Shao v. Beta Pharma, Inc.
| Decision Date | 01 November 2017 |
| Docket Number | 3:14-cv-01177(CSH) |
| Court | U.S. District Court — District of Connecticut |
| Parties | SHANSHAN SHAO, HONGLIANG CHU, QIAN LIU, SONG LU, AND XINSHAN KANG, Plaintiffs, v. BETA PHARMA, INC., AND DON ZHANG, Defendants. |
ORDER ON DEFENDANTS' MOTION TO DISMISS PLAINTIFF SONG LU'S CLAIMS IN PART
Following oral argument on Defendants' Motion to Dismiss Plaintiff Song Lu's Claims in Part [Doc. 168], this Order resolves that Motion.
This matter is a contract dispute between the five individual Plaintiffs, investors in a "privately owned organization" (Plaintiffs' phrase) under the laws of the People's Republic of China called Zhejiang Beta Pharma Co., Ltd. ("Zhejiang" or "ZBP"). ZBP is affiliated with the corporate Defendant in this case, Beta Pharma, Inc. ("Beta" or "BP"). The individual Defendant, Don Zhang, is alleged to be the majority stockholder and president of BP, and the vice-president and a director of ZBP. Plaintiffs assert claims for breach of contract and tort against both Defendants.
Following the Court's prior Omnibus Ruling [Doc. 163], which resolved questions of subject matter jurisdiction and the scope of discovery, Defendants filed both an Answer [Doc. 167] and the instant Motion to Dismiss Plaintiff Song Lu's Claims in Part [Doc. 168]. Defendants argue that Plaintiff Song Lu ("Lu," or "Plaintiff") is not entitled to bring claims for the full amount of stock he purchased: Pl. Br. 1.
Defendants' Motion relies on the "Sub-Agreement and Memo" ("the Sub-Agreement") included on the final page of the November 2010 Stock Purchase Agreement ("SPA") signed by Don Zhang and Song Lu. The SPA amended and superceded a prior purchase agreement between Lu and Zhang, executed on March 16, 2010. The March agreement was for 90,620 shares, for which Lu paid $312,320 in U.S. currency. Pl. Br. 2. At the time of re-executing the purchase agreement, via the November 2010 SPA, Plaintiff Lu increased his purchase by an additional 15,000 shares, for which he paid 150,000 RMB in Chinese currency. Id. at 2-3. The November 2010 SPA, unlike the March agreement, included a "Sub-Agreement and Memo," on a final page after the signature block. The Sub-Agreement reads, in its entirety:
SPA at 4. Baoying Lu and Bochun Lu are Song Lu's sisters, Zhisheng Kan and Daqing Zhang are his friends. Pl. Br. 3 n. 1. All four (collectively, "the Sub-Purchasers") are citizens and residents of the People's Republic of China. Id. The Sub-Agreement bears no signature block, and Plaintiff Lu and Defendant Zhang were the only signatories to the SPA.
In the second half of 2013 Defendant Beta Pharma repurchased its shares from Plaintiff Lu and the other Plaintiffs to this action. Second Amended Compl. ¶¶ 14-18; Pl. Br. 3, Exs. E, F. In negotiating the repurchase agreement, Defendants dealt solely with Plaintiff Lu, and no mention was made of the Sub-Purchasers. Pl. Br. 3-4, Exs. E, F. Payment for the repurchases shares (a payment whose alleged inadequacy underlies this action) was made solely to Song Lu. Id.
Defendants move to dismiss Song Lu's claims in part, for failure to join necessary parties, under Federal Rule of Civil Procedure 12(b)(7).
Rule 19(b) provides that, "[i]f a person who is required to be joined if feasible cannot be joined, the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed." Rule 19(b) provides that the court's consideration of this question should include four factors, summarized in this Circuit as:
(1) whether a judgment rendered in a person's absence might prejudice that person or parties to the action, (2) the extent to which any prejudice could be alleviated, (3) whether a judgment in the person's absence would be adequate, and (4) whether the plaintiff would have an adequate remedy if the court dismissed the suit.
Marvel Characters, Inc. v. Kirby, 726 F.3d 119, 133 (2d Cir. 2013) (quoting CP Solutions, 553 F.2d at 159).
The leading Supreme Court case, Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102 (1968), clarifies the two-step Rule 19 analysis, whereby not every party that is "necessary" under Rule 19(a) is "indispensible" under Rule 19(b):
Whether a person is "indispensable," that is, whether a particular lawsuit must be dismissed in the absence of that person, can only bedetermined in the context of particular litigation. There is a large category, whose limits are not presently in question, of persons who, in the Rule's terminology, should be "joined if feasible". . . . Assuming the existence of a person who should be joined if feasible, the only further question arises when joinder is not possible and the court must decide whether to dismiss or to proceed without him. To use the familiar but confusing terminology, the decision to proceed is a decision that the absent person is merely "necessary" while the decision to dismiss is a decision that he is "indispensable." The decision whether to dismiss (i.e., the decision whether the person missing is "indispensable") must be based on factors varying with the different cases, some such factors being substantive, some procedural, some compelling by themselves, and some subject to balancing against opposing interests.
390 U.S. at 118-19 (footnotes omitted).
"[I]n general . . . a 'flexible' approach [must] be taken to issues relating to indispensable parties; a mechanical determination of who is an indispensable party is clearly inappropriate in light of Rule 19(b)'s reference to 'equity and good conscience.'" Prescription Plan Serv. Corp. v. Franco, 552 F.2d 493, 496 (2d Cir. 1977) (citation omitted) (citing Provident Tradesmens Bank, 390 U.S. 102). See also Jaser v. N.Y. Prop. Ins. Underwriting Ass'n, 815 F.2d 240, 242 (2d Cir. 1987). The Second Circuit has rejected a bright line rule whereby all parties to a contract are indispensable to an action brought on that contract. See CP Solutions PTE, Ltd. v. General Elec. Co., 553 F.3d 156, 159 (2d Cir. 2009). See also Polargrid LLC v. Videsh Sanchar Nigam Ltd., No. 04 CV 9578(TPG), 2006 WL 2266351, *9 (S.D.N.Y. Aug. 7, 2006).
Defendants urge the Court to dismiss that part of Plaintiff Lu's claim which represents the portion of stock Lu purchased on behalf of the Sub-Purchasers, because, in Defendants' view, the Sub-Purchasers are indispensible parties whose joinder is infeasible due to a lack of personaljurisdiction.1 Def. Brief 1("While the Other Purchasers are necessary parties, this Court lacks personal jurisdiction over them, so joinder is infeasible").
The four non-party Sub-Purchasers are residents and citizens of the People's Republic of China. Def. Br. 2; Pl. Br. 3 n. 1. As such, their joinder to this action would not destroy this court's subject-matter jurisdiction under the diversity statute, as their addition would maintain complete diversity between Plaintiffs and Defendants.2
To establish the Sub-Purchasers as "necessary" parties, Defendants must demonstrate that concluding this litigation in the Sub-Purchasers' absence will result in at least one of three results: (1) the Court's inability to accord complete relief as between Plaintiff Song Lu and the Defendants; (2) impairment or impediment to the Sub-Purchasers' ability to protect their interest in this matter; or (3) substantial risk to Defendants of "incurring double, multiple, or otherwise inconsistent obligations." Fed. R. Civ. P. 19(a)(1).
Accepting all of the Complaint's factual allegations as true, and drawing all inferences in favor of Plaintiff (the non-moving party), the evidence is insufficient to establish the Sub-Purchasers as necessary parties in this action, under the definition of Rule 19(a). The Sub-Purchasers'...
To continue reading
Request your trial