Jingyi Ni v Shenlaw, LLC 2024 NY Slip Op 51148(U) Decided on August 1, 2024 Supreme Court, New York County Lebovits, J. is a fascinating case. To start it is not really a legal malpractice case, and might have been brought for the purpose of saving an EB5 immigration application rather than for money damages.

Nevertheless, the facts are startling, and Judge Lebovits’ decision is so shocking, that it requires a full read for the facts. Here are some of the highlights:

“In December 2022, plaintiff, Jingyi Ni, brought this action for declaratory judgment against defendant Shenlaw, LLC, and its sole member and principal, defendant Jianming Shen,, based on an alleged breach of fiduciary duty. Ni now moves to strike defendants’ answer, for the entry of declaratory judgment in his favor, and for punitive damages and attorney fees. (See NYSCEF No. 78.) The motion is granted in part and denied in part.

BACKGROUND

In January 2014, Ni retained Shen to assist Ni with filing an EB-5 Immigrant Investor Program petition. (NYSCEF No. 51 at ¶ 24; NYSCEF No. 49 at ¶ 2.) In March 2014, Shen submitted the EB-5 petition on Ni’s behalf. (NYSCEF No. 49 at ¶ 4; NYSCEF No. 51 at ¶ 33.) [*2]Ni claims that he was not given a copy of the petition at the time. (NYSCEF No. 49 at ¶ 4; NYSCEF No. 51 at ¶¶ 33, 36.)

Several years later, in November 2019, Ni filed an application to register as a permanent resident. (NYSCEF No. 49 at ¶ 14; NYSCEF No. 51 at ¶ 49.) But in October 2022 Ni received a notice of intent to deny (NOID). The NOID indicated that Ni’s application to register as a permanent resident would be denied, because the United States Citizenship and Immigration Services (USCIS) determined that Ni had submitted false documents in his EB-5 petition. (NYSCEF No. 49 at ¶ 13; NYSCEF 51 ¶ 50.)

Ni later learned that Shen had submitted false source-of-funds documentation in connection with Ni’s EB-5 petition. (NYSCEF No. 51 at ¶¶ 51-53.) This is undisputed. Shen admits that the source-of-funds materials were false and that Ni is “100% innocent.” (NYSCEF No. 56; NYSCEF No. 79 at 1-2.) But the parties disagree on the extent of Shen’s culpability. Shen claims that he engaged non-party TPC, Inc., to prepare the materials for Ni’s EB-5 petition. (NYSCEF No. 56; NYSCEF No. 79 at 1-2.) Shen claims that TPC’s owner, Taiping Chen, created the fabricated materials. (NYSCEF No. 79 at 1, 6; NYSCEF No. 52 at ¶ 56; NYSCEF No. 56.) Shen claims that his responsibility is limited to “having believed Taiping Chen’s work products to be true and credible.” (NYSCEF No. 79 at 6.) Ni disputes this; he alleges that Shen himself created the false documents. (See e.g. NYSCEF No. 51 at ¶¶ 45, 59-61, 66.)

In the current motion, Ni claims that Shen has perpetrated fraud on the court by committing perjury, fabricating evidence, and destroying evidence. Ni urges the court to strike defendants’ answer and enter default judgment in Ni’s favor. Ni also seeks an award of punitive damages and attorney fees (NYSCEF No. 78 at 27-28.)”

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A. Fraud on the Court

A court has the power to strike pleadings and enter default judgment in response to “clear and convincing evidence” of fraud on the court. (See CDR Créances S.A.S. v Cohen, 23 NY3d 307, 311 [2014].) This power derives from CPLR 3126 and the court’s “inherent power to address actions which are meant to undermine the truth-seeking function of the judicial system.” (Id. at 318.) To warrant such an extreme sanction, the fraudulent conduct must be pervasive and concern “issues that are central to the truth-finding process.” (Id. at 320, quoting McMunn v Memorial Sloan-Kettering Cancer Ctr., 191 F Supp 2d 440, 445 [SD NY 2002].) Ni alleges that Shen has perpetrated on the court a fraud that warrants striking defendants’ answer. Specifically, Ni alleges that Shen fabricated two documents produced in discovery and committed perjury through his sworn statements related to those documents.

Ni bears the burden of proving the alleged fraudulent conduct by clear and convincing evidence. (Id.) “The clear and convincing evidence standard is satisfied when the party bearing the burden of proof has established that it is highly probable that what he or she has claimed is actually what happened.” (Home Ins. Co. of Ind. v Karantonis, 156 AD2d 844, 845 [3d Dept 1989].) Ni has satisfied that burden.

