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Nuevos Destinos, LLC v. Peck

United States District Court, D. North Dakota, Eastern Division

December 2, 2019

Nuevos Destinos, LLC, et al., Plaintiffs,
v.
Samuel Peck, et al., Defendants.

          MEMORANDUM AND ORDER

          Peter D. Welte, Chief Judge United States District Court.

         I. INTRODUCTION

         This case caught a second wind in North Dakota after its transfer from the U.S. District Court for the District of Columbia. The complaint alleges that 21 Defendants, nine of which have entered appearances, engaged in a racketeering scheme to defraud the Plaintiffs and others of millions of dollars-in Peru. The Plaintiffs contend that the Defendants operated a de facto Ponzi scheme with Peruvian businesses dealing in agricultural goods, ripping off investors and then, with the promise of repaying past losses, enlisting those same investors to recruit new victims.

         The complaint includes five counts: (1) violation of 18 U.S.C. § 1962(c), otherwise known as the Racketeer Influenced and Corrupt Organizations Act (“RICO”); (2) conspiracy to violate RICO under 18 U.S.C. § 1962(d); (3) conspiracy to commit fraud; (4) fraud; and (5) breach of contracts. In eight separate motions, each of the nine appearing Defendants has moved to dismiss predicated on either lack of jurisdiction or failure to state a claim or both. Doc. Nos. 133-38, 141-42. In turn, the Plaintiffs have moved for permission to conduct jurisdictional discovery. Doc. No. 129. The parties have exhaustively briefed the issues (essentially twice now), and the Court has weighed all the arguments presented in this forum and the District of Columbia. For the reasons below, the Defendants' eight motions to dismiss are granted. The Plaintiffs' motion to conduct jurisdictional discovery is concomitantly denied.

         II. BACKGROUND

         As it must at the motion to dismiss stage, the Court accepts the complaint's factual allegations as true. See Doc. No. 1. Considering the number of defendants, a brief introduction of the parties is necessary at the outset. A summary of the allegations in the complaint and a synopsis of the procedural history follows.

         A. Introduction of Parties

         The Plaintiffs are two business entities and one individual. Nuevos Destinos, LLC (“NDL”) is a limited liability company registered in Florida that purchases agricultural goods in Peru and exports them to the United States and elsewhere. Id. ¶ 9. Its principal place of business during the time period relevant to this lawsuit was the District of Columbia. Id. Nuevos Destinos Peru, S.A.C. (“NDP”) is a business entity organized in Peru that “purchased agricultural products from Peru on behalf of NDL” as its agent. Id. ¶ 10. Like its American counterpart, NDP's principal place of business was the District of Columbia. Id. William P. Cook (“Cook”), a citizen of Virginia, is the individual plaintiff. Id. ¶ 11. Cook “personally financed” the transactions at issue and is a principal of NDL along with his wife, Ileana M. Boza, a U.S. permanent resident from Peru. Id. ¶¶ 9, 11.

         Because most of the named Defendants have yet to appear, the Court will primarily discuss the nine Defendants that have responded to the claims through the pending motions. With that said, three Defendants that have not appeared warrant introduction for context because of their centrality to the claims. The first is Ignacio Harten Rodriguez Larrain (“Harten”), the alleged “central mastermind” of the purported racketeering enterprise. Id. ¶ 13. He is a citizen of Peru that may currently be living in the United States. Id. Second is Agricola Peruana Del Sol, S.R.L. (“APS”), a now defunct Peruvian business entity controlled by Harten as its General Manager that exported agricultural goods from Peru to the United States and abroad. Id. ¶¶ 13, 15. As alleged, APS served as the vehicle through which Harten and the other Defendants defrauded the Plaintiffs. Id. And third is Peruvian Organic International Trading, S.A.C. (“POIT”), the “successor in interest” to APS and an asserted wellspring of continued fraudulent activity that Harten covertly runs. Id. ¶ 23.

