HONGDA CHEM USA, LLC et al v. SHANGYU SUNFIT CHEMICAL COMPANY, LTD.

Filing 33

MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE signed by MAG/JUDGE JOE L. WEBSTER on 10/08/2013; that the court GRANT Plaintiffs' motion (Docket Entry 24 ) to amend its Complaint, and YMS be added as a defendant in this matter. (Garland, Leah)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
HONGD,\ CHE,M USA, LLC,

Ct

AI.,

)

)

Plaintiffs,

)
)

V

1:12-CY-1,146

)
)

SI{,A.NGYLI SUNFIT CHEMICAL

)

COMPANY, LTD.,

)
)

Defendant.

)

MEMORÄNDUM OPINION AND RECOMMENDATION OF
UNITED STATES MAGISTRATE JUDGE
This matter is before the court for a tecommended ruling on the motion of Plaintiffs
Hongda Chem US.,\, LLC ("Hongda Chem') and Hongda Group Limited, LLC's ("Hongda

Group," and collectively with Hongda Chem, "Hongda") fot leave to amend their original

Complaint. (Docket Entry 24.) Defendant Shangyu Sufit Chemical Company, Ltd.
("Shangyu Sunfìt") opposes the motion. (Docket Entty 27.) For the following teasons, it is
recommended that Plaintiffs' motion be granted.

I.

BACKGROUND
This lawsuit concetns a dispute between Shangyu Sunfit, a Chinese manufacturu of

a

chemical product called N-(n-Butyl) thiophosphoric Tdamide ("NBPT") and Hongda, who
agreed

to be the exclusive distdbutor of Shangyu Sunfit's NBPT in the United

Mexico. Hongda

seeks

to recover damages for

Shangyu Sunfìt's bteach

States and

of the

parties'

exclusivity agreement. Hongda alleges that Shangyu Sunfit created a Canadian company

called YMS Âgticultute Intetnational, Co.p. ('YMS")

fot the express purpose of

circumventing the exclusivity agreement and selling NBPT in the United States and Canada.
(Am. Compl.T 1, Docket E.rtty 24-1,.) Shangyu Sunfìt alleges that Hongda falled to pay not
less than $5,770,050 plus interest

to

Shangyu Sunfit pursuant

to the written agreement

be¡¡¡een the parties executed in September 201,1,. (Def. Mem. Opp. Mot. to Amend at

1,

Docket Entry 27). Shangyu Sunfit also alleges that Plaintiffs fìled their Complaint aftet
Shangyu Sunfìt demanded that Hongda pay the money owed Shangyu ot

the agteement. (Id. at

2.)

it would tetminate

Futhermore, Shangyu Sunfit claims that Plaintiffs filed their

lawsuit rather than payins the outstanding money owed to Shangyu Sunfit. (1/.)

In petinentpart, Plaintiffs

allege

in their amended complaint @ocket F;ntry 24-1)

the following:

8. Hongda is an Â.merican company that manufactutes and disuibutes
chemical ptoducts to a woddwide market, sometimes using tegional
distdbution watehouses in Georgia, South Carohna, North Carohna,
Pennsylvania, Texas, and Missouti.
9. Shangyu Sunfit is a Chinese company that manufactures vadous chemical

ptoducts, including N-(n-Butyl) thiophosphodc Ttiamide ("NBPT").
ingredient in fertthzets to imptove
NBPT is a chemical that is used
their petformance.
10. Shangyu Sunfit is not licensed
States of America.

^s

^î

to do business in any state in the United

11. YMS is a Canadian company that was fotmed for the purpose
selling NBPT manufactured by Shangyu Sunfit in North
'\medca.
1.2. Upon information and belief, YMS is owned by
shateholdets who are also the ownets of Shangyu Sunfìt.
1.3.

of

the same four

In Octobet 2010, Hongda and Shangyu Sun{ìt enteted into a one-

year wdtten contract undet which Hongda agteed
Shangyu Sunfit.
2

to putchase NBPT ftom

14.In September 2011, Hongda and Shangyu Sunfit entered into a second,
ftve-yeat conttact ("Exclusive Sales Contract," a true and accurate copy of
which is attached to this amended Complaint as Exhibit A).
15. Undet the Exclusive Sales Conttact, the patties agteed that Hongda

would have the sole and exclusive rlght to bry and sell NBPT
manufactured by Shangyu Sunfit in North America.
16. Undet the Exclusive Sales Contract, Hongda agreed to putchase a
minimum of 1,000,000 pounds of NBPT ftom Shangyu Sunfit each year for
a period of five years.