In his first request for production, Ni asked Shen to produce any prior communications [*3]with TPC or Taiping Chen. In response, Shen produced two documents labeled Defendants’ Exhibits 4.4 and 4.5. (See NYSCEF No. 63 at 8-10; NYSCEF No. 61; NYSCEF No. 62.) In Shen’s response to plaintiff’s second deficiency letter, Shen stated that these documents were “print-to-PDF” copies of emails he had sent via a Yahoo email account to Taiping Chen on February 27, 2014, and March 5, 2015, respectively. (NYSCEF No. 64.) Each document includes a footer with a date and time stamp corresponding to the dates Shen claimed to have sent the emails. (See NYSCEF No. 61; NYSCEF No. 62.) Shen stated that he had converted each email to PDF on the same day displayed in the footer of each document. (NYSCEF No. 64.)

Shen was questioned extensively about the documents during his August 16, 2023, deposition. Consistent with his written responses, Shen testified that he had sent and converted each email on the date shown in its the respective footer. (See e.g. NYSCEF No. 17 at 66:24-67:7, 70:13-71:14.) Ni’s counsel then showed Shen the affidavit of Michael Bierut, a designer who worked on the 2019 rebranding of Yahoo’s logo. (See id. at 76:5-15; NYSCEF No. 65.) Bierut’s affidavit states that the Yahoo logo, which appears in Defendants’ Exhibits 4.4 and 4.5, did not exist until 2019. (NYSCEF No. 65 at ¶¶ 4, 9.) After being shown Bierut’s affidavit, Shen said at the deposition that he was “withdraw[ing]” his prior testimony related to the documents. He then refused to answer any further questions about them. (See NYSCEF No. 53 at 82:4-86:12.)

Shen has since conceded that Bierut is credible; and he does not challenge Bierut’s affidavit. (NYSCEF No. 68 at ¶ 10; NYSCEF No. 79 at 8.) Instead, Shen states that he now believes that the emails must have been converted to PDF sometime after September 2019. (NYSCEF No. 68 at 12-13.) Shen claims that after the deposition he recalled that some computers in his office “automatically backdated” documents. (NYSCEF No. 68 at ¶ 11; NYSCEF No. 79 at 9.) Shen suggests this “automatic backdating” explains the discrepancy between date/time stamps and the logos. Shen further claims that his prior false statements are the result of a chronic memory problem, stemming from a head injury he suffered nearly 40 years ago. (NYSCEF No. 68 at ¶¶ 1-3.)

During oral argument on this motion, Shen offered to speak on these matters under oath. The court swore him in. The court finds Shen’s new (sworn) explanations incredible. As Ni notes, Shen testified at his deposition that his only memory problems were those normally caused by age. (NYSCEF No. 53 at 12:9-16.) And Shen has not produced any evidence of his supposedly decades-long serious memory problem.^[FN1] Furthermore, an affidavit submitted by Ni’s forensics expert notes that it is “highly improbable” that the computers would have automatically backdated the documents to dates “coincidentally aligning with the specific dates that support [Shen’s] position.” (NYSCEF No. 66 at ¶ 7.) Shen has not offered any explanation for how the “automatic backdating” coincides with the events at issue in this case.

Ni has satisfied the burden of showing by clear and convincing evidence that Defendants’ Exhibits 4.4 and 4.5 are fabricated. The inconsistency between the 2019 Yahoo logo and the date stamps on the two documents make it highly probable that Defendants’ Exhibits 4.4 and 4.5 are [*4]fabricated. The probability that Defendants’ Exhibits 4.4 and 4.5 are fabricated is further strengthened by other authenticity concerns. On their face, the documents are drafts, not sent emails, as Shen has represented them to be. (See e.g. NYSCEF No. 53 at 65:19-66:18; NYSCEF No. 66 at ¶ 5.) At Shen’s deposition, Ni’s counsel also noted that the documents appeared to be screenshots, rather than PDFs. (See NYSCEF No. 55:25-56:7.) These inconsistencies, together with the anachronistic logo, convincingly prove Ni’s showing that the documents were fabricated.

The court also finds that Ni has shown by clear and convincing evidence that Shen’s sworn statements relating to Defendants’ Exhibits 4.4 and 4.5 were perjurious. The only explanation for Defendants’ Exhibits 4.4 and 4.5 is that Shen himself fabricated them. Shen has repeatedly attested to their authenticity in both written and oral sworn statements. (See e.g. NYSCEF No. 64 at 1-2; NYSCEF No. 53 at 58:17-59:24.)

Shen’s pervasive and fraudulent conduct relates to central issues in this case. Shen does not dispute that he submitted fraudulent source-of-funds documents in connection with Ni’s EB-5 application. Shen disputes only Ni’s allegation that Shen fabricated the source of funds documents. Shen’s defense in the underlying action is that TPC and Taiping Chen were responsible for creating the fraudulent documents submitted in Ni’s EB-5 application. Defendants’ Exhibits 4.4 and 4.5 are the only support for Shen’s claim that TPC, rather than Shen, prepared those fraudulent documents. (See NYSCEF No. 53 at 4-16.) Therefore, the authenticity of Defendants’ Exhibits 4.4 and 4.5 is relevant to a central issue in this case. Shen’s fraudulent conduct warrants striking defendants’ answer.”