Castillo, IV v. 6D Global Technologies, Inc. et al
Filing
344
OPINION AND ORDER re: 301 MOTION to Dismiss the First Amended Third-Party Complaint filed by BDO USA, LLP, 303 THIRD PARTY MOTION to Dismiss First Amended Third-Party Complaint of Defendant/Third-Party Plaintiff, Benjamin Wey filed by Adam Hartung. The third-party defendants' October 29, 2021 motions to dismiss are granted. The FATPC is dismissed. BDO USA, LLP and Adam Hartung terminated. (Signed by Judge Denise L. Cote on 5/11/2022) (vfr)
Case 1:15-cv-08061-DLC Document 344 Filed 05/11/22 Page 1 of 12
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
:
JOSEPH PUDDU, MARK GHITIS, VALERY
:
BURLAK, and ADAM BUTTER,
:
:
Plaintiffs,
:
:
-v:
:
NYGG (ASIA) LTD. and BENJAMIN TINBIANG :
WEI a/k/a/ BENJAMIN WEY,
:
:
Defendants.
:
:
-------------------------------------- :
:
BENJAMIN TINBIANG WEI a/k/a/ BENJAMIN :
WEY,
:
:
Third-Party Plaintiff,
:
:
-v:
:
BDO USA, LLP and ADAM HARTUNG,
:
:
Third-Party Defendants.
:
:
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APPEARANCES:
For plaintiffs:
Jonathan Richard Horne
Phillip C. Kim
Michael Alex Cohen
275 Madison Avenue
34th Floor
New York, NY 10016
For defendants:
Warren Angelo Raiti
Warren Raiti
1345 Avenue of the Americas
Ste 33rd Floor
15cv8061 (DLC)
OPINION AND ORDER
Case 1:15-cv-08061-DLC Document 344 Filed 05/11/22 Page 2 of 12
New York, NY 10105
Adam Brad Sherman
Tom M. Fini
Catafago Fini LLP
One Grand Central Placec
Ste 47th Floor
New York, NY 10165
For third-party defendant BDO USA, LLP:
Timothy E. Hoeffner
Jason Daniel Gerstein
McDermott Will & Emery LLP
One Vanderbilt Avenue
New York, NY 10017
For third-party defendant Adam Hartung:
Daniel H. Roseman
Hinman Howard & Kattell, LLP
707 Westchester Avenue
Suite 407
White Plains, NY 10604
Howard L. Teplinsky
Roenan Patt
Levin Ginsburg
180 N. LaSalle Street
Suite 3200
Chicago, IL 60601
DENISE COTE, District Judge:
Defendant Benjamin Wey has sued third-party defendants BDO
USA, LLP and Adam Hartung for contribution and indemnification.
The third-party defendants have each moved to dismiss the First
Amended Third-Party Complaint (“FATPC”).
For the following
reasons, both motions are granted.
Background
This Court assumes familiarity with the prior Opinions
issued in this case and summarizes only the facts necessary to
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decide this motion.
See Puddu v. 6D Global Techs., Inc., 239 F.
Supp. 3d 694 (S.D.N.Y. 2017), vacated in part, 742 F. App’x 553
(2d Cir. 2018); Puddu v. 6D Global Techs., Inc., No. 15CV08061,
2021 WL 1198566 (S.D.N.Y. Mar. 30, 2021).
The following facts
are taken from the plaintiffs’ Second Amended Complaint (“SAC”)
and the FATPC, and are assumed to be true for the purposes of
these motions.
I.
Factual Background
Benjamin Wey is an investment banker and stock promoter.
Wey owned and controlled a New York-based consulting firm, New
York Global Group, Inc. (“NYGG”), as well as a China-based
investment banking firm, NYGG (Asia), Ltd. (“NYGG (Asia)”).
Wey
helped NYGG (Asia)’s clients -- usually companies based in China
-- obtain a listing on a U.S. stock exchange by arranging for
them to be acquired by a U.S. shell company.
In the process,
Wey and his affiliates would obtain substantially all of the
clients’ stock, and would misrepresent the number of
shareholders to a stock exchange in order to obtain a listing.
Wey would then organize trades to manipulate the stock price.
Finally, Wey would sell his holdings in the client company at an
inflated price, after which its share price would plummet.
In 2010, Wey arranged to have CleanTech Innovations, Inc.
(“CleanTech”), an NYGG (Asia) client, listed on NASDAQ.
Shortly
after it was listed, however, NASDAQ delisted CleanTech, finding
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that it had not sufficiently disclosed its relationship with
Wey.
This delisting occurred before Wey had the opportunity to
sell his own shares in the company, and although CleanTeach was
eventually relisted, CleanTech’s share price had dropped
significantly as a result of the delisting.
To cover his
losses, Wey arranged for 6D Global Technologies, Inc. (“6D”),
another company listed on the NASDAQ, to acquire CleanTech.
In order to avoid being delisted itself, 6D did not
disclose its relationship with NYGG or Wey.
In 2015, the SEC
brought an indictment and lawsuit against NYGG and Wey for
securities fraud in connection with their investment in
CleanTech.
