Wang v. Beta Pharma, Inc. et al
Filing
93
ORDER REMANDING CASE: For the reasons stated in the attached Memorandum, the Court remains unconvinced that it has subject matter jurisdiction over this case. Accordingly, the Court REMANDS this matter back to the Connecticut Superior Court. The Clerk is directed to close this file. Signed by Judge Vanessa L. Bryant on 8/24/2015.(Nadler, S.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
ZHAOYIN WANG,
Plaintiff,
v.
BETA PHARMA, INC., DON ZHANG, AND
ZHEJIANG BETA PHARMA CO., LTD.,
Defendants.
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CIVIL ACTION NO.
3:14-CV-01790 (VLB)
August 24, 2015
ORDER REMANDING CASE
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.
I.
Factual Background1
1
The Court gleans the facts of this case from the Complaint, as well as from
relevant filings, documents, affidavits, and declarations submitted by the
parties. In the context of motions to remand, it is well-established that courts
“treat all factual allegations in the Complaint as true.” Wachtell, Lipton, Rosen
& Katz v. CVR Energy, Inc., 18 F. Supp. 3d 414, 416 n. 2 (S.D.N.Y. 2014) (citing
and quoting Federal Ins. Co. v. Tyco Internt’l Ltd., 422 F. Supp. 2d 357, 391
(S.D.N.Y. 2006) (“When considering a motion to remand, the district court
accepts as true all relevant allegations contained in the complaint and
construes all factual ambiguities in favor of the plaintiff.”)). The same is true
when a court raises the issue of subject matter jurisdiction sua sponte. See
Adames v. Taju, No. 15-cv-0288 (MKB), 2015 WL 307025, at *1 (E.D.N.Y. Jan. 23,
2015) (noting that “all allegations contained in the complaint are assumed to be
true” and determining sua sponte court lacked subject matter jurisdiction).
Notwithstanding these principles, the Removing Defendants contend that “the
Court cannot simply accept allegations of fact set forth in the Complaint as true,
1
The Complaint arises from the alleged breach of a partnership agreement,
executed on March 26, 2010 (the “Agreement”). See [Dkt. #1-1, Ex. A to Compl. at
39-41]. 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 stockholder
especially when Beta Pharma and Zhang have presented competent proof that
contradicts Plaintiff’s allegations.” [Dkt. #91, Defs’ Reply at 3]. Neither of the
fraudulent joinder cases the Removing Defendants cite limits the Court’s
reliance on the allegations in the Complaint. See Audi of Smithtown, Inc. v.
Volkswagen of Am., Inc., No. 08-CV-1773 (JFB)(AKT), 2009 WL 385541, at *3
(E.D.N.Y. Feb. 11, 2009); CMS Volkswagen Holdings, LLC v. Volkswagen Grp. of
Am., Inc., No. 13-cv-03929 (NSR), 2013 WL 6409487, at *4 (S.D.N.Y. Dec. 6, 2013).
The other case they raise, United Food & Commercial Workers Union, Local 919,
AFL-CIO v. CenterMark Props. Meriden Square, Inc., 30 F.3d 298 (2d Cir. 1994),
is inapposite, because it did not concern fraudulent joinder, but instead
addressed whether the allegations in the complaint established the requisite
jurisdictional amount in controversy. Id. at 305. Even there, the Second Circuit
stated that where “jurisdictional facts are challenged, the party asserting
jurisdiction must support those facts with competent proof and justify its
allegations by a preponderance of the evidence.” Id. (quotations and citation
omitted). The question of weight to be given disputed facts is largely academic
here, since in reaching its conclusions, the Court relies upon allegations which
are either undisputed or which the Removing Defendants have not refuted by
even a preponderance of the evidence, let alone by the clear and convincing
evidence standard applicable to a claim of fraudulent joinder. See Audi, 2009
WL 38554 at *3 (“In order to show that naming a non-diverse defendant is a
‘fraudulent joinder’ effected to defeat diversity, the defendant must
demonstrate, by clear and convincing evidence . . . that there is no possibility,
based on the pleadings, that a plaintiff can state a cause of action against the
non-diverse defendant in state court.”) (emphasis added) (quoting Pampillonia
v. RJR Nabisco, Inc., 138 F.3d 459, 461 (2d Cir. 1998)).
2
and 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 [Dkt. #1-1, Ex. A to Compl. at ¶ 1]. 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
2
Zhang asserts that he left his positions at ZBP in March 2013 and that he
presently has “no other role at [ZBP].” [Dkt. #31-1, Zhang Supp. Aff. at ¶ 5].
However, Zhang maintains that he continues to “have personal knowledge
regarding [ZBP] and its operations” and has submitted a sworn affidavit in
which he attests to the present state of the company. [Id. at ¶¶ 6, 7, 10]. He is
also currently CEO, president, and a shareholder of Beta Pharma. [Id. at ¶ 3].
3
In their Reply, the Removing Defendants contend that “the transaction” referred
to in paragraph three of the Agreement concerns the transfer of ZBP shares to
Plaintiff, that such transfer was to occur “after the IPO,” and that since the IPO
has not yet occurred, Plaintiff has no right to the stock. [Dkt. #91, Defs.’ Reply
at 6 n. 2]. While the Removing Defendant’s construction of this provision may
be correct, it is not the only reasonable one. For instance, the paragraph could
be read to provide for a pre-IPO transfer of “3 million shares of current [ZBP]
stock,” and “the transaction” referred to later in the paragraph could concern a
related transaction at or around the time of the IPO, such as the conversion or
exchange of the pre-IPO shares for publicly traded shares. [Dkt. #1-1, Ex. A to
Compl. at ¶ 3 (emphasis added)]. In addition, the paragraph suggests that the
IPO is one of several events which could trigger the execution of the referenced
transaction. See [id. (“[U]pon certain point such as company go public, the
transaction will be executed.”) (emphasis added)]. At this stage, the Court takes
no view on which, if any, of these interpretations is the controlling one.
3
ZBP was formed in 2002, by Beta Pharma and other investors, as a Sinoforeign 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 1-128, 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)
4
The parties appear to agree that sometime after the Agreement was executed
but before the Complaint was filed, ZBP changed its name to Betta
Pharmaceuticals (“Betta”) and reorganized its corporate structure to become a
joint stock company. [Dkt. ## 88-1, Clarke Decl. at ¶ 4; 88-3, Li Decl. at ¶ 3; 89,
Pl.’s Resp. at 4 n. 2, 11]. According to the Removing Defendants, under Chinese
Company Law, transfers of shares in joint stock companies must be approved
by the Chinese Ministry of Commerce. [Dkt. ## 88-1, Clarke Decl. at ¶ 5; 88-3, Li
Decl. at ¶ 4]. In addition, such companies are generally unable to hold any of
their own shares. [Dkt. #88-1, Clarke Decl. at ¶ 6]. They are also unable to
approve or block any transfers of shares from one shareholder to any other
third party. [Dkt. #91-1, Clarke Supp. Decl. at ¶ 7].