         The appearing Defendants consist of one United States citizen, one United States corporation, five Peruvian citizens, and two Peruvian business entities. Chief among them is Samuel Peck (“Peck”), who along with Harten is alleged to have been the racketeering scheme's primary architect. Id. ¶ 12. Peck co-founded APS with Harten and was the company's majority shareholder. Id. A citizen of Colorado, he is also the Vice President of SKE Midwestern, Inc. (“SKE”), another named Defendant. Id. SKE, an agricultural export corporation that is incorporated and has its principal place of business in North Dakota, lost millions to Harten in a previous business deal gone bad. Id. ¶ 17. Peck and Harten allegedly used APS to recoup SKE's losses through further fraud. Id.

         Moving to the Peruvian Defendants, [1] Emilio Farah (“Farah”), another former victim of Harten's fraudulent machinations and a citizen of Peru, sought to sell agricultural products with NDL and first introduced Cook to Harten. Id. ¶ 16. Farah is also the purported principal of Defendants Convalor, S.A.C. (“Convalor”) and Confactor, S.A.C. (“Confactor”), two Peruvian business entities. Id.

         The remaining Defendants, collectively referred to as “the Costa Defendants, ” are all individual Peruvian citizens and members of Harten's family. Jorge Harten Costa, Sr. (“Jorge, Sr.”) is Harten's father and served as a designated agent for APS, meaning his signature was required-at least initially-for Harten to access the company's funds. Id. ¶ 20. Harten's brother, Jorge Emilio Harten Rodriguez Larrain, Jr. (“Jorge, Jr.”), was also a designated agent for APS and is now a shareholder in POIT. Id. ¶¶ 21, 23. Ofelia Maria Rodriguez Larrain Salinas de Harten (“Ofelia”) is Harten's mother and Jorge, Sr.'s wife. Id. ¶ 22. Ofelia is allegedly POIT's “nominal public head.” Id. Last is Javier Rodriguez Larrain Salinas (“Javier”), Ofelia's brother and Harten's uncle. Id. ¶ 24. Javier attended the initial meeting between Cook and Harten and propped up APS's legitimacy to NDL after having fallen victim to the scheme himself. Id.

         B. Alleged Racketeering Activity

         The claimed racketeering enterprise took form in 2007 after Peck started doing business with Harten on behalf of SKE. Id. ¶ 67. Allegedly a “compulsive gambler and former drug addict” who “owed money to a number of Lima's casinos, ” Harten quickly proved a less than trustworthy business associate. Id. ¶ 72. Peck and Harten then formed APS so that SKE could “exercise control over Harten” in future business dealings. Id. ¶ 67.

         Harten initially held only a small ownership interest in APS, while Peck and two other U.S. citizens owned the remainder. Id. ¶ 68. Jorge, Sr., a lawyer, chartered APS with “safeguards” designed to constrain Harten's control over the company's funds. Id. ¶ 69. Specifically, Jorge, Sr., Jorge, Jr., and Peck oversaw APS's operations as “Apoderados” (designated agents) and had to authorize any checks issued or cash withdrawn from company accounts. Id. With the safeguards in place, SKE then moved forward with a $1 million purchase of agricultural goods from APS. Id. Not long after, APS “ceased delivering product entirely.” Id. ¶ 70. By May 2011, SKE had paid APS $3.6 million with little to nothing to show for it. Id. ¶ 74. SKE's President then told Peck “that his job was on the line and to do whatever it took to get [SKE's] money back from APS and Harten.” Id. ¶ 73.

         In response, APS reorganized. Jorge, Sr. removed entirely the prior restrictions on Harten's access to the company's funds, “making Harten the sole signatory on all of the APS accounts” in July 2011. Id. ¶ 77. Harten's ownership share increased in tandem to almost 50%, a move Peck characterized as “necessary to ‘incentivize Harten' to work to recover SKE's lost $3.6 million.” Id. ¶¶ 74-75. Peck remained the majority shareholder, with the other two U.S. citizens' shares becoming effectively nonexistent. Id. ¶ 75.

