Wang v. Beta Pharma, Inc.
| Decision Date | 24 August 2015 |
| Docket Number | CIVIL ACTION NO. 3:14-CV-01790 (VLB) |
| Court | U.S. District Court — District of Connecticut |
| Parties | ZHAOYIN WANG, Plaintiff, v. BETA PHARMA, INC., DON ZHANG, AND ZHEJIANG BETA PHARMA CO., LTD., Defendants. |
Plaintiff Zhaoyin Wang ("Wang"), a Canadian citizen, brings state law breach of contract, negligent and fraudulent misrepresentation, and breach of fiduciary duty claims against Defendants Beta Pharma, Inc. ("Beta Pharma"), a Delaware corporation with a principal place of business in Princeton, New Jersey, and Don Zhang ("Zhang"), a citizen of New Jersey (collectively the "Removing Defendants"). Plaintiff also seeks a declaratory judgment and injunctive relief against Defendant Zhejiang Beta Pharma Co. Ltd. ("ZBP"), a Chinese corporation, principally based in China.
The Complaint arises from the alleged breach of a partnership agreement, executed on March 26, 2010 (the "Agreement"). See . The parties to the Agreement were Plaintiff and Defendant Zhang, who signed the Agreement on behalf of Defendant Beta Pharma. [Id. at 41]. At the time the Agreement was signed, Zhang served as both the majority stockholderand President of Beta Pharma, and was Vice-President and a director of Defendant ZBP. See [Dkt. #1-1, Compl. at Count 1 at ¶¶ 3, 8].2
Pursuant to the Agreement, Plaintiff served as the Chief Scientific Officer of Beta Phama. See . His responsibilities included managing Beta Pharma's "overall Research and Development efforts . . . including [its] joint venture with other organizations." [Id.] In compensation for this work, Plaintiff was to receive from Beta Pharma a salary of 850,000 RMB Yuan, 2 million shares of Beta Pharma, and 3 million shares of "current [ZBP] stock," which represented 1% of the outstanding shares of ZBP. [Id. at ¶¶ 3-4]. The Agreement also references a "transaction" in connection with Plaintiff's ZBP shares that would occur at a "certain point such as" when the company has gone "public." [Id. at ¶ 3].3
ZBP was formed in 2002, by Beta Pharma and other investors, as a Sino-foreign joint venture for the purpose of developing, testing, and marketing pharmaceuticals. [Id. at ¶ 5; Dkt. #88-3, Li Decl. at ¶ 3].4 In forming ZBP, Beta Pharma received a 45% interest in the company. [Dkt. #1-1, Compl. at Count 1 at ¶ 7]. According to a draft prospectus prepared by ZBP's successor entity, Betta, as of June 2014, four months before the Complaint was filed, Beta Pharma held approximately 8% of ZBP's outstanding shares. See [Dkt. #89-1, Ex. A to Katz Decl. at 1-1-45]. Beta Pharma's ownership interest exceeded those of two of the three "controlling shareholders of the Company," Beicheng Investment, which held 7.5%, and Yinxiang Wang, who held approximately 6.5% of the shares. [Id. at 1-1-28]. Overall, Beta Pharma was the fourth largest shareholder of ZBP, and the largest shareholder owned just 29.74% of ZBP's outstanding shares. [Id. at 1-1-28, 1-1-44, 1-1-45].
Following the execution of the Agreement, Plaintiff formed Beta Pharma Canada, which he co-owned with Defendant Zhang, invested approximately $300,000 of his own funds into the company, and worked full time at the company for approximately three years. [Dkt. #1-1, Compl. at Count 1 at ¶ 11]. Notwithstanding this work, Plaintiff contends that the Removing Defendants (i)failed to pay him a salary, (ii) failed to register the shares of ZBP in his name on the books and records of ZBP in China, (iii) failed to cause him to participate in the planned initial public offering ("IPO") of ZBP shares in China, and (iv) withheld material information, including information regarding the transferability of the ZBP shares, Beta Pharma's inability to unilaterally provide Plaintiff with the ZBP shares and accompanying shareholder rights, and ZBP's alleged opposition to Beta Pharma's transfer of its shares to Plaintiff. [Id. at ¶ 12, Count 2 at ¶ 15, Count 3 at ¶ 12, Count 4 at ¶ 13, Count 6 at ¶¶ 12-14, and Count 7 at ¶ 13]. With regard to ZBP's opposition to the transfer, the Complaint alleges that "the ZBP board of directors would not permit [Beta Pharma] to transfer shares to plaintiff, [] would not recognize [Beta Pharma]'s transfer of shares, and it had ordered [Beta Pharma] and Zhang to cancel or unwind the transaction by paying plaintiff the fair market value of his interest in ZBP." [Id. at Count 5 at ¶ 13(g) and Count 8 at ¶ 14(g)].5
For relief on the breach of contract claims, Plaintiff seeks specific performance of the Agreement, including the receipt and registration in his name of 1% of ZBP's outstanding stock, as well as monetary damages. [Id. at Count 1 at ¶ 14 and Count 2 at ¶ 17]. Plaintiff also brings a separate claim against ZBP for a judgment declaring that he owns 1% of ZBP's outstanding stock and seeks a permanent injunction requiring ZBP to cause his shares to be registered on its books and records and to grant Plaintiff all rights appurtenant to his status as a shareholder, including the right to participate in ZBP's IPO. [Id. at Count 9 at ¶ 5].
