the
11 accounts. As a bank account signatory, Xie was given access to the entities’ bank accounts,
12 including check-signing authority, online banking access and the ability to wire and transfer
13 money between the accounts.
14 21. CNEGC is the sole shareholder of CNE USA, which in turn wholly-owned CNE
15 California. CNEGC appointed Liu to serve as CEO and director of both CNE USA and CNE
16 California. CNEGC is a Chinese state-owned company with specific and strictly construed
17 management rules and practices, of which Liu (and indeed all Defendants) were aware. Under
18 CNEGC’s management rules, Liu was obligated to consult with CNEGC executive management
19 concerning key decisions. In 2016, Liu proposed hiring six employees for CNE California, and
20 requested CNEGC’s confirmation that it authorized him to do so. CNEGC did not outright reject
21 Liu’s request, but instead instructed Liu that any hiring of local employees would depend on the
22 necessity of adding such employees to the US venture, and would need to meet the standards of
23 the local market. Liu understood this was required before any local employee could be hired.
24 22. In November 2016, Liu again wrote to CNEGC, stating that, “Pursuant to
25 American legal requirements regarding company incorporation, for the company to arrange a
26
3
CNEGC never authorized the creation of CNE Edifice or Cypress Mountain. It is not clear from
27 the publicly available corporate filings available from the California Secretary of State precisely
when ownership of CNE Edifice and/or Cypress Mountain was put into CNE USA’s name.
28
-5-
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 business license and normal operations, the following four conditions must be satisfied: . . . Third,
2 the company needs to hire more than six local employees; . . . .” Liu’s statements were false.
3 There is no legal or “business license” requirement that a Delaware or California corporation
4 “hire more than six local employees.” Many corporations exist and do business in California and
5 Delaware with less than six employees.
6 23. Without knowing that Liu’s statements were untrue, CNEGC held meetings in
7 China to discuss Liu’s request. CNEGC initially asked Liu to reconsider his request to hire six
8 employees at that point in time, given the significant increased cost and complexities this could
9 create for CNE California’s operations. CNEGC reported this decision in November 11, 2016
10 meeting minutes, and communicated it to Liu. Another CNEGC meeting was then held on
11 approximately November 17, 2016, however, chaired by Liu, at which it was decided that one
12 person would be appointed head of CNE USA “subject to internal approval by [CNEGC] and
13 issuance of a letter of appointment,” and that five other US-based employees would be hired by
14 CNE USA. This decision was made on Liu’s representation that CNE USA and CNE California
15 required six employees to be properly set up and to transact business in the United States.
16 24. On December 7, 2016, Liu again wrote to CNEGC, stating in part: “Proceeding
17 with the series of normal operations such as registration of the company’s office, application for
18 federal and California tax account numbers, and hiring of employees is only possible after
19 resolving the issue of obtaining a US work visa for the person in charge. Therefore, it is
20 extremely urgent to apply for a US work visa for the person in charge of CNE USA Corporation.”
21 These assertions were also false or at least misleading.
22 25. On December 15, 2016, Liu obtained and sent CNEGC an attorney’s letter which
23 stated the following: “Generally speaking, one work visa requires your company to locally hire at
24 least five to seven employees who are US citizens (or permanent residents) in the United States.”
25 This statement was misleading. L-1 visa requirements look to a slew of factors but do not depend
26 on having six, or even any United States citizen employees. Moreover, unbeknownst to CNEGC
27 (Liu did not disclose this fact), Liu had in fact engaged the same immigration attorney to obtain a
28 U.S. green card (permanent residency) for Liu using Plaintiffs’ funds; using company funds to
-6-
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 obtain a green card for personal use is strictly prohibited by CNEGC’s management rules absent
2 express prior permission, which Liu did not have.
3 26. On December 16, 2016, Liu sent CNEGC his proposed list of employees for CNE
4 California and their salary expectations, referencing the attorney’s letter he had sent one day prior
5 (again without disclosing that the attorney’s engagement also included obtaining a green card for
6 Liu within its scope). Liu’s list included Fu and Zhao, but did not name Duanmu. Liu requested
7 that CNEGC “[p]lease approve whether it is acceptable or not.” By this time, however, it had
8 become increasingly clear that CNEGC’s role in the Project, if any, would be limited, which had
9 been communicated by CNEGC to the Project’s developer and others. It would have made little
10 sense to hire six employees as there was no need for that kind of workforce, and certainly not at
11 the large salaries they were requesting. Again CNEGC did not agree to the hiring of the six
12 employees listed by Liu, nor their salary requests.
13 27. On April 24, 2017, Liu was instructed to return the money held in CNE USA and
14 CNE California’s bank accounts—millions of dollars which was entirely funded by CNEGC and
15 CNE Limited—to the bank account of CNE Limited. The money was not returned. Instead, on
16 May 22, 2017, Liu sent CNEGC correspondence stating that his proposed California employees
17 had already been hired, and proposing steep salaries for them. Duanmu was again not named as a
18 proposed or existing employee, although Liu’s correspondence proposed hiring an “expert
19 consultant” for “USD 500,000 to 1 million/year or USD 600-1000/hour.” CNEGC had not agreed
20 to hire these employees or pay the steep salaries Liu was proposing. In response, CNEGC again
21 did not approve the hiring of the employees nor their requested salaries. Instead, CNEGC advised
22 that any persons employed by CNE California would need to be paid according to the actual work
23 they were performing, and aligned with CNE California’s work needs. By this time, negotiations
24 between CNEGC and the Project developer had become strained and CNEGC’s future
25 involvement in the Project was even less certain. The Project’s developer had grown increasingly
26 hostile toward CNEGC, repeatedly sending letters seeking to push CNEGC into proceeding with
27 the Project, including by threatening to sue CNEGC if it did not do so. Liu and Duanmu were
28 aware of this complex and potentially risky situation for CNEGC. Given this, it made even less
-7-
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 sense to expand CNE USA and CNE California’s workforce, especially since the proposed
2 employees would be tasked with working on a Project which was not certain to proceed.
