New Asia Enterprises Ltd v. Fabrique, Ltd

Filing 74

OPINION & ORDER re: 60 MOTION for Summary Judgment filed by Fabrique, Ltd: Because New Asia lacks the capacity to maintain its suit against Fabrique under Hong Kong law and Federal Rule of Civil Procedure 17(b), Fabrique's mo tion for summary judgment is granted. The Court respectfully directs the Clerk of Court to terminate the motion pending at ECF No. 60, to enter judgment in favor of Fabrique, and to close this case. (Signed by Judge John F. Keenan on 1/26/2017) (tn)

Case 1:09-md-02013-PAC Document 57

Filed 09/30/10 Page 1 of 45
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 01/26/2017

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------ X
NEW UNITED STATES DISTRICT COURT :
ASIA ENTERPRISES LTD.,
SOUTHERN DISTRICT OF NEW YORK:
Plaintiff,
:
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In re FANNIE MAE 2008 SECURITIES :
: No. 1308 Civ. 7831 (PAC)
Civ. 5271 (JFK)
-against:
LITIGATION
:
09 MD & ORDER
OPINION 2013 (PAC)
:
:
FABRIQUE, LTD.,
:
:
OPINION & ORDER
:
-----------------------------------------------------------x
Defendant.
:
------------------------------ X
JOHN HONORABLE PAUL A. CROTTY, United States District Judge:
F. KEENAN, United States District Judge:
Defendant Fabrique, Ltd. (“Fabrique”) moves for summary

BACKGROUND1
judgment under Federal Rule of Civil Procedure 56 because there
The early years of this decade saw a boom in home financing which was fueled, among
is no dispute that Plaintiff New Asia Enterprises Ltd. (“New
other things, by low interest rates and lax credit conditions. New lending instruments, such as
Asia”), a Hong Kong corporation, is dissolved under Hong Kong
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
law and lacks capacity to maintain this suit. Fabrique argues
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
that it is entitled to judgment as a matter of law because
assumption that the market would continue to rise and that refinancing options would always be
Federal Rule of Civil Procedure 17(b) precludes New Asia from
available in the future. Lending discipline was that summary judgment is
maintaining suit. New Asia counterslacking in the system. Mortgage originators did
not hold these because it “stands ready, carry the rising risk on their books, the
inappropriate high-risk mortgage loans. Rather than willing and able” to
originators sold their loans into the corporate status. Fabrique
apply for restoration of itssecondary mortgage market, often as securitized packages
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
contends that New Asia’s application for restoration would be
futile.

But Court grants Fabrique’s motion for summary
The then the housing bubble burst. In 2006, the demand for housing dropped abruptly

and home
judgment. prices began to fall. In light of the changing housing market, banks modified their
lending practices and became unwilling to refinance home mortgages without refinancing.

1

Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.

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1

I.

Background

The Court summarizes the facts from the parties’ statements
submitted in accordance with Local Rule 56.1 of the Southern and
Eastern Districts of New York.

Unless otherwise noted, the

parties do not dispute these facts.
New Asia organized as a corporation under Hong Kong law on
May 7, 2004. (Def.’s Loc. R. 56.1 Statement ¶ 1.)

The Hong Kong

Companies Ordinance (Chapter 622) governs Hong Kong
corporations, (Id. ¶ 4.), and section 27 of the Companies
Ordinance tasks the Hong Kong Companies Registrar with keeping
the records of companies registered under the Companies
Ordinance.

Companies Ordinance § 662 requires a Hong Kong

private company to file an annual return every year.

New Asia

last filed an annual return on May 7, 2012. (Id. ¶ 6.)

On

September 4, 2015, after New Asia failed to file annual returns
for three years, the Hong Kong Companies Registrar published a
notice pursuant to Companies Ordinance § 743 in Hong Kong’s
Official Gazette that “unless cause is shown to the contrary,”
within three months of the publication, it would strike New Asia
from the Companies Register and New Asia would be dissolved.
(Id. ¶ 7.)

On January 8, 2016, the Hong Kong Companies

Registrar published a notice that it had struck New Asia from
the Companies Register and New Asia was “accordingly dissolved.”
(Id. ¶ 8.)
2

II.

Applicable Law

“Capacity to sue or be sued is determined . . . for a
corporation, by the law under which it was organized.” Fed. R.
Civ. P. 17(b); accord Marsh v. Rosenbloom, 499 F.3d 165, 177 (2d
Cir. 2007) (“‘[H]ow long and upon what terms a state-created
corporation may continue to exist is a matter exclusively of
state power,’ with the federal government ‘powerless to
resurrect a corporation which the state has put out of existence
for all purposes.’” (quoting Chi. Title & Tr. Co. v. Forty-One
Thirty-Six Wilcox Bldg. Corp., 302 U.S. 120, 127-28 (1937))).