         Untethered from corporate restraints, Harten and Peck devised the scheme that would ultimately ensnare the Plaintiffs. The plan called for Peck to “issue facially valid purchase orders on behalf of SKE and then Harten would shop them around to financing sources in Lima and abroad.” Id. ¶ 76. Harten and Peck allegedly sold the purchase orders to investors with no intent of delivering product, pocketing the proceeds to repay SKE and strong-arming victims into joining the scheme with similar promises of eventual recompense. The scheme's first victims were Harten's own family members, including his uncle, Javier, who lost $500, 000. Id. ¶ 79. Peruvian businessmen such as Farah, who lost $1.5 million, made for later targets. Id. ¶¶ 80-81.

         NDL entered the picture in 2012. Id. ¶ 32. Up to that point, NDL had financed other export companies in Peru. Id. ¶ 31. Beginning that year, however, NDL ventured into the export business directly. Id. To facilitate a potential business relationship, Farah introduced NDL to Harten in Peru in April 2012. Id. ¶ 32. Farah told NDL that “he had a good experience with Harten and APS” from a recent contract and that Harten was “honest” and “well connected.” Id. Shortly thereafter in May, NDL met Peck and Harten at a lunch in Lima. Id. ¶ 88. Peck identified himself as an SKE employee and told NDL “that he had worked for a long time with Harten and APS, and Peck was very pleased with the relationship.” Id. At no time during this meeting did Peck identify himself as a co-founder or majority shareholder of APS. Id. ¶ 91. Harten's family members, including Jorge, Sr. and Javier, also extolled Harten's reputation as an honest businessman. Id. ¶¶ 102-06, 112.

         NDL inked its first contract with APS that same month to purchase 1566.6 metric tons of product for $1, 584, 600. Id. ¶¶ 36-37. APS delivered less than 64 metric tons. Id. ¶ 37. Despite the rocky start, NDL entered into several more contracts with APS spanning from May through October 2012. Id. ¶¶ 45, 47, 58, 64-65. NDL's commitment rested in part on the belief that “APS had specific purchase orders, including [from] SKE (which NDL later found out to be largely false).” Id. ¶ 37. Repeated attempts to obtain the promised product or an accounting for the money NDL paid to Harten and APS proved futile. Id. ¶¶ 128-30.

         After catching on to the scheme, NDL successfully warned another Peruvian businessman to steer clear of APS, Harten, and Peck in early 2013 when they attempted to use similar tactics to entice the businessman to provide financing. Id. ¶ 82. Peck and Harten folded APS in reaction, and Harten's family then created POIT. Id. ¶ 83. While Jorge, Jr. and Ofelia are POIT's only shareholders, Harten allegedly runs the business to perpetuate the fraudulent activity and repay APS's debts. Id. Peck is also working with POIT. Id. He has purportedly “forced Harten to repay SKE with NDL's money” and remains employed as SKE's Vice President. Id. ¶ 93. All told, NDL claims it poured $2.25 million into the deals with APS, with only $238, 907 in product ever delivered. Id. ¶ 193. The Plaintiffs seek damages to the tune of $2, 011, 093, [2] as well as damages for unspecified lost business opportunities. Id. ¶¶ 192-93.

         C. Procedural History

         As noted above, this case presents with an unusual procedural posture. The Plaintiffs initially filed their complaint in the U.S. District Court for the District of Columbia on October 30, 2015. See Doc. No. 1. In retort, the nine Defendants that entered appearances uniformly moved to dismiss the complaint for lack of jurisdiction, among other grounds. Doc. Nos. 35-38, 45, 50, 52, 54. On January 2, 2019, District Judge Emmet G. Sullivan issued an order and accompanying memorandum opinion dismissing all nine Defendants for lack of jurisdiction in the District of Columbia. Doc. Nos. 113, 114. However, Judge Sullivan later stayed that order, finding that transfer, instead of dismissal, was more appropriate based predominantly on SKE and Peck's contacts with North Dakota. See Minute Order, Feb. 22, 2019. Following the transfer, the Plaintiffs moved to conduct jurisdictional discovery. Doc. No. 129. Meanwhile, the nine appearing Defendants renewed their motions to dismiss. Doc. Nos. 133-38, 141-42.

