Naghavi v. Belter Health Measurement and Analysis Technology Co., Ltd.

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8 UNITED STATES DISTRICT COURT

9 SOUTHERN DISTRICT OF CALIFORNIA

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11 DR. MORTEZA NAGHAVI, M.D., an Case No.: 20-cv-01723-H-KSC

individual; MEDITEX CAPITAL, LLC, a

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Delaware limited liability company; and ORDER:

13 AMERICAN HEART TECHNOLOGIES,

LLC, a Delaware limited liability (1) GRANTING DEFENDANT

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company, EASTONE’S MOTION TO DISMISS

15 FOR LACK OF PERSONAL

Plaintiffs,

JURSIDICTION; AND

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v.

17 (2) DENYING DEFENDANT

BELTER HEALTH MEASUREMENT

BELTER’S MOTION TO DISMISS

18 AND ANALYSIS TECHNOLOGY CO.,

FOR FAILURE TO STATE A CLAIM

LTD., a China corporation; EASTONE

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CENTURY TECHNOLOGY CO. LTD., a

[Doc. Nos. 17, 18.]

20 China corporation; XIBIN XU, an

individual; WEI WANG, an individual;

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WENWEI TONG, an individual;

22 FEIPENG ZHONG, an individual;

ZHUHAI HENGQIN XUANYUAN NO.

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8 EQUITY INVESTMENT

24 PARTNERSHIP (LIMITED

PARTNERSHIP), a China limited

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partnership; GF SECURITIES, a China

26 corporation; and DOES 1 through 20,

inclusive,

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Defendants.

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1 On December 3, 2020, Defendant Eastone Century Technology Co., Ltd. filed a

2 motion to dismiss Plaintiffs Dr. Morteza Naghavi, M.D., Meditex Capital, LLC, and

3 American Heart Technologies, LLC’s second amended complaint pursuant to Federal Rule

4 of Civil Procedure 12(b)(2) for lack of personal jurisdiction and pursuant to Rule 12(b)(6)

5 for failure to state a claim. (Doc. No. 17.) On December 3, 2020, Defendant Belter Health

6 Measurement and Analysis Technology Co., Ltd. filed notice of joinder in the Rule

7 12(b)(6) portion of Defendant Eastone’s motion to dismiss. (Doc. No. 18.) On December

8 14, 2020, the Court took the matter under submission. (Doc. No. 19.) On December 28,

9 2020, Plaintiffs filed a response in opposition to the motion to dismiss. (Doc. No. 20.) On

10 January 4, 2021, Defendants filed their replies. (Doc. No. 21, 22.) For the reasons below,

11 the Court grants Defendant Eastone’s motion to dismiss for lack of personal jurisdiction,

12 and the Court denies Defendant Belter’s motion to dismiss for failure to state a claim.

13 BACKGROUND

14 The following facts are taken from the allegations in Plaintiffs’ second amended

15 complaint. Plaintiffs Meditex Capital, LLC and American Heart Technologies, LLC are

16 Delaware limited liability companies and are partners in a joint venture to manufacture,

17 market, and distribute cardiovascular devices, including a cardiovascular device called

18 “VENDYS.” (Doc. No. 16, SAC ¶¶ 1-2, 17.) Plaintiff Dr. Morteza Naghavi is the founder

19 and managing member of Meditex and American Heart. (Id. ¶¶ 3, 17.)

20 Defendant Belter Health Measurement and Analysis Technology Co., Ltd. is a

21 manufacturer and distributor of medical devices in China. (Id. ¶¶ 4, 18-20.) Defendant

22 Eastone Century Technology Co., Ltd. is a publicly traded China corporation and was the

23 100% owner of Belter until on or about January 2020.1 (Id. ¶ 5.)

24 On March 18, 2016, Belter and Meditex entered into a “Manufacturing, Marketing,

25 Sales and Distribution Agreement” (“the March 18, 2016 agreement”) wherein Meditex

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28 1 On or about January 2020, Eastone sold its ownership interest in Belter to Zhuhai Hengqin

1 granted Belter exclusive rights to market, distribute, and sell VENDYS in China. (Doc.

2 No. 16, SAC ¶ 21, Ex. B at 1, 2 § 2.4.) On February 10, 2017, Belter and Meditex entered

3 into an amendment to the March 18, 2016 agreement (“the February 10, 2017 agreement”).

4 (Id. ¶ 23, Ex. D.)