4
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].
5
Without support, the Removing Defendants contend that ZBP “has never taken
any action with respect to Plaintiff’s alleged ownership interest.” [Dkt. #91,
Defs.’ Reply at 10].
5
II.
Procedural History
The Complaint was originally filed in the Connecticut Superior Court,
Judicial District of New Haven, on October 27, 2014, docket number NNH-CV-146050848. 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 ZBP
6
was 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.
III.
Legal Standards
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 postComplaint conduct indicates that ZBP was joined solely to defeat diversity
jurisdiction. [Dkt. #88, Defs.’ Resp. at 9, 17, 19, 21]. Taken separately or together,
none of these arguments are sufficient to satisfy the Removing Defendants’
heavy burden of establishing that ZBP was fraudulently joined.
7
A.
Removal Standard
“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, & CorteseCosta, 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 “[t]he district courts shall have
original jurisdiction of all civil actions where the matter in controversy exceeds
the sum or value of $75,000 . . . and is between . . . citizens of different States.”
28 U.S.C. § 1332(a)(1). “It is the duty of the Court to raise the question of removal
jurisdiction, sua sponte, if appropriate.” Newman & Cahn, LLP v. Sharp, 388 F.
Supp. 2d 115, 117 (E.D.N.Y. 2005) (citing Mignonga v. Sair Aviation, Inc., 937 F.2d
37, 40 (2d Cir. 1991)).
8
Here, Plaintiff is a foreign citizen, the Removing Defendants are citizens of
states, and Defendant ZBP is a foreign citizen. The Second Circuit has plainly
stated that “diversity is lacking . . . where on one side [of a complaint] there are
citizens and aliens and on the opposite side there are only aliens.” Universal
Licensing Corp. v. Paola del Lunco S.p.A., 293 F.3d 579, 581 (2d Cir. 2002).
Accordingly, for subject matter jurisdiction to exist in this case, the Removing
Defendants must establish that non-diverse Defendant ZBP was fraudulently
joined.
B.
Fraudulent Joinder Standard
The fraudulent joinder doctrine is “a narrow exception to the rule that
diversity jurisdiction requires complete diversity.” Deming v. Nationwide Mut.
Ins. Co., No. 03-CV-1225 (CF), 2004 WL 332741, at *4 (D. Conn. Feb. 14, 2004)
(quoting Smallwood v. Illinois Central R. Co., 352 F.3d 220, 222 (5th Cir. 2003)).
Under the doctrine, “courts overlook the presence of a non-diverse defendant if
from the pleadings there is no possibility that the claims against that defendant
could be asserted in state court.” Briarpatch Ltd. v. Phoenix Pictures, Inc., 373
F.3d 296, 302 (2d Cir. 2004). “In order to show that naming a non-diverse
defendant is a ‘fraudulent joinder’ effected to defeat diversity, the defendant must
demonstrate, by clear and convincing evidence, either that there has been
outright fraud committed in the plaintiff's pleadings, or that there is no possibility,
based on the pleadings, that a plaintiff can state a cause of action against the
non-diverse defendant in state court.” Pampillonia v. RJR Nabisco, Inc., 138 F.3d
459, 461 (2d Cir. 1998). Put another way, “[j]oinder will be considered fraudulent
when it is established that there can be no recovery against the defendant under
9
the law of the state on the cause alleged.” Whitaker v. Am. Telecasting, Inc., 261
F.3d 196, 207 (2d Cir. 2001).6
The fraudulent joinder standard is strictly applied by courts in this Circuit.
See In re Fosamax Prods. Liab. Litig., No. 09-CV-4061, 2009 WL 3109832, at *2
(S.D.N.Y. Sept. 28, 2009) (“Most courts in this district have applied the ‘no
possibility’ standard rather strictly.”); see also Stan Winston v. Toys “R” Us, Inc.,
314 F. Supp. 2d, 177, 183 (S.D.N.Y. 2003) (concluding that defendants had not
shown that it was “legally impossible” for non-diverse defendant to be liable
under state law); Nemazee v. Premier, Inc., 232 F.Supp.2d 172, 178 (S.D.N.Y.2002)
(noting that fraudulent joinder “turns on whether recovery is per se precluded”;
“[a]ny possibility of recovery, even if slim, militates against a finding of
fraudulent joinder”). As courts have explained in the context of fraudulent
joinder, “it is not sufficient to argue that the complaint fails to state a claim
against [a non-diverse] defendant.” Stan Winston, 314 F. Supp. 2d at 182; see
also Read v. Nationwide Mut. Ins. Co., No. 3:06-cv-00514 (JCH), 2006 WL 2621652,
at *1 (D. Conn. Sept. 13, 2006) (“To show that a ‘fraudulent joinder has occurred,
the defendants must do more than show that the plaintiff has failed to state a
claim upon which relief can be granted.”). Even allegations that are “general and
at times in barebones language” may be sufficient to defeat a claim of fraudulent
6
“The language ‘no possibility’ has been interpreted as meaning no ‘reasonable
possibility’ or ‘no reasonable basis.’” Doe v. Fed. Express Corp., No. 3:05-cv1968 (WWE), 2006 WL 1405641, at *1 (D. Conn. May 22, 2006) (quoting In re
Rezulin Prods. Liability Litig., 133 F. Supp. 2d 272, 280 n. 4 (S.D.N.Y. 2001)).
While aware of the different formulations, for the reasons discussed below, see
infra at 13-28, “the court finds that it need not choose among the[m]” because it
“finds no fraudulent joinder in the present case, even if it interprets the
Pampillonia ‘no possibility’ standard as ‘no reasonable basis’” or no reasonable
possibility. Oliva v. Bristol-Meyers Squibb Co., No. 3:05-cv-00486 (JCH), 2005
WL 3455121, at *2 (D. Conn. Dec. 16, 2005).
10
joinder. Ulysse v. AAR Aircraft Component Servs., 841 F. Supp. 2d 659, 684
(E.D.N.Y. 2012) (finding no fraudulent joinder and remanding case).
While the Second Circuit, in Pampillonia, enunciated the fraudulent joinder
test as one in which “there is no possibility, based on the pleadings that a
plaintiff can state a cause of action against the non-diverse defendant in state
court,” the Pampillonia court also recognized that there exist “various
formulations of the same test in this Circuit.” Pampillonia, 138 F.3d at 461, 461 n.