3 28. In June 2017, Liu sent a request to CNEGC to close the US companies, including
4 CNE USA, CNE California, CNE Edifice and Cypress Mountain. CNEGC held meetings, at
5 which it was decided that the entities would be winded down legally and properly, and subject to
6 approval by CNEGC and its parent company China Energy Conservation and Environmental
7 Protection Group (“CECEP”). While Liu was given authority to lead the working group assigned
8 to handle the US entities’ closing, he was not given authority to close the entities until it had been
9 approved by CNEGC management and CECEP; this condition was reported to him in writing.
10 29. On July 13, 2017, after CNEGC had sent multiple communications concerning the
11 Project to the Project’s developer, Sheppard Mullin attorney Tony Mou sent an email to
12 CNEGC’s attorneys stating that Sheppard Mullin represented CNE Edifice. Mr. Mou’s email
13 copied fduanmu@cnecorporation.com and stated in relevant part:
14 Ms. Duanmu, whom is in charge of CNE CA, has asked me to
convey the following message to you on her behalf:
15
I am Frieda Duanmu, and have been designated by China New Era
16 Group Corporation (the ‘Company’) to be in charge of the San
Jose Museum Project (the ‘Project’). I have been involved in
17 negotiating the cooperation arrangement . . . for the Project for
almost two years. . . . (emphasis added)
18
19 30. CNEGC had not authorized Duanmu to be “in charge” of the Project. To the
20 contrary, Liu had been appointed for this very purpose. Indeed, numerous written
21 communications had gone back and forth directly between the developer in the United States and
22 CNEGC in China over the past two years; all or nearly all were copied on Liu or on company
23 executives in China.
24 31. As a Deputy General Manager of CNEGC, Liu was well aware that CNEGC
25 prohibited its officers or designated representatives to broadly delegate, grant or transfer their
26 conferred powers onto other persons without the express prior permission of CNEGC. Yet,
27 unbeknownst to CNEGC, in late 2015, Liu had apparently signed and given Duanmu a written
28 “letter of authorization” allowing her to take actions on behalf of CNE California and CNE USA.
-8-
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 This was not authorized by CNEGC, violated and went far beyond the scope of Liu’s
2 appointment, and violated the fiduciary duties Liu owed to Plaintiffs. Further, Liu and Duanmu
3 concealed this “authorization” from CNEGC until March 2018. Liu’s improper “letter of
4 authorization” to Duanmu had devastating consequences for Plaintiffs. It gave Duanmu the ability
5 (with the assistance of Defendants Xie, Fu and Zhao) to take over $2 million in company funds;
6 and allowed them to take actions adverse to Plaintiffs such as dissolving CNE USA and CNE
7 California without CNEGC or CECEP’s review or approval. Both Liu and Duanmu knew that
8 Liu’s letter of authorization to Duanmu was improper, yet they concealed its existence to
9 Plaintiffs until after their misconduct was complete.
10 32. By at least July/August 2017, Liu and/or Duanmu began taking deliberate actions
11 adverse to Plaintiffs. In July 2017, Xie (one of the bank account signatories) terminated her
12 employment with Plaintiffs. Before leaving, however, Xie signed numerous blank checks on
13 CNE California’s and CNE USA’s bank accounts which she left with Duanmu per Duanmu’s
14 instructions.
15 33. On August 4, 2017, without informing CNEGC, Duanmu and Liu obtained a legal
16 memorandum from Sheppard Mullin addressed to CNE Edifice and Liu, concerning Plaintiffs’
17 potential legal liability to Defendants for failing to compensate them. Duanmu has stated in
18 writing that Liu “authorized” her to obtain the memorandum (presumably a reference to the
19 improper letter of authorization), and that Liu sent her the memorandum.
20 34. On August 16, 2017, Duanmu emailed an angry letter to CNEGC’s chief
21 executives, also copying Liu, which stated: “[CNEGC] has failed to .. . pay the people it has
22 hired. It has engaged in long negotiations without making a decision, and has no concern at all
23 for the [Defendants]. . . For us, this is very difficult to understand and we are angry at the
24 enormous disrespect. We feel ashamed of [CNEGC]’s behavior. Here, we want to ask [CNEGC]
25 to comply with American law and immediately pay our salaries.”
26 35. As Duanmu acknowledges in her letter, no salary had ever been agreed to between
27 Plaintiffs and Defendants. Further, no concrete employment terms had ever been specified (e.g.,
28 defined roles, scope of responsibilities, hours, duration). CNEGC is an established company in
-9-
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 China with subsidiaries and affiliated companies globally. No reasonable or prudent company
2 would be expected to pay a prospective employee a multiple-six-figure salary without knowing
3 exactly what they were paying for.
4 36. On September 18, 2017, Liu was given written notice of his dismissal from the
5 company.4 Plaintiffs are informed and believe Duanmu was aware of Liu’s dismissal. A CNEGC
6 team was assigned to retake control of the United States entities from Liu, and negotiate a
7 resolution of the dispute with the Project’s developer. CNEGC chose November 2-7, 2017 as the
8 dates for the CNEGC team’s visit to the United States. Plaintiffs believe and on that basis allege
9 that Duanmu was made aware of these dates somehow.
10 37. Almost immediately, Duanmu begin taking matters into her own hands, with the
11 acquiescence and assistance of Liu. They started by taking steps to dissolve and liquidate the
12 United States companies, including CNE California and CNE USA, without ever disclosing this
13 fact to or obtaining permission from those entities’ sole owner, CNEGC, or CNEGC’s parent
14 company CECEP, despite clear instructions which had been provided to Liu requiring both
15 CNEGC and CECEP’s review and approval. Defendants’ adverse actions included the following:
16 In September 2017, Duanmu used the “letter of authorization” Liu had secretly
17 given her to hire auditor ASAM LLP to prepare a liquidation report and final audit
18 for the CNEGC-owned US and California entities.
19 On October 30, 2017, a Certificate of Dissolution was filed with the State of
20 Delaware for CNE USA. The certificate stated that the dissolution was authorized
21 on September 15, 2017, and was also signed by Liu.