5 On May 2, 2017, Belter and Meditex entered into another agreement entitled the

6 “Exclusive China Marketing, Sales, and Distribution Agreement” (“the May 2, 2017

7 agreement”). (Id. ¶ 24; Doc. No. 14 Ex. F.) The May 2, 2017 agreement provides: “This

8 contract substitutes all terms related to MARKETING, SALES, and DISTRIBUTION

9 AGREEMENT previously signed by the parties on March 18th, 2016.” (Id., Ex. F at 1.)

10 Plaintiffs allege that the May 2, 2017 agreement contains certain minimum sales

11 requirements, and that Defendant Belter has failed to meet those minimum sales

12 requirements. (Id. ¶¶ 24, 35; see id., Ex. F at 3 § 5, Ex. B.)

13 On August 10, 2018, Belter and Meditex entered into an additional amendment

14 agreement (“the August 10, 2018 amendment”). (Doc. No. 16, SAC ¶ 31, Ex. J.) Plaintiffs

15 allege that under the terms of the August 10, 2018 amendment, Belter was required to pay

16 Meditex $250,000 for an outstanding licensing fee, and Belter was required to provide

17 additional VENDYS units to Plaintiffs in the United States. (Id. ¶ 31.) Plaintiffs allege

18 that although Defendants Belter and Eastone have paid $100,000 of the outstanding

19 $250,000, they have failed to pay the remaining $150,000 of the licensing fee and have not

20 delivered the required VENDYS units. (Id. ¶ 32.)

21 On November 26, 2019, Plaintiffs Dr. Naghavi, Meditex, and American Heart

22 Technologies filed a complaint in the Superior Court of California, County of San Diego.

23 (Doc. No. 1, Notice of Removal ¶ 1.) On February 7, 2020, Plaintiffs filed a first amended

24 complaint in state court against Defendants Belter, Eastone, Xibin Xu, Wei Wang, Wenwei

25 Tong, Feipeng Zhong, Zhuhai Hengqin Xuanyuan, and GF Securities. (Doc. No. 1-13,

26 FAC.) In the FAC, Plaintiffs alleged claims for: (1) breach of contract; (2) breach of the

27 implied covenant of good faith and fair dealing; (3) fraud by false promise; (4) to set aside

28 a voidable transaction; and (5) conspiracy. (Id. ¶¶ 34-72.)

1 On September 2, 2020, Defendants Belter and Eastone removed the action from state

2 court to the United States District Court for the Southern District of California pursuant to

3 28 U.S.C. § 1441 on the basis of diversity jurisdiction under 28 U.S.C. § 1332. (Doc. No.

4 1, Notice of Removal.) On October 6, 2020, the Court granted Defendant GF Securities’s

5 motion to dismiss, and the Court dismissed Defendant GF Securities from the action. (Doc.

6 No. 10.) On October 20, 2020, the Court granted in part and denied in part Defendant

7 Belter’s motion to dismiss, and the Court granted Defendant Eastone’s motion to dismiss.

8 (Doc. No. 15.) Specifically, the Court dismissed Plaintiffs’ claims for breach of the implied

9 covenant of good faith and fair dealing; to set aside a voidable transaction; and conspiracy

10 without leave to amend; the Court dismissed Plaintiff’s claim for breach of contract against

11 Defendant Eastone without leave to amend; and the Court dismissed Plaintiff’s claim for

12 fraud with leave to amend. (Id. at 15.)

13 On November 19, 2020, Plaintiffs filed a second amended complaint against

14 Defendants Belter, Eastone, Xu, Wang, Tong, and Zhong, alleging: (1) a claim for breach

15 of contract against Belter; and (2) a claim for fraud against all the Defendants.2 (Doc. No.

16 16.) By the present motion: (1) Defendant Eastone moves to dismiss Plaintiffs’ fraud claim

17 pursuant to Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction; and

18 Defendants Eastone and Belter move pursuant to Federal Rule of Civil Procedure 12(b)(6)

19 to dismiss Plaintiff’s fraud claim for failure to state a claim. (Doc. Nos. 17-1, 18.)