3 (emphasis added). At its core, the fraudulent joinder test is intended to prevent
a plaintiff from “defeat[ing] a federal court’s diversity jurisdiction and a
defendant’s right of removal by merely joining as defendants parties with no real
connection with the controversy.” Id. at 460-61; see also Kuperstein v. HoffmanLaroche, Inc., 457 F. Supp. 2d 467, 470 (S.D.N.Y. 2006) (“Fraudulent joinder is a
legal term of art used to refer to the joinder of unnecessary or nominal parties in
order to defeat federal jurisdiction.”) (citation and quotations omitted); Intershoe
Inc. v. Filanto S.P.A., 97 F. Supp. 2d 471, 474 (S.D.N.Y. 2000) (noting that “the
fraudulent joinder doctrine” is “most frequently applied to the joinder of
unnecessary defendants”); New York State Ins. Fund v. U.S. Liab. Ins. Co., No. 03
Civ. 6652 (LMM), 2004 WL 385033, at *2 (S.D.N.Y. Mar. 2, 2004) (“[T]he joinder of
parties lacking a genuine interest in the controversy frequently is referred to as
fraudulent joinder.”). Accordingly, courts in this Circuit have found “that the
existence of a ‘cause of action’” against a named party is one, but not “the sole
basis upon which a defendant can properly be considered for diversity
jurisdiction purposes.” Audi of Smithtown, Inc. v. Volkswagen of Am., Inc., No.
08-cv-1773 (JFB)(AKT), 2009 WL 385541, at **4, 4 n. 1 (E.D.N.Y. Feb. 11, 2009)
11
(citing and quoting MasterCard Int'l Inc. v. Visa Int'l Serv. Ass'n, Inc., 471 F.3d 377,
384 (2d Cir. 2006)).
An additional basis upon which a defendant must be considered for
diversity purposes is when that defendant is “a necessary or indispensable party
to [the] lawsuit.” Id.; CMS Volkswagen Holdings, LLC v. Volkswagen Grp. of Am.,
Inc., No. 13-cv-03929 (NSR), 2013 WL 6409487, at *6 (S.D.N.Y. Dec. 6, 2013) (“[I]n
applying Pampillonia’s standard, the question of whether Plaintiffs could state an
action against [the non-diverse defendant] depends on whether [the defendant]
was a necessary party under state law.”); Metro. Prop. & Cas. Ins. Co. v. J.C.
Penney Cas. Ins. Co., 780 F. Supp. 885, 888, 896 n. 6 (D. Conn. 1991) (“The
citizenship of a defendant, however, who is a proper, even though not
indispensable, party must be considered when determining the existence of
diversity.”) (citations and quotations omitted) (finding no fraudulent joinder,
remanding case, and noting that a named defendant “need not be indispensable,
but only a proper party to this action for the court to consider his citizenship in
determining jurisdiction for removal”).7
While the Removing Defendants appear to challenge this assertion in their
show cause response, the lone case they cite, Lincoln Prop. Co. v. Roche, 546
U.S. 81 (2005), is plainly distinguishable. See [Dkt. #88, Defs.’ Resp. at 10]. In
Roche, there was complete diversity among the named parties and the Fourth
7
To the extent some courts have construed Pampillonia and its progeny as
limiting the fraudulent joinder inquiry to the question of “whether the defendant
at issue is a necessary party under state law,” the Court disagrees and adopts
the position taken by those courts holding that a defendant must be considered
for the purposes of diversity if, under state law, they are (i) necessary or
indispensable or (ii) subject to a cause of action. Morrow v. Nationwide Mut.
Fire Ins. Co., No. 14-cv-2664 (JFB), 2014 WL 4638912, at *5 (E.D.N.Y. Sept. 16,
2014) (clarifying holding in Audi).
12
Circuit held that the case should nevertheless be remanded because the diverse
defendants did not “negate the existence of a potential codefendant whose
presence in the action would destroy diversity.” Roche, 546 U.S. at 82. The
Supreme Court held that “no decision . . . supports the burden the Court of
Appeals placed on a properly joined defendant.” Id. at 91. Here, Plaintiff has
shouldered the burden discussed in Roche by identifying and naming the nondiverse defendant, ZBP, in his Complaint.
IV.
A.
Discussion
Defendant ZBP is Properly Joined Because it is a Necessary Party8
Connecticut law is consistent with and Connecticut courts look to federal
jurisprudence in determining whether a party is necessary or indispensable. See
Sturman v. Socha, 191 Conn. 1, 6-7, 463 A.2d 527, 530 (Conn. 1983) (defining
necessary and indispensable parties consistent with federal law) (quoting Shields
v. Barrow, 58 U.S. 130, 139 (1855)); Labulis v. Kopylec, No. CV 020463204S, 2008
WL 4379237, at *2 (Conn. Super. Ct. Sept. 10, 2008) (“As regards joinder and nonjoinder, indispensable parties and the various complicated Practice Book
sections and case law of our state . . . [t]he recent tendency of the Superior
Courts is to . . . follow the most analogous Federal Rule”) (quotation and citation
omitted), aff’d 128 Conn. App. 571, 17 A.3d 1157 (Conn. App. 2011). Under
Federal Rule 19, “a party is necessary if ‘in that person’s absence, the court
cannot accord complete relief among existing parties.’” Gibbs Wire & Steel Co.,
Inc. v. Johnson, 255 F.R.D. 326, 328 n. 1 (D. Conn. 2009) (quoting Fed. R. Civ. P.
8
Because the Court bases its fraudulent joinder conclusion on its determination
that ZBP is a necessary party, it does not consider the legal sufficiency of the
Ninth Count of the Complaint under Connecticut law.
13
19(a)(1)(A)); see also Emar Dev., Inc. v. William Raveis Real Estate Inc., No. CV950548632, 1995 WL 404844, at *2 (Conn. Super. Ct. Jun. 28, 1995) (“A person is
indispensable if the relief demanded, practically speaking, couldn’t be effectuated
without the person being in the case . . . A person is necessary if they have an
interest in the controversy[,] . . . the parties in the case won’t run the risk of
multiple damages or inconsistent obligations, and the court can fashion a remedy
for the parties who remain in the case.”) (citing Sturman and Fed. R. Civ. P. 19)
(emphasis in original).
The “term complete relief refers only to relief as between the persons
already parties, and not as between a party and the absent person whose joinder
is ought.” Arkwright-Boston Mfrs. Mut. Ins. Co. v. City of New York, 762 F.2d 205,
209 (2d Cir. 1985) (citation and quotations omitted). “Courts are most likely to
rule that complete relief may not be accorded among the parties present in
circumstances where the absent party plays a significant role in the provision of
some form of injunctive relief.” Rose v. Simms, No. 95 Civ. 1466 (LMM), 1995 WL
702307, at *6 (S.D.N.Y. Nov. 29, 1995).
