China Nat'l Bldg. Material Inv. Co. v. BNK Int'l, LLC
| Decision Date | 27 January 2015 |
| Docket Number | Case No. A-14-CA-701-SS |
| Parties | CHINA NATIONAL BUILDING MATERIAL INVESTMENT CO., LTD., Plaintiff, v. BNK INTERNATIONAL, LLC; JEFFREY J. CHANG, Defendants. |
| Court | U.S. District Court — Western District of Texas |
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and specifically Defendant Jeffrey Chang's Motion to Dismiss [#9], Defendant BNK International, LLC (BNK)'s Motion to Dismiss [#10], Plaintiff China National Building Material Investment Co., Ltd. (CNBMI)'s Response to Defendants' Motions to Dismiss [#13], Defendant Chang's Reply [#15], and Defendant BNK's Reply [#14]. Having considered the documents, the file as a whole, and the governing law, the Court enters the following opinion and orders DENYING the motions to dismiss.
This action, brought pursuant to diversity jurisdiction, involves Plaintiff CNBMI, a Chinese entity, suing Defendants Chang and BNK, located in Texas, based on a business arrangement gone wrong. Compl. [#1] 1, 3-5. The procedural history of this case is long and winding. Theparties' relationship began on May 8, 2004, when CNBMI entered into an Agency Agreement with BNK andChang, who at all relevant times was and is BNK's sole member, director, and president. Id. ¶ 6-7. Under the Agency Agreement, BNK and Chang were authorized to identify, negotiate, and secure customers in the U.S. to purchase from CNBMI hardwood floor products in exchange for payment of certain commissions. Id. ¶ 7.
From 2004 through 2008, BNK and Chang procured sales of CNBMI's materials to Lumber Liquidators, Inc. Id. ¶ 9. CNBMI shipped those materials, Lumber Liquidators received them, and Lumber Liquidators paid BNK. Id. BNK and Chang reported to CNBMI sales totaling $21,343,145.01, and BNK and Chang paid CNBMI $18,243,072.58 on those sales. Id. ¶ 10. The Agency Agreement, however, provided for a larger portion of the $21,343,145.01 in reported sales to be paid to CNBMI, and CNBMI initiated an arbitration proceeding against BNK under the terms of the Agency Agreement. Id. ¶ 11. CNBMI won an award of $3,141,835.32. Id. ¶ 12. On June 25, 2009, CNBMI filed an Application and Motion to Confirm a Foreign Arbitration Award (Motion to Confirm) against BNK in this Court, and on December 3, 2009, the Court granted CNBMI's Motion to Confirm, rendering a judgment in favor of CNBMI (the Judgment). Id. ¶¶ 13-15; see also China Nat'l Bldg. Material Inv. Co., Ltd. v. BNK Int'l LLC, No. A-09-CA-488-SS, 2009 WL 4730578, at *1, 8 (W.D. Tex. Dec. 4, 2009). BNK filed a Notice of Appeal on December 31, 2009, and the Fifth Circuit Court of Appeals dismissed the appeal on May 5, 2010. Compl. [#1] ¶ 16.
CNBMI proceeded to serve Post-Judgment Requests for Production of Documents (CNBMI's Requests) on April 14, 2010, seeking information for purposes of collecting on the Judgment, including BNK's bank records and statements of financial affairs. Id. ¶ 18-19. On May 17, 2010, BNK served its responses, and the only documents produced were: (1) a Convertible Promissory Note and Line of Credit from an entity named Crossroads Enterprise, Inc., and (2) a RoyaltyAgreement. Id. ¶ 20-21. BNK did not produce any of its bank or financial records in its initial responses to CNBMI's Requests. Id. ¶ 21. On July 16, 2010, CNBMI filed its Motion to Compel and Motion for Sanctions against BNK requesting the Court: (1) overrule BNK's objections to CNBMI's Requests, and (2) order BNK to produce all responsive documents to CNBMI's Requests. Id. ¶ 22. Around the same time, in early July 2010, CNBMI issued a subpoena to Produce Documents to Lumber Liquidators seeking sales records, invoices, purchase orders, and payment records related to BNK's products purchased by customers from Lumber Liquidators. Id. ¶ 23. "Sometime after July 30, 2010," Lumber Liquidators produced documents responsive to CNBMI's subpoena, including documents identifying BNK's bank account maintained at Bank of America. Id. ¶ 24. The records showed the actual amounts paid by Lumber Liquidators to BNK on the sales totaled $29,001,278.71. Id. CNBMI was not previously aware of this actual sales figure. Id. ¶ 26.
On July 30, 2010, BNK paid CNBMI $1,500,000.00 in partial satisfaction of the Judgment with the remainder outstanding. Id. ¶ 27. Based on this payment, which was made before CNBMI supposedly realized the actual sales figure, CNBMI withdrew its Motion to Compel and Motion for Sanctions on August 3, 2010. Id. ¶¶ 27-28. On August 6, 2010, based on the information received from Lumber Liquidators, CNBMI issued a Subpoena to Produce Documents to Bank of America Corporation seeking any and all bank records for BNK's accounts. Id. ¶ 29. Bank of America produced documents identifying BNK's account wire transfers, bank statements, copies of checks drawn on BNK's accounts, and banking solutions. Id. ¶ 30. CNBMI and BNK participated in a settlement meeting on October 11, 2010 to discuss underpayment on the Judgment, but the parties were unable to resolve the matter. Id. ¶ 31.
