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Shao v. Beta Pharma, Inc.

United States District Court, D. Connecticut

September 23, 2019




         Plaintiffs' Third Amended Complaint (“TAC”), filed by leave of the Court, joined Beta Pharma (USA), Inc. (“BP USA”) as a defendant on September 7, 2018. Doc. 222 (“TAC”). Before this Court now is BP USA's Motion to Dismiss the TAC against it for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2). Doc. 232.

         I. BACKGROUND

         This matter is a contract dispute, heard by this Court under the federal diversity jurisdiction of 28 U.S.C. § 1332. The recitation of facts in this Part is derived principally from allegations in the TAC.

         The five individual Plaintiffs are investors in a non-party “privately owned organization” (Plaintiffs' phrase) established under the laws of the People's Republic of China called Zhejiang Beta Pharma Co., Ltd. (“Zhejiang” or “ZBP”). TAC at 2-3 ¶¶ 6, 9. ZBP is affiliated with corporate Defendant, Beta Pharma, Inc. (“Beta Pharma” or “BP, Inc.”). Id. at 2 ¶ 5. The individual Defendant, Don Zhang, is alleged to be the majority stockholder and president of Beta Pharma, and the vice-president and a director of ZBP. Id. at 2 ¶¶ 3, 8. Plaintiffs assert claims for breach of contract and tort against Beta Pharma and Zhang (collectively, the “Original Defendants”).

         The Original Defendants formed BP USA in December 2014 when they were involved in multiple lawsuits in Connecticut. Id. at 28 ¶¶ 39-40. They allegedly caused Beta Pharma to fraudulently transfer substantially all of its disclosed American assets to BP USA and to offshore accounts in turn, rendering the Original Defendants insolvent and making it more difficult for plaintiffs in these Connecticut lawsuits to collect judgment. Id. at 30-32 ¶¶ 45, 54-55; id. at 34 ¶ 65. The transfer of assets “was made with actual intent to hinder, delay or defraud plaintiffs as creditors of [the Original Defendants].” Id. at 30 ¶ 46.

         BP USA is incorporated in Delaware, and its principal place of business is also Delaware. Id. at 28 ¶ 40. BP USA is not registered to do business in Connecticut. Id. at 29 ¶ 41. Further, the TAC does not allege that the fraudulent transfer was to or from Connecticut. Doc. 232-2 ¶ 13. Nonetheless, Plaintiffs allege that BP USA has committed tortious acts in Connecticut, individually or through an agent, by receiving fraudulently transferred assets and conspiring with the Original Defendants to deprive Plaintiffs and others of their rightful financial interests in Beta Pharma and ZBP. TAC at 29 ¶ 43.

         Defendant BP USA moves to dismiss Plaintiffs' complaint for lack of personal jurisdiction. It argues that it is not subject to Connecticut's long arm statute and that the Fourteenth Amendment's Due Process Clause does not permit jurisdiction here. Doc. 232.


         A motion to dismiss must be granted if a court lacks personal jurisdiction over a defendant. Fed.R.Civ.P. 12(b)(2). On a motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2), “the plaintiff bears the burden of showing that the court has jurisdiction over the defendant.” Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996), cert. denied, 519 U.S. 107 (1996) (citation omitted). Prior to discovery, a plaintiff may defeat the motion “based on legally sufficient allegations of jurisdiction.” Id. A prima facie case of personal jurisdiction “requires nonconclusory fact-specific allegations or evidence showing that activity that constitutes the basis of jurisdiction has taken place.” Chirag v. MT Marida Marguerite Schiffahrts, 604 Fed.Appx. 16, 19 (2d Cir. 2015) (citing Jazini v. Nissan Motor Co., 148 F.3d 181, 186 (2d Cir. 1998)).

         In general, the district court may exercise discretion in determining the best procedural approach to decide a 12(b)(2) motion for lack of personal jurisdiction. Specifically, “[i]n deciding a pretrial motion to dismiss for lack of personal jurisdiction a district court has considerable procedural leeway” and “may determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the motion; or it may conduct an evidentiary hearing on the merits of the motion.” Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84 (2d Cir. 2013) (per curiam) (citation omitted); see also, e.g., Blau v. Allianz Life Ins. Co. of N. Am., 124 F.Supp.3d 161, 170 (E.D.N.Y. 2015).

         Because a motion to dismiss for lack of personal jurisdiction is “inherently a matter requiring the resolution of factual issues outside of the pleadings . . . all pertinent documentation submitted by the parties may be considered in deciding the motion.” Energy Brands, Inc. v. Spiritual Brands, Inc., 571 F.Supp.2d 458, 463 (S.D.N.Y. 2008) (quoting Pilates, Inc. v. Pilates Inst., Inc., 891 F.Supp. 175, 178 n.2 (S.D.N.Y. 1995)). When considering the motion, the court must construe the pleadings liberally for the benefit of the plaintiffs. See Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985).