Here, ZBP is, at minimum, a necessary party because in its absence,
Plaintiff cannot obtain the complete relief that he seeks from the Removing
Defendants. In his Complaint, Plaintiff seeks “[s]pecific performance of the
contractual promises made to plaintiff,” including delivery of “1% of the total
issued and outstanding shares of [ZBP]” and “registration in his name as an
official shareholder in China of [the ZBP] shares.” [Dkt. #1-1 Compl. at Count 1 at
¶ 14 and Count 2 at ¶ 17]. In the event Plaintiff prevails, ZBP’s presence is
necessary to effectuate the re-registration of Beta Pharma’s shares of ZBP in
14
Plaintiff’s name and Plaintiff’s receipt of all accompanying shareholder rights,
including participation in ZBP’s IPO. The Removing Defendants concede that
they lack the ability to perform these acts themselves, nor are they able to compel
ZBP to undertake them, as they maintain that ZBP “is not now, nor has it ever
been, a subsidiary of Beta Pharma,” that Defendant Zhang left his position as vice
president of ZBP’s board over a year before the Complaint was filed, and that
Zhang presently has no “role at Z[]BP.” [Dkt. #31-1, Zhang Supp. Aff. at ¶¶ 5, 10];
see also [Dkt. #88, Defs.’ Resp. at 17 (“[N]either Beta Pharma [nor] Zhang . . . can
compel the PRC to recognize the transfer of stock in [ZBP] to Plaintiff”)]. The
allegations in the Complaint further buttress this conclusion and indicate that
ZBP is unlikely to assist the Plaintiff in obtaining the relief he seeks absent a
judgment requiring it to do so. See [Dkt. #1-1, Compl. at Count 3 at ¶¶ 13(e)-(f),
Count 5 at ¶ 13(g), and Count 6 ¶¶ 14(e)-(f) (stating that Removing Defendants
failed to disclose to Plaintiff their “knowledge that ZBP would not permit the ZBP
shares transferred to plaintiff by [Beta Pharma] to be registered in China,” that
ZBP “would not recognize [Beta Pharma’s] transfer of shares, [] that 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[,]” and that “the ZBP board
had ordered [Beta Pharma] to repurchase ZBP shares from investors at their
current fair market value”)].
B.
Chinese Law Does Not Render ZBP Unnecessary Because it Does Not
Preclude it From Providing Relief
The Removing Defendants principally respond by asserting that ZBP is
neither necessary nor indispensable because Chinese law prevents ZBP from
providing Plaintiff the relief he seeks. [Dkt. #88, Defs.’ Resp. at 9-19]. The
15
Removing Defendants direct the Court to PRC Company law, which they claim
prevents joint stock companies like ZBP from approving or rejecting a transfer of
shares of their securities. [Id.].9
To support these contentions, the Removing Defendants offer declarations
from Professor Donald C. Clarke, a professor of law at The George Washington
University, and a practitioner Rui Li, who is also a faculty member of the
Shanghai University of Finance and Economics. [Dkt. #88-1, Clarke Decl. at ¶ 1;
Dkt. #88-3, Li Decl. at ¶ 1]. According to Professor Clarke, “[b]ecause [ZBP] is a
Joint Stock Company, pursuant to the laws of the PRC, if a shareholder in [ZBP]
transfers its stock to another individual, [ZBP] itself does not have legal authority
to approve or reject the transfer.” [Dkt. #88-1, Clarke Decl. at ¶ 4]. Professor
Clarke’s conclusion is based on “Chapter 5, Section 2 of the Company Law of the
People’s Republic of China,” which “does [not] provide for the company itself to
have any say in share transfers.” [Id. at ¶ 4 n. 3]. Instead, “[w]hen the issuance
or transfer of any equity interest . . . involves a foreign citizen receiving the equity
interest . . . a government agency of the PRC [] must approve the transaction for it
to be valid.” [Id. at ¶ 5]. Professor Li concurred, stating that “if a shareholder in
[ZBP] transfers its stock to another individual, the transfer is effective only after
the relative authority in charge of Commerce approves the transfer.” [Dkt. #88-3,
9
The parties disagree as to which sections of Chinese law control the Court’s
fraudulent joinder analysis. Plaintiff contends that the Law on Sino-Foreign
Equity Joint Ventures is the relevant law because at the time of the parties’
contract, ZBP was a Sino-foreign equity joint venture. See [Dkt. #89, Pl.’s Resp.
at 11-12]. The Removing Defendants urge the Court to apply PRC Company
Law, which concerns joint stock companies, since in August 2013, prior to the
filing of the Complaint, ZBP became and is presently a joint stock company.
See [Dkt. #91, Defs.’ Reply at 5-6]. The Court need not resolve this dispute
because even under PRC Company Law, the Court finds ZBP to be a necessary
party.
16
Li Decl. at ¶ 4]. Thus, according to the Removing Defendants, ZBP “is a mere
stakeholder” whose presence may be overlooked for purposes of subject matter
jurisdiction. [Dkt. #88, Defs.’ Resp. at 15]. The Removing Defendants’ argument
fails for three reasons.
First, neither these declarations, nor any of the other authority the
Removing Defendants cite, establish that Chinese Company law precludes ZBP
from providing the relief Plaintiff seeks. At most, they indicate that ZBP cannot
unilaterally provide this relief. As the Removing Defendants acknowledge,
because of Chinese law, ZBP “cannot ensure that Plaintiff’s stock will be
registered on the books and records of [ZBP] . . . . Similarly, [ZBP] cannot ensure
that Plaintiff is able to ‘participate’ in the IPO.” [Dkt. #88, Defs.’ Resp. at 18-19
(emphasis added)]. To establish that ZBP was fraudulently joined, the Removing
Defendants must show that Chinese law necessarily precludes ZBP from
effectuating such relief. See, e.g., Grynberg Prod. Corp. v. British Gas, PLC, 817
F. Supp. 1338, 1351-52 (E.D. Tex. 1993) (finding no fraudulent joinder where
foreign law arguably precluded plaintiff’s claim but where defendant failed to
establish that foreign court “would necessarily not make an exception” which
would permit for such a claim) (emphasis in original); Bellorin v.
Bridgestone/Firestone, Inc., 236 F. Supp. 2d 670, 685 (W.D. Tex. 2001) (declining
to find fraudulent joinder where defendants argued that Mexican and Venezuelan
law barred claim against non-diverse defendant upon considering “the
uncertainty as to the viability of Plaintiffs’ claim under Mexico law” which “must
be resolved in favor of Plaintiffs”); Hammerl v. Acer Europe, S.A., No. C 08-4754
JF (RS), 2009 WL 30130, at *9 (N.D. Cal. Jan. 5, 2009) (rejecting fraudulent joinder
17
argument based on Swiss law where defendant relied on statement by Swiss
lawyer that “[g]enerally, under Swiss law, a claim for breach of contract can only
be brought against an entity that is, formally or materially, a party of the contract”
due to the presence of “two major qualifying words: ‘generally’ and ‘materially’”
which “prevent[ed] the Court from attributing to this evidence of Swiss law the
meaning that [the defendant] urge[d]”); Gibboni v. Hyatt Corp., No. 10-2629, 2011
WL 1045047, at **3-4 (E.D. Pa. Mar. 22, 2011) (finding that because of “the
complex, discretionary and inexact nature of Mexican tort law” there was “a
possibility that the state would find that the Complaint state[d] a cause of action”
against non-diverse defendant and remanding case).