17. Under the Exclusive Sales Conttact, Shangyu Sunfit agteed to
manufactute a minimum of 1,000,000 pounds of NBPT for Hongda's
purchase in 2012 and 2013, and a minimum of 2,000,000 pounds of
NBPT theteaftet. The parties exptessly stated that "these are minimums,
we expect the volumes to be gfeatef."
18. Hongda agteed to purchase the NBPT fot $18.43 pet kilogtam plus a
$0.12 per kilogram freight charge, for a total of $18.55 per kilogram.
This putchase pdce assuted that Shangyu Sunfìt would sell at least $8.41
million of NBPT per ye r through Hongda.
19. The patties furthet agreed that Shangyu Sunfit would ship the NBPT to
Philadelphia, PÂ, and that Hongda would pay the cost of shipping the
NBPT from Philadelphia the ultimate consumer.
20. Putsuant to the Exclusive Sales Conttact, Shangyu Sunfit agreed that it
would not sell NBPT in Noth America to any third paties other than
Hongda, eithet directly ot through her disttibutors, for the length of the
Exclusive Sales Contract. Pangraph 4 of the Exclusive ales Conttact
ptovides:

No material shall be sold in Notth Âmerica (IJSA and
ot [thtough] othet teptesentatives
than Hongda Cherm USA dudng the time frame this
Canada) by Sunfit directly

agreement is in effect.

In

teliance on this exclusivity ptovision, Hongda spent significant
resources developing the Notth Amedcan matket for NBPT and building
telationships with ptospective purchasets of NBPT.
21,.

3

22. In furthetance of the Exclusive Sales Contract, Hongda purchased
significant âmounts of NBPT from Shangyu Sunfit, eaning Shangn: Sunfit
a significant

ptofìt.

23. Hongda then entered into a contract with Albemade Cotporation
(",\lbemade"), a customer which Hongda had developed in reliance on the
Exclusive Sales Conttact. Under this contract, Flongda sold NBPT to
,\lbematle.
24. Unbeknownst to Hongda, Shangyu Sunfit had cteated YMS in March
201,1, to sell NBPT to purchasers in Noth America.

25. Upon infotmation and belief, Shangyu Sunfit passed a shareholders
tesolution authoitzine the sale of NBPT through YMS to Noth,{medcan
buyers.

26. While negotiating the Exclusive Sales Conttact, Shangyu Sun{it
misteptesented its sales activities in Noth Amedca and also
misrepresented its intentions to use Hongda as its exclusive distdbutot of
NBPT.

27. YMS had knowledge of the Exclusive Sales ,\gteement between
Hongda and Shangyu Sunfìt. In fact, YMS knew certain confidential and
proprietary details that only could have been leatned ftom Shangyu Sunfit.

28. YMS approached Hongda's customets and other buyers

,{merica and encoutaged

in Notth

them to bty NBPT ftom YMS, thereby

circumventing Hongda.

29.In order to induce these customers and buyers to purchase NBPT, YMS
misrepresented the scope of the exclusivity provision contained in the
Exclusive Sales Contact.
30. Notwithstanding the exclusivity agreement, Shangyu Sunfit used YMS
to sell NBPT to putchasers in North Ametica to sell NBPT in blatant
violation of the Exclusive Sales Contract.
31. YMS knowingly and intentionally interfeted
between Hongda and Shangyu Sunfit.

with the existing contract

in Jantary 201.2, YMS apptoached Âgdum
Technologies, Inc. ("Agrium") which is located in Omaha,

32. For example, beginning

Advanced
Nebraska, and attempted to sell NBPT to Agdum for use in their plant in
the United States.
4

33. YMS expressly represented to Agrium that it was formed by Shangyu
Sunfit for the pulpose of selling NBPT manufactuted by Shangyu Sunfìt in
Noth America.

34. On or about ,{.pdl 1., 201,2, Y}./.S aranged fot tepresentatives of
,{.gtium to visit Shangyu Sunfìt's plant in China so that ,\gdum could see
the production facil-ities of Shangyu Sunfìt first hand.
35. YMS falsely represented to Agrium that Hongda's exclusivity ptovision
did not apply to sales to Agtium.

