Chen v. Wang
| Docket Number | Civil Action 22-4708 (MAS) (JBD) |
| Decision Date | 30 April 2023 |
| Parties | XIONGJIAN CHEN, Plaintiff, v. PETER ZUGUANG WANG, et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
NOT FOR PUBLICATION
This matter comes before the Court on Defendants Peter Zuguang Wang (“Wang”), Cenntro Automotive Group Limited a Cayman Islands corporation (“CAG”), Cenntro Enterprise Limited, a Hong Kong company (“CEL”) and Cenntro Electric Group Limited f/k/a Naked Brand Group Limited's, an Australian corporation (“CENN”) (collectively, “Defendants”) motion to dismiss Plaintiff Xiongjian Chen's (“Plaintiff') Complaint. (ECF No. 12.) Plaintiff opposed (ECF No. 21), and Defendants replied (ECF No. 24). The Court has carefully considered the parties' submissions and decides the matter without oral argument pursuant to Local Civil Rule 78.1. For the reasons set forth below, the Court grants Defendants' motion to dismiss.
Wang is the former Chairman and Chief Executive Officer (“CEO”) of CAG, a designer and manufacturer of electric vehicles, and he is currently the owner and Chairman of CEL, CAG's controlling stockholder. (Compl. ¶¶ 10-11, ECF No. 1.) In 2021, CAG sold its operating subsidiaries to NBG, a publicly-traded Australian clothier, in exchange for NBG stock (the “Transaction”). (See id. ¶¶ 26-27.) NBG also changed its name to CENN. (Id. ¶ 27.) Wang serves as CENN's Chairman and CEO. (Id. ¶ 10.) CEL holds a majority of seats on CENN's Board of Directors. (Id. ¶ 27.)
Plaintiff is the former Chief Operating Officer (“COO”) of CAG. Plaintiff served in that position for approximately three and a half years, until his resignation on February 28,2021. (Id. ¶ 22.) Thereafter, he transitioned to the role of a consultant to CAG, serving in that capacity until his termination on September 26, 2021. (Id. ¶ 25.)
On July 15, 2017, Plaintiff entered into an agreement with CAG to serve as the company's COO (the “Employment Agreement”). (Id. ¶ 15.) According to Plaintiff, the Employment Agreement provided him “6,300,000 options with a $1.65 exercise price, from the available pool of CAG options, to be vested in five installments over four years (with 1,260,000 vested options granted immediately, and 1,260,000 vesting each year thereafter)” (the “Employment Agreement Options”). [2]
At the same time, Plaintiff also purportedly entered into a separate agreement with Wang and CEL (“the CEL Agreement”) that provided Plaintiff with “2,700,000 options in CAG, with a $1.65 exercise price, to be provided by CEL and to be vested in five installments over four years (with 540,000 vested options granted immediately, and 540,000 vesting each year thereafter that Plaintiff provided service to CEL)” (the “CEL Agreement Options”). (Id. ¶ 15, Ex. B.) In total, the CAG Employment Agreement and the CEL Agreement Options (together, the “Options Agreements”) granted Plaintiff 9 million CAG options. (Id.)
In December 2019, CAG's Chief Financial Officer (“CFO”) allegedly provided Plaintiff with a document titled “[CAG] Incentive Stock Option Agreement” (the “2019 Stock Option Agreement”). (Id. ¶ 17.) By this time, 5.4 million of Plaintiff s 9 million options had vested. According to Plaintiff, the 2019 Stock Option Agreement materially differed from the Options Agreements in three ways: (1) it stated that the Employment Agreement granted Plaintiff 5.8 million options rather than 6.3 million options; (2) it “made no mention of Plaintiff s CEL Options at all”; and (3) it stated that Plaintiff would forfeit his options if he did not exercise them within three months of his termination or disaffiliation from CAG. (Id. ¶ 18.) Plaintiff purportedly raised these issues to CAG's CFO, but he received no response. (Id.) As a result, Plaintiff did not sign the 2019 Stock Option Agreement. (Id.)
Four months later, on April 27, 2020, Wang organized a Zoom meeting among key CAG executives, including Plaintiff. (Id. ¶ 19.) Plaintiff alleges that Wang proposed to convert all CAG options into shares of CAG common stock to “speed up the process of a prospective merger and facilitate the conversion of CAG's options into publicly traded common stock.” (Id.)