The Removing Defendants come closest to meeting this standard through
Professor Li’s assertion that “[n]o law of the PRC would permit [ZBP] to issue
shares to satisfy a foreign judgment.” [Dkt. #88-3, Li Decl. at ¶ 5]. However, the
only support Li cites for this conclusion, Article 142 of the Company Law of the
People’s Republic of China, does not provide any. [Id.]. Nowhere does this
Article address China’s treatment of foreign judgments. See Company Law of the
People’s Republic of China (2005 amended), Art. 142, available at
http://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384124.htm (last
viewed Aug. 24, 2015). In addition, at the present time, the restrictions on
transfers imposed by this Article are not applicable to Beta Pharma’s shares of
ZBP, since ZBP’s IPO has yet to occur. See id. (“Shares issued prior to the public
issue by a company shall not be transferred within one year from the date the
shares of the company are listed and traded at stock exchanges.”). Similarly, that
Chinese law does not expressly provide ZBP with a role in the transfer process
18
does not mean that ZBP is barred by law from requesting and petitioning the
Ministry to approve a transfer, or from otherwise providing Plaintiff the relief he
seeks following an approval. See [Dkt. #88-1 Clarke Decl. at ¶¶ 4, 4 n. 3 (opining
that ZBP “does not have legal authority to approve or reject [a] transfer” of its
shares, citing Chapter 5, Section 2 of the Company Law in support, and stating
that “[n]owhere does [this section] provide for the company itself to have any say
in share transfers”); see also Company Law of the People’s Republic of China,
ch. 5 sec. 2].
Taken together, the declarations submitted by the Removing Defendants
establish that ZBP’s presence would not guarantee Plaintiff the relief he seeks
because any transfer of ownership interest in ZBP’s shares must be approved by
the Chinese Government. That the operation of foreign law poses some risk, no
matter how remote, to Defendant ZBP’s ability to provide relief is not sufficient to
transform an otherwise capable and necessary party into a nominal one. Such a
rule would effectively prevent the mandatory joinder of individuals and entities
from a host of foreign nations. It would also run counter to the plain language of
Rule 19, which concerns parties whose presence is necessary for a plaintiff to
obtain complete relief. Fed. R. Civ. P. 19(a)(1)(A); see also Gibbs, 255 F.R.D. at
328 n. 1 (“[U]nder Rule 19(a)(1)(A) . . . a party is necessary ‘if in that person’s
absence, the court cannot accord complete relief among existing parties.’”). At
most, Chinese Company Law renders ZBP’s presence not sufficient alone to
provide Plaintiff the relief.
Second, and relatedly, the Removing Defendants do not offer any evidence
of practical impossibility, such as evidence tending to show that the Chinese
19
Ministry of Commerce is unlikely to approve a request by ZBP to acknowledge a
transfer of its stock, or that ZBP is otherwise incapable of persuading the Ministry
to permit such a transfer. ZBP is the only Chinese defendant named in this action
and is the company whose stock Plaintiff seeks. It would thus appear that ZBP
offers the best, and perhaps only, chance of prevailing upon the Ministry in the
event Plaintiff is adjudged the rightful owner of Beta Pharma’s shares. Also, in
the event the Ministry does approve a transfer, ZBP—and only ZBP—would be
able to register the shares in Plaintiff’s name and provide him with shareholder
rights.
The Removing Defendants do not address these issues and instead focus
on the general and considerable difficulties litigants face when attempting to
enforce a judgment issued by a U.S. court in China. See [Dkt. #88-1, Clarke Decl.
at ¶ 7]. While such difficulties are legitimate, they have not prevented federal
courts from entering judgments granting relief in cases involving Chinese
defendants. See In re Vitamin C Antitrust Litig., No. 06-MD-1738 (BMC)(JO), 2012
WL 5289514, at *10 (E.D.N.Y. Oct. 23, 2012) (approving final settlement in pricefixing litigation involving a group of Chinese vitamin manufacturers and
identifying “the possibility of being unable to enforce a judgment” as one of the
“risks” supporting attorneys’ fee award); Vringo, Inc. v. ZTE Corp., No. 14-cv-4988
(LAK), 2015 WL 3498634, at **4, 12 (S.D.N.Y. Jun. 3, 2015) (granting injunctive
relief and noting a prior grant of partial summary judgment against a Chinese
telecommunications company). Nor have they compelled courts to overlook
otherwise necessary or indispensable parties. See Schwan-Stabilo Cosmetics
GmbH & Co. v. Pacificlink Intern. Corp., 401 F.3d 28, 35 (2d Cir. 2005) (affirming
20
district court dismissal of counterclaims where Chinese entity was a necessary
party and had not been joined). In addition, the risk that a U.S. judgment may not
be enforceable in China is somewhat mitigated here, because ZBP is presently a
participant in a joint venture with a large U.S. pharmaceutical corporation and has
invested millions of dollars in another U.S. drug manufacturer. See [Dkt. #89-1,
Ex. A to Katz Decl. at 1-1-28; Ex. D to Katz Decl. at 35]. These facts suggest that
ZBP may have interests (financial or otherwise) in areas which do recognize U.S.
judgments.
Third, none of the district court opinions the Removing Defendants cite in
support of their claim that ZBP is a nominal party because it “simply cannot
afford the desired relief to the plaintiff[]” are apposite. [Dkt. #88, Defs.’ Resp. at
17].10 For instance, the plaintiffs in Norman brought a claim against four
defendants for a judgment declaring that “elections should proceed according to
[a] new reapportionment plan.” Norman, 796 F. Supp. at 658. The court found
two of the defendants to be nominal parties since they had not “manifested any
intention to block the plan’s administration,” and had instead “sign[ed] the
reapportionment legislation into law . . . fulfill[ing] an indispensable role in the
plan’s enactment.” Id. at 658-59. Given the fact that these two named defendants
had taken steps in support of the plaintiffs’ position, the court was “hard-pressed
to conceive of how a declaration against them would provide relief in any
manner.” Id. at 659. As for the other two defendants, the court found that while
10
See Patrick v. Porter-Cable Corp., No. 3:10-cv-131 (MRK), 2010 WL 2574121 (D.
Conn. Apr. 1, 2010); Norman v. Cuomo, 796 F. Supp. 654, 658 (N.D.N.Y. 1992);
Avon Prods. Inc. v. A/J Partnership, Nos. 89 Civ. 3743, 89 Civ. 8032 (PNL), 1990
WL 422416 (S.D.N.Y. Mar. 1, 1990); Saxe, Bacon & Bolan P.C. v. MartindaleHubbell, Inc., 521 F. Supp. 1046 (S.D.N.Y. 1981).
21
they had voted against the reapportionment plan and had “otherwise been
outspoken in their opposition,” they had “taken no formal steps to impede the
election according to the plan.” Id. As a result, the court concluded that the
plaintiff’s conflict with those defendants constituted “[a] mere dispute of policy.”