36. YMS falsely represented to A.grium that Hongda did not pay its bills on
üme.

37. YMS subsequently sold NBPT manufactuted by Shangyu Sunfit to
Agdum, and -Agrium used the NBPT at their ffacility] in Âlabama.

38. Upon infotmation and belief, Shangyu Sunfìt and YMS have sold
NBPT to other consumers in Notth -Amedca, used similar deceptive
conduct in making those sales, further intetfered with Hongda's contracts,
and concealed their conduct ftom Hongda.
39.

As a result of the wrongful conduct and unlawful acts of

Shangyu

Sunfìt and YMS, Hongda has suffered dfuect sales losses and futute
opportunities to expand the market.
40. The total amount of lost profìts suffered as a result
conduct of Shangyu Sunfit and YMS exceeds $10,000,000.

of the wrongful

(Âm. Compl.llll8-40, Docket Entry 24-1,.)

Plaintiffs seek a declaratory judgment pursuant to 28 U.S.C.

claims for a breach

of

S 2201, and also allege

conffact, intentional intetference with conttactwal telationship

against Shangyu Sunfìt and YMS, ftaud against Shangyu Sunfìt and a violation
Catolina's Unfair and Deceptive Trade Practices Act.

5

of Nonh

II.

DISCUSSION
Plaintiffs filed a motion for leave to amend theit complaint and to add a defendant.

(Docket E;nty 24.) Plaintiffs assert that through the discovery process they learned of
Defendant's alleged fraud and unfa:r and deceptive trade practices. (Am. Compl.

fl{

67-

89, Docket Entry 24-1,.) Defendant contends that Plaintiffs should not be allowed to
amend their complaint because their claims ate futile and would not survive z 1.2 (bX6)

motion to dismiss. Q)ef. Mem.Opp.Mot. to Amend at 5, DocketF,ntry 27)

Plaintiffs' motion

to

amend pursuant

Procedute may be gtanted by leave

of amendment."

amendment would be futile

15(a)

of the Federal Rules of

." Id. -,{. teason not to gtant a motion

Foman u. Dauis,371 U.S. 1.78, 1.82 (1,962).

for

"An

if the amended claim would fail to survive a motion to dismiss

for failure to state a claim pursuant to Federal Rule of Civil Procedute 12þ)(6)."
Crop Prot., Inc. a.

Civil

of the court. Fed. R. Civ. P. 15(a)Q). "The coutt

should fteely give leave when justice so requires
amendment is "futility

to

U.S.E.P.A,222F.k.D. 271,,278 (À,{.D.N.C July 12,2004) (citing

Sltngenta

Shanks

u.

r-orryth Coønfl Park Aath., 869 F. Supp. 1231,1238 (1\4.D.N.C. 1,994)). The court should

deny a motion to amend on the basis of futility only "when the proposed amendment is
clearly insuffìcient

ot frivolous on its face." Johnson u. OmweatFoods C0.,785 tr.2d 503, 510

(4th Cir. 1986)

Pursuant
dismissal

to

Fedetal Rule

of Civil Procedure

of a complaint for "failute to

state

12þ)(6), a defendant may

seek

a clakn upon which relief can be gtanted."

Fed. R. Civ. P. 12(bX6). A motion to dismiss for failure to state a clakn should be granted

if the complaint

does not allege "enough facts to state a claim of telief that is plausible on

6

its face."

Be//

Atl.

Corp. u. Twombþ,550 U.S. 544, 570

Q007). In other words, the factual

allegations must "be enough to raise a right to telief above the speculative level." Id. at 555

"Thus, while a plain:d:ff does not need to demonsttate in a complaint that the dght to relief

is 'ptobable,' the complaint must advance the plaintiffs claim 'actoss the line

from

conceivable to plausible."' I%alter¡ u. MtMahen, 684 tr.3d 435, 439 (4th Clt. 2012) (qaoting
Twombþ,550 U.S.

^t

570). As explained by the United States Supreme Court:

,\

claim has facial plausibility when the plaintiff pleads factual content that
allows the coutt to draw the reasonable infetence that the defendant is liable
fot the misconduct alleged. The plausibility standatd is not akin to
probability requitement, but it asks for mote than a sheer possibility that a
defendant has acted unlawfully. Whete a complaint pleads facts that arc
merely consistent with a defendant's liability, it stops shott of the line
between possibility and plausibility of entitlement to relief.
Ashnoft

u.