22 On November 2, 2017, a Statement of Dissolution was filed for CNE California
23 with the California Secretary of State (the exact day that CNE’s team arrived in
24 the United States). The statement was signed and dated by Liu on August 25,
25 2017.
26
27 4
In the year leading up to his dismissal in September 2017, Liu understood that under regulations
and rules applicable to Chinese companies managing state-owned assets (such as CNEGC), he
28
would be retiring from CNEGC. The dismissal implemented Liu’s planned retirement.
- 10 -
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 On November 2, 2017, Statements of Dissolution and/or Statements of
2 Cancellation were also filed with the California Secretary of State for CNE Edifice
3 and Cypress Mountain.
4 On November 6, 2017, $30,000 was wired from CNE California’s Bank of
5 America bank account to ASAM LLP.
6 On March 19, 2018, $35,605 was wired from CNE USA’s Wells Fargo bank
7 account to ASAM LLP.
8 All of these actions were taken without Plaintiffs’ knowledge or permission. These actions
9 were not disclosed to Plaintiffs by Defendants.
10 38. Starting in October 2017, Duanmu also began transferring Plaintiffs’ money into
11 CNE California’s bank account and then paying it out to herself and the other Defendants:
12 On October 12 and 13, 2017, $1,800,000 was wired from CNE USA’s bank
13 account at Wells Fargo into CNE California’s bank account at Bank of America.
14 The wires were signed by Xie. In April 2018, during Plaintiffs’ investigation into
15 this matter, Xie told Plaintiffs that Duanmu instructed her to sign the wire.
16 From October 13-23, 2017, Duanmu wrote a series of checks to the Defendants
17 and other “employees,” drawn on CNE California’s checking account at Bank of
18 America, totaling $1,239,810.44. Of this amount, Duanmu wrote $661,350.85 to
19 herself, $60,000 to Xie, $190,064.49 to Fu, and $80,000 to Zhao. The checks were
20 signed by Xie, who was an authorized signatory on the CNE California checking
21 account. Later, during Plaintiffs’ investigation into this matter, Xie informed
22 Plaintiffs that she had signed several blank checks and gave them to Duanmu, per
23 Duanmu’s instructions. Duanmu caused these payments to be made, with Liu’s
24 acquiescence and assistance.
25 On October 30, 2017, a check for $83,645.10 was issued to Zhao.
26 All of these payments were made by Duanmu for the benefit of herself and the other Defendants,
27 without CNEGC’s knowledge or permission. Defendants also did not disclose these actions to
28 Plaintiffs.
- 11 -
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 39. On November 2-9, 2017, CNEGC’s team visited the United States in an effort to
2 negotiate a resolution of its dispute with the Project’s developer, and to investigate and try to
3 recover CNE USA and CNE California’s bank accounts. Duanmu interfered with the team’s
4 efforts to meet with the Project’s architect.
5 40. On November 7, 2017, after the meeting between Plaintiffs and the architect was
6 arranged, the developer demanded that Duanmu and Liu be present. The next day, the developer
7 sent Duanmu an email, copying Plaintiffs and the architect, asking: “[W]ho is legally
8 representing CNE California Holdings USA Corporation, can you help answering this question as
9 CNE local representative?” Duanmu answered the developer minutes later, copying Tony Mou, a
10 lawyer at Sheppard Mullin hired by Liu and/or Duanmu to represent CNE Edifice:
11 Under U.S. law, CNE California Holding USA Corporation is the
owner of the agreement with [the architect].
12 Mr. Liu Guozhen is the CEO and legal signer of CNE California
Holding USA Corporation.
13 No document has been received to show that Mr. Liu's position had
been replaced.
14 There is no document show any changes have been made in
government agencies.
15 Without the legal process, any under-table modification of the
terms of the contract are illegal.
16
17 41. After Duanmu’s email was sent, the architect failed to show up for the scheduled
18 meeting between it and CNEGC’s team, which was set to occur just hours later, without any prior
19 notice. Meanwhile, neither Bank of America nor Wells Fargo would provide the CNEGC team,
20 which included CNE USA and CNE California’s newly appointed officers, with access to the
21 bank accounts without Liu or Xie present. Liu failed to provide assistance, and Xie would not
22 cooperate with CNEGC. Plaintiffs’ team returned to Beijing. Emboldened by the actions of
23 Duanmu, unchecked by Liu, the developer’s litigation threats against CNEGC intensified.
24 42. On November 20, 2017, Duanmu caused $187,000, nearly the last of CNE USA’s
25 money, to be wired to CNE California, again signed by Xie. On December 20, 2017, Plaintiffs
26 sent Duanmu a letter, which stated in relevant part:
27 To come up with an appropriate solution for company employees’
payroll issue as soon as possible, the Corporation has, upon meeting
28 discussion, implemented relevant procedures and finalized
- 12 -
FIRST AMENDED COMPLAINT
US_Active\110641607\V-1
1 applicable salary scales. To settle multiple matters including the
payroll issue, the Corporation has decided to assign a working
2 group, led by General Accountant Xia Yong with participants
including General Manager Guozhen and other members, to visit
3 the United States in the near future. The working group is
authorized to sort out the payroll matter for you and local
4 employees and, hopefully by means of that, put in order the
administration, financial transactions and other matters related to
5 the operation of the U.S. company and its subsidiaries.
6
43. Meanwhile, Plaintiffs had repeatedly requested that Defendants turn over
7
Plaintiffs’ bank accounts, and return its corporate documentation. On February 2, 2018, CNEGC
8
wrote a letter to Liu and Duanmu unequivocally demanding that they return the money which had
9
been used to fund CNE USA and CNE California’s bank accounts, turn over access to the
10
company bank accounts, and turn over all corporate books and records. Plaintiffs did not know at
11
this time that Defendants had already paid themselves over $1 million out of CNE USA and CNE
12
California’s bank accounts; and Defendants again did not inform them of this fact.