Id. In addition, the court found that “[a] declaration of validity against [the
remaining defendants] would settle the active dispute.” Id. In light of these facts,
neither set of nominal defendants is analogous to ZBP in this case.
Most significantly, and alone sufficient to distinguish this case, is that the
Norman court found that even if the plaintiff was entitled to the declaratory
judgment against the four defendants, such a judgment “would not affect [the]
plaintiffs’ rights or otherwise promote their interests.” Id. Here, a judgment
ordering ZBP to request approval of a transfer of Beta Pharma’s shares from the
Ministry of Commerce, and, upon approval, to register Beta Pharma’s shares in
Plaintiff’s name, bestow upon Plaintiff all the rights of a ZBP shareholder,
including the ability to participate in ZBP’s IPO, and to declare Plaintiff’s
ownership interest in ZBP would certainly promote the Plaintiff’s interests. The
case is further distinguishable because unlike those defendants who took
affirmative steps in support of the reapportionment plan, or who merely cast
unsuccessful dissenting votes and voiced their opposition, the Complaint asserts
that ZBP attempted to block and unwind Beta Pharma’s transfer of securities to
the Plaintiff. [Dkt. #1-1, Compl. at Count 5 at ¶ 13(g) and Count 8 at ¶ 14(g)].
Specifically, the Complaint avers that ZBP’s board of directors decided not to
“permit [Beta Pharma] to transfer shares to plaintiff,” not to “recognize [Beta
Pharma]’s transfer of shares,” and affirmatively “ordered [Beta Pharma] and
22
Zhang to cancel or unwind the transaction” and instead “pay[] plaintiff the fair
market value of his interest in ZBP.” [Id.].11
The remaining cases to which the Removing Defendants cite are similarly
inapposite. See Patrick, 2010 WL 2574121 at *4 (finding defendant who did not
consent to removal a real party and thus subject to the unanimity rule despite
noting that “it [was] unlikely” that the defendant would be called upon to satisfy
any judgment in the case); Saxe, Bacon & Bolan, P.C., 521 F. Supp. at 1048-49
(finding three non-diverse individual plaintiffs nominal parties because their
claims were not “independent claims or injuries” from those brought by the
company with which they were affiliated); Avon Prods. Inc., 1990 WL 422416, at *2
(S.D.N.Y. Mar. 1, 1990) (holding rights agent was nominal party because its
“obligations [we]re minimal and purely ministerial in nature,” it could “act only at
the direction of the officers of [the plaintiff]” it could not “be held liable for any
statements because all such statements are deemed to be made by [the
plaintiff],” and the rights agent was indemnified under the relevant agreement
“for any and all liability”).
C.
ZBP is Not a Mere Stakeholder or Depositary of Disputed Assets
The Removing Defendants raise Salem Trust Co. v. Manufacturers’ Fin. Co.,
264 U.S. 182 (1924) and its progeny12 in claiming that, even if ZBP’s presence is
11
Even if the Removing Defendants are correct that because ZBP is now a joint
stock company, it may not “block the transfer of shares from Beta Pharma to
Plaintiff,” this does not erase ZBP’s prior efforts to stymie the Plaintiff. [Dkt.
#91-1, Clarke Supp. Decl. at ¶ 7]. Nor does it square the critical distinction
between the present matter and Norman, insofar as the court concluded that
complete relief could be obtained in the absence of the nominal defendants.
12
See In re SK Foods, L.P., BAP Nos. EC-12-1624, EC-09-29162, EC-11-02337,
2013 WL 6488275, at *11 (B.A.P. 9th Cir. Dec. 10, 2013); DiBella v. Carpenter,
23
technically necessary for Plaintiff to obtain complete relief, ZBP is a mere
stakeholder to this action. [Dkt. #88, Defs.’ Resp. at 10-14]. These cases stand
for the proposition that a defendant who is not necessary for complete relief, who
is a mere depositary of disputed assets, or who must perform purely ministerial
tasks in connection with a judgment, is not a necessary party. See Salem Trust,
264 U.S. at 190 (defendant trust company deemed nominal defendant as it was a
mere depositary whose “only obligation [wa]s to pay over the amount deposited
with it when it is ascertained which of the other parties is entitled to it”); SK
Foods, 2013 WL 6488275, at *11 (stating that even in absence of non-diverse
defendant “complete relief is possible between the parties before this court” and
noting defendant did not appear to have a “legally protected interest” in the
dispute); Dibella, 2010 WL 2605824, at *3 (corporation was nominal defendant
where only claim for relief against it was to distribute proceeds of corporation in
accordance with interests determined by court and where “no decision by the
Court would impose any additional legal duties on [the corporate defendant]”);
Int’l Union, 123 F.R.D. at 433-34 (finding non-diverse subsidiary of parent
corporation a nominal defendant because it would not be affected by a judgment
for or against the parent corporation, would not have been bound by such a
judgment, and in the absence of the subsidiary, “plaintiff w[ould] not suffer
diminished relief”); Pesch, 637 F. Supp. at 1537 (corporation whose only
obligation if plaintiff prevailed was to perform purely ministerial tasks in
No. 2:10-cv-174, 2010 WL 2605824, at *3 (S.D. Ohio Jun. 25, 2010); Int’l Union,
United Auto., Aerospace & Agric. Implement Works of Am., U.A.W. Local 1500
v. Bristol Brass Co., 123 F.R.D. 431 (D. Conn. 1989); Pesch v. First City Bank of
Dallas, 637 F. Supp. 1530 (N.D. Tex. 1986); Kearney v. Dollar, 111 F. Supp. 738
(D. Del. 1953).
24
connection with transfer of securities deemed a nominal defendant); Kearney
(corporation held nominal party where its “only connection” to the controversy
was a request that it “be enjoined from transferring the shares upon its books to
any person other than the parties to the suit without leave of court”). Such cases
are plainly distinguishable from the present matter for at least three reasons.
First, as the Court noted in its Order to Show Cause, there is case law
holding that where, as here, a dispute concerns ownership interests in a
corporation and the plaintiff seeks as part of their relief an injunction ordering the
registration of shares in their name on the corporation’s books and records and a
declaratory judgment as to their ownership interests, the corporation is a
necessary party. See Crump v. Thurber, 115 U.S. 56, 60 (1885); see also Fisher v.
Dakota Cmty. Bank, 405 F. Supp. 2d 1089, 1095 (D. N.D. 2005) (stating that the
Crump court found the named corporation to be “an indispensable, and not
nominal party . . . because the relief requested included requiring the corporation
to make adjustments in its stock ownership rolls and issue new shares of stock”)
(finding bank which issued a letter of credit which was the subject of the
underlying dispute a necessary party).13 Indeed, “most lower federal courts”
13
The Removing Defendants note that some courts have narrowly construed the
Crump holding as turning on the Court’s concern regarding the lack of
personal jurisdiction over other potentially liable parties. See [Dkt. #88, Defs.’
