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Fasano v. Juoqing Li

United States District Court, S.D. New York

December 29, 2017




         In this putative class action, the co-Lead Plaintiffs - Joe Fasano, Altimeo Optimum Fund, and Altimeo Asset Management - challenge the fairness of, and seek damages related to, a “going private” merger approved by the shareholders of E-Commerce China Dangdang Inc. on September 12, 2016. Before the Court is a motion to dismiss for forum non conveniens grounds filed by those Defendants that have been served (collectively, “Defendants”). In brief, Defendants argue that Plaintiffs' choice of forum should be accorded little deference; that the Cayman Islands presents an adequate alternative forum; and that the balance of public and private interests favors dismissal. Plaintiffs oppose the motion and urge the Court instead to grant substituted service on the individual Defendants who have not yet been served. For the reasons set forth below, the Court grants Defendants' motion to dismiss, and denies as moot Plaintiffs' request for substituted service.


         A. Factual Background[2]

         1. The Parties

         This case involves five corporate and eight individual defendants. The principal corporate defendant is E-Commerce China Dangdang Inc. (“Dangdang”), an online retailer founded in 2000 that sells merchandise to customers in China. (Compl. ¶¶ 27-28). The company is incorporated in the Cayman Islands, though its principal offices and substantially all of its employees, operations, and company files are located in China. (Dangdang Decl. ¶¶ 3-5). In 2014, Dangdang had 24.3 million active customers. (Compl. ¶ 27). On December 8, 2010, Dangdang completed an initial public offering (“IPO”) of American Depositary Shares (“ADS”) on the New York Stock Exchange (“NYSE”). (Id. at ¶ 29). Through the IPO, Dangdang sold 17 million ADS at $16.00 per share, raising $272 million in capital. (Id.). Since then, Dangdang has been listed exclusively on the NYSE. (Pl. Opp. 4).

         Defendant Dangdang Holding Company Limited (“DHC”) is a company incorporated under the laws of the Cayman Islands with its principal place of business in Beijing, China. (Compl. ¶ 12). Defendants Kewen Holding Co. Limited (“Kewen”), Science & Culture International Limited (“SCI”), and First Profit Management Limited (“First Profit”) are companies that serve as investment holding vehicles and that are incorporated under the laws of the British Virgin Islands. (Id. at ¶¶ 13-16). Kewen and SCI are controlled by Mr. Guoqing Li; First Profit, by Mr. Danqian Yao. (Id.).

         The individual defendants include Mr. Guoqing Li (“Li”) and Ms. Peggy Yu Yu (“Yu”), who co-founded Dangdang and have retained control over the company. (Compl. ¶ 28). Mr. Li is Dangdang's Chief Executive Officer and Ms. Yu is its Chairwoman. (Id. at ¶¶ 7, 10). As of August 1, 2016, Li and Yu owned 31.2% of the company's common stock and held 75% of its voting power. (Id.). Other individual defendants include: Mr. Danqian Yao (“Yao”), a Dangdang Senior Vice President; Mr. Lijun Chen (“Chen”) and Mr. Min Kan. (“Kan”), two Dangdang Vice Presidents; and Ms. Ruby Rong Lu (“Lu”), Mr. Ke Zhang (“Zhang”), and Mr. Xiaolong Li (“Xiaolong”), former Dangdang Directors who were members of the committee that approved the going private merger at issue here (“Special Committee”). (Id. at ¶¶ 15-23).

         Plaintiff Joe Fasano (“Fasano”), a New York resident, owned approximately 3, 000 ADS shares, equivalent to approximately 15, 000 common shares of Dangdang.[3] (Compl. ¶ 4; Def. Br. 4). Plaintiff Altimeo Optimum Fund (“AOF”) is a French investment fund that held over 440, 000 ADS shares, or approximately 2.2 million common shares, prior to the merger. (Compl. ¶ 5). Plaintiff Altimeo Asset Management (“AAM”), a French company, is AOF's asset management company and authorized agent. (Id. at ¶¶ 5-6).[4]