A

Iqbal,556 U.S. 662,678 Q009) (intemal quotations and citations omitted).

12þX6) motion tests the sufficiency of a complaint and "does not tesolve

contests surrounding the facts, the merits
Repøblican Parry of

N.C.

should "assume the

u.

of a

clatm, or the applicability

of

defenses."

Martin, 980 F.2d 943,952 (4th Cit. 1,992). Accotdingly, a court

tuth of all facts alleged in the complaint

and the existence

thatcan be proved, consistentwith the complaint's allegations." 8.

Sbore

of any fact

Mkt¡. Inc.

u.

J.D

A¡socl Ltd. P'shþ,213tr.3à 175, 180 (4th Cir.2000). Although the ftuth of the facts alleged

is assumed, coutts are not bound by the "legal conclusions drawn ftom the facts" and
"need not accept as tfue unwaffanted infetences, unfeasonable conclusions, or arguments."
Id.

A motion to
Fedetal Rule

dismiss pursuant to Rule 12(bX6) must be read

of Civil Procedure g(u)Q)

in conjunction with

Rule 8(a)(2) requites only "a

7

shot and plain

statement

of the claim showing that the pleader is entitled to relief," so as to "give

defendant fair notice of what

Conle1 u. Gibson,355

its face"

U.S. 41,47 (1957)). Rule 8 does not,

of discovery for a plainttff

conclusions. Fait notice is provided by setting
"plausible on

2'

the . . . claim is and the grounds upon which it rests

Twonbþ,550 U.S. at 555 (quoting

howevet, unlock the doors

the

and "raise

foth

armed with nothing more thafl

enough facts fot the complaint to be

a nght to telief above the speculative level on

assumption that all the allegations in the complairft

^te

true (even

the
,)

if doubtful in fact)

Id. at 555 (internal citations omitted). "Rule 12(bX6) does not countenance . . . dismissals
based on a judge's disbelief of a complaint's facttal allegations." Id. at556 (quoting Scheøer
u. Rhodes,416, U.S.

To survive

232,236 (1974))
a

Rule 12þ)(6) motion to dismiss a fra:ud claim, a plaintiff must generally

"state with particularity the circumstances constituting ftaud ot mistake." Fed. R. Civ. P

9þ). To propedy plead actionable
representation or concealment

fraud in

Noth

of a matettal fact, Q) reasonably calculated to deceive,

made with intent to deceive, (4) which does

injuted

pafty;'

Carohna, Plaintiffs must allege: "(1) false

in fact deceive, (5) resulting in damage to the

Il/est u. Hoachin, 10CV936, 201,2

201,2) (quoting Rag:dale u. Kenneþ,286

N.C.

(3)

WL

281,0298 at

1.30, 1,38 209 S.E.

*4 (I4.D.N.C. July 10,

2d494 (1974)). To

satis$r

the heightened pleading tequirements of Rule 9þ), u plaintiff must allege facts establishing
the "who, what, when, where, and how" of the claimed ftaud. United States ex rel. Wi/son

u.

KellogBrown dz Root, lnc.,525 F.3d 370,379 (4th Cir. 2008) (internal quotation omitted).
The genetal rule that pleadings are to be given libetal consttuction does not apply to claims

of ftaud.

Ro¡enthal u. Per,Þ.ins,42

N.C. App.

449, 452,257 S.E.2d

8

63,65 (1979)

Plaintiffs allege that

in March

2011 YMS was created

fot the purpose of

selling

NBPT in North,\merica. (Am. Compl. fl 11 Docket Entry 24-1.) Plaintiffs contend that
despite Defendant's knowledge of YMS selling in North A.merica, Defendants enteted into
an "Exclusive Sales Contract" with them on September 201.1. (Id.11 14.) Plaintiffs assert

that based on theit "Exclusive Sales Contract," Hondga spent significant
developing the

Noth

resources

Amedcan market and building relationships with ptospective

purchasers. (1d.1121) Plaintiffs allege that on January 12,2012, YMS started marketing

NBPT to Agrium.

Qd.

ll 32.) Plaintiffs were already marketing NBPT to '\grium prior to

YMS's involvement. (Id.) Plaintiffs allege that YMS expressly represented to .,\gtium that
Defendant formed

it fot the purpose of selling NBPT in Noth Amedca.

subsequendy sold

NBPT to .,\grium. (Id

ll

37

.)