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2 The Court notes that the second amended complaint appears to re-allege Plaintiffs’ claim for

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breach of contract against Defendant Eastone. (See Doc. No. 16, SAC ¶¶ 33-43.) This would appear to

24 be an error as Plaintiffs previously agreed to dismiss Defendant Eastone from their breach of contract

claim, (see Doc. No. at 8 at 5), and based on that representation, the Court dismissed Plaintiffs’ claim for

25 breach of contract against Eastone without leave to amend. (Doc. No. 15 at 6, 15.) Nevertheless, to the

extent this was not an error, the Court strikes Plaintiffs’ claim for breach against Defendant Eastone from

26 the second amended complaint as that claim was dismissed without leave to amend in the Court’s October

20, 2020 order. (See id.) In addition, the Court notes that the second amended complaint also names

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Zhuhai Hengqin Xuanyuan No. 8 Equity Investment Partnership as an additional defendant, but the second

28 amended complaint does not actually allege any causes of action against that defendant. (See Doc. No.

1 DISCUSSION

2 I. Defendant Eastone’s Rule 12(b)(2) Motion to Dismiss

3 A. Legal Standards for a Rule 12(b)(2) Motion to Dismiss

4 Under Federal Rule of Civil Procedure 12(b)(2), a complaint may be dismissed for

5 lack of personal jurisdiction. Fed. R. Civ. P. 12(b)(2). A plaintiff bears the burden of

6 establishing the Court’s personal jurisdiction over a defendant. Pebble Beach Co. v.

7 Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006). “[T]he plaintiff need only make a prima facie

8 showing of jurisdictional facts.” Glob. Commodities Trading Grp., Inc. v. Beneficio de

9 Arroz Choloma, S.A., 972 F.3d 1101, 1106 (9th Cir. 2020) (citations omitted). “Unless

10 directly contravened, [the plaintiff’s] version of the facts is taken as true,” and disputed

11 facts must be resolved in the plaintiff’s favor. Mattel, Inc. v. Greiner & Hausser GmbH,

12 354 F.3d 857, 862 (9th Cir. 2003) (citing Harris Rutsky & Co. Ins. Servs. v. Bell &

13 Clements Ltd., 328 F.3d 1122, 1129 (9th Cir. 2003)).

14 “Personal jurisdiction over a nonresident defendant is tested by a two-part analysis.

15 First, the exercise of jurisdiction must satisfy the requirements of the applicable state long-

16 arm statute. Second, the exercise of jurisdiction must comport with federal due process.”

17 Dow Chemical Co. v. Calderon, 422 F.3d 827, 830 (9th Cir. 2005) (quoting Chan v. Society

18 Expeditions, 39 F.3d 1398, 1404-05 (9th Cir. 1994)). California’s long-arm statute

19 provides that a court “may exercise jurisdiction on any basis not inconsistent with the

20 Constitution of [California] or of the United States.” Cal. Civ. Proc. Code § 410.10. Thus,

21 California’s long-arm statute permits courts to exercise personal jurisdiction within the

22 limits of due process. Daimler AG v. Bauman, 571 U.S. 117, 125 (2014).

23 “The Due Process Clause protects an individual’s liberty interest in not being subject

24 to the binding judgments of a forum with which he has established no meaningful ‘contacts,

25 ties, or relations.’” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-72 (1985) (quoting

26 Int’l Shoe Co. v. Washington, 326 U.S. 310, 319 (1945)). Due process requires courts

27 exercise personal jurisdiction over a nonresident defendant only if the defendant has

28 sufficient “minimum contacts” with the forum state “such that the maintenance of the suit

1 does not offend ‘traditional notions of fair play and substantial justice.’” Axiom Foods,

2 Inc. v. Acerchem Int’l, Inc., 874 F.3d 1064, 1068 (9th Cir. 2017) (quoting Int’l Shoe, 326

3 U.S. at 316).

4 Personal jurisdiction may be either general or specific, or both. Bristol-Myers

5 Squibb Co. v. Superior Court, 137 S. Ct. 1773, 1779-80 (2017). Here, Plaintiffs do not

6 contend the Court has general jurisdiction over Defendant Eastone. (Doc. No. 20 at 7.)