13
44. Instead, on March 15, 2018, Duanmu issued two more checks – $126,602.57 to Fu
14
and $657,149.15 to herself – again drawn on the CNE California account.5 Though the checks
15
were signed by Xie, on the check to Duanmu, it appears Duanmu made a correction to the date of
16
the check and then initialed that correction “D.M.” Duanmu now admits she caused these
17
payments to be made.
18
45. In total, Duanmu caused Plaintiffs to pay out $2,023,562.16 to Defendants, despite
19
Plaintiffs’ clear indications that such payments were not agreed to or authorized, and despite
20
Plaintiffs’ written demand that the money be returned. Of this amount, Duanmu took $1,318,500
21
for herself (that Plaintiffs are presently aware of). This money was all taken after Liu had been
22
dismissed—a fact Duanmu was aware of—and without CNEGC’s knowledge or permission. In
23
addition to this, Defendants spent hundreds of thousands of dollars of Plaintiffs’ own money to
24
hire a slew of professionals—such as law firm Sheppard Mullin and auditor ASAM, LLP—which
25
26
5
Concurrently, in or around March 2018, Duanmu used the “letter of authorization” to cancel
27 Plaintiffs’ engagement of Ernst & Young, and to contract the services of another accounting firm,
SingerLewak LLP. Duanmu took these actions at a time she knew she had no authority to act for
28
Plaintiffs, and as deliberate steps to interfere with Plaintiffs’ recovery of its corporate assets.
- 13 -
Preview
1 ANDREW S. AZARMI (Bar No. 241407) andrew.azarmi@dentons.com 2 MENGMENG ZHANG (Bar No. 280411) mengmeng.zhang@dentons.com 8/5/2020 3 DENTONS US LLP One Market Plaza, Spear Tower, 24th Floor 4 San Francisco, California 94105 Telephone: (415) 267-4000 5 Facsimile: (415) 267-4198 6 Attorneys for Plaintiffs CNE (USA) Corporation, CNE California Holdings USA, 7 China New Era Group Corporation and China CNE Limited 8 9 SUPERIOR COURT OF THE STATE OF CALIFORNIA 10 COUNTY OF SAN MATEO UNLIMITED JURISDICTION 11 12 CNE (USA) Corporation, CNE California Case No. 18CIV04571 Holdings USA, China New Era Group 13 Corporation and China CNE Limited, FIRST AMENDED COMPLAINT FOR: 14 Plaintiffs, 1. FRAUDULENT MISREPRESENTATION; 15 v. 2. FRAUDULENT CONCEALMENT; 3. BREACH OF THE DUTY OF 16 Fang Duanmu, Guozhen Liu, Qiaoling Xie, Jun LOYALTY; Fu, and Yu Zhao, and DOES 1-10, and 4. CONVERSION; 17 DOES 1-10, 5. BREACH OF FIDUCIARY DUTY; 6. NEGLIGENCE; 18 Defendants. 7. CIVIL CONSPIRACY; 8. CIVIL THEFT (PENAL CODE § 496) 19 9. DECLARATORY RELIEF 20 DEMAND FOR JURY TRIAL 21 22 Plaintiffs CNE (USA) Corporation, CNE California Holdings USA, China New Era 23 Group Corporation, and China CNE Limited (collectively, “Plaintiffs”), allege: 24 PARTIES 25 1. Plaintiff CNE California Holdings USA (“CNE California”) is a California 26 corporation which is authorized to conduct business in California, with headquarters in Santa 27 Clara, California. 28 2. Plaintiff CNE (USA) Corporation (“CNE USA”) is a Delaware corporation which -1- FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 is authorized to conduct business in California, with headquarters in Santa Clara, California. 2 CNE USA is the sole shareholder of CNE California. 3 3. Plaintiff China New Era Group Corporation (“CNEGC”) is a China-based holding 4 company that, through itssubsidiaries, invests in health, new energy and material development, 5 international engineering and trade. CNEGC is a Chinese corporation with its headquarters in 6 Beijing, People’s Republic of China. CNEGC is the parent company and sole shareholder of CNE 7 USA. 8 4. Plaintiff China CNE Limited (“CNE Limited”) is a Hong Kong limited liability 9 company and a wholly-owned subsidiary of CNEGC, with its headquarters in Hong Kong, 10 People’s Republic of China. CNEGC is the parent company and sole shareholder of CNE 11 Limited. 12 5. Defendant Fang Duanmu aka Frieda Duanmu (“Duanmu”) is an individual 13 residing in San Mateo County. 14 6. Defendant Guozhen Liu (“Liu”) is an individual residing in China and conducting 15 business in California at relevant times. 16 7. Defendant Qiaoling Xie aka Jenny Xie (“Xie”) is an individual residing in 17 Alameda County. 18 8. Defendant Jun Fu (“Fu”) is an individual residing in Alameda County. 19 9. Defendant Yu Zhao (“Zhao”) is an individual residing in San Mateo County. 20 10. The true names and capacities of DOES 1 through 10, inclusive, whether 21 individual, corporate, associate or otherwise, are unknown to Plaintiffs at this time, which 22 therefore sues these defendants by such fictitious names. When the true names, capacities, and 23 relationships of such defendants are ascertained, Plaintiffs will ask leave of Court to amend this 24 Complaint to insert the same. 25 JURISDICTION AND VENUE 26 11. Jurisdiction is proper in the Superior Court for the County of San Mateo pursuant 27 to Section 410.10 of the California Code of Civil Procedure because it has general subject matter 28 jurisdiction and no statutory exceptions to jurisdiction exist. The amount in controversy exceeds -2- FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 the jurisdictional minimum of this Court. 2 12. Venue is proper in this County pursuant to Section 395(a) of the California Code 3 of Civil Procedure because Defendants Duanmu and Zhao are residents of San Mateo County, 4 and many of the events giving rise to this action occurred within San Mateo County. 5 INTRODUCTION 6 13. This is a case involving egregious fraud and stealing of corporate assets. Plaintiff 7 CNEGC is a Chinese company which provides engineering, EPC (engineering, procurement, 8 construction) and environmental services, participating and investing in development projects 9 around the world. CNEGC explored various business opportunities in the United States, and in 10 2015 entered into an agreement with various US-based parties to pursue a mixed use real estate 11 development project valued in the hundreds of millions of dollars. 12 14. CNEGC entrusted Defendant Guozhen Liu, a senior executive close to retirement 13 with experience in international business, with the task of setting up and overseeing CNEGC’s 14 pursuit of business ventures in the United States. With the assistance of and in conspiracy with 15 Duanmu and the other Defendants, Liu abused his position of trust and control. This ultimately 16 culminated with Duanmu’s brazen theft of $2,023,562.16 in late 2017 and early 2018, as well as a 17 series of destructive actions taken by the Defendants which has cost Plaintiffs hundreds of 18 thousands of dollars in additional losses. What is known of Defendants’ misconduct is detailed 19 below, though this is of course subject to supplementation as discovery and investigation reveal 20 additional facts. 