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Ninespot, Inc. v. Jupai Holdings Ltd.

United States District Court, D. Delaware

July 30, 2018

NINESPOT, INC., Plaintiff,
v.
JUPAI HOLDINGS LIMITED, PUJI MEDIA HOLDINGS LIMITED, PUJI JUPAI ASSET MANAGEMENT, Defendants.

          MEMORANDUM ORDER

         Presently before this Court are motions to dismiss filed by Defendants Jupai Holdings Limited ("Jupai") (D.I. 80), Puji Media Holdings Limited ("Puji") (D.I. 79), and Puji Jupai Asset Management ("PJ") (D.I. 77). The motions to dismiss are based on Federal Rules of Civil Procedure 12(b)(2), 12(b)(6), and 9(b). The matter is fully briefed. (D.I. 78, 81, 82, 88, 90, 91, 94). The Court heard oral argument on June 28, 2018. (D.I. 101).

         For the reasons set forth herein, Defendants' motions are granted in part and denied in part.

         I. BACKGROUND

         On October 10, 2017, Plaintiff Ninespot filed this action against Jupai, Puji, and PJ for breach of contract and related claims in connection with a potential investment by Jupai in Ninespot. (D.I. 1). Plaintiff was an online and livestream video platform creator, incorporated in Delaware with its principal place of business in California. (Id. at 3). In 2015, Plaintiffs Chief Executive Officer and Chairman met with the Vice President of Puji in California to discuss a collaboration between the two parties. (Id. ¶ 18). After months of communication, Plaintiff and Puji executed a Business Collaboration Agreement that laid out terms discussing Puji's proposed assistance to Plaintiff in creating strategic partnerships, expanding Plaintiffs products, and securing investment capital in the Asian market. (Id. ¶¶ 24-26). Puji then introduced Jupai to Plaintiff as a potential investor in Plaintiffs business, relying on Puji's close working relationship with Jupai to assist with the proposed investment. (Id. ¶¶ 30-31). Executives from both Puji and Jupai negotiated terms for the proposed investment in Plaintiff in exchange for a number of shares of stock from Plaintiff, executed in a non-binding term sheet, signed by Plaintiff and stamped by Jupai. (Id. ¶¶ 53-54).[1]

         Further negotiations were conducted by Puji, on behalf of Jupai, regarding additional equity structured into the proposed investment deal. (Id. ¶¶ 55-56). In December 2016, a draft of a Series B Stock Purchase Agreement was sent from Plaintiff to Puji, incorporating the terms by which Plaintiff and Jupai agreed to execute the planned investment. (Id. ¶ 58). Puji continued to request changes to the draft of the Stock Purchase Agreement and in April, 2017, Plaintiff and PJ executed the Series B Stock Purchase Agreement, with terms including the number of shares to be purchased by PJ for its investment of $18 million in Plaintiff. (Id. ¶¶ 92-93). Up until approximately May, 2017, Puji, on behalf of Jupai's designated offshore investing entity, PJ, represented to Plaintiff that Jupai was prepared to make the investment. (Id. ¶ 98).[2] By June of 2017, the investment had not been received, and Plaintiff sent a demand letter through its counsel to Jupai seeking assurance that Jupai had attempted in good faith to fund the first installment of the investment. (Id. ¶ 105). Plaintiff received a response from PJ, which disclaimed all contractual obligations from any agreement formed in connection with the proposed investment, stated the Chinese government's tightened restrictions on the outbound flow of investment capital from China prevented PJ from wiring the money, which constituted an unforeseeable and uncontrollable force majeure, and declared PJ would cease all efforts on the investment. (Id. ¶¶ 107-08).[3]

         Plaintiffs complaint alleges the failure to invest and related claims have effectively rendered Plaintiffs business worthless. Plaintiff seeks to recover damages accordingly. (Id. 118).

         II. LEGAL STANDARDS

         a. Rule 12(b)(2)

         When reviewing a motion to dismiss pursuant to Rule 12(b)(2), a court must accept as true all allegations of jurisdictional fact made by the plaintiff and resolve all factual disputes in the plaintiffs favor. Toys "R" Us, Inc. v. Step Two, S.A., 318 F.3d 446, 457 (3d Cir. 2003). "Once a jurisdictional defense has been raised, the plaintiff bears the burden of establishing with reasonable particularity sufficient contacts between the defendant and the forum state to support jurisdiction." Provident Nat'l, Bank v. Cal. Fed. Sav. & Loan Ass'n, 819 F.2d 434, 437 (3d Cir. 1987). To meet this burden, the plaintiff must produce "sworn affidavits or other competent evidence," since a Rule 12(b)(2) motion "requires resolution of factual issues outside of the pleadings." Time Share Vacation Club v. Atlantic Resorts, Ltd., 735 F.2d 61, 67 n.9 (3d Cir. 1984).