Resp. at 12-13 (citing and quoting Kearney and Williamson v. Krohn, 66 F. 655,
661 (6th Cir. 1985))]. However, the narrow reading encouraged by the
Removing Defendants appears to be in the minority. The prevailing (and most
recent) view is the one expressed in Fisher. See Moloney v. Cressler, 210 F.
104, 112 (7th Cir. 1913) (citing Crump in support of finding that company
defendant was an “indispensably necessary part[y]” because it was “holding
the stock under the contract whose enforcement is thus sought”); Rogers v.
Van Nortwick, 45 F. 513, 514 (E.D. Wisc. 1891) (citing Crump and finding
“defendant company is an indispensable party” where corporation defendant
was necessary “to carry into effect the judgment upon the controversy
25
have construed the “formal or nominal party” doctrine in Salem Trust as standing
for the “limited . . . ‘exception’ . . . in which it is clear that . . . the party has
nothing at stake in the litigation, and no real, present claim for relief is being
sought against the party.” Fisher, 405 F. Supp. 2d at 1095 (emphasis added);
Skaaning v. Sorensen, No. 09-00364 DAE-KSC, 2009 WL 3763056, at **6-7 (D. Haw.
Nov. 10, 2009) (quoting Fisher and finding LLC necessary party); State Farm Mut.
Auto. Ins. Co. v. Sentry Select Ins. Co., No. 4:15-CV-149 CDP, 2015 WL 500519, at
*2 (E.D. Mo. Feb. 5, 2015) (quoting Fisher and rejecting argument that insured was
a nominal party to a claim for a declaratory judgment action between two
insurers).
Second, as the Removing Defendants acknowledge, if Plaintiff were to
prevail, ZBP would be required to do more than ministerial tasks falling within its
sound control, like those described in Salem Trust, Pesch, and Kearney. ZBP will
also have to seek approval from the Chinese Ministry of Commerce, a “process”
touching the ownership of the stock”); Muellhaupt v. Joseph A. Strow-Bridge
Estate Co., 136 Or. 106, 118 (Or. 1931) (citing Crump and concluding that “[t]his
being a case wherein part of the relief sought consists in the cancellation of
certain corporate stock issued to defendants [] and the reissuance thereof to
plaintiff, the corporation is an indispensable party defendant.”). Indeed, courts
in this Circuit which have considered Crump appear to embrace this view. See
Patterson v. Farmington St. Ry. Co., 111 F. 262, 263 (D. Conn. 1901) (discussing
Crump, concluding that “it does not seem to differ essentially from the present
case,” and granting motion to remand suit seeking specific performance of a
contract involving the transfer of a non-diverse corporation’s stock along with
injunctive relief against the corporation); but see Coleman v. Johnston, 532 F.
Supp. 370, 371 (S.D.N.Y. 1981) (not considering Crump and relying on Salem
Trust and Kearney in finding defendant corporation nominal party to a suit for
specific performance of contract involving that corporation’s shares where
corporation’s role was limited “to perform[ing] the ministerial act of
transferring the shares upon the books of the corporation”). In any case, the
Court need not resolve this dispute, since it does not rely solely upon Crump
or the type of relief Plaintiff seeks from ZBP in reaching its conclusion that ZBP
is a necessary party.
26
that “is not simply ministerial.” [Dkt. #91-1, Clarke Supp. Decl. at ¶ 8].
Third, the record strongly suggests that ZBP is not a neutral holding entity
or corporation. Cf. Salem Trust, 264 U.S. at 190 (concluding the non-diverse bank
had “no interest in the controversy”); Pesch, 637 F. Supp. at 1539 (“The picture
painted by [plaintiff’s] state petition, as amplified by the evidence contained in the
affidavits and exhibits submitted by the parties . . . is that the [the non-diverse
company and transfer agent] are nothing more than neutral bystanders.”)
(emphasis added); Kearney, 111 F. Supp. at 741 (noting that non-diverse
corporate defendant “filed an answer in which [it] allege[d] that it ha[d] no
corporate interest in the subject matter of the controversy referred to in the
complaint and [t]hereby disclaim[ed] any corporate interest in the controversy”).
Instead, ZBP appears to be a closely held private company with strong ties to the
Removing Defendants. ZBP was a joint venture created by Defendant Beta
Pharma. [Dkt. #1-1, Compl. at Count 1 at ¶ 5]. When it was created, Beta Pharma
received a 45% stake in the company, and as of June 2014, Beta Pharma remains
a significant shareholder. [Id. at ¶ 7; Dkt. #89-1, Ex. A to Katz Decl. at 1-1-28, 1-144, 1-1-45]. At the time Plaintiff contracted with Defendant Zhang and Beta
Pharma, Zhang was the Vice-President of ZBP and a member of ZBP’s board of
directors, positions he held until March 2013. [Dkt. #1-1, Compl. at Count 1 at ¶
8]; Dkt. #31-1, Zhang Supp. Aff. at ¶ 5]. Even after leaving these positions, Zhang
retained and continues to “have personal knowledge regarding [ZBP] and its
operations.” [Dkt. #31-1, Zhang Supp. Aff. at ¶ 6]. He also serves as Beta
Pharma’s CEO, president, and a shareholder. [Id. at ¶ 3]. In addition, the
Complaint alleges, and the Removing Defendants have not offered any evidence
27
to the contrary, that at the time of the events in dispute, ZBP “would not permit
[Beta Pharma] to transfer shares to plaintiff, [] would not recognize [Beta
Pharma’s] transfer of shares, and . . . ordered [Beta Pharma] to cancel or unwind
the transaction by paying plaintiff the fair market value of his interest in ZBP.”
[Dkt. #1-1, Compl. at Count 5 at ¶ 13(g) and Count 8 at ¶ 14(g)].
At present, ZBP
has neither appeared in this action nor responded to the allegations in the
Complaint, so there is nothing to indicate that, absent a judgment, ZBP would
acquiesce to Plaintiff’s requests for a declaration of his ownership interest,
registration of Beta Pharma’s shares in Plaintiff’s name, and the right to
participate in ZBP’s IPO. Nor does it seem likely to voluntarily petition the
Chinese government to the benefit of Plaintiff. Indeed, its longstanding
relationship with the Removing Defendants and its previous opposition to
precisely what Plaintiff now seeks strongly suggest that it will not.
For these reasons, the Court finds the authority cited by the Removing
Defendants unavailing and ZBP to be at least a necessary party to this action,
whose presence deprives the Court of subject matter jurisdiction.
D.
The Removing Defendants’ Remaining Arguments Similarly Fail
In their removal notice and show cause response, the Removing
Defendants raise other arguments in support of fraudulent joinder, including: (i)
improper service of ZBP; (ii) lack of personal jurisdiction over ZBP; and (iii) that
Plaintiff joined ZBP solely to defeat diversity jurisdiction. None of these
arguments succeed.
As for improper service, the Court explained in its Order that “non-service
is insufficient to permit a court to overlook the presence of a non-diverse party.”