On October 27, 2010, BNK voluntarily entered Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Western District of Texas, Austin Division, and the case was converted to a Chapter 7 bankruptcy on March 31, 2011. Id. ¶ 32. On October 18, 2011, CNBMI and the bankruptcy trustee for BNK entered into an Asset Purchase Agreement (APA) whereby CNBMI acquired, among other things, any and all claims BNK might have against Chang. Id. ¶ 33. The bankruptcy court approved the APA, and BNK's assets were liquidated. Id. ¶ 34.
Based on the foregoing series of events, CNBMI filed its Complaint in this Court on July 30, 2014. In sum, CNBMI alleges Chang undercapitalized BNK, commingled assets, mismanaged the company's business dealings and financial transactions, and defrauded business associates, including CNBMI, to his own personal benefit. Id. ¶ 35. While CNBMI obtained a Judgment, it was not aware of the extent of Chang's wrongdoing until it received the documents from Lumber Liquidators and Bank of America. Id. ¶ 36. Chang intentionally withheld information from CNBMI revealing his fraud, and as such CNBMI had no way of knowing Chang's misdeeds until obtaining the records from Lumber Liquidators and Bank of America. Id. ¶ 37. In its Complaint, CNBMI details its allegations regarding Chang's (1) improper wire transfers from BNK's account (¶¶ 38-51), and (2) improper issuance of BNK checks (¶¶ 52-61).
CNBMI asserts eight "Causes of Action:" (1) "Alter Ego/ Piercing the BNK Veil" based on the claim there is such unity between Chang and BNK that the separateness of BNK has ceased, and as a result, judgment should be rendered against Chang individually, in addition to BNK, for the remaining amount to be satisfied on the underlying Judgment (¶¶ 62-69); (2) "Sham to Perpetrate a Fraud Requiring Piercing of the BNK Veil" based on the related contention Chang used BNK's corporate form for the purpose of perpetrating an actual fraud on CNBMI primarily for his directpersonal benefit, and therefore judgment should be rendered against Chang individually, in addition to BNK, for the remaining amount to be satisfied on the underlying Judgment (¶¶ 70-74); (3) breach of the Agency Agreement based on the allegation Chang and BNK fraudulently understated the amount of sales to Lumber Liquidators and underpaid CNBMI for those sales (¶¶ 75-79); (4) fraud (¶¶ 80-84); (5) breach of fiduciary duty by BNK and Chang owed to CNBMI and arising out of the Agency Agreement and the transactions with Lumber Liquidators (¶¶ 85-88); (6) breach of fiduciary duty by Chang owed to BNK based on the theory CNBMI purchased the rights to BNK's claims through the APA, and as an officer and director of BNK, Chang owed a duty to avoid self-dealing and personal enrichment as well as duties of care and loyalty (¶¶ 89-94); (7) exemplary damages (¶¶ 95-96); and (8) attorneys' fees (¶¶ 97-98).
Based on these allegations, both Chang and BNK have filed a motion to dismiss based on Federal Rule of Civil Procedure 12(b)(6). Chang contends CNBMI's claims are barred by the relevant statute of limitations. According to Chang, the asserted claims have a four year limitations period, and CNBMI knew or should have known of its claims prior to July 30, 2010. Alternatively, in the event the Court considers the relief requested more properly subject to summary judgment, Chang requests the Court construe his motion as a summary judgment motion with a limitation on the scope of discovery. BNK incorporates and adopts Chang's argument regarding limitations and additionally argues CNBMI's complaint should be dismissed because: (1) BNK's prior bankruptcy precludes liability, and (2) the claims are barred by res judicata. CNBMI filed a joint response to these two motions, and Chang and BNK filed their replies. The Court now addresses the three grounds for dismissal.
Federal Rule of Civil Procedure 8(a)(2) requires a complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). A motion under Federal Rule of Civil Procedure 12(b)(6) asks a court to dismiss a complaint for "failure to state a claim upon which relief can be granted." FED. R. CIV. P. 12(b)(6). In deciding a motion to dismiss under 12(b)(6), a court generally accepts as true all factual allegations contained within the complaint. Leatherman, 507 U.S. at 164. However, a court is not bound to accept legal conclusions couched as factual allegations. Papasan v. Allain, 478 U.S. 265, 286 (1986). Although all reasonable inferences will be resolved in favor of the plaintiff, the plaintiff must plead "specific facts, not mere conclusory allegations." Tuchmanv. DSC Commc'ns Corp., 14 F.3d 1061, 1067 (5th Cir. 1994). The plaintiff must plead sufficient facts to state a claim for relief that is facially plausible. Ashcroft v....
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