7 Plaintiffs only assert that there is specific jurisdiction over Defendant Eastone. (Id.)

8 B. Analysis

9 A court may exercise specific personal jurisdiction over a nonresident defendant if

10 the following requirements are met: (1) the defendant “purposefully direct[ed]” his or her

11 activities to the forum state or “purposefully avail[ed]” himself or herself “of the privileges

12 of conducting activities in the forum”; (2) the plaintiff’s claim “arises out of or relates to

13 the defendant’s forum-related activities”; and (3) the court’s exercise of jurisdiction is

14 reasonable. Axiom Foods, 874 F.3d at 1068 (quoting Dole Food Co., Inc. v. Watts, 303

15 F.3d 1104, 1111 (9th Cir. 2002)). “The plaintiff bears the burden of satisfying the first two

16 prongs of the test.” Id. (quoting Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797,

17 802 (9th Cir. 2004)). Then, the defendant bears the burden to “present a compelling case”

18 that jurisdiction would be unreasonable. Id. at 1068-69 (quoting Schwarzenegger, 374 F.3d

19 at 802). “‘If any of the three requirements is not satisfied, jurisdiction in the forum would

20 deprive the defendant of due process of law.’” AMA Multimedia, LLC v. Wanat, 970 F.3d

21 1201, 1208 (9th Cir. 2020) (quoting Omeluk v. Langsten Slip & Batbyggeri A/S, 52 F.3d

22 267, 270 (9th Cir. 1995)).

23 The form of the inquiry into the first prong of this test “depends on the nature of the

24 claim at issue.” Picot v. Weston, 780 F.3d 1206, 1212 (9th Cir. 2015). “Purposeful

25 availment generally provides a more useful frame of analysis for claims sounding in

26 contract, while purposeful direction is often the better approach for analyzing claims in

27 tort.” Glob. Commodities, 972 F.3d at 1107 (citing Picot, 780 F.3d at 1212;

28 Schwarzenegger, 374 F.3d at 802). At their core, these tests “ask whether defendants have

1 voluntarily derived some benefit from their interstate activities such that they ‘will not be

2 haled into a jurisdiction solely as a result of “random,” “fortuitous,” or “attenuated”

3 contacts.’” Id. (quoting Burger King, 471 U.S. at 474). The only claim in this action

4 asserted against Defendant Eastone is a claim for fraud, which is a tort. Thus, the Court

5 utilizes the purposeful direction test to analyze Plaintiffs’ claim for fraud against Defendant

6 Eastone.3 See, e.g., Marlyn Nutraceuticals, Inc. v. Improvita Health Prod., 663 F. Supp.

7 2d 841, 850 (D. Ariz. 2009) (analyzing fraud claim “under the purposeful-direction effects

8 test”).

9 i. The Purposeful Direction Test

10 The Ninth Circuit assesses whether a defendant’s actions constitute a purposeful

11 direction using the “effects” test derived from Calder v. Jones, 465 U.S. 783 (1984). Picot,

12 780 F.3d at 1213-14; Axiom Foods, Inc. v. Acerchem Int’l, Inc., 874 F.3d 1064, 1069 (9th

13 Cir. 2017). Under this purposeful direction test, “‘the defendant allegedly must have (1)

14 committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that

15 the defendant knows is likely to be suffered in the forum state.’” AMA Multimedia, 970

16 F.3d at 1209 (quoting Mavrix Photo, Inc. v. Brand Techs., Inc., 647 F.3d 1218, 1228 (9th

17 Cir. 2011)).

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21 3 The Court notes that, in certain circumstances, the Ninth Circuit has applied the purposeful

availment test to fraud claims when the suit at issue includes both a breach of contract claim and a fraud

22 claim and the suit overall sounds “primarily in contract.” See, e.g., HK China Grp., Inc. v. Beijing United

Auto. & Motorcycle Mfg. Corp., 417 F. App’x 664, 665 (9th Cir. 2011) (“Suits that include both a breach

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of contract claim and a fraud claim may ‘sound primarily in contract’ when the alleged fraud is merely

24 the representations in the contract that gave rise to the breach.”); Boschetto v. Hansing, 539 F.3d 1011,

1016–19 (9th Cir. 2008) (applying purposeful availment test to a complaint that contained claims for

25 breach of contract and fraud). Nevertheless, application of the purposeful availment test does not appear

to be appropriate here as Plaintiffs have dropped their claim for breach of contract against the defendant

26 at issue Defendant Eastone, and Plaintiffs do not assert that Defendant Eastone was a party to any of the

contracts at issue. (See Doc. No. 8 at 5; Doc. No. 15 at 6, 15; Doc. No. 16, SAC ¶¶ 22-26, 31.) Moreover,

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both parties assert that Plaintiffs’ fraud claim against Defendant Eastone should be analyzed under the

28 purposeful direction test. (Doc. No. 17-1 at 8-9; Doc. No. 20 at 5-6.) As such, the Court will analyze

1 Defendant Eastone argues that Plaintiff cannot satisfy the three-part purposeful

2 direction test because Plaintiff cannot satisfy the “expressly aimed” element of the test.