The SEC revealed that Wey was the beneficial owner
of NYGG (Asia), which held shares of 6D.
Once NASDAQ discovered
Wey’s relationship with 6D, it immediately halted the trading of
6D stock, and shortly thereafter delisted it.
6D appealed the
delisting.
6D retained BDO USA, LLP (“BDO”) to audit its 2015
financial statements.
During the audit, BDO determined that Wey
had violated 6D’s internal controls, and that Tejune Kang, 6D’s
CEO, had repeatedly lied to 6D’s board.
When Kang refused to
resign, and 6D’s board declined to terminate him, BDO withdrew
on March 17, 2016.
Six days later, NASDAQ denied 6D’s appeal of
its delisting decision, causing 6D’s share price to plummet.
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II.
Third-Party Allegations
Wey alleges that he did not improperly influence 6D or
Kang, and that NASDAQ’s delisting of 6D stock was caused by the
negligence or recklessness of BDO and/or the Chair of 6D’s audit
committee, Adam Hartung, whom Wey has named as third-party
defendants.
Wey claims that, when NASDAQ raised concerns about
his relationship with 6D, its concerns were immediately
addressed: 6D and Kang promptly severed all ties with Wey, and
NYGG (Asia) delegated its voting rights to a proxy.
Wey
attributes NASDAQ’s decision to delist 6D to a smear campaign by
BDO and Hartung against him and Kang.
After NASDAQ’s initial delisting decision, BDO informed 6D
that it would resign unless 6D underwent an audit to address
NASDAQ’s concerns.
Wey alleges that Hartung and BDO attempted
to delay the audit by expanding its scope, raising various
objections, and providing false information.
Wey alleges that
Hartung overstated Kang’s relationship with Wey, and attempted
to portray Kang as dishonest, because he wanted to replace Kang
as CEO.
The audit found no evidence that Wey exercised undue
influence over 6D’s board or manipulated its stock price.
At the same time, BDO stated that it was unable to rely on
Kang’s statements, and threatened to resign if Kang was not
removed.
After the board of directors declined to remove Kang,
BDO resigned days before 6D’s annual disclosures were due.
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result, 6D was forced to file a Form 12b-25, indicating that it
had suffered losses in the past year but would not be able
timely to publish its annual disclosure.
6D’s appeal of the delisting decision.
NASDAQ then denied
Wey alleges that it was
BDO’s resignation and Hartung’s accusations against Wang, rather
than Wey’s own relationship with 6D, that caused NASDAQ to deny
6D’s appeal from the delisting.
III. Procedural History
The plaintiffs filed this action on October 13, 2015, and
filed the SAC on April 4, 2016, bringing claims on behalf of a
putative class of 6D shareholders against 6D, Wey, and various
other defendants for violations of the Securities Exchange Act.
The SAC asserts no claims against BDO or Hartung.
On March 6,
2017 The Honorable Robert W. Sweet granted the defendants’
motion to dismiss the SAC.
Puddu v. 7D Global Techs. ,Inc., 239
F. Supp. 3d 694 (S.D.N.Y. 2017).
and was largely vacated.
That decision was appealed,
742 F. App’x 553 (2d Cir. 2018).
On remand, the case was reassigned to the Honorable Allison
J. Nathan.
Wey had yet to appear, however, and a certificate of
default was issued on September 28, 2018.
On May 15, 2019, the
plaintiffs announced that they had reached a settlement with the
defendants who had made an appearance.
approved on May 12, 2021.
The settlement as
Puddu v. 6D Global techs., Inc., 2021
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WL 1910656 (S.D.N.Y. May 12, 2021).
The only remaining
defendants in the action were Wey and NYGG (Asia).
Wey first made an appearance during these settlement
discussions.
On May 31, 2020, Judge Nathan vacated the entry of
the default against Wey.
Puddu v. 6D Global Techs., Inc., No.
15CV08061, 2020 WL 2833852 (S.D.N.Y. May 31, 2020).
Shortly
thereafter, Wey moved to dismiss the SAC, and his motion was
denied on March 30, 2021.
Puddu v. 6D Global Techs., Inc., No.
15CV08061, 2021 WL 1198566 (S.D.N.Y. Mar. 30, 2021).
Discovery
is ongoing.
On May 7, 2021, Wey filed a third-party complaint against
BDO and Hartung, seeking contribution and indemnification from
them for damages arising out of the claims brought against Wey
in the SAC.
The third-party defendants moved to dismiss the
third-party complaint on August 11.
September 22.
The third-party defendants moved to dismiss the
FATPC on October 29.
December 21.
Wey filed the FATPC on
The motions became fully submitted on
The case was reassigned to this Court on April 10,
2022.
Discussion
In order to survive a motion to dismiss for failure to
state a claim, “[t]he complaint must plead ‘enough facts to
state a claim to relief that is plausible on its face.’”
Green
v. Dep't of Educ. of City of New York, 16 F.4th 1070, 1076–77
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(2d Cir. 2021) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)).
“A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.”
(2009).
