United States District Court, S.D. Florida, Miami Division
ORDER DENYING XUELIAN BIAN AND WEI GUAN'S MOTION
TO DISMISS THE FIRST AMENDED COMPLAINT
FEDERICO A. MORENO, UNITED STATES DISTRICT JUDGE.
I.
Introduction
This is
a securities class action alleging violations of state and
federal law in connection with Linkwell Corporation's
2014 go-private merger ("Freeze-Out Merger").
Frederick Siegmund-the Class Representative-argues that six
Defendants engaged in a deceptive scheme designed to help two
Linkwell Directors avoid liability for prior self-dealing and
fraudulently deprive Linkwell shareholders of their stock for
less than fair value. Siegmund's First Amended Complaint
includes the following four counts: (I) violation of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5;
(II) breach of fiduciary duty; (III) aiding and abetting
breach of fiduciary duty; and (IV) civil conspiracy.
Defendants
Xuelian Bian and Wei Guan-named in Counts I, II, and IV-moved
to dismiss Siegmund's claims. First, Xuelian and Wei
contend that the Court lacks personal jurisdiction over them
on Siegmund's securities fraud claim (Count I) and,
regardless, Siegmund fails to state a claim under Rule 10b-5.
Second, they challenge the Court's personal jurisdiction
over them with respect to Siegmund's claims for breach of
fiduciary duty (Count II) and civil conspiracy (Count IV).
Third, Xuelian and Wei argue that Siegmund fails to state a
claim for relief in Counts II and IV.
Because
the Court has personal jurisdiction over Xuelian and Wei on
all three counts, the motion to dismiss for lack of personal
jurisdiction is DENIED. With respect to Count I, Siegmund has
pled with particularity sufficient facts to state a claim
under Section 10(b) of the Exchange Act. Accordingly, Xuelian
and Wei's motion to dismiss Count I is DENIED. As for
Counts II and IV, the Court finds that Siegmund stated valid
claims against Xuelian and Wei for breach of fiduciary duty
and civil conspiracy. Therefore, Xuelian and Wei's
motions to dismiss Counts II and IV for failure to state
claims are DENIED.
II.
Background
A.
Plaintiff
1.
Frederick Siegmund (Class Representative)
Frederick
Siegmund is the named plaintiff bringing this suit
individually and on behalf of all similarly situated
"street-name" shareholders of Linkwell Corporation.
He is a citizen of the State of New York. According to the
Complaint, Siegmund owned Linkwell shares throughout the
relevant time period. Those shares were cancelled from his
brokerage account on November 6, 2014 following the
Freeze-Out Merger. Siegmund claims that neither he nor his
broker received any information concerning the Freeze-Out
Merger. He was not provided with the merger agreement, proxy
statement, or notice of the shareholders' meeting to vote
on the transaction. Finally, he alleges that he did not
receive notice of his statutory appraisal rights or any other
rights in connection with the Freeze-Out Merger.
B.
Defendants
1.
Sidley Austin LLP
Sidley
Austin is an international law firm operating as a limited
liability partnership. Sidley maintains its headquarters in
Chicago, IL and has offices in 20 cities worldwide.
2.
Xuelian Bian
Xuelian
Bian is a Chinese Citizen and former controlling
shareholder[1] of Linkwell. He became a controlling
shareholder in May 2005 and remained a controlling
shareholder of Linkwell at all relevant times. Siegmund
alleges that as an Officer and Director of Linkwell, Xuelian
engaged in and authorized the misconduct alleged in the
Amended Complaint. Siegmund also asserts that Xuelian had the
power to control the contents of Linkwell's public
statements to the financial marketplace as well as access to
adverse non-public information about the company. Seigmund
contends that Xuelian therefore had an obligation to promptly
and accurately disclose such adverse facts to the
company's shareholders and the financial markets.
Xuelian
also maintains the following positions: (i) Chief Executive
Officer and Director of Linkwell Tech since its inception in
2004; (ii) General Manager of Likang Disinfectant since 1993;
(iii) Executive Director and controlling shareholder of
Zhongyou Pharmaceutical; (iv) Co-Owner of Linkwell
International (with Wei); and (v) Owner of 30% of the equity
of Zhongyou (Shanghai) Technology Development Company
Limited.
3.
