HRC-Hainan Holding Co. v. Hu

• Decision Date: 25 February 2020
• Docket Number: Case No. 19-mc-80277-TSH
• Court: U.S. District Court — Northern District of California
• Parties: HRC-HAINAN HOLDING COMPANY, LLC, Applicants, v. YIHAN HU, et al., Respondents.

HRC-HAINAN HOLDING COMPANY, LLC, Applicants, v. YIHAN HU, et al., Respondents.

Case No. 19-mc-80277-TSH

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

February 25, 2020

ORDER RE: APPLICANTS' MOTION TO COMPEL § 1782(A) DISCOVERY AND RESPONDENTS' MOTION TO QUASH

Re: Dkt. Nos. 14, 15, 41

I. INTRODUCTION

Applicants sought leave to serve subpoenas on Respondents under 28 U.S.C. § 1782 to obtain discovery for use in two proceedings, one arbitral and one before a court, in the People's Republican of China. ECF No. 1. The Court granted the Applicants' ex parte application. ECF No. 5. Respondents have moved to quash the subpoenas, ECF No. 15, and Applicants have moved to compel discovery, ECF No. 14. For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART both motions.

II. BACKGROUND¹

Applicants are HRC-Hainan Holding Company, LLC and D&W Holding Company, LLC, both Delaware companies, and Hainan HRC Hospital Management and Consulting, Co., Ltd. ("HRC-China"), a Chinese company 90% owned by HRC-Hainan and D&W. Ex Parte Appl. ("Appl.") 1, ECF No. 1.

Applicants seek discovery for use in two proceedings in the People's Republic of China: (1) a private arbitration before the China International Economic and Trade ArbitrationCommission ("CIETAC"), which Applicants recently commenced against Ciming Bo'ao International Hospital Co., Ltd. ("Ciming"); and (2) a lawsuit before the No. 1 Intermediate People's Court of Hainan Province (the "Hainan court"), which seeks to preserve assets in connection with the CIETAC arbitration.

I. The CIETAC Arbitration and Underlying Conflict

The Applicants submitted their Request for Arbitration to CIETAC, which CIETAC formally accepted on September 6, 2019. Decl. of Liu Yang in Supp. of Appl. ("Liu Decl.") ¶ 5, ECF No. 2. Applicants' Request asserts that pursuant to a Collaboration Agreement with Ciming, Applicants invested $10 million to build and equip an in vitro fertilization ("IVF") center at Ciming's hospital in Hainan Province, People's Republic of China, and to enable Ciming to obtain a highly valuable government license to provide IVF services. Id. ¶ 2, Ex. 1, ¶ 1.2. After the license was granted in March 2019, Ciming acted in breach of the Collaboration Agreement to take possession of the IVF center and the license, and to push Applicants out of the management and operation of the IVF center. Id. ¶¶ 1.3. 10.2. After pushing Applicants out of the IVF center, Ciming began providing IVF services using the facility and equipment that Applicants had built and purchased, as well operating manuals and training materials that Applicants assert contain intellectual property and know-how licensed to them. Id. ¶. Ciming also sent a letter to Applicants purporting to unilaterally terminate the Collaboration Agreement in breach of the terms of the agreement. Id.

Applicants allege that Respondent Hu Yihan, a Chinese national who resides or was recently residing in the Northern District of California, signed the Collaboration Agreement on September 10, 2017 as Ciming's legal representative and 95% shareholder. Id. ¶¶ 3.1, 6.2. At the same time, Hu signed a "Letter of Undertaking" as an Appendix to the Collaboration Agreement, requiring Ciming to provide notice of any transfer of Ciming's equity and to obtain HRC-China's prior approval of any change in control of Ciming. Id. ¶ 7.2. Despite that undertaking, Hu transferred her 95% stake in Ciming in December 2017 to her mother, Han Xiaohong, without providing prior notice or obtaining HRC-China's consent. Id. ¶ 10.1. Han replaced Hu as the Legal Representative and Executive Director of Ciming. Id. Applicants allege that this transferalso violated the Collaboration Agreement. Id.

Based on Ciming's breach of the Collaboration Agreement, Applicants seek from the arbitration an award of over RMB 143 million ($20 million), which includes compensation for the IVF license obtained by relying on Applicants' investments and technical support, as well as restitution of tangible and intangible property that Ciming wrongfully seized. Id. ¶¶ 1.4, 12.1-12.5, 13.1-13.2.