         When no evidentiary hearing is held, but extensive discovery has been conducted, “the plaintiff's prima facie showing, necessary to defeat a jurisdiction testing motion, must include an averment of facts that, if credited by [the ultimate trier of fact], would suffice to establish jurisdiction over the defendant.” Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990), cert. denied, 498 U.S. 854 (1990). As described above, absent an evidentiary hearing, when the motion is “decided on the basis of affidavits and other written materials, the plaintiff need only make a prima facie showing.” MacDermid, Inc. v. Deiter, 702 F.3d 725, 727 (2d Cir. 2012) (citation omitted). In that instance, “the allegations in the complaint must be taken as true to the extent they are uncontroverted by the defendant's affidavits.”[1] Id.

         In a diversity or federal question case, personal jurisdiction is determined by the law of the state in which the district court sits. See Bensusan Restaurant Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997). If the exercise of jurisdiction is appropriate under that state's statute, the court then must decide whether such exercise comports with the requisites of constitutional Fourteenth Amendment due process. See Robertson-Ceco Corp., 84 F.3d at 567; see also World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980); Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).


         A. Personal Jurisdiction Requirements

         Plaintiffs, as the proponents of jurisdiction, have the burden of establishing that this Court has personal jurisdiction over BP USA. See Savin v. Ranier, 898 F.2d 304, 306 (2d Cir. 1990). No. evidentiary hearing has been conducted to date on this issue. In consequence, at this initial stage, Plaintiffs need only allege facts constituting a prima facie showing of personal jurisdiction. See Deiter, 702 F.3d at 727; PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997). At this stage, further, the Court construes pleadings and affidavits in Plaintiffs' favor. See id.

         “A defendant's conduct is sufficient for the exercise of personal jurisdiction if: (1) the conduct satisfies the requirements of the relevant state's long-arm statute, and (2) the conduct satisfies the ‘minimum contacts' requirement of the Due Process Clause of the Fourteenth Amendment.” Ferra v. Munro, 585 B.R. 269, 282 (D. Conn. 2018) (citations omitted).

         1. The Connecticut Long Arm Statute

         Plaintiffs' first theory is that BP USA's receipt of transferred assets from Beta Pharma constituted tortious conduct in Connecticut, thereby subjecting BP USA to personal jurisdiction in the state by virtue of Conn. Gen. Stat. Ann. § 33-929-i.e., Connecticut's long arm statute for foreign corporations. Doc. 233, at 7. Section 33-929 provides in pertinent part:

Every foreign corporation shall be subject to suit in this state, by a resident of this state or by a person having a usual place of business in this state, whether or not such foreign corporation is transacting or has transacted business in this state and whether or not it is engaged exclusively in interstate or foreign commerce, on any cause of action arising . . . [o]ut of tortious conduct in this state, whether arising out of repeated activity or single acts, and whether arising out of misfeasance or nonfeasance.[2]

Conn. Gen. Stat. Ann. § 33-929(f)(4).

         BP USA, on the other hand, argues that the alleged transfers between Beta Pharma and BP USA “have no connection to Connecticut.” Doc. 232-1, at 5. In support of this contention, BP USA states that “the assets could not have been transferred from Connecticut because, years before the alleged transfers occurred, BP moved its operations and assets to New Jersey” and Beta Pharma ceased banking in Connecticut. Id. BP USA further states that “the alleged participants in the transfers-BP, Zhang, and BP USA-all resided outside of Connecticut at the time of the purported transfers, and have ever since.” Id. Lastly, BP USA argues that “BP USA could not possibly have committed a tort in Connecticut because it never conducted business” in the state. Id. at 6.