28
[Dkt. #82, Order to Show Cause at 6 (citing and quoting 14B Charles Alan Wright,
Arthur R. Miller, Edward H. Copper, Federal Practice and Procedure § 3723 (4th
ed. 2009) (“A party whose presence in the action would destroy diversity must be
dropped formally, as a matter of record, to permit removal to federal court. It is
insufficient, for example, that service of process simply has not been made on a
non-diverse party.”); Rene D. Harrod, A Primer on Removal, Federal Lawyer, 53Oct Fed. Law. 20 (Oct. 2006) (“[A]n unserved nondiverse defendant will prevent
removal if diversity is the only basis for federal jurisdiction.”)]. Accordingly,
courts routinely decline to overlook non-diverse defendants on the basis of
improper service. See Worthy v. Schering Corp., 607 F. Supp. 653, 655 (E.D.N.Y.
1985) (“It is well established that an action based on state law cannot be removed
to federal district court if any nondiverse defendant is joined in the complaint,
even if the nondiverse defendant was never served.”); Burke v. Humana Ins. Co.,
932 F. Supp. 274, 275 (M.D. Ala. 1996) (remanding case where removing party
“contend[ed] that the court may ignore [the nondiverse party's] citizenship
because he has not yet been properly served”); Millet v. Atl. Richfield Cnty., No.
98-367-P-H, 1999 WL 33117145, at *4-5 (D. Me. Apr. 2, 1999) (rejecting defendant's
contention that court could not consider citizenship of nondiverse defendant
where plaintiff failed to comply with state procedural rules governing joinder). It
appears the Removing Defendants have abandoned this argument, as they did
not press it in either their response or reply.
Lack of personal jurisdiction is also a non-starter because the Removing
Defendants may not assert the defense on behalf of co-Defendant ZBP. See [Dkt.
#88, Defs.’ Resp. at 19-21]. Personal jurisdiction “represents a restriction on
29
judicial power not as a matter of sovereignty, but as a matter of individual
liberty.” Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S.
694, 702 (1982). It is therefore, “first of all an individual right,” which is waivable.
Id. at 703; see also Fed R. Civ. P. 12(h)(1). As a result, courts in this Circuit reject
efforts by co-defendants to assert the defense on behalf of other defendants.
See, e.g., Duttle v. Bandler & Kass, No. 82 Civ. 5084 (KMW), 1992 WL 162636, at *5
(S.D.N.Y. Jun. 23, 1992) (rejecting defendants’ request “to dismiss the action
against the [defendant] trustee pursuant to Rule 12(b)(2)” because “a third party
lacks standing to make such a motion”); Sayles v. Pac. Eng’rs & Constructors,
Ltd., No. 08-CV-676S, 2009 WL 791332, at *5 (W.D.N.Y. Mar. 23, 2009) (“The foreign
defendants, who would have standing to contest the exercise of personal
jurisdiction over them . . . have yet to appear . . . [T]he appearing defendants lack
standing to raise this objection to exercising personal jurisdiction over
codefendants.”). Courts elsewhere have applied the same reasoning to codefendants’ assertions of lack of personal jurisdiction over non-diverse
defendants in the fraudulent joinder context. See, e.g., In re Pharma. Indus.
Average Wholesale Price Litig., 431 F. Supp. 2d 109, 119-20 (D. Mass. 2006)
(stating that defendant’s fraudulent joinder “argument regarding personal
jurisdiction fails immediately” in part because “personal jurisdiction is an
individual liberty right and is therefore waivable, and neither of the other two
physician defendants . . . have moved to dismiss based on personal
jurisdiction”); Zufelt v. Isuzu Motors Am., LLC, 727 F. Supp. 2d 1117, 1131 (D. N.M.
2009) (“[I]t is inappropriate to permit [the removing defendant] to assert a defense
that is available only to [another defendant] to meet its burden of showing there
30
is no possibility that [the plaintiff] will be able to establish a cause of action
against [that defendant] in state court.”); Seguros Comercial America, S.A. de
C.V. v. Am. President Lines, Ltd., 934 F. Supp. 243, 245 (S.D. Tex. 1996) (holding
defendant “cannot establish that [co-defendant] was fraudulently joined based
upon” a lack of personal jurisdiction because such “a defense [] is available only
to [the co-defendant]”). The Removing Defendants do not address the issue of
standing in their response, nor is it otherwise apparent why the Removing
Defendants may properly assert the defense of lack of personal jurisdiction on
behalf of ZBP in support of their claim of fraudulent joinder. ZBP did not consent
to the removal of this case, has not asserted the defense at any point, and has
not even entered an appearance. See Zufelt, 727 F, Supp. 2d at 1131 (noting that
the non-diverse defendant “has not raised the fraudulent-joinder argument based
on lack of personal jurisdiction, nor . . . filed a motion to dismiss based on rule
12(b)(2). Indeed, [the non-diverse defendant] has not even been served yet, nor
does it have counsel that has appeared before the Court”); Seguros, 934 F. Supp.
at 245 (stating that “[i]t is undisputed that . . . [the removing defendant] has not
obtained [the non-diverse defendant]’s consent to join in the notice of removal”
and noting that the non-diverse defendant “did not file an answer in state court
and has not appeared in this Court”).
Finally, the Removing Defendants contend that ZBP was “joined solely to
defeat diversity jurisdiction.” [Dkt. #88, Defs.’ Resp. at 21-22]. In support of their
position, the Removing Defendants cite exclusively to Plaintiff’s alleged lack of
diligence in pursuing a default judgment against ZBP. See [id.]. The Removing
Defendants claim that because “Plaintiff has made no effort to do so . . . Plaintiff
31
has never really sought any relief against [ZBP]” and “does not think that any
action from [ZBP] is necessary for him to obtain . . . any [] relief that he seeks.”
[Id. at 22]. This argument, rooted in Plaintiff’s post-Complaint conduct,
misapprehends the fraudulent joinder doctrine. See In re Gen. Motors LLC
Ignition Switch Litig., No. 14-MD-2543 (JMF), 2015 WL 3776385, at *3 (S.D.N.Y.
Jun. 17, 2015) (“[A] plaintiff’s subjective motive or intent to recover (or lack
thereof) is irrelevant to the fraudulent joinder analysis in this Circuit.”) (rejecting
fraudulent joinder claim even after determining it “may well be true” that the
plaintiff “has no intent to proceed with his suit against—not to mention recover
from—his wife”); Locicero v. Sanofi-Aventis U.S. Inc., No. 08-CV-489S, 2009 WL
2016068, at *8 (W.D.N.Y. Jul. 10, 2009) (“The motive of the plaintiff in joining the
challenged party is immaterial to the determination of fraudulent joinder.”).
V.
Conclusion
Based upon the foregoing reasoning, the Court, sua sponte, REMANDS this
case back to the Connecticut Superior Court for further proceedings. The clerk is
directed to close this file.
IT IS SO ORDERED.
________/s/______________
Hon. Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut: August 24, 2015
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