         2. The Merger

         On July 9, 2015, Defendants Li, Yu, Yao, Chen, Kan, DHC, Kewen, SCI, and First Profit - a group holding 83.6% of Dangdang's voting power (“Controlling Group”) - submitted a bid to “buy out” Dangdang minority shareholders, including Plaintiffs Fasano, AOF, and AAM. (Compl. at ¶¶ 19, 37, 41). They bid $7.81 per ADS share. (Id. at ¶ 37). Dangdang created a Special Committee, comprised of individual Defendants Lu, Zhang, and Xiaolong, to evaluate the offer. (Id. at ¶ 42). The Special Committee retained legal counsel, Maples and Calder (“Maples”), which specializes in the laws of the Cayman Islands, Ireland, and the British Virgin Islands. (Id. at ¶ 65). Maples also served as legal counsel to Dangdang, including in connection with Dangdang's registration statement for its NYSE IPO. (Id.).

         On March 9, 2016, a third-party private equity firm, iMeigu Capital Management, submitted an all-cash offer of $8.80 per ADS share. (Compl. ¶ 43). On May 28, 2016, the Special Committee and Dangdang's Board of Directors accepted the Controlling Group's bid for $7.81 per share and approved the proposed merger. (Def. Br. 4). Thereafter, Dangdang filed a Schedule 13E-3 Transaction Statement with the Securities and Exchange Commission (“SEC”). (Id.).

         In their submissions to the SEC, the Controlling Group, Special Committee, and Dangdang stated that Maples provided the Special Committee with “independent control of the sales process.” (Compl. ¶ 67). They did not indicate that Maples was then, or that it had previously been, Dangdang's counsel. (Id.). On September 12, 2016, Dangdang held a shareholder meeting in China, where 97.7% of Dangdang's shares voted to approve the merger. (Dangdang Decl. ¶ 16). On September 20, 2016, the merger closed and became effective when the plan of merger and agreement were filed with the Cayman Islands Registrar of Companies. (Id. at ¶ 17).

         Nine shareholders - none of whom is a Plaintiff in the instant action - objected to the merger. (Dangdang Decl. ¶ 18). On November 29, 2016, Dangdang filed a petition in the Grand Court of the Cayman Islands asking that court to determine the fair value of the shares held by the objecting shareholders. (Def. Br. 4). That petition is pending before the Grand Court. (Id.).

         B. Procedural Background

         On November 10, 2016, Fasano, AOF, and AAM filed a complaint individually and on behalf of other similarly situated minority shareholders who were cashed out in the merger. (Compl.). They asserted that the consideration paid by the Controlling Group for the Dangdang ADS shares was below-market and “grossly unfair” (id. at ¶ 1); that the Special Committee failed to protect the public shareholders' interests when they acceded to the Controlling Group's demands (id. at ¶ 2); and that the public shareholders were misled when they were told that the Special Committee had obtained independent legal counsel, when in fact Maples was conflicted because it also served as Dangdang's counsel (id.). Plaintiffs sought damages for “breaches of fiduciary duties, violations of U.S. securities law and New York common law, and a quasi-appraisal due to misrepresentations and omissions in the Forms 13E-3 for the Merger.” (Id. at ¶ 1).

         Defendants Dangdang, DHC, Kewen, SCI, and First Profit were served with copies of the summons and complaint. (Lieberman Decl. ¶ 15). At the time the instant motion was filed, none of the individual Defendants had been personally served. Indeed, at the time their opposition brief was filed, Plaintiffs' counsel recited that it “ha[d] spent over five months trying to serve these … individual defendants, but they have refused to accept service.” (Pl. Opp. 25). In an effort to effectuate service of process consistent with the Hague Convention, Plaintiff's counsel had the summons and complaint translated into Chinese and delivered to the Chinese Ministry of Justice's International Legal Cooperation Center for processing. (Lieberman Decl. ¶ 20; see also Id. at ¶ 21-24 (discussing follow-up communications)). On December 20, 2017, Plaintiffs' counsel informed the Court that service was effectuated on four individual Defendants - Yu, Yao, Chen, and Kan.- “in accordance with the Hague Service Convention … by the Chinese Ministry of Justice delivering the documents to Dangdang's legal counsel, You Qianqian.” (Dkt. #55).