         III. JURISDICTION OVER PERUVIAN DEFENDANTS

         The Court first finds that it is without jurisdiction to consider the claims against the seven Peruvian Defendants.[3] Jurisdiction is the “first and fundamental question” for resolution. Franklin v. Peterson, 878 F.3d 631, 635 (8th Cir. 2017) (quoting Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998)). As an initial barrier, the Plaintiffs improperly served the Peruvian Defendants under the Federal Rules of Civil Procedure. In addition, the Court wholly lacks personal jurisdiction over citizens of Peru for events that occurred in Peru. Jurisdictional discovery will not cure this fundamental shortcoming and is consequently inappropriate. Because jurisdiction is a threshold inquiry, the Court will not address the merits of the Plaintiffs' claims against these seven Defendants. See Va. House of Delegates v. Bethune-Hill, 587 U.S., 139 S.Ct. 1945, 1950 (2019) (“To reach the merits of a case, an Article III court must have jurisdiction.”).

         A. Improper Service of Process

         The Peruvian Defendants initially contend that the Plaintiffs improperly served them with process under the Federal Rules of Civil Procedure. “If a defendant is improperly served, a federal court lacks jurisdiction over the defendant.” Bell v. Pulmosan Safety Equipment Corp., 906 F.3d 711, 714-15 (8th Cir. 2018) (quoting Printed Media Servs., Inc. v. Solna Web, Inc., 11 F.3d 838, 843 (8th Cir. 1993)). Service must be carried out in compliance with the Federal Rules and “[t]his principle remains true despite any actual notice a defendant may have of the lawsuit.” Sieg v. Karnes, 693 F.2d 803, 807 (8th Cir. 1982) (citations omitted).

         The proof of service forms the Plaintiffs filed indicate that all seven Peruvian Defendants received notice of the summons and complaint via delivery of notarized letters, written in English, to third parties in Peru. Doc. Nos. 18-21, 23-24, 26. Process was served on receptionists at places of business for six Defendants (Jorge, Sr., Ofelia, Javier, Farah, Convalor, and Confactor) and on a family member at a residence for one Defendant (Jorge, Jr.). See id. Nothing in the record indicates that the Defendants had designated the served individuals as agents for receipt of service of process.

         Federal Rule 4(f) delineates the standard for service of process on an individual in a foreign country:

(f) Unless federal law provides otherwise, an individual . . . may be served at a place not within any judicial district of the United States:
(1) by any internationally agreed means of service that is reasonably calculated to give notice, such as those authorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents;
(2) if there is no internationally agreed means, or if an international agreement allows but does not specify other means, by a method that is reasonably calculated to give notice:
(A) as prescribed by the foreign country's law for service in that country in an action in its courts of general jurisdiction;
(B) as the foreign authority directs in response to a letter rogatory or letter of request; or
(C) unless prohibited by the foreign country's law, by:
(i) delivering a copy of the summons and of the complaint to the individual personally; or
(ii) using any form of mail that the clerk addresses and sends to the individual and that requires a signed receipt; or
(3) by other means not prohibited by international agreement, as the court orders.

Fed. R. Civ. P. 4(f). The requirements for serving a corporation in a foreign country are the same, with one caveat - delivering a copy of the summons and complaint “personally” to a corporation under Rule 4(f)(2)(C)(i) is ineffective. See Fed.R.Civ.P. 4(h)(2). Walking through Rule 4(f) yields the conclusion that the Plaintiffs' chosen method of service was inadequate.

         Starting with Rule 4(f)(1), Peru is not a signatory to the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents. See SA Luxury Expeditions, LLC v. Latin Am. for Less, LLC, No. C 14-04085, 2015 WL 4941792, at *1 (N.D. Cal. Aug. 19, 2015). The United States and Peru are, however, joint signatories to the Inter-American Convention on Letters Rogatory, as well as the Additional Protocol to that Convention. Id. The Plaintiffs did not effect service using letters rogatory here. Because service was not attempted pursuant to the Inter-American Convention, which is the only international agreement between the United States and Peru regarding service, Rule 4(f)(1) is not satisfied.

