United States District Court, D. Delaware
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).
reasons set forth herein, Defendants' motions are granted
in part and denied in part.
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. ¶¶
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). 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).
complaint alleges the failure to invest and related claims
have effectively rendered Plaintiffs business worthless.
Plaintiff seeks to recover damages accordingly. (Id.
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).
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.
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).
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).
Rules 12(b)(6) and 9(b)
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. 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)).
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).
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).
Jupai's 12(b)(2) motion to dismiss
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).
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.").
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.
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
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).
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.
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.
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
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 ...