A

party must maintain its capacity to sue throughout litigation.
Mather Constr. Co. v. United States, 201 Ct. Cl. 219, 225
(1973), quoted in 6A Charles Alan Wright et al., Federal
Practice & Procedure § 1559 (3d ed. Apr. 2016 Update).
A court shall grant summary judgment “if the movant shows
that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(a).

A material fact is one that “might affect the outcome

of the suit under the governing law.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248 (1986).

On summary judgment, a genuine

dispute as to any material fact exists when evidence of record
would permit a reasonable jury to decide in the non-movant’s
favor. Dean v. Univ. at Buffalo Sch. of Med. & Biomedical Scis.,
804 F.3d 178, 186 (2d Cir. 2015).
3

A court ruling on a motion

for summary judgment must credit the nonmoving party’s evidence
and draw all justifiable inferences in the nonmoving party’s
favor. Curry v. City of Syracuse, 316 F.3d 324, 329 (2d Cir.
2003).
When “determining foreign law, the court may consider any
relevant material or source, including testimony, whether or not
submitted by a party or admissible under the Federal Rules of
Evidence.” Fed. R. Civ. P. 44.1.

“The court’s determination

must be treated as a ruling on a question of law.” Id.
III.

Discussion

Fabrique is entitled to summary judgment because the
parties do not dispute that the Hong Kong Companies Registrar
dissolved New Asia and, under Hong Kong law, a dissolved company
lacks the capacity to maintain legal actions.

A stay is

inappropriate because New Asia has not sufficiently shown that
the Companies Registrar will reinstate New Asia.
Fabrique submits an unrebutted expert declaration on Hong
Kong law to assist the Court. (See Moerdler Decl. Ex. A, ECF No.
63-1.)

Hong Kong’s Companies Ordinance (Chapter 622) governs

the duties of companies to maintain their good standing and
appoints the Companies Registrar to oversee compliance with the
law. See Companies Ordinance, (2014) Cap. 622, 10-11 §§ 21-28
(H.K.).

To maintain good standing, the Companies Ordinance

requires a company to file an annual return with the Registrar
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detailing current information about the company’s affairs. Id.
§§ 662, 664.

If the Registrar “has reasonable cause to believe

that a company is not in operation or carrying on business,” the
Registrar may contact the company to inquire whether it
continues to operate either by sending a letter or, if the
Registrar determines that the company is unlikely to receive a
letter, by publishing a notice in the Gazette that, “unless good
cause is shown to the contrary, the company’s name will be
struck off the Companies Register, and the company dissolved, at
the end of 3 months after the date of the notice.” Id. § 744(3).
After publishing a notice in the Gazette, “the Registrar may,
unless cause is shown to the contrary, strike the company’s name
off the Companies Register at the end of 3 months after the date
of the notice.” Id. § 746(1).

To do so, the Registrar “must

publish in the Gazette a notice indicating that the company’s
name has been struck off the Companies Register.” Id. § 746(2).
“On publication of the notice under subsection (2), the company
is dissolved.” Id. § 746(3).

Under Hong Kong law, a dissolved

company ceases to exist as a legal entity and cannot “sue or do
any other legal act unless and until it [i]s restored to the
Company Register.” Chan Yuet Ying v. Wong Choi Hung, [2016]
H.K.E.C. 78 ¶ 65 (C.F.I.); accord Re Integrated Mktg. Commc’ns
Ltd., [2015] 5 H.K.L.R.D. 362, 365 ¶ 7 (C.F.I.) (“As a matter of
general principle, a company that is dissolved has ceased to
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exist as a legal entity.

In the absence of express statutory

provision such as found in s.291(7) of the previous Companies
Ordinance before its repeal, a dissolved company is not normally
in a position either to sue or be sued or indeed to do any other
legal act.”); Ng Pit Hak v. Ho Chin, [2010] H.K.E.C. 557 ¶ 8
(C.F.I.) (interpreting a predecessor Companies Ordinance and
concluding that “[i]f a company is dissolved, all property and
rights whatsoever vested in or held on trust for the company
immediately before its dissolution, shall be deemed to be bona
vacantia and shall belong to the Government, by virtue of
section 292(a) of Companies Ordinance”).