         The personal jurisdiction analysis involves both a statutory and constitutional inquiry. Shoemaker v. McConnell, 556 F.Supp.2d 351, 354 (D. Del. 2008). First, the court must consider whether a defendant's actions come within any of the provisions of the state long-arm statute. See Intel v. Broadcom, 167 F.Supp.2d 692, 700 (D. Del. 2001). Second, the court must determine whether exercising jurisdiction over the defendant in the forum comports with the Due Process Clause of the Constitution. Id.

         The court applies the law of the state in which, the district court is located. See Id. Delaware's long-arm statute authorizes jurisdiction over a nonresident when, among other things, that party or its agent:

(1) Transacts any business or performs any character of work or service in the State; (2) Contracts to supply services or things in this State; (3) Causes tortious injury in the State by an act or omission in this State; (4) Causes tortious injury in the State or outside the State by an act or omission outside the State if the person regularly does or solicits business, engages in any other persistent course of conduct in the State or derives substantial revenue from services, or things used or consumed in the State....

10 Del. C. § 3lO4(c)(1)-(4). "With the exception of (c)(4), the long-arm statute requires a showing of specific jurisdiction." Phunware, Inc. v. Excelmind Grp. Ltd., 117 F.Supp.3d 613, 622 (D. Del. 2015). Subsection (c)(4), on the other hand, confers general jurisdiction, such that while a general presence in Delaware is necessary to assert jurisdiction, the contacts of the nonresident (or its agent) need not relate to the instant litigation. See Reach & Assocs., P.C. v. Dencer, 269 F.Supp.2d 497, 505 (D. Del. 2003). The court should interpret the language of these provisions liberally, as "conferring jurisdiction to the maximum extent of the Due Process clause." Jeffreys v. Exten, 784 F.Supp. 146, 151 (D. Del. 1992). Further, the Delaware long-arm statute is a "single act" statute, whereby even one transaction engaged in by the nonresident in Delaware establishes jurisdiction. Eudaily v. Harmon, 420 A.2d 1175, 1180 (Del. 1980).

         Due Process is satisfied if the court finds the existence of "minimum contacts" between the nonresident defendant and the forum state, "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (internal quotation marks omitted).

         b. Rules 12(b)(6) and 9(b)

         When reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must accept the complaint's factual allegations as true.[4] See Bell Ail. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). Rule 8(a) requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Id. at 555. The factual allegations do not have to be detailed, but they must provide more than labels, conclusions, or a "formulaic recitation" of the claim elements. Id. ("Factual allegations must be enough to raise a right to relief above the speculative level... on the assumption that all the allegations in the complaint are true (even if doubtful in fact)."). Moreover, there must be sufficient factual matter to state a facially plausible claim to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The facial plausibility standard is satisfied when the complaint's factual content "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. ("Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." (internal quotation marks omitted)).

         Federal Rule of Civil Procedure 9(b) requires that a complaint must state with particularity the circumstances constituting fraud or mistake. Conditions of a person's mind may be alleged generally. Fed.R.Civ.P. 9(b). Complaints that fail to plead fraud or false claims grounded in fraud with the requisite particularity are dismissed in the same manner as a dismissal under rule 12(b)(6). Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003).

         III. DISCUSSION

         Jupai makes two principal arguments in its motion to dismiss. First, it argues Delaware courts lack personal jurisdiction over Jupai because it was not a signatory to the agreement that contained a Delaware forum selection clause. (D.I. 81 at 3). Second, it argues Plaintiff has failed to state a claim in the five counts in which it is a defendant. (Id. at 1). Puji and PJ, in their motions to dismiss, argue the counts in which they are defendants fail to state a claim. (D.I. 77, 79). Puji also relies on Rule 9(b) for its argument. (D.I. 79).

         a. Jupai's 12(b)(2) motion to dismiss

         Jupai moves the Court to dismiss it for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2). The case was filed in California. The District Court there transferred the case here on motion of the other two defendants. Plaintiff argues that this Court can exercise jurisdiction over Jupai based on the California court's decision in its grant of the motion to transfer. That court held that Jupai consented to jurisdiction in Delaware because it was "closely related" to the Stock Purchase Agreement that contained the Delaware forum selection clause. (D.I. 88 at 4).

         In order to determine if Jupai is subject to personal jurisdiction in Delaware, the main issue is whether Jupai is bound by the Delaware forum selection clause. When a party is bound by a forum selection clause, the party consents to personal jurisdiction. Hadley v. Shaffer, 2003 WL 21960406, at *3 (D. Del. Aug. 12, 2003); Res. Ventures, Inc. v. Res. Mgmt. Int'l, Inc., 42 F.Supp.2d 423, 431 (D. Del. 1999)). Further, express consent to jurisdiction, like that found from a party bound by a forum selection clause, satisfies the requirement of due process owed in a personal jurisdiction inquiry, and thus the minimum contacts analysis becomes superfluous. Hadley, 2003 WL 21960406, at *3 (finding "[s]uch consent is deemed to be a waiver of any objection on Due Process grounds and an analysis of minimum contacts becomes unnecessary.").