Wei Guan
Wei
Guan is a Chinese Citizen and former controlling
shareholder[2] of Linkwell. He became a controlling
shareholder in May 2005 and remained a controlling
shareholder of Linkwell at all relevant times. Siegmund
alleges that as an Officer and Director of Linkwell, Wei
engaged in and authorized the misconduct alleged in the
Amended Complaint. Siegmund also asserts that Wei had the
power to control the contents of Linkwell's public
statements to the financial marketplace as well as access to
adverse non-public information about the company. Seigmund
contends that Wei therefore had an obligation to promptly and
accurately disclose such adverse facts to the company's
shareholders and the financial markets.
Wei
also maintains the following positions: (i) Vice President of
Linkwell Tech since its inception in June 2004; (ii) Vice
General Manager of Likang Disinfectant since 2002; (iii)
Co-Owner of Linkwell International (with Xuelian); (iv) Owner
of 35% of the equity of Zhongyou Technology (he also serves
as a supervisor).
4.
Shanghai Yinling Asset Management Company,
Limited
Shanghai
Yinling is a Chinese limited liability company formed on
April 18, 2014. Yinling operates primarily in Shanghai,
China. Yinling is the sole shareholder of Leading First and
is a minority shareholder of Zhongyou Pharmaceutical.
5.
Leading First Capital Limited
Leading
First is a British Virgin Islands Company with a business
address in Shanghai, China. Siegmund alleges that Sidley
formed Leading First "on or about June 25, 2014 for the
purpose of entering into and consummating transactions
contemplated by the merger agreement."
6.
Leading World Corporation
Leading
World is a Florida corporation with a business address in
Shanghai, China. It is a wholly owned subsidiary of Leading
First. Siegmund alleges that "Sidley formed Leading
World on or about August 5, 2014 for the purpose of entering
into and consummating transactions contemplated by the merger
agreement."
C.
Relevant Non-Parties
1.
Linkwell Corporation
Linkwell
is a Florida corporation with its principal place of business
in Shanghai, China. During the relevant period, Linkwell
operated as a public holding company for a number of
affiliated entities, including the following direct operating
subsidiaries: (i) Linkwell Tech; (ii) Likang Biological; and
most notably (iii) Likang Disinfectant. Through these
entities, Linkwell developed, manufactured, sold, and
distributed disinfectant health care products in China.
Siegmund alleges that Linkwell and Likang Disinfectant share
the same registered business address and office space. He
also contends that Likang Disinfectant accounted for greater
than 99% of Linkwell's total net revenues in 2011.
D.
Statement of Facts
This
lawsuit stems from a 2014 merger transaction
("Freeze-Out Merger") that converted Linkwell
Corporation from a publicly traded company into a private
entity. According to Siegmund, the Freeze-Out Merger was
"undertaken on behalf of and for the benefit of
[Defendants] Xuelian and Wei to: (a) extinguish the valuable
claims asserted against them in a previously filed derivative
action (Siegmund v. Bian, et al., No 12-cv-62539
(S.D. Fla.)); (b) and directly acquire for Xuelian, Wei, and
their affiliates total control of the Company's
disinfectant business in China."
Siegmund
previously filed a derivative action ("Derivative
Action") on behalf of Linkwell alleging that Xuelian and
Wei engaged in self-dealing during a 2012 "sham"
reverse merger transaction ("2012 Reverse Merger")
involving Linkwell, Likang Disinfectant, and several
third-party entities. The 2012 Reverse Merger allegedly
involved two components. First, Linkwell issued 94% of its
equity to two companies-Metamining Incorporated and China
Direct Investments Incorporated-in exchange for 100%
ownership of a company called Metamining Nevada. Siegmund
contends that Metamining Nevada had no assets, operations, or
employees. Second, Linkwell secretly spun-off Likang
Disinfectant and transferred ownership to Xuelian and Wei for
no consideration. Siegmund contends that the purpose of the
2012 Reverse Merger "was to enable Xuelian and Wei to
transfer control of Linkwell to certain related third
parties, while stripping the assets and operations of the
subsidiary disinfectant business in China for themselves and
for no consideration to [Linkwell]."
Xuelian
and Wei met with Sidley on March 7, 2014 and March 28, 2014
to discuss a possible take-private transaction and ultimately
hired Sidley on April 4, 2014 to begin effectuating the
Freeze-Out Merger. The Freeze-Out Merger was designed for the
express purpose of triggering a forced sale of Siegmund's
(and other shareholders') Linkwell stock and, in turn,
divesting him of standing to pursue claims against Xuelian
and Wei in the ...