On May 5, 2020, CAG's CFO alerted Plaintiff that CAG was “making preparations for a deal with a special purpose acquisition company (“SPAC”).” (Id. ¶ 20.) Plaintiff alleges that he “preliminarily agreed” with Wang to “return his 3,500,000 unvested Options to the available pool of CAG options and retain his 5,500,000 already-vested Options.” (Id.) According to Plaintiff, he understood that the already-vested Options would be “converted into freely tradeable stock in the prospective SPAC deal.” (Id.) The agreement was further contingent on Plaintiffs understanding from Wang that the vested Options would be “treated equally alongside other CAG options in a SPAC deal or similar transaction.” (Id.)
In or around June 2020, CAG purportedly presented Plaintiff with an “Option to Stock Agreement” that would “cancel his existing vested and unvested Options in exchange for alternative share-based compensation to be issued once CAG's stock was publicly traded.” (Id. ¶ 21.) According to Plaintiff, CAG's Human Resources department represented that the Option to Stock Agreement did not include any forfeiture provision that would divest Plaintiff of options upon his termination or disaffiliation from CAG. (Id.) Relying on CAG's purported representations, Plaintiff signed the Option to Stock Agreement. (Id.)
On February 28, 2021, Plaintiff resigned from his position as COO of CAG and assumed the role of a consultant to CAG. (Id. ¶ 22.) On March 5, 2021, CAG's CFO informed Plaintiff that the Option to Stock Agreement was purportedly invalid and requested that Plaintiff sign the 2019 Stock Option Agreement that he had previously refused to sign. (Id. ¶ 23.) According to Plaintiff, he objected to the request, explaining that replacing the Options Agreements with the 2019 Stock Option Agreement would effectively eliminate the right to his vested options because of his resignation as COO. (Id.) In response, Plaintiff alleges that CAG's CFO assured him that the terms of the Options Agreements would govern the rights to his options. (Id.)
On or about September 23, 2021, however, Wang allegedly requested that Plaintiff return a portion of his Options granted pursuant to the Employment Agreement and CEL Agreement in order to facilitate the issuance of compensation for other executives. (Id. ¶ 24.) Specifically, Plaintiff alleges that Wang requested that he return all 9 million of his Options which had vested under the Options Agreements by that time. (Id.) Plaintiff refused, and three days later on September 26,2021, Wang allegedly sent Plaintiff two separate letters on behalf of CAG and CEL. (Id. ¶ 25.) According to Plaintiff, the first letter informed him that his total options were being reduced from 9 million to 5.5 million, while the second letter informed Plaintiff that he was being terminated. (Id.) Plaintiff further alleges that the purpose of his termination was “presumably to deprive [him] of his vested Options on the basis that he was no longer affiliated with the company.” (Id.)
Plaintiff learned of CAG's deal with NBG, the Transaction, when it was publicly disclosed by NBG in a Form 6-K filed with the United States Securities and Exchange Commission on November 5, 2021. According to Plaintiff, the Form 6-K addressed Plaintiffs options as follows:
Each CAG employee stock option outstanding immediately prior to the Closing will be converted into an option to purchase a number of NBG ordinary shares equal to the number of CAG shares for which such stock option was exercisable immediately prior to the Closing multiplied by the Exchange Ratio (as defined below) at an option exercise price equal to the exercise price per share of such stock option immediately prior to the Closing divided by the Exchange Ratio, as determined in accordance with the Acquisition Agreement (the ‘Converted Options'). Following the Closing, the Acquisition Shares will be registered for resale with the SEC by NBG.
(Id. ¶ 28.)
In the lead-up to the Transaction, CAG's CFO and Executive Vice President (“EVP”) allegedly assured Plaintiff multiple times that his options would be converted into CENN stock once the Transaction was complete. (Id. ¶ 30.) According to Plaintiff, however, the day the Transaction closed, CAG's CFO informed Plaintiff that his options were excluded from the pool of convertible post-Transaction options because he was not “affiliated” with CAG following the termination in September 2021. (Id. ¶ 31.)
On January 21, 2022, Plaintiffs counsel wrote to Wang challenging the treatment of Plaintiffs options. (Id. ¶ 32.) According to Plaintiff, CAG's response on March 11, 2022, “implicitly acknowledge[ed] that CAG rendered Plaintiffs Options worthless and frustrated the rights granted to him under his Employment Agreement.” (Id.) Plaintiff alleges that had his vested CAG options been converted to CENN stock after the Transaction, he would have had stock valued at $19 million. (Id. ¶ 36.)
On July 22, 2022, Plaintiff filed the instant action, asserting the following eleven causes of action: (1) breach of the Employment Agreement against Wang and CAG; (2) breach of the CEL Agreement against Wang and CEL; (3) breach of the implied covenant of good faith and fair dealing in connection with the Employment...
To continue reading
Request your trial