         In accordance with Delaware law, a three-part test is used to determine if a non-signatory party is bound by a forum selection clause. First, is the forum selection clause valid? Second, is the challenging party a third-party beneficiary or "closely related" to the agreement? Third, do the claims at issue arise from the non-signatory's standing relative to the agreement? Hadley, 2003 WL 21960406, at *4; Aviation West Charters, LLC v. Freer, 2015 WL 5138285, at *4 (Del. Super. Ct. July 2, 2015). If each of the answers to the three-part test is affirmative, then the party is bound by the forum selection clause. Aviation West Charters, LLC, 2015 WL 5138285, at *4.

         Forum selection clauses carry a high degree of presumed validity. Jupai has not challenged the validity of the forum selection clause in its motion to dismiss. (D.I. 81 at 16-20). Thus, the forum selection clause in the Stock Purchase Agreement is presumed valid.

         Jupai challenges the last two prongs of the forum selection clause test, by arguing it is not closely related to the Stock Purchase Agreement such that it could be bound by the forum selection clause. (Id.). Specifically, Jupai argues the transferring court made a factual error when it found Jupai was closely related to the agreement. (Id. at 17.) Second, Jupai argues that Plaintiffs claims against it do not arise out of the Stock Purchase Agreement, but from a different agreement, the Term Sheet. (Id; see D.I. 1 ¶¶ 131-36). The Term Sheet does not contain a Delaware forum selection clause. (D.I. 31, Exh. 1).

         I disagree with Jupai on both points. In order to be considered "closely related" to an agreement as a non-signatory, a party "must receive a direct monetary or non-monetary benefit from the agreement." Phunware, Inc. v. Excelmind Group Ltd., 117 F.Supp.3d 613, 630 (D. Del. 2015) (emphasis omitted); Capital Group Co. Inc. v. Armour, 2004 WL 2521295, at *6 n. 40 (Del. Ch. Oct. 29, 2004). In addition, Delaware Courts also consider whether it was foreseeable to the party that it would be bound by the agreement. Aviation West Charters, LLC, 2015 WL5138285, at *4.

         First, Jupai argues the California court read the Side Letter Agreement (D.I. 1-3, Exh. C) to bind Jupai to the agreement as the Letter states, "Jupai and its Affiliates shall purchase additional Shares of Series B Preferred Stock ... in accordance with Section 1.1(c) of the Stock Purchase Agreement." (Id.) Jupai argues this reading of the letter is incorrect, because the Stock Purchase Agreement defines "Jupai" to mean "Puji Jupai Asset Management," or PJ. (D.I. 1-2, Exh. B). Jupai argues the California court "relied heavily on the Side Letter Agreement" to find that Jupai is bound to the Stock Purchase Agreement. (D.I. 81 at 17). But the Side Letter Agreement was only part of the analysis. The California court's order first specifies that Jupai is closely related to the Stock Purchase agreement because Jupai was party to the Term Sheet. (D.I. 52 at 5). The relevant provision of the Term Sheet provided that Jupai itself would invest in Plaintiff pursuant to the terms of the Stock Purchase Agreement. (D.I. 31, Exh. 1 at 2). Second, the California court premised its decision on the fact that Jupai "negotiated the specific terms of the [Stock Purchase Agreement], including that the investment be structured in tranches to accommodate Jupai's concerns about capital outflow." (Id.) Third, the California court decided Jupai was closely related based on its involvement in the Side Letter Agreement. (Id.) Thus, even if the California court did mistakenly interpret "Jupai" in the Side Letter Agreement to signify "Jupai Holdings Ltd." rather than PJ, Jupai can still be found to be closely related through the two other above-mentioned connections to the Stock Purchase Agreement.[5]

         While Jupai was not a named party nor signatory to the Stock Purchase Agreement, Jupai was involved in the planning and negotiation of the Stock Purchase Agreement to such a degree that it could expect to be bound by the agreement. It was Jupai's deal.

         Throughout the negotiations and up until the last minute before the execution of the Stock Purchase Agreement, communicating through Puji, Jupai requested changes be made to the terms of the Stock Purchase Agreement, such as the structuring of tranche investments, and the inclusion of a liability disclaimer clause. (D.I. 1 ¶¶ 80, 89). One month before the Stock Purchase Agreement was executed, Plaintiff and a Jupai attorney, Jinchang Wang (sometimes referred to as "Augusto"), directly communicated via email regarding the logistics of the investment. The Jupai attorney referred to the investment as ...


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