Pennsylvania International Education Service Group v. Xie et al
Filing
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MEMORANDUM OPINION - The Court will deny the motion for sanctions at this time without prejudice to Defendants right to re-file such a motion when this litigation concludes, but only if necessary and proper. An appropriate Order shall issue. Signed by District Judge James C. Cacheris on 03/11/2015. (dvanm, )
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division
PENNSYLVANIA INTERNATIONAL
EDUCATION SERVICE GROUP, LLC,
Plaintiff,
v.
PETER XIE, et al.,
Defendants.
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M E M O R A N D U M
1:14cv1203 (JCC/MSN)
O P I N I O N
This matter is before the Court on the collective
Defendants’ Motion to Dismiss and Motion for Rule 11 Sanctions.
[Dkts. 5, 8.]
For the following reasons, the Court will deny
both motions.
I. Background
Plaintiff Pennsylvania International Education Service
Group, LLC d/b/a PIESG China (“Plaintiff”) filed this lawsuit
against Defendants Peter Xie, a.k.a. Yantao Xie (“Mr. Xie”),
Pennsylvania International Education Service Group, LLC (“PIESG
US”), and UC Educations, LLC (collectively “Defendants”),
alleging, inter alia, that Defendants breached a partnership
agreement with Plaintiff, which was entered into for the purpose
of operating an international exchange student program between
China and the United States.
(Compl. [Dkt. 1] at ¶¶ 7-10.)
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Generally, Plaintiff claims that Defendants breached the
agreement when Mr. Xie failed to pay 50% of the net profits
owed.
(Id. at ¶ 10.)
In the Complaint, Plaintiff pleads seven
causes of action under Virginia1 law: (1) breach of partnership
agreement (id. at ¶¶ 7-16); (2) breach of fiduciary duties (id.
at ¶¶ 17-22); (3) accounting of partnership expenses and net
profits and/or judicial accounting (id. at ¶¶ 23-26); (4)
restitution as remedy for unjust enrichment (id. at ¶¶ 27-32);
(5) constructive trust (id. at ¶¶ 33-38); (6) declaratory
judgment on dissociation and dissolution of partnership (id. at
¶¶ 39-42); and (7) injunctive relief (id. at ¶¶ 43-45).
Plaintiff seeks approximately $600,000 in monetary damages, in
addition to other equitable relief.
(Id. at 11-12.)
Defendants filed the motion to dismiss on December 22,
2014 and the motion for sanctions on January 14, 2015.
(Defs.’
Mot. to Dismiss [Dkt. 5]; Defs.’ Mot. for Sanctions [Dkt. 8].)
Defendants’ noticed a hearing on the motion to dismiss for 10:00
a.m. on February 12, 2015.
[Dkt. 6.]
On February 11, 2015 at
11:04 p.m. EST, less than twelve hours before the hearing,
Plaintiff filed an opposition memorandum.
12].)
(Pl.’s Opp’n [Dkt.
The following morning, the Court held the hearing,
scheduled almost a month in advance, with all counsel present.
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Plaintiff invokes the jurisdiction of this Court pursuant to 28
U.S.C. § 1332(a) and alleges there is complete diversity between
the parties. (Compl. ¶¶ 1-6.)
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[Dkt. 13.]
To allow for full briefing on the merits of the
pending motions, the Court continued the hearing until March 5,
2015, and imposed monetary sanctions on Plaintiff for defense
counsel’s fees associated with the appearance at the motion
hearing.
(Order [Dkt. 14].)
With briefing now complete, the
motions are ripe for disposition.
II. Legal Standard
A. Rule 12(b)(6)
A court reviewing a complaint on a Rule 12(b)(6)
motion must accept well-pleaded allegations as true, and must
construe all allegations in favor of the plaintiff.
See Randall
v. United States, 30 F.3d 518, 522 (4th Cir. 1994).