(Id. n

ß.)

YMS

Plaintiffs claim that as a tesult of

Defendant's conduct they suffered direct sale losses and futute oppottunities to expand the

market. Qd.n39.)
Viewing the amended complaint in its entirety, the undersigned fìnds that Plaintiffs
have pled fraud with suffìcient specificity. Plaintiffs have also sufficiendy pled allegations

in their amended complaint regarding its unfait and deceptive trade ptactices claim. "[A]
proper allegation

claim."

of

fraud is also the basis for an

lØilson u. MtAleer,368 F. S..pp. 2d

Sons' Farms, Inc., 140

:unfai-lr

and deceptive trade ptactices

412,478 Q005) (citing Norman

u. Nash Johnson

dv

N.C. App. 390, 41,7, 537 S.E. 2d 248, 266 (2000). Therefote,

Defendant's argumentthat the Plaintiffs' amended complaint is futile because it would not
survive a 1,2þ)(6) motion to dismiss is without meflt.

9

Defendant also argues that Plaintiffs' motion for leave to amend is untimely. The

motion is indeed outside the deadline set forth in the Rule 26 Repott. The Federal Rule of

Civil Procedure 16(b)(4) states that "a schedule may be modified only for good cause."
Fed. R. Civ. P. 16(bX4). 'Vflhen detetmining

if

good cause exists to amend, "the primary

consideration is the diligence of the moving party." Moatgonery
182 tred.

App'*. 1,56, 162 (4th Cir. 2006) (citing Od1:se1

262F. S..pp. 2d61.8,632

u.

Anne Arandel Cnfl., Md.,

Trauel Ctr., Inc. u.

RO Craiset Inc.,

P. Md.2003).

The reasons asserted by Plaintiffs for the timing of their motion are convincing.
Plaintiffs allege that they leatned of Defendant's relationship with YMS through discovery
ptoduced by -Agrium on Aptil 8, 2013. (Pls.' Mot. Leave to File Âm. Compl.

I

15, Docket

F,ntry 24.) According to Plaintiffs, in March 2011., Defendant secretly cteated YMS and
enacted a shareholder tesolution authorizing YMS to sell NBPT in

Noth America. (A-.

Compl. 1l1l11-12,24,Docket Entry 24-1,.) It is alleged that this action took place just ptiot

to Plaintiffs and Defendant entering into a ftve year Exclusive
September 201.1,.

Qd.nM.) The paties

exchanged Rule 26(a)(1) disclosures on Febtuary

11, 2013. @ls.' Mot. Leave to File Am. Compl.
requests

fot production ftom

tequesting production ftom

Sales Agteement in

fl 10, Docket F,ntry 24.) Plaintiffs

made

sevetal non-parties starting February 21, 201,3, specifically

Agium Production on March 14,2013. Qd.nn 10-13.) Aftet

receiving ptoduction on April 8,2013, Plaintiffs made a motion to amend their complaint

on April 24, 201.3, due to the new information discovered. (Docket F,ntry 24.) Plaintiffs

have demonstrated diligence

in

discovering infotmation necessary

10

to

amend theit

complaint. Thetefote, the Rule 16þX4) tequirement for the plaintiff to show "good cause"
for amending a comphant after the scheduling deadline is satisfied.

Fot the foregoing reasons and in the intetest of justice, Plaintiffs' motion to amend
its complaint should be granted. Âlso, the undersigned fìnds no basis to deny Plaintiffs'
motion to add YMS as a defendant. Specifically, the court fìnds adding YMS would not
constitute unfai-t ptejudice ot sutptise; Defendant would have a teasonable oppottunity to
meet the new evidence which would accompany YMS being added as a defendant. Lastly,
absent

aî

^pparcnt

ot convincing argument that granting Plaintiffs'motion would be futile,

Plaintiffs'motion to add YMS

III.

as a defendant should be granted.

CONCLUSION
For the teasons stated hetein,

IT

IS RECOMMENDED that the court GRANT

Plaintiffs' motion @ocket E.rtty 24) to amend its Complaint, and YMS be added
defendant in this m^tter.

L SHxter
Stue* M4gistrte Judp

Dutham, Notth Caroltna
Octobet 8,201.3

1,1

as a