         On January 30, 2017, Plaintiffs Fasano, AAM, and AOF filed a motion to be appointed Co-Lead Plaintiffs, pursuant to Securities Exchange Act of 1934 (“Exchange Act”) § 21D(a)(3)(B), as amended by the Private Securities Litigation Reform Act of 1995 (“PSLRA”) and Rule 42 of the Federal Rules of Civil Procedure. (Dkt. #22). Plaintiffs also moved to approve their selection of Sadis & Goldberg LLP as Lead Counsel. (Id.). In their motion, Plaintiffs argued that Fasano, AOF, and AAM have the largest financial interests in the outcome of the case, their claims are typical of the claims of the class, and they would fairly and adequately represent the interests of the class. (Id.). On March 8, 2017, the Court issued an Order appointing Fasano, AOF, and AAM as Co-Lead Plaintiffs in this action and Sadis & Goldberg LLP as Lead Counsel. (Dkt. #32).

         On March 15, 2017, Defendants filed the motion to dismiss for forum non conveniens that is presently before the Court. (Dkt. #38-45). On April 28, 2017, Plaintiffs filed their opposition materials. (Dkt. #48-49). On May 17, 2017, Defendants filed their reply papers. (Dkt. #52-53).


         A. Motions to Dismiss Based on Forum Non Conveniens

         The decision to grant a motion to dismiss on grounds of forum non conveniens “lies wholly within the broad discretion of the district court.” Iragorri v. United Technologies Corp., 274 F.3d 65, 72 (2d Cir. 2001) (en banc) (citation omitted). “The doctrine of forum non conveniens is a discretionary device permitting a court in rare instances to dismiss a claim even if the court is a permissible venue with proper jurisdiction over the claim.” Carey v. Bayerische Hypo-Und Vereinsbank AG, 370 F.3d 234, 237 (2d Cir. 2004) (internal quotation marks and citation omitted). The party seeking dismissal “bears the burden of proof on all elements of the motion.” Bank of Credit and Commerce Int'l (Overseas) Ltd. v. State Bank of Pakistan, 273 F.3d 241, 246 (2d Cir. 2001).

         The Second Circuit has established a three-part test to assess such a motion. In the first step, the district court must determine the “degree of deference properly accorded the plaintiff's choice of forum.” Norex Petroleum Ltd. v. Access Indus., Inc., 416 F.3d 146, 153 (2d Cir. 2005). Next, the district court “considers whether the alternative forum proposed by the defendants is adequate to adjudicate the parties' dispute.” Id. Finally, the district court must “balance[] the private and public interests implicated in the choice of forum.” Id.

         1. Step One: Deference to Plaintiffs' Choice of Forum

         Though there generally is a “strong presumption in favor of the plaintiff's choice of forum, ” Piper Aircraft Co. v. Reyno, 454 U.S. 235, 255 (1981), the degree of deference accorded “varies with the circumstances, ” Iragorri, 274 F.3d at 71. The Second Circuit has identified at least three instances where the plaintiff's choice of forum merits diminished deference.

         First, where the plaintiff's choice of forum is “motivated by tactical advantage” rather than “by legitimate reasons, ” courts must give less deference. Iragorri, 274 F.3d at 73. Accordingly, “the greater the plaintiff's or the lawsuit's bona fide connection to the United States and to the forum of choice and the more it appears that considerations of convenience favor the conduct of the lawsuit in the United States, the more difficult it will be for the defendant to gain dismissal for forum non conveniens.” Id. at 72 (footnote omitted).

         Second, where the plaintiff is a foreign person, her choice of forum is accorded less weight. See, e.g., Iragorri, 274 F.3d at 71 (finding that a plaintiff's choice of forum is entitled to greater deference when the plaintiff has sued in her home forum than when a foreign plaintiff chooses the United States as a forum). This is so because the “central purpose of any forum non conveniens inquiry is to ensure that the trial is convenient.” Piper Aircraft, 454 U.S. at 256. “[W]hen a foreign plaintiff chooses a U.S. forum, it is much less reasonable to presume that the choice was made for convenience.” Iragorri, 274 F.3d at 71 (citation omitted).

         Third, where a plaintiff sues in a representative capacity, her choice of forum merits less deference. DiRienzo v. Philip Services Corp., 294 F.3d 21, 28 (2d Cir. 2002) (noting that representative plaintiffs' ...

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