21 FACTUAL ALLEGATIONS 22 15. In 2014, CNEGC investigated possible investment opportunities in the United 23 States, including a mixed-use real property development project called Museum Place in San 24 Jose, California (“Project”). In 2015, CNEGC entered into agreements concerning the Project 25 with various third-parties.1 26 27 1 CNEGC entered into written agreements with various third-parties to pursue the Project opportunity, under which CNEGC agreed to finance the Project and act as its EPC (engineering, 28 procurement and construction) general contractor should the Project come to fruition, subject to -3- FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 16. To move forward with its agreements concerning the Project, CNEGC authorized 2 formation of CNE USA and CNE California to pursue the Project. Plaintiffs CNE USA and CNE 3 California were formed under the laws of Delaware and California, respectively. Plaintiffs 4 CNEGC and CNE Limited capitalized those subsidiary entities with millions of dollars, engaging 5 a number of third-party US-based architects, attorneys, development companies and accounting 6 firms. CNEGC appointed its then Deputy General Manager,2 Defendant Guozhen Liu, as the sole 7 officer and director of CNE USA and CNE California. 8 17. In 2016, after receiving two comprehensive economic analyses from Ernst & 9 Young, Plaintiffs concluded that the Project did not meet profitability standards and therefore 10 decided not to proceed with the Project any further, exercising a contractual discretion clause 11 expressly permitting it to do so. By mid-2016, Plaintiffs had notified the developer of the Project 12 that it would not finance the Project. By early 2017, Plaintiffs had given clear unequivocal notice 13 to the developer of the Project that it did not intend to proceed with the Project in any capacity. 14 18. In or about 2015, Liu traveled to the United States to set up the subsidiaries. He 15 was assisted by Defendants Fang Duanmu (a.k.a. Fang Duan Mu, a.k.a. Frieda Duanmu) and 16 Qiaoling Xie (a.k.a Jenny Xie). Duanmu was a former employee of CNEGC, but was no longer 17 employed by CNEGC at the time she accompanied Liu to the United States. Duanmu purchased 18 real property in San Mateo County in approximately August 2015. Xie was an accountant who 19 resides in the Bay Area, and a United States green card holder. Liu and Xie were made authorized 20 signatories to CNE USA’s Wells Fargo bank accounts, as well as CNE California’s Bank of 21 America bank accounts. Duanmu was not added as a signatory to either bank account. 22 19. Though Plaintiffs were not informed of itat the time, Liu also formed two more 23 California entities at approximately the same time he formed CNE California: CNE Edifice 24 Construction, LLC (“CNE Edifice”) and Cypress Mountain Management, LLC (“Cypress 25 CNEGC’s contractual right to have an independent third-party appraise the project’s investment 26 suitability (CNEGC directly engaged accounting firm Ernst & Young for this purpose). 27 2 Deputy General Manager is an executive officer position in Chinese companies, equivalent to a vice president position. 28 -4- FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 Mountain”), which were both California limited liability companies.3 Plaintiffs are informed and 2 believe and on that basis allege that Duanmu, Xie and Zhao provided substantial assistance in 3 setting up these two additional, initially undisclosed entities, for which Bank of America bank 4 accounts were also opened (Plaintiffs were initially not told about these accounts). Liu and Xie 5 were also made authorized signatories for the Bank of America bank accounts for CNE Edifice 6 and Cypress Mountain. The CNE Edifice and Cypress Mountain bank accounts were funded with 7 CNE USA and CNE California’s money. 8 20. At the time the CNE USA and CNE California bank accounts were opened, Liu 9 represented to CNEGC that the banks required a green card holder to be an authorized signatory 10 on Plaintiffs’ US entities’ bank accounts, which was why Xie needed to be a signatory on the 11 accounts. As a bank account signatory, Xie was given access to the entities’ bank accounts, 12 including check-signing authority, online banking access and the ability to wire and transfer 13 money between the accounts. 14 21. CNEGC is the sole shareholder of CNE USA, which in turn wholly-owned CNE 15 California. CNEGC appointed Liu to serve as CEO and director of both CNE USA and CNE 16 California. CNEGC is a Chinese state-owned company with specific and strictly construed 17 management rules and practices, of which Liu (and indeed all Defendants) were aware. Under 18 CNEGC’s management rules, Liu was obligated to consult with CNEGC executive management 19 concerning key decisions. In 2016, Liu proposed hiring six employees for CNE California, and 20 requested CNEGC’s confirmation that it authorized him to do so. CNEGC did not outright reject 21 Liu’s request, but instead instructed Liu that any hiring of local employees would depend on the 22 necessity of adding such employees to the US venture, and would need to meet the standards of 23 the local market. Liu understood this was required before any local employee could be hired. 24 22. In November 2016, Liu again wrote to CNEGC, stating that, “Pursuant to 25 American legal requirements regarding company incorporation, for the company to arrange a 26 3 CNEGC never authorized the creation of CNE Edifice or Cypress Mountain. It is not clear from 27 the publicly available corporate filings available from the California Secretary of State precisely when ownership of CNE Edifice and/or Cypress Mountain was put into CNE USA’s name. 28 -5- FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 business license and normal operations, the following four conditions must be satisfied: . . . Third, 2 the company needs to hire more than six local employees; . . . .” Liu’s statements were false. 3 There is no legal or “business license” requirement that a Delaware or California corporation 4 “hire more than six local employees.” Many corporations exist and do business in California and 5 Delaware with less than six employees. 