“The
purpose of a Rule 12(b)(6) motion is to test the sufficiency of
a complaint; importantly, [it] does not resolve contests
surrounding the facts, the merits of a claim, or the
applicability of defenses.”
Butler v. United States, 702 F.3d
749, 752 (4th Cir. 2012) (citations and internal quotation marks
omitted).
However, the court need not accept as true legal
conclusions disguised as factual allegations.
Iqbal, 556 U.S. 662, 679-81 (2009).
Ashcroft v.
The plaintiff’s facts must
“be enough to raise a right to relief above the speculative
level.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Typically, the Court “is not to consider matters
outside the pleadings or resolve factual disputes when ruling on
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a motion to dismiss.”
450 (4th Cir. 2007).
Bosiger v. U.S. Airways, 510 F.3d 442,
However, under Rule 12(d), when ruling on
a Rule 12(b)(6) motion, it is within the Court’s discretion to
consider matters outside the pleadings, but if the Court does
so, “the motion must be treated as one for summary judgment
under Rule 56 . . . [and all] parties must be given a reasonable
opportunity to present all the material that is pertinent to the
motion.”
Finley Lines Joint Protective Bd. Unit 200 v. Norfolk
S. Corp., 109 F.3d 993, 997 (4th Cir. 1997).
In general,
district courts will make this conversion if the extra-pleading
material is comprehensive and facilitates disposition of the
action pursuant to Rule 56.
5C Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 1336 (3d ed. 1998).
Otherwise, when the extraneous material is inconclusive and not
dispositive, district courts typically reject the conversion and
resolve the motion pursuant to Rule 12(b)(6).
Id.
B. Rule 11
Rule 11 of the Federal Rules of Civil Procedure guards
against frivolous filings in the interest of judicial economy
and efficiency.
See, e.g., Pinpoint IT Servs., LLC v. Atlas IT
Export Corp., 802 F. Supp. 2d 691, 693 (E.D. Va. 2011) (citation
omitted).
By signing a pleading, an attorney makes three
promises to the Court: (1) he or she has read the pleading,
motion or other paper; (2) to the best of his or her knowledge,
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after a reasonable inquiry, the pleading is well-grounded in
fact and is warranted by existing law or has a good faith
argument for the extension, modification, or reversal of
existing law; and (3) the pleading is not intended for any
improper purposes, such as to harass, cause unnecessary delay,
or increase the cost of litigation.
Fed. R. Civ. P. 11.
“If a
pleading . . . is signed in violation of this rule, the court .
. . shall impose upon the person who signed it . . . an
appropriate sanction, which may include an order to pay to the
other party or parties the amount of reasonable expenses
incurred because of the filing of the pleading . . . including a
reasonable attorney’s fee.”
Id.
“In order to determine ‘good faith’ and ‘improper
motive’ under Rule 11, a court must judge the attorney’s conduct
under an objective standard of reasonableness rather than by
assessing subjective intent.”
Stevens v. Lawyers Mut. Liability
Ins. Co. of N. Carolina, 789 F.2d 1056, 1060 (4th Cir. 1986)
(citation omitted).
Stated differently, a legal position is
“unjustified when a reasonable attorney would recognize it as
frivolous.”
In re Sargent, 136 F.3d 39, 352 (4th Cir. 1998)
(quotations and citation omitted).
And such a position or
pleading violates Rule 11 if “it has absolutely no chance of
success under the existing precedent.”
Id. (citations omitted).
District courts have discretion to ensure the imposed sanction
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is tailored to compensate, punish, or deter the conduct at
issue.
See, e.g., Weisman v. Alleco, Inc., 925 F.2d 77 (4th
Cir. 1991).
Moreover, any sanction imposed pursuant to Rule 11
is typically entitled to deference by the appellate court.
Stevens, 789 F.2d at 1060 (citing Nelson v. Piedmont Aviation,
Inc., 750 F.2d 1234, 1238 (4th Cir. 1984)).