CIETAC confirmed the constitution of the Arbitral Tribunal (the "Tribunal") on October 25, 2019. Liu Decl. ¶ 6. The Tribunal conducted hearings on November 29 and 30, 2019, in Beijing. Decl. of Liu Yang in Supp. of Mot. to Compel ("Liu Compel Decl.") ¶ 5, ECF No. 14-21. At the time of the hearings, Applicants had served the document and deposition subpoenas that are the subject of these § 1782 proceedings. Id. ¶ 6. The Tribunal asked Applicants about a timeline for submission of additional evidence and gave the parties until the end of December 2019 to submit such evidence. Id. ¶¶ 5-6. On December 2, 2019, the Tribunal issued an order setting a deadline for supplemental evidence of January 2, 2020. Id. ¶ 8; Joint Ex. ("JX") 12, ECF No. 14-13. That same day Applicants applied to the Tribunal requesting to extend the deadline to submit evidence until the end of February 2020. JX 13, ECF No. 14-14. On December 5, Applicants submitted a further statement to the Tribunal, informing the Tribunal that it was unlikely it could submit evidence before January 2, 2020 and requesting an extension of the deadline. Id. ¶ 9. In their statement, Applicants informed the Tribunal that this Court would be holding a hearing in January 2020 on Respondents challenge to the § 1782 discovery. Id. On December 23, 2019, the Tribunal extended the deadline to submit additional evidence from January 2 to January 23, 2020. JX 16.

II. The Hainan Asset Preservation Case

On September 20, 2019, HRC-China applied to the Hainan court to freeze RMB 143 million ($20 million) of Ciming's assets to ensure that an award in the CIETAC arbitration, if Applicants obtain one, can be enforced. Liu Decl. ¶¶ 9-10, Ex. 3. The Hainan court granted the application on September 27, 2019, authorizing the freeze of RMB 143 million of Ciming's assets including bank deposits. Id. ¶¶ 11-12; ¶ 11, Ex. 4. However, only a small amount, less than RMB645,000 (about $90,000), in bank deposits were frozen due to insufficient funds in accounts of Ciming identified by Applicants. Id. ¶ 12. Applicants assert that Ciming is a large hospital with over RMB 57 million (about $8 million) in paid-in capital. Id. ¶ 13. They believe that Ciming transferred its assets to other locations not known to them, id., including to persons or entities in this District.

III. The Parties from Whom Discovery Is Sought in this Matter

Applicants sought discovery under § 1782 of three individuals and four entities. The individuals are: Hu Yihan, who signed the Collaboration Agreement as Ciming's legal representative, and then allegedly transferred her 95% stake in Ciming to Han Xiaohong, her mother, without HRC-China's consent and thus in violation of the Collaboration Agreement; Han Xiaohong, who is the current 95%-owner of Ciming, and who Applicants believe is the driving force behind Ciming's unlawful seizure of the IVF Center; and Hu Bo, Hu Yihan's father, who owns the other 5% of Ciming and co-signed with Hu Yihan a Letter of Intent in December 2016 that set forth the Collaboration Agreement's basic terms. Id. ¶¶ 6.5, 10.2. Three of the entities are California limited liability companies formed by Hu Yihan: HuHanOne LLC, HuHanTwo LLC, and HuHanThree LLC. See Decl. of Grant L. Kim in Supp. of Appl. ("Kim Decl.") ¶¶ 2-4, Exs. A-C, ECF No. 3. Hu Yihan is the manager of the companies and owns a 100% equity interest in HuHanThree, and Hu Bo holds a 100% equity interest in HuHanOne and HuHanTwo. Decl. of Yihan Hu ("Hu Y. Decl.") ¶ 7, ECF No. 15-2. The HuHan entities have since 2015 purchased over $31 million in real estate in the Bay Area, but otherwise don't engage in any apparent business in this district. Kim Decl. ¶¶ 6-8, Exs. E-G. The fourth is Wells Fargo Bank, which Applicants believe maintains an account of Hu Yihan and also, potentially, accounts for the parents or the LLCs. Id. ¶ 15.

Subsequent to the Court granting Applicants' Application, they served the subpoenas on Hu Yihan, HuHanOne, HuHanTwo, HuHanThree and Wells Fargo, JXs 1-5. They have not served Han Xiaohong or Hu Bo, and have not moved to compel compliance with those subpoenas, JXs 6-7. Opp'n to Mot. to Quash at 16, ECF No. 17. Accordingly, Respondents move to quash only those subpoenas which have been served, and the Court will address only those subpoenashere.

III. LEGAL STANDARD

Section 1782 provides, in pertinent part:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal . . . . The order may be made . . . upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced . . . .

28 U.S.C. § 1782(a). That language "has been distilled to permit district courts to authorize discovery where three general requirements are satisfied: (1) the person from whom the discovery is sought 'resides or is found' in the district of the district court where the application is made; (2) the discovery is 'for use in a proceeding in a foreign or international tribunal'; and (3) the application is made by a foreign or international tribunal or 'any interested person.'" Khrapunov v. Prosyankin, 931 F.3d 922, 925 (9th Cir. 2019) (quoting § 1782(a)).

Once those three statutory requirements are met, a district court has wide discretion to grant discovery under § 1782. Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 260-61 (2004); Four Pillars Enters. Co. v. Avery Dennison Corp., 308 F.3d 1075, 1079 (9th Cir. 2002) ("But the magistrate judge in granting some of the relief requested . . . and denying the rest, was exercising the broad discretion traditionally conferred upon the trial courts in such discovery matters."). In exercising its discretion, a...