6 23. Without knowing that Liu’s statements were untrue, CNEGC held meetings in 7 China to discuss Liu’s request. CNEGC initially asked Liu to reconsider his request to hire six 8 employees at that point in time, given the significant increased cost and complexities this could 9 create for CNE California’s operations. CNEGC reported this decision in November 11, 2016 10 meeting minutes, and communicated it to Liu. Another CNEGC meeting was then held on 11 approximately November 17, 2016, however, chaired by Liu, at which it was decided that one 12 person would be appointed head of CNE USA “subject to internal approval by [CNEGC] and 13 issuance of a letter of appointment,” and that five other US-based employees would be hired by 14 CNE USA. This decision was made on Liu’s representation that CNE USA and CNE California 15 required six employees to be properly set up and to transact business in the United States. 16 24. On December 7, 2016, Liu again wrote to CNEGC, stating in part: “Proceeding 17 with the series of normal operations such as registration of the company’s office, application for 18 federal and California tax account numbers, and hiring of employees is only possible after 19 resolving the issue of obtaining a US work visa for the person in charge. Therefore, it is 20 extremely urgent to apply for a US work visa for the person in charge of CNE USA Corporation.” 21 These assertions were also false or at least misleading. 22 25. On December 15, 2016, Liu obtained and sent CNEGC an attorney’s letter which 23 stated the following: “Generally speaking, one work visa requires your company to locally hire at 24 least five to seven employees who are US citizens (or permanent residents) in the United States.” 25 This statement was misleading. L-1 visa requirements look to a slew of factors but do not depend 26 on having six, or even any United States citizen employees. Moreover, unbeknownst to CNEGC 27 (Liu did not disclose this fact), Liu had in fact engaged the same immigration attorney to obtain a 28 U.S. green card (permanent residency) for Liu using Plaintiffs’ funds; using company funds to -6- FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 obtain a green card for personal use is strictly prohibited by CNEGC’s management rules absent 2 express prior permission, which Liu did not have. 3 26. On December 16, 2016, Liu sent CNEGC his proposed list of employees for CNE 4 California and their salary expectations, referencing the attorney’s letter he had sent one day prior 5 (again without disclosing that the attorney’s engagement also included obtaining a green card for 6 Liu within its scope). Liu’s list included Fu and Zhao, but did not name Duanmu. Liu requested 7 that CNEGC “[p]lease approve whether it is acceptable or not.” By this time, however, it had 8 become increasingly clear that CNEGC’s role in the Project, if any, would be limited, which had 9 been communicated by CNEGC to the Project’s developer and others. It would have made little 10 sense to hire six employees as there was no need for that kind of workforce, and certainly not at 11 the large salaries they were requesting. Again CNEGC did not agree to the hiring of the six 12 employees listed by Liu, nor their salary requests. 13 27. On April 24, 2017, Liu was instructed to return the money held in CNE USA and 14 CNE California’s bank accounts—millions of dollars which was entirely funded by CNEGC and 15 CNE Limited—to the bank account of CNE Limited. The money was not returned. Instead, on 16 May 22, 2017, Liu sent CNEGC correspondence stating that his proposed California employees 17 had already been hired, and proposing steep salaries for them. Duanmu was again not named as a 18 proposed or existing employee, although Liu’s correspondence proposed hiring an “expert 19 consultant” for “USD 500,000 to 1 million/year or USD 600-1000/hour.” CNEGC had not agreed 20 to hire these employees or pay the steep salaries Liu was proposing. In response, CNEGC again 21 did not approve the hiring of the employees nor their requested salaries. Instead, CNEGC advised 22 that any persons employed by CNE California would need to be paid according to the actual work 23 they were performing, and aligned with CNE California’s work needs. By this time, negotiations 24 between CNEGC and the Project developer had become strained and CNEGC’s future 25 involvement in the Project was even less certain. The Project’s developer had grown increasingly 26 hostile toward CNEGC, repeatedly sending letters seeking to push CNEGC into proceeding with 27 the Project, including by threatening to sue CNEGC if it did not do so. Liu and Duanmu were 28 aware of this complex and potentially risky situation for CNEGC. Given this, it made even less -7- FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 sense to expand CNE USA and CNE California’s workforce, especially since the proposed 2 employees would be tasked with working on a Project which was not certain to proceed. 3 28. In June 2017, Liu sent a request to CNEGC to close the US companies, including 4 CNE USA, CNE California, CNE Edifice and Cypress Mountain. CNEGC held meetings, at 5 which it was decided that the entities would be winded down legally and properly, and subject to 6 approval by CNEGC and its parent company China Energy Conservation and Environmental 7 Protection Group (“CECEP”). While Liu was given authority to lead the working group assigned 8 to handle the US entities’ closing, he was not given authority to close the entities until it had been 9 approved by CNEGC management and CECEP; this condition was reported to him in writing. 10 29. On July 13, 2017, after CNEGC had sent multiple communications concerning the 11 Project to the Project’s developer, Sheppard Mullin attorney Tony Mou sent an email to 12 CNEGC’s attorneys stating that Sheppard Mullin represented CNE Edifice. Mr. Mou’s email 13 copied fduanmu@cnecorporation.com and stated in relevant part: 14 Ms. Duanmu, whom is in charge of CNE CA, has asked me to convey the following message to you on her behalf: 15 I am Frieda Duanmu, and have been designated by China New Era 16 Group Corporation (the ‘Company’) to be in charge of the San Jose Museum Project (the ‘Project’). I have been involved in 17 negotiating the cooperation arrangement . . . for the Project for almost two years. . . . (emphasis added) 18 19 30. CNEGC had not authorized Duanmu to be “in charge” of the Project. To the 20 contrary, Liu had been appointed for this very purpose. Indeed, numerous written 21 communications had gone back and forth directly between the developer in the United States and 22 CNEGC in China over the past two years; all or nearly all were copied on Liu or on company 23 executives in China. 