III. Analysis
A. Motion to Dismiss Pursuant to Rule 12(b)(6)
Defendants ask the Court to dismiss the Complaint and
argue, quite simply, that there was never a partnership with
Plaintiff that could give rise to any of the seven causes of
action stated in the Complaint.
(Defs.’ Mot. at 3-4.)
Defendants claim there was no partnership because the parties
never signed a written partnership agreement.
(Id. at 3.)
Defendants also ask that the Court dismiss the Complaint against
Defendant Peter Xie “in his personal capacity.”
(Id. at 5-6.)
Defendants argue that Mr. Xie “operated his international
exchange student business as a limited liability company” and
that therefore, he cannot be held liable in his personal
capacity, absent a “piercing of the corporate veil.”
5.)
(Id. at
In support of both arguments, Defendants have attached a
seven-page “Affidavit of Peter Xie” to their motion.
Mot. Ex. 1 [Dkt. 5-1] at 1-7.)
(Defs.’
In opposition, Plaintiff
attached a six-page affidavit from Ms. Mary Ma, who purportedly
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is the principal/member of PIESG China.
(Pl.’s Opp’n Ex. 1
[Dkt. 12-1] at 1-6.)
On the outset, the Court will not consider the
attached affidavits and declines the parties’ invitation to
convert this Rule 12(b)(6) motion to a motion for summary
judgment under Rule 56.
(See Defs.’ Mot. at 4.)
litigation is still in the early stages.
be filed.
This
An answer has yet to
Discovery has not yet occurred.
And the only
evidence now before the Court is what the Court construes as two
self-serving affidavits from adverse parties.
summary judgment is entirely inappropriate.
At this stage,
See, e.g., Sebrite
Agency, Inc. v. Platt, 884 F. Supp. 2d 912, 916 (D. Minn. 2012)
(declining to convert defendants’ motion to dismiss into one for
summary judgment because the “case is in its infancy, the
parties have engaged in no discovery, and many of the disputes
will clearly turn on the credibility of witnesses.”) (citing
Evans v. McDonnell Aircraft Corp., 395 F.2d 359, 361 (8th Cir.
1968); Fed. R. Civ. P. 12(d)).
Accordingly, the Court addresses
Defendants’ arguments under Rule 12(b)(6) and will not consider
the attached affidavit of named-Defendant Mr. Peter Xie, nor
will it consider the opposition affidavit of Ms. Mary Ma.
In short, the Court must deny the motion to dismiss at
this stage because when accepting Plaintiff’s allegations in the
Complaint as true, Plaintiff manages to state a claim for
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relief.
Defendants’ motion rests solely on the argument that a
partnership never existed between the parties, mainly because
“the parties never signed a written partnership agreement.”
(Defs.’ Mot. at 1-4.)
But under Virginia law, an express
agreement is not required to form a partnership.
Instead, “the
association of two or more persons to carry on as co-owners of a
business for profit forms a partnership, whether or not the
persons intend to form a partnership.”
Va. Code § 50-73.88(A).
Stated differently, two or more people can unintentionally form
a partnership, so long as they carry on as co-owners of a
business for profit.
Here, the Complaint alleges facts -- which
are true for purposes of this motion -- that a partnership did
exist between the parties.
Specifically:
PIESG China acting by its principal and
member Ms. Mary Ma, entered into certain
Partnership
Agreement
with
Defendant,
namely, Yantao Xie a.k.a. Peter Xie, carried
on as co-owners [sic] the business of U.S.China education exchange and international
student placement services for profit under
the
name
or
trade
of
“Pennsylvania
International Education Service.” VA Code §
50-73.88, et seq.
(Compl. ¶ 7.)
As legal support for their argument, Defendants cite
cases that evaluate the sufficiency of the evidence to determine
whether a partnership existed.
(See Defs.’ Mot. at 4 (citing
Cooper v. Spencer, 238 S.E.2d 805 (Va. 1977); Cullingsworth v.