         Even so, “the Inter-American Convention does not purport to provide the exclusive method of effecting service between the signatories.” C & F Systems, LLC v. Limpimax, S.A., No. 1:09-cv-858, 2010 WL 65200, at *1 (W.D. Mich. Jan. 6, 2010) (citing Kreimerman v. Casa Veerkamp, S.A. de C.V., 22 F.3d 634, 643-44 (5th Cir. 1994)). This cracks the door open to Rule 4(f)(2) because the Inter-American Convention “allows but does not specify other means” for service. Fed.R.Civ.P. 4(f)(2). Rule 4(f)(2) lists, for practical purposes, four additional avenues available to effectuate service on foreign defendants.

         First is subsection (A), permitting any method “prescribed by the foreign country's law for service in that country in an action in its courts of general jurisdiction.” Fed.R.Civ.P. 4(f)(2)(A). The parties dispute Peru's service of process requirements via dueling declarations. On one hand, the Plaintiffs assert that “the only applicable law of Peru to this matter is Article 2094 of the Peruvian Civil Code.” Doc. 64-9, p. 3. That Peruvian Civil Code section provides simply that a foreign procedural instrument is governed “by the law of the place of its origin, ” in essence reflecting back to American law. Id. The Defendants, on the other hand, collectively posit three requirements for service in Peruvian courts. Namely, notice of the claim, here consisting of the summons and complaint, must be: (1) processed by a Peruvian court; (2) delivered to a defendant's domicile; and (3) accompanied by an official translation if not originally written in Spanish. Doc. No. 35-2, pp. 4-5; Doc. No. 52-2, p. 5.

         When resolving an issue of foreign law, a “court may consider any relevant material or source.” Fed.R.Civ.P. 44.1; see also United States v. Larson, 110 F.3d 620, 627 n.7 (8th Cir. 1997). After carefully examining the submitted declarations from both parties, the Court finds the Defendants' interpretation of Peruvian law most accurate.

         As relevant here, Rule 4(f)(2)(A) looks to “[Peru's] law for service . . . in an action in [Peru's] courts of general jurisdiction.” Fed.R.Civ.P. 4(f)(2)(A). Article 2094 of the Peruvian Civil Code has nothing to do with this analysis. In a word, how Peru's courts treat other countries' procedural documents is irrelevant to how Peru's courts require service in their own lawsuits. Even if American law is in fact what a Peruvian court would turn to, what would that American law be? Well, Federal Rule of Civil Procedure 4(f), which again would call for application of Peru's own law for service in its own courts. The result is a hamster wheel. Because Article 2094 misses the mark, the Court rejects the Plaintiffs' interpretation.

         Instead, the Court finds that to properly serve a defendant in an action before a court of general jurisdiction in Peru, notice of the claim must be: (1) processed by a Peruvian court; (2) delivered to a defendant's domicile; and (3) accompanied by an official translation if not originally written in Spanish. See Doc. No. 35-2, pp. 4-5; Doc. No. 52-2, p. 5. A Peruvian court had not processed the notarized letters the Plaintiffs' employed here, nor were the letters accompanied by Spanish translations of the summons and complaint. And four of the Defendants (Jorge, Sr., Ofelia, Javier, and Farah) were not served at their domicile, but rather at a place of business. See Doc. Nos. 20, 21, 24, 26. Service was therefore ineffective under Peruvian law and Rule 4(f)(2)(A).

         Subsections (B) and (C) of Rule 4(f)(2) are equally inapplicable. As stated above, the Plaintiffs did not attempt to use letters rogatory under subsection (B). Also lacking for all seven Peruvian Defendants is personal delivery pursuant to Rule 4(f)(2)(C)(i). Personal delivery is unavailable as a method of service for Convalor and Confactor as foreign corporations. See Fed.R.Civ.P. 4(h)(2). Moreover, the five individual Peruvians were not served personally - the process server delivered four notarized letters to receptionists at places of business and one to a Defendant's family member. See Doc. Nos. 20-21, 23-24, 26. Finally, under Rule 4(f)(2)(C)(ii), the Plaintiffs did not attempt to serve the Defendants using mail addressed and sent by a Clerk of Court's office.

         That leaves only Rule 4(f)(3), allowing for service pursuant to court order. The Plaintiffs have not moved for such an order in this forum. But in their omnibus response to the pending motions to dismiss, the Plaintiffs contend that “even if there was some [service] defect, it was minor and non-prejudicial” ...


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