         The Second Circuit has previously addressed the meaning of the “tortious conduct” provision of Connecticut's long arm statute. Summarizing Connecticut case law, the Second Circuit noted that “the defendant's literal presence in Connecticut when engaging in the actionable conduct” is not required for finding personal jurisdiction, but “a defendant's tortious conduct [must] be directly and expressly targeted at the forum state.” Gen. Star Indemn. Co. v. Anheuser-Busch Companies, Inc., 199 F.3d 1322 (2d Cir. 1999) (summary order). In Gen. Star Indemn. Co., the plaintiff argued that “the conduct in question was targeted at the state, because it was targeted at a Connecticut company that necessarily felt the sting of the defendants' actions in its home state.” Id. The Second Circuit rejected that argument, though, concluding that “it would obliterate the longstanding distinction between long-arm statutes that reach tortious conduct in a given state and those that reach conduct which causes tortious injury in the state by action outside the state.” Id.; Am. Wholesalers Underwriting, Ltd. v. Am. Wholesale Ins. Grp., Inc., 312 F.Supp.2d 247, 253 (D. Conn. 2004) (in analyzing Conn. Gen. Stat. Ann. § 33-929(f)(4), rejecting the argument that “because the injury is felt in Connecticut, the tort should be deemed to have been committed in Connecticut” because such interpretation “ignore[d] the language of” the statute); Bross Utilities Serv. Corp. v. Aboubshait, 489 F.Supp. 1366, 1373, n.35 (D. Conn.), aff'd, 646 F.2d 559 (2d Cir. 1980) (noting that Connecticut's long-arm statute subjects non-resident individuals to jurisdiction in the state for “torts committed outside Connecticut which cause injury within the state” but “contains no analogue governing corporate defendants” and relying upon this distinction to reject a more expansive reading of the “tortious conduct in this state” provision). In sum, “[i]t is not enough that the consequences of a defendant's acts impact a plaintiff in Connecticut; the tortious conduct must be directly and expressly targeted at the forum state to support jurisdiction over a foreign corporation.” Hamann v. Carpenter, No. 16 Civ. 501 (VAB), 2017 WL 421646, at *8 (D. Conn. Jan. 31, 2017) (citation omitted).

         Plaintiffs have not sustained their burden of persuasion that BP USA is amenable to personal jurisdiction in this Court because they have not alleged that BP USA has committed tortious acts in Connecticut, which is a requirement of Conn. Gen. Stat. Ann. § 33-929(f)(4). Plaintiffs' only allegations of BP USA's tortious conduct is that BP USA “has been the recipient of assets fraudulently transferred to it”; that the transfer was part of a larger “effort to hinder the collection efforts” of Plaintiffs who have pending claims in state and federal court against the defendants; and that BP USA “participated with defendants Zhang and Beta Pharma in a scheme to fraudulently deprive plaintiffs . . . of the rightful value of their interests in Beta Pharma and ZBP.” Doc. 233, at 8. None of Plaintiffs' factual allegations indicate that BP USA engaged in tortious conduct in Connecticut. As Plaintiffs point out, BP USA is a Delaware corporation that is not registered to do business in Connecticut. Id. at 7. Its principal place of business is in Delaware. Id. And there is no indication that the transfers originated, or concluded, in Connecticut, or that Connecticut banks or bank accounts were used in connection with such transfers. Id. at 7-8.

         A recent Connecticut case, Dur-A-Flex, Inc. v. Dy, discussed the types of activities that could indicate that a foreign corporation had engaged in “tortious conduct” directed toward Connecticut. 04HHD-CV-14-6049281S, 2016 WL 5415399 (Conn. Super. Ct. Aug. 24, 2016) (unpublished). In ruling that a foreign company was subject to personal jurisdiction pursuant to Connecticut's long arm statute, the court underscored that a company official had visited Connecticut, that there was an “extended series of electronic mail and telephonic communications directed to and received from Connecticut by many different . . . employees [of the defendant] over many months, ” that “money [was] sent to Connecticut for services presumably performed within Connecticut, ” and that “at least one parcel mailed to Connecticut from [the defendant's] offices [in another state].” Id. at *5.

         Similarly, BP USA cites to a number of cases that address examples of “tortious conduct” that is directed toward Connecticut. In Foisie v. Foisie, for example, the plaintiff claimed that the defendant committed tortious acts within the state of Connecticut-in particular, “fraud, negligent misrepresentation, breach of contract due to tortious acts, common-law fraudulent transfer, and breach of fiduciary duty”-by fraudulently concealing his assets during the parties' divorce proceedings. No. KNLCV176028794, 2017 WL 3011555, at *3 (Conn. Super. Ct. June 12, 2017). Although the opinion does not provide the factual background in great detail, it appears that the plaintiff alleged that the defendant committed tortious acts during their mediation process (presumably by misrepresenting his financial assets), and “while filing his financial affidavit and motion for judgment upon the settlement agreement.” Id. What appears in the case to be clear, though, is that the entirety of the defendant's tortious conduct occurred in Connecticut. See Id. According to the court, therefore, the defendant's conduct was sufficient to satisfy the state's long arm statute.[3]See id.; cf. Welsh v. Martinez, No. X03HHDCV166072658S, 2017 WL 4106323, at *4 (Conn. Super. Ct. Aug. 7, 2017) ...

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