Ashcroft v. Iqbal, 556 U.S. 662, 678
“In determining if a claim is sufficiently plausible to
withstand dismissal,” a court “accept[s] all factual allegations
as true” and “draw[s] all reasonable inferences in favor of the
plaintiffs.”
Melendez v. City of New York, 16 F.4th 992, 1010
(2d Cir. 2021) (citation omitted).
A defendant may, as a third-party plaintiff, implead “a
nonparty who is or may be liable to it for all or part of the
claim against it.”
Fed. R. Civ. P. 14(a)(1).
A party may
therefore implead a third-party defendant for contribution or
indemnification.
See, e.g., Bank of India v. Trendi Sportswear,
Inc., 239 F.3d 428, 436–37 (2d Cir. 2000); Andrulonis v. United
States, 26 F.3d 1224, 1233 (2d Cir. 1994).
Impleader is not
appropriate, however, merely because the third-party defendant
“may be liable to the plaintiff.”
Owen Equip. & Erection Co. v.
Kroger, 437 U.S. 365, 368 n.3 (1978).
I.
Contribution
Wey seeks contribution from Hartung and BDO.
Contribution
allows a defendant to “recover proportional shares of the
judgment from other joint tortfeasors whose negligence
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contributed to the injury and who are also liable to the
plaintiff.”
Zapico v. Bucyrus-Erie Co., 579 F.2d 714, 718 (2d
Cir. 1978).
“[U]nder the securities laws, a person who has
defrauded the plaintiff in violation of those laws may be liable
for contribution to another person who has similarly defrauded
the plaintiff.”
Sirota v. Solitron Devices, Inc., 673 F.2d 566,
578 (2d Cir. 1982) (citation omitted).
Because contribution is
only available among “joint tortfeasors”, however, courts in
this district have held that, to receive contribution for
violations of securities law, a third-party plaintiff must
allege that the third-party defendant also violated securities
law.
See Steed Fin. LDC v. Laser Advisers, Inc., 258 F. Supp.
2d 272, 282 (S.D.N.Y. 2003); Gabriel Capital, L.P. v. Natwest
Fin., Inc., 137 F. Supp. 2d 251, 259–60 (S.D.N.Y. 2000) (listing
cases).
The FATPC contains brief and conclusory allegations that
the third-party defendants violated § 10(b) of the Securities
Exchange Act.
In opposition, however, Wey has abandoned any
theory that the third-party defendants are liable for
contribution due to their own securities law violations.
Wey
argues that contribution is available under New York law because
the damages he is accused of causing were actually caused by the
third-party defendants’ negligence or recklessness.
Unlike
federal securities law, the right of contribution under New York
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law “may be invoked against concurrent, successive, independent,
alternative, and even intentional tortfeasors.”
Raquet v.
Braun, 90 N.Y.2d 177, 183 (1997).
When a party brings an action under a federal statute,
“[t]he ultimate question . . . is whether Congress intended to
create the private remedy -- for example, a right to
contribution -- that the [party] seeks to invoke.”
N.W.
Airlines, Inc. v. Transp. Workers Union of Am., AFL-CIO, 451
U.S. 77, 92 (1981).
Claims for contribution under securities
law, however, are limited to joint tortfeasors who have together
defrauded the plaintiff.
Sirota, 673 F.2d 578.
Wey may of
course defend this action by denying wrongdoing and by
attempting to shift any blame to others.
But because Wey does
not argue that the third-party defendants participated in the
fraud alleged against him in the SAC, he may not bring a claim
for contribution under federal securities law.
Nor can Wey circumvent this limitation by bringing a claim
for contribution under state law, as he attempts to do in
opposition to this motion.
Courts in this Circuit have
repeatedly held that, when a defendant is sued under federal
law, the absence of a right to contribution under federal law
preempts any right that might exist at state law.
See Mathis v.
United Homes, LLC, 607 F. Supp. 2d 411, 428–29 (E.D.N.Y. 2009);
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Koch v. Mirza, 869 F. Supp. 1031, 1041 (W.D.N.Y. 1994).
Wey’s
claims for contribution are therefore dismissed.
II.
Indemnification
Wey seeks indemnification from Hartung and BDO for the
claims brought against him in the SAC.
Common-law
indemnification is available when a party “has been held to be
vicariously liable without proof of any negligence or actual
supervision on its own part.”
McCarthy v. Turner Const., Inc.,
17 N.Y.3d 369, 377–78 (2011).
A party may not seek
indemnification, however, for his own “reckless, wilful, or
criminal misconduct.”
Globus v. Law Research Serv., Inc., 418
F.2d 1276, 1288 (2d Cir. 1969).
Indemnification is therefore
not available for parties who are alleged to have committed
securities fraud.
See id.; In re Livent Sec. Litig., 193 F.
Supp. 2d 750, 754 (S.D.N.Y. 2002); In re Leslie Fay Cos., Inc.
Sec. Litig., 918 F. Supp, 749, 764 (S.D.N.Y. 1996).
Accordingly, Wey may either be found liable for his own conduct
(in which case indemnification would be unavailable), or he will
not (in which case there is nothing to indemnify).
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