The Complaint was originally filed in the Connecticut Superior Court, Judicial District of New Haven, on October 27, 2014, docket number NNH-CV-14-6050848. On December 1, 2014, the Removing Defendants filed a Notice of Removal, pursuant to 28 U.S.C. §§ 1441(a), 1446 and 1332, in which they asserted that Defendant ZBP, the only non-diverse defendant, was fraudulently joined. [Dkt. #1, Defs.' Notice of Removal at ¶ 5]. In seeking removal of this action, the Removing Defendants did not obtain the consent of Defendant ZBP. [Id. at ¶ 11]. Moreover, to date, ZBP has neither responded to the Complaint nor even entered an appearance in this action.
On December 5, 2014, the Removing Defendants filed a motion to transfer this action to the United States District Court for the District of New Jersey. See [Dkt. #17]. The Removing Defendants subsequently filed a motion to dismiss, motion for a protective order, motion to quash, and a motion to disqualify Plaintiff's counsel. See [Dkt. ## 26, 49, 56, 64]. On May 6, 2015, the Court scheduled a hearing to resolve several of these pending motions. See [Dkt. #72]. In the course of reviewing the parties' voluminous filings in advance of the hearing, including the Removing Defendants' removal notice, the Court began to question whether it had subject matter jurisdiction over the dispute. Accordingly, on June 6, 2015, the Court vacated the scheduled hearing and issued an Order to Show Cause why this case should not be remanded for lack of subject matter jurisdiction. See [Dkt. ## 82-83].
In its Order, the Court stated that it was "presently unconvinced" that the two bases for removal articulated in the Removing Defendants' notice, that ZBPwas fraudulently joined and had not been properly served, were "sufficient to preclude the Court from considering the citizenship of ZBP." [Dkt. #82, Order to Show Cause at 2]. On July 7, 2015, the Removing Defendants timely submitted their response. [Dkt. #88]. On July 21, 2015, Plaintiff filed responses. See [Dkt. ## 89-90]. On July 28, 2015, the Removing Defendants filed a reply in support of their initial response. [Dkt. #91]. On August 4, 2015, Plaintiff submitted a surreply. [Dkt. #92]. After reviewing the parties' filings, the removal notice, and applicable law, the Court remains unconvinced that it has subject matter jurisdiction and, sua sponte, REMANDS this matter back to the Connecticut Superior Court.
In their removal notice, the Removing Defendants asserted that ZBP's citizenship need not be considered for two reasons: (i) ZBP was fraudulently joined because Plaintiff Wang is unable to bring a cause of action against it under Connecticut law and (ii) ZBP has not been properly served. [Dkt. #1, Defs.' Notice of Removal, at ¶¶ 5-6]. In their show cause response, the Removing Defendants offer three additional grounds for removal: (i) ZBP is neither a necessary nor an indispensable party; (ii) Plaintiff's cause of action as to ZBP is legally impossible because the Court lacks personal jurisdiction over ZBP; and (iii) Plaintiff's post-Complaint conduct indicates that ZBP was joined solely to defeat diversity jurisdiction. . Taken separately or together, none of these arguments are sufficient to satisfy the Removing Defendants' heavy burden of establishing that ZBP was fraudulently joined.
"It is a fundamental precept that federal courts are courts of limited jurisdiction and lack the power to disregard such limits as have been imposed by the Constitution or Congress." Durant, Nichols, Houston, Hodgson, & Cortese-Costa, P.C. v. Dupont, 565 F.3d 56, 62 (2d Cir. 2009) (citation and quotations omitted). The party asserting federal jurisdiction bears the burden of proving that the case is properly before the federal court. See McNutt v. General Motors Acceptance Corp., 298 U.S. 189, 189 (1936). Where federal jurisdiction is asserted by a defendant pursuant to the removal statute, 28 U.S.C. § 1441, "the defendant bears the burden of demonstrating the propriety of removal." California Pub. Emps. Ret. Sys. v. WorldCom, Inc., 368 F.3d 86, 100 (2d Cir. 2004) (quotation and citations omitted). "In light of the congressional intent to restrict federal court jurisdiction, as well as the importance of preserving the independence of state governments, federal courts construe the removal statute narrowly, resolving any doubts against removability." Purdue Pharma L.P. v. Kentucky, 704 F.3d 208, 213 (2d Cir. 2012) (citation and quotations omitted). A party may remove "[a]ny civil action of which the district courts have original jurisdiction." 28 U.S.C. § 1441(a). Section 1332, the diversity statute, states that ...
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