Indeed, under the

effective Companies Ordinance, “every property and right vested
in or held on trust for the company immediately before the
dissolution is vested in the Government as bona vacantia” (i.e.,
ownerless property). Companies Ordinance § 752(1); Bona
vacantia, Black’s Law Dictionary (10th ed. 2014).
New Asia does not directly dispute Fabrique’s Hong Kong law
expert.

Nor does it dispute that the Registrar filed both

notices causing its dissolution.

Rather, it contends that the

Companies Ordinance permits it to apply for restatement nunc pro
tunc “as if it had not been dissolved.” Companies Ordinance
§ 764(1).

New Asia claims that it “stands ready, willing and

able to do so.

In fact, it has begun the process.” (Pl.’s Mem.

of L. in Opp’n to Def.’s Mot. for Summ. J. 2, ECF No. 65
6

(emphasis in original).)

In support, New Asia submits a

declaration from its President, Richard Grant, who states that
he “only discovered that New Asia was struck off the Hong Kong
Companies Register after Fabrique sought leave to make this
motion for summary judgment” and that he has “instructed New
Asia’s Hong Kong-based professionals to begin the process of
remediating this issue, and understand[s] that it may take
several months.” (Grant Decl. ¶¶ 3-4, ECF No. 67.)

Based on

these statements, New Asia asks the Court to deny Fabrique’s
motion or to stay the action for six months to allow for
restoration.
New Asia is correct that the Companies Ordinance permits a
company that has been struck off the Companies Register and
dissolved under section 746 to apply to the Registrar to be
restored to the Companies Register. See Companies Ordinance
§ 760(1)-(2).

But “[t]he Registrar must not grant an

application made under section 760 unless all the conditions
specified in subsection (2), and any other conditions that the
Registrar thinks fit, are met.” Id. § 761(1).

The conditions in

subsection (2) are:
(a)

that the company was, at the time its
name was struck off the Companies
Register, in operation or carrying on
business;

(b)

that, if any immovable property situate
in Hong Kong previously vested in or held
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on trust for the company has been vested
in the Government under section 752(1),
the applicant has obtained, at the
applicant’s own costs, the Government’s
confirmation that it has no objection to
the restoration; and
(c)

Id. § 761(2).

that the applicant has delivered to the
Registrar the documents relating to the
company that are necessary to bring up
to date the records kept by the Registrar
Fabrique contends that New Asia cannot meet the

requirements of section 762(2) of the Companies Ordinance
because, by its own admission, it ceased operations in 2012.

In

support, Fabrique submits email correspondence between its
counsel and New Asia’s counsel between March 30, 2016, and April
7, 2016. (See Bertaccini Decl. Exs. D-E, ECF Nos. 72-4 to -5.)
In an email dated April 6, 2016, New Asia’s counsel provided “a
chart of the approximate revenues earned by New Asia from
Fabrique from 2004 to 2012 when New Asia ceased operations.”
(Id. Ex. D, at 1.)

Confirming counsel’s statement that New Asia

ceased operations in 2012, the chart shows no revenue for that
year, (id.), and in response to an inquiry from Fabrique’s
counsel, New Asia’s counsel stated, “New Asia earned zero
revenue from 2013 to present.” (Id. Ex. E, at 1.)

To date,

despite being aware for more than nine months that it is
dissolved, New Asia has not pointed to any evidence either to
show that it has in fact applied for reinstatement or to rebut
the record evidence that it ceased operations in 2012.
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Based on this record, no reasonable jury could conclude
that New Asia, a dissolved Hong Kong company as of January 8,
2016, now has the capacity to maintain its suit under Hong Kong
law and, therefore, under Federal Rule of Civil Procedure 17(b)
The Court declines to stay the litigation because New Asia has
failed to produce any evidence that shows that, despite being
currently dissolved, it will likely be reinstated, that it would
be irreparably harmed absent a stay, that a stay would not harm
Fabrique, or that any public interests support a stay. See Nken
v. Holder, 556 U.S. 418, 433-34

(2009)

(holding that the party

requesting a stay bears the burden of proof and listing the
"traditional" stay factors)
Conclusion

Because New Asia lacks the capacity to maintain its suit
against Fabrique under Hong Kong law and Federal Rule of Civil
Procedure 17(b), Fabrique's motion for summary judgment is
granted.

The Court respectfully directs the Clerk of Court to

terminate the motion pending at ECF No. 60, to enter judgment in
favor of Fabrique, and to close this case.
SO ORDERED.

Dated:

New York, New York
January 2 b , 2017

~-:t--'---+-~-:..v'--...A_'LvJ_·John F. Keenan
United States District Judge

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