Hebei Tiankai Wood & Land Constr. Co. v. Chen
| Citation | 348 F.Supp.3d 198 |
| Decision Date | 21 December 2018 |
| Docket Number | 18-CV-2795 |
| Parties | HEBEI TIANKAI WOOD & LAND CONSTRUCTION CO., LTD., Plaintiff, v. Frank CHEN & Kirin Transportation, Inc., Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Jacob Yiping Chen, Dai & Associates PC, 1500 Broadway, 22nd Floor, New York, NY 10036, 212-730-8880, For Plaintiff
Frank Chen, Carolyn Shields, Liu & Shields LLP, 41-60 Main Street, Suite 208a, Flushing, NY 11355, 718-463-1868, For Defendant
Table of Contents
A. Plaintiff's Showing of Antagonism...204
This litigation arises from a transnational business transaction gone wrong. In 2017, Hebei Tiankai Wood & Land Construction Co. Ltd. ("Plaintiff") and Kirin Transportation, Inc. ("Kirin") agreed that Plaintiff would become majority shareholder of Kirin. At the time of the transaction, Frank Chen ("Chen") was the sole owner of Kirin. Plaintiff alleges that Chen made false representations to induce Plaintiff to invest $300,000 in Kirin and then misused the money.
Chen moved to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. The court ordered the motion converted to one for summary judgement.
Plaintiff is a citizen of China, while Chen and Kirin, the nominal defendant, are citizens of New York. Chen argues that Plaintiff's fraudulent inducement and breach of fiduciary duty claims are derivative, properly belonging to Kirin, so Kirin should be aligned as a plaintiff. Realignment of Kirin as plaintiff would destroy diversity, requiring the case to be dismissed.
Plaintiff argues that the "doctrine of antagonism"—applicable between Kirin and Plaintiff—applies, so that realignment is not required.
Chen disagrees. He contends that Plaintiff is Kirin's majority shareholder so that there is no antagonism between these two.
Chen's argument is not persuasive. First , even if Plaintiff has de jure control of Kirin, Chen has de facto control. Chen is alleged to have forcefully rebuffed Plaintiff's attempts to take control of Kirin, even though Plaintiff is now majority shareholder of Kirin. The caselaw is clear that a court should ensure that the parties are aligned so that there is a real collision of interests.
The real collision of interests is between Plaintiff on one side and Chen and Kirin on the other. Second , at its core, this is a dispute between nationals of the United States and of China, making it desirable to try the case in federal court if subject matter jurisdiction exists.
Kirin should remain as a named defendant. This court has jurisdiction over Plaintiff's claims. Chen's motion is denied.
A. Transaction
Plaintiff is a construction company based in China. Compl. ¶ 4, ECF No. 1, May 10, 2018; Answer Ex. C, ECF No. 9-3. Chinese nationals Qiuxiang Shi ("Shi") and Yingjie Li ("Li") are the sole owners, officers, and managers of Plaintiff. Compl. ¶¶ 8, 17. In November 2017, Shi and Li traveled to New York and were introduced to Chen, then the sole shareholder of Kirin. Id. ¶¶ 9–11; Answer ¶¶ 9–11, ECF No. 9, May 29, 2018. Chen is a resident of the State of New York; Kirin is a New York corporation. Compl. ¶¶ 5–6; Answer ¶¶ 5–6. Kirin is alleged to be only a nominal defendant. Compl. ¶ 6.
Chen invited Shi and Li to Kirin's headquarters in Queens, New York. Id. ¶ 12; Answer ¶ 12. He wanted the duo to invest in Kirin. Id. Plaintiff alleges that Chen represented that Kirin was a successful company looking to expand its business; he gave Shi and Li documents to "highlight the financial strength" of the company. Compl. ¶¶ 13–14. It is undisputed that Chen stated that if Shi and Li invested in Kirin, Kirin would sponsor Shi for an L-1 visa. Id. ¶ 18; Answer ¶ 18. Plaintiff alleges that the visa would have allowed Shi to travel to the United States to participate in the management of Kirin and monitor operations of the company. Compl. ¶ 18. Chen organized meetings with law firms specializing in immigration law to demonstrate his intent to help obtain the visa if Plaintiff invested in Kirin. Id. ¶ 19; Answer ¶ 19.