24 31. As a Deputy General Manager of CNEGC, Liu was well aware that CNEGC 25 prohibited its officers or designated representatives to broadly delegate, grant or transfer their 26 conferred powers onto other persons without the express prior permission of CNEGC. Yet, 27 unbeknownst to CNEGC, in late 2015, Liu had apparently signed and given Duanmu a written 28 “letter of authorization” allowing her to take actions on behalf of CNE California and CNE USA. -8- FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 This was not authorized by CNEGC, violated and went far beyond the scope of Liu’s 2 appointment, and violated the fiduciary duties Liu owed to Plaintiffs. Further, Liu and Duanmu 3 concealed this “authorization” from CNEGC until March 2018. Liu’s improper “letter of 4 authorization” to Duanmu had devastating consequences for Plaintiffs. It gave Duanmu the ability 5 (with the assistance of Defendants Xie, Fu and Zhao) to take over $2 million in company funds; 6 and allowed them to take actions adverse to Plaintiffs such as dissolving CNE USA and CNE 7 California without CNEGC or CECEP’s review or approval. Both Liu and Duanmu knew that 8 Liu’s letter of authorization to Duanmu was improper, yet they concealed its existence to 9 Plaintiffs until after their misconduct was complete. 10 32. By at least July/August 2017, Liu and/or Duanmu began taking deliberate actions 11 adverse to Plaintiffs. In July 2017, Xie (one of the bank account signatories) terminated her 12 employment with Plaintiffs. Before leaving, however, Xie signed numerous blank checks on 13 CNE California’s and CNE USA’s bank accounts which she left with Duanmu per Duanmu’s 14 instructions. 15 33. On August 4, 2017, without informing CNEGC, Duanmu and Liu obtained a legal 16 memorandum from Sheppard Mullin addressed to CNE Edifice and Liu, concerning Plaintiffs’ 17 potential legal liability to Defendants for failing to compensate them. Duanmu has stated in 18 writing that Liu “authorized” her to obtain the memorandum (presumably a reference to the 19 improper letter of authorization), and that Liu sent her the memorandum. 20 34. On August 16, 2017, Duanmu emailed an angry letter to CNEGC’s chief 21 executives, also copying Liu, which stated: “[CNEGC] has failed to .. . pay the people it has 22 hired. It has engaged in long negotiations without making a decision, and has no concern at all 23 for the [Defendants]. . . For us, this is very difficult to understand and we are angry at the 24 enormous disrespect. We feel ashamed of [CNEGC]’s behavior. Here, we want to ask [CNEGC] 25 to comply with American law and immediately pay our salaries.” 26 35. As Duanmu acknowledges in her letter, no salary had ever been agreed to between 27 Plaintiffs and Defendants. Further, no concrete employment terms had ever been specified (e.g., 28 defined roles, scope of responsibilities, hours, duration). CNEGC is an established company in -9- FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 China with subsidiaries and affiliated companies globally. No reasonable or prudent company 2 would be expected to pay a prospective employee a multiple-six-figure salary without knowing 3 exactly what they were paying for. 4 36. On September 18, 2017, Liu was given written notice of his dismissal from the 5 company.4 Plaintiffs are informed and believe Duanmu was aware of Liu’s dismissal. A CNEGC 6 team was assigned to retake control of the United States entities from Liu, and negotiate a 7 resolution of the dispute with the Project’s developer. CNEGC chose November 2-7, 2017 as the 8 dates for the CNEGC team’s visit to the United States. Plaintiffs believe and on that basis allege 9 that Duanmu was made aware of these dates somehow. 10 37. Almost immediately, Duanmu begin taking matters into her own hands, with the 11 acquiescence and assistance of Liu. They started by taking steps to dissolve and liquidate the 12 United States companies, including CNE California and CNE USA, without ever disclosing this 13 fact to or obtaining permission from those entities’ sole owner, CNEGC, or CNEGC’s parent 14 company CECEP, despite clear instructions which had been provided to Liu requiring both 15 CNEGC and CECEP’s review and approval. Defendants’ adverse actions included the following: 16 In September 2017, Duanmu used the “letter of authorization” Liu had secretly 17 given her to hire auditor ASAM LLP to prepare a liquidation report and final audit 18 for the CNEGC-owned US and California entities. 19 On October 30, 2017, a Certificate of Dissolution was filed with the State of 20 Delaware for CNE USA. The certificate stated that the dissolution was authorized 21 on September 15, 2017, and was also signed by Liu. 22 On November 2, 2017, a Statement of Dissolution was filed for CNE California 23 with the California Secretary of State (the exact day that CNE’s team arrived in 24 the United States). The statement was signed and dated by Liu on August 25, 25 2017. 26 27 4 In the year leading up to his dismissal in September 2017, Liu understood that under regulations and rules applicable to Chinese companies managing state-owned assets (such as CNEGC), he 28 would be retiring from CNEGC. The dismissal implemented Liu’s planned retirement. - 10 - FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 On November 2, 2017, Statements of Dissolution and/or Statements of 2 Cancellation were also filed with the California Secretary of State for CNE Edifice 3 and Cypress Mountain. 4 On November 6, 2017, $30,000 was wired from CNE California’s Bank of 5 America bank account to ASAM LLP. 6 On March 19, 2018, $35,605 was wired from CNE USA’s Wells Fargo bank 7 account to ASAM LLP. 8 All of these actions were taken without Plaintiffs’ knowledge or permission. These actions 9 were not disclosed to Plaintiffs by Defendants. 10 38. Starting in October 2017, Duanmu also began transferring Plaintiffs’ money into 11 CNE California’s bank account and then paying it out to herself and the other Defendants: 12 On October 12 and 13, 2017, $1,800,000 was wired from CNE USA’s bank 13 account at Wells Fargo into CNE California’s bank account at Bank of America. 