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Pollard, 111 S.E.2d 810 (Va. 1960); In re Belle Isle Farm, 76
B.R. 85 (Bankr. E.D. Va. 1987)).
Indeed, during oral argument
on the motion, counsel repeatedly referenced “evidence” in the
record, but failed to address the allegations in the Complaint.
That is not the standard upon which the Court must decide
Defendants’ motion to dismiss under Rule 12(b)(6).
At this
stage, the Court must accept well-pleaded allegations as true,
and must construe all allegations in favor of the plaintiff.
See Randall v. United States, 30 F.3d 518, 522 (4th Cir. 1994).
Under this standard, the Court must find that Plaintiff’s
Complaint sufficiently pleads facts that a partnership existed.
Similarly, the Complaint sufficiently alleges that
Plaintiff entered into this Partnership with named-Defendant
Peter Xie.
(See Compl. ¶ 7.)
Thus, there is also no basis at
this stage in the litigation to “dismiss the Complaint against
him in his personal capacity” as Defendants request.
This
litigation appears to be the classic “he said-she said” dispute,
where one party claims a partnership existed, while the other
party claims it did not.
This dispute centers on the
credibility of witnesses and their testimony, which at this
early stage in the proceeding, is not yet properly before the
Court.
Accordingly, the Complaint survives Defendants’ motion.
In denying Defendants’ motion to dismiss under Rule
12(b)(6), the Court is not addressing the merits of Plaintiff’s
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claims; indeed, it cannot.
Butler, 702 F.3d at 752.
Instead,
Plaintiff’s Complaint contains enough factual matter, when taken
as true, to suggest that a partnership existed, which means
Plaintiff is entitled to discovery that will either support or
disprove these allegations.
Twombly, 550 U.S. at 556-57.
B. Motion for Sanctions Pursuant to Rule 11
Defendants ask the Court to impose sanctions in the
form of an award of attorneys’ fees against Plaintiff and
Plaintiff’s counsel pursuant to Rule 11 of the Federal Rules of
Civil Procedure because Plaintiff and Plaintiff’s counsel “have
been on a campaign to harass Peter Xie, to harm his business,
and to defame his reputation.”
2.)
(Mot. for Sanctions [Dkt. 8] at
Defendants claim Plaintiff, through its principal Ms. Mary
Ma, has sent false and fraudulent e-mails to school officials to
injure Mr. Xie’s reputation, and that Plaintiff’s counsel should
also be liable for sanctions “because they improperly assisted
Ms. Ma when there is no evidentiary basis that a partnership
agreement ever existed between Ms. Ma and Mr. Xie.”
3.)
Plaintiff opposes Defendants’ motion.
(Id. at 2-
(Pl.’s Sanctions
Opp’n [Dkt. 12].)
Again, at this early stage in the proceeding, the
Court is without sufficient information to make a determination
as to whether counsel properly filed this lawsuit against Mr.
Xie, with an independent basis in law and fact, and not for any
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improper purpose.
By signing the Complaint, counsel certifies
the propriety of the claims therein under Rule 11.
At the Rule
12(b)(6) stage, as discussed above, the Court accepts
Plaintiff’s allegations as true and finds them sufficient to
state a claim for relief.
Stated differently, under Rule 11,
there is nothing before the Court to suggest the pleading “has
absolutely no chance of success under the existing precedent.”
In re Sargent, 136 F.3d 39, 352 (4th Cir. 1998) (quotations and
citation omitted).
Accordingly, the Court will deny the motion
for sanctions at this time without prejudice to Defendants’
right to re-file such a motion when this litigation concludes,
but only if necessary and proper.
IV. Conclusion
For these reasons, the Court will deny Defendants’
Motion to Dismiss and Motion for Sanctions.
An appropriate Order shall issue.
March 11, 2015
Alexandria, Virginia
/s/
James C. Cacheris
UNITED STATES DISTRICT COURT JUDGE
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