The parties agree that Chen offered Shi and Li 51% of the shares of Kirin for $300,000 in capital investment. Compl. ¶ 20; Answer ¶ 20. Plaintiff alleges that Chen also promised to pay Shi a substantial salary as a manager. Compl. ¶ 20. On November 28, 2017, Chen gave Shi and Li a contract memorializing the agreement; in exchange for $300,000, Kirin agreed to tender 51% of Kirin's shares to Plaintiff and to file an L-1 visa petition for Shi. Id. ¶¶ 20, 22; Answer Ex. E, ¶¶ 1–2, ECF No. 9-5. Chen signed an engagement letter with a lawyer to work with Kirin to obtain the visa. Compl. ¶ 26; Answer ¶ 26. On the same day, Plaintiff tendered a certified check to Kirin for $300,000. Compl. ¶ 28; Answer ¶ 28. A stock certificate in turn issued to Plaintiff was for 102 shares, a majority of those in the company. See Decl. Frank Chen Ex. B, ECF No. 18-4.
B. Dispute
What had seemed like a straightforward transaction then began to unravel. In January 2018, per Plaintiff's allegations, Chen contacted Shi and Li asking for additional funds to be invested in Kirin so that Kirin could help obtain a visa for Shi. Compl. ¶ 30. Allegedly, Chen represented that the funds already invested "had been used up." Id. ¶ 31. Plaintiff became suspicious and asked Kirin for documents and records, which Chen refused to produce. Id. ¶ 32. The parties agree that in April 2018, Plaintiff discovered that it was not listed as a shareholder on Kirin's 2017 tax returns. Id. ¶ 35; Answer ¶ 35.
Plaintiff attempted to establish control of Kirin. Plaintiff alleges that it sent a representative to take over Kirin, but its employees (pursuant to Chen's instructions), refused the representative access to the premises and inspection of books and records. Compl. ¶ 33. Alleged is that Kirin's bank refused to make account records available, and that Chen had never told Kirin's employees of Plaintiff's investment, never informed the landlord of the property where Kirin operated of Plaintiff's investment, and never made Plaintiff an authorized signatory on any of Kirin's bank accounts. Id. ¶¶ 33–34.
Chen denies these allegations. Answer ¶¶ 33–34. But, based on the record, they appear to be true. See Hr'g Tr. 4:15–19, 5:1–3, Dec. 19, 2018 ().
In April 2018, Shi, as chair and director of Kirin, removed Chen from all positions at Kirin and named Shi chief executive officer of Kirin. Decl. Frank Chen Ex. D, ECF No. 18-5. Shi also named an interim chief executive officer of Kirin, effective immediately. Decl. Frank Chen Ex. D, ECF No. 18-6.
Chen took steps to counter these moves. On April 17, 2018, his attorney Xiangan Gong ("Gong") wrote to Plaintiff's counsel opposing the "attempted take-over of the business." Decl. Jacob Chen Opp. Frank Chen’s Mot. Dismiss Ex. A, ECF No. 23-2 ("Pl. Ex. B"). Gong wrote:
The stock transfer agreement between the parties entered last November was never finalized: (1) Frank Chen was and still is the one who actually supervises and manages the company's daily business operation , Qiuxiang Shi had never participated into company's management or business operation; (2) the lease was signed by Frank Chen; (3) Frank Chen was the only authorized personnel for the company's bank account.
Id. (emphasis added). In the same email, Gong wrote, "[Chen] CANNOT LEAVE THE COMPANY AND LET YOUR CLIENT OPERATE THE BUSINESS WITH HIS LEASE, SUBJECT HIM TO VIOLATION OF THE LEASE." Id. (capitalization in original).
C. Motion to Realign and Dismiss
In May, Plaintiff brought three causes of action against Chen and Kirin: (1) fraudulent inducement; (2) breach of contract; and (3) breach of fiduciary duty. Compl. at 6–9. Alleged is that a demand for Kirin to institute suit against Chen would be futile. Id. ¶ 7. Chen and Kirin filed a joint answer in response to Plaintiff's complaint. Answer at 1. By August, Chen had hired new counsel for himself, but he declined to hire new counsel for Kirin. Minute Entry, ECF No. 25, Aug. 15, 2018.
Chen's new attorney filed a motion to dismiss for lack of subject matter jurisdiction, arguing that Kirin should be realigned as a plaintiff, thus destroying the complete diversity of citizenship required for this court to have subject matter jurisdiction. See Def. Chen's Notice Mot. & Mot. to Dismiss Under Rule 12(b)(1) for Lack of Subject Matter Jurisdiction at 4, ECF No. 18, Aug. 5, 2018.
This court converted Chen's motion to dismiss to a motion for summary judgment. Order, ECF No. 26, Aug. 27, 2018. A hearing on the motion was held on December 19, 2018. See Hr'g Tr., Dec. 19, 2018. The parties agreed that the motion could be decided without an evidentiary hearing. Id. 4:15–19, 5:1–3.
A. Summary Judgment Standard of Review
At the summary judgment stage, "the judge's function is not ... to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial."
Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The movant must show that "there is no genuine dispute as to any material fact and...
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