14 The wires were signed by Xie. In April 2018, during Plaintiffs’ investigation into 15 this matter, Xie told Plaintiffs that Duanmu instructed her to sign the wire. 16 From October 13-23, 2017, Duanmu wrote a series of checks to the Defendants 17 and other “employees,” drawn on CNE California’s checking account at Bank of 18 America, totaling $1,239,810.44. Of this amount, Duanmu wrote $661,350.85 to 19 herself, $60,000 to Xie, $190,064.49 to Fu, and $80,000 to Zhao. The checks were 20 signed by Xie, who was an authorized signatory on the CNE California checking 21 account. Later, during Plaintiffs’ investigation into this matter, Xie informed 22 Plaintiffs that she had signed several blank checks and gave them to Duanmu, per 23 Duanmu’s instructions. Duanmu caused these payments to be made, with Liu’s 24 acquiescence and assistance. 25 On October 30, 2017, a check for $83,645.10 was issued to Zhao. 26 All of these payments were made by Duanmu for the benefit of herself and the other Defendants, 27 without CNEGC’s knowledge or permission. Defendants also did not disclose these actions to 28 Plaintiffs. - 11 - FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 39. On November 2-9, 2017, CNEGC’s team visited the United States in an effort to 2 negotiate a resolution of its dispute with the Project’s developer, and to investigate and try to 3 recover CNE USA and CNE California’s bank accounts. Duanmu interfered with the team’s 4 efforts to meet with the Project’s architect. 5 40. On November 7, 2017, after the meeting between Plaintiffs and the architect was 6 arranged, the developer demanded that Duanmu and Liu be present. The next day, the developer 7 sent Duanmu an email, copying Plaintiffs and the architect, asking: “[W]ho is legally 8 representing CNE California Holdings USA Corporation, can you help answering this question as 9 CNE local representative?” Duanmu answered the developer minutes later, copying Tony Mou, a 10 lawyer at Sheppard Mullin hired by Liu and/or Duanmu to represent CNE Edifice: 11 Under U.S. law, CNE California Holding USA Corporation is the owner of the agreement with [the architect]. 12 Mr. Liu Guozhen is the CEO and legal signer of CNE California Holding USA Corporation. 13 No document has been received to show that Mr. Liu's position had been replaced. 14 There is no document show any changes have been made in government agencies. 15 Without the legal process, any under-table modification of the terms of the contract are illegal. 16 17 41. After Duanmu’s email was sent, the architect failed to show up for the scheduled 18 meeting between it and CNEGC’s team, which was set to occur just hours later, without any prior 19 notice. Meanwhile, neither Bank of America nor Wells Fargo would provide the CNEGC team, 20 which included CNE USA and CNE California’s newly appointed officers, with access to the 21 bank accounts without Liu or Xie present. Liu failed to provide assistance, and Xie would not 22 cooperate with CNEGC. Plaintiffs’ team returned to Beijing. Emboldened by the actions of 23 Duanmu, unchecked by Liu, the developer’s litigation threats against CNEGC intensified. 24 42. On November 20, 2017, Duanmu caused $187,000, nearly the last of CNE USA’s 25 money, to be wired to CNE California, again signed by Xie. On December 20, 2017, Plaintiffs 26 sent Duanmu a letter, which stated in relevant part: 27 To come up with an appropriate solution for company employees’ payroll issue as soon as possible, the Corporation has, upon meeting 28 discussion, implemented relevant procedures and finalized - 12 - FIRST AMENDED COMPLAINT US_Active\110641607\V-1 1 applicable salary scales. To settle multiple matters including the payroll issue, the Corporation has decided to assign a working 2 group, led by General Accountant Xia Yong with participants including General Manager Guozhen and other members, to visit 3 the United States in the near future. The working group is authorized to sort out the payroll matter for you and local 4 employees and, hopefully by means of that, put in order the administration, financial transactions and other matters related to 5 the operation of the U.S. company and its subsidiaries. 6 43. Meanwhile, Plaintiffs had repeatedly requested that Defendants turn over 7 Plaintiffs’ bank accounts, and return its corporate documentation. On February 2, 2018, CNEGC 8 wrote a letter to Liu and Duanmu unequivocally demanding that they return the money which had 9 been used to fund CNE USA and CNE California’s bank accounts, turn over access to the 10 company bank accounts, and turn over all corporate books and records. Plaintiffs did not know at 11 this time that Defendants had already paid themselves over $1 million out of CNE USA and CNE 12 California’s bank accounts; and Defendants again did not inform them of this fact. 13 44. Instead, on March 15, 2018, Duanmu issued two more checks – $126,602.57 to Fu 14 and $657,149.15 to herself – again drawn on the CNE California account.5 Though the checks 15 were signed by Xie, on the check to Duanmu, it appears Duanmu made a correction to the date of 16 the check and then initialed that correction “D.M.” Duanmu now admits she caused these 17 payments to be made. 18 45. In total, Duanmu caused Plaintiffs to pay out $2,023,562.16 to Defendants, despite 19 Plaintiffs’ clear indications that such payments were not agreed to or authorized, and despite 20 Plaintiffs’ written demand that the money be returned. Of this amount, Duanmu took $1,318,500 21 for herself (that Plaintiffs are presently aware of). This money was all taken after Liu had been 22 dismissed—a fact Duanmu was aware of—and without CNEGC’s knowledge or permission. In 23 addition to this, Defendants spent hundreds of thousands of dollars of Plaintiffs’ own money to 24 hire a slew of professionals—such as law firm Sheppard Mullin and auditor ASAM, LLP—which 25 26 5 Concurrently, in or around March 2018, Duanmu used the “letter of authorization” to cancel 27 Plaintiffs’ engagement of Ernst & Young, and to contract the services of another accounting firm, SingerLewak LLP. Duanmu took these actions at a time she knew she had no authority to act for 28 Plaintiffs, and as deliberate steps to interfere with Plaintiffs’ recovery of its corporate assets. - 13 -