3 (Doc. No. 17-1 at 8-10.) The express aiming prong of the purposeful direction test “asks

4 whether the defendant’s allegedly tortious action was ‘expressly aimed at the forum.’”

5 Picot, 780 F.3d at 1214. This analysis “must focus on the defendant’s contacts with the

6 forum state, not the defendant’s contacts with a resident of the forum.” Id.; see Walden v.

7 Fiore, 571 U.S. 277, 285 (2014) (“[O]ur ‘minimum contacts’ analysis looks to the

8 defendant’s contacts with the forum State itself, not the defendant’s contacts with persons

9 who reside there.”). “Thus, a ‘mere injury to a forum resident is not a sufficient connection

10 to the forum.’” Picot, 780 F.3d at 1214 (quoting Walden, 571 U.S. at 290). Rather, the

11 plaintiff must show that the “defendant’s intentional conduct that is aimed at, and creates

12 the necessary contacts with, the forum state.” AMA Multimedia, LLC v. Wanat, 970 F.3d

13 1201, 1209 (9th Cir. 2020).

14 In the SAC, Plaintiff alleges two instances of fraudulent conduct by Defendant

15 Eastone. (See Doc. No. 16, SAC ¶¶ 57-80.) According to the allegations in the complaint,

16 all of the fraudulent conduct at issue occurred in China, specifically during meetings in

17 China in early August 2018 between Dr. Naghavi and Defendants Tong, Zhong, Xu, and

18 Wang and during a meeting in China in August 2019 between Dr. Naghavi and Defendants

19 Zhong and Tong. (See id. ¶¶ 57, 60, 61, 75, 76.) Eastone argues that because all of the

20 conduct at issue took place in China, none of the conduct was expressly aimed at California.

21 (Doc. No. 17-1 at 9-10.) Eastone argues that the only alleged connection between itself

22 and California is that Plaintiffs are located in California and that Eastone allegedly knew

23 this, which is insufficient to establish express aiming under Walden. (Id. at 10.) The Court

24 agrees with Eastone.

25 Under the allegations set forth in the SAC, all of the conduct at issue took place in

26 China and was related to Plaintiffs’ and Belter’s business dealings in China, specifically

27 the manufacturing, marketing, and distribution of Plaintiffs’ VENDYS product in China.

28 (See Doc. No. 16, FAC ¶¶ 57-80.) Plaintiffs may assert that Eastone knew that Plaintiffs

1 are located in California, but this by itself is insufficient to establish “express aiming.” In

2 Axiom Foods, Inc. v. Acerchem International, Inc., the Ninth Circuit explained that,

3 following the Supreme Court’s decision in Walden v. Fiore, allegations that a defendant

4 knew of the plaintiffs’ strong forum contacts and that it was foreseeable that plaintiffs

5 would suffer harm in the forum “will not, on its own, support the exercise of specific

6 jurisdiction.” Axiom, 874 F.3d at 1069–70; see AMA Multimedia, 970 F.3d at 1209 (“In

7 Walden, the Supreme Court rejected our prior decisions holding that the express aiming

8 element could be satisfied by a defendant’s knowledge that harm may be inflicted on a

9 plaintiff in a particular forum.”); see, e.g., GemCap Lending I, LLC v. Pertl, No. CV 19-

10 1472-JFW(PJWX), 2019 WL 6468580, at *9 (C.D. Cal. Aug. 9, 2019) (“At most, the

11 evidence demonstrates that BancCentral and McNeil knew that GemCap was a California-

12 based lender and that their actions might have an effect on GemCap in California.”); see

13 also Picot, 780 F.3d at 1214 (“a ‘mere injury to a forum resident is not a sufficient

14 connection to the forum.’” (quoting Walden, 571 U.S. at 290)). “The plaintiff cannot be

15 the only link between the defendant and the forum.” Walden, 571 U.S. at 277.

16 Plaintiffs also argue that specific personal jurisdiction over Defendant Easton is

17 proper because Eastone’s alleged fraudulent conduct negatively affected Californians by

18 halting the deliver of VENDYS device to California hospitals, clinics, medical facilities,

19 research institutions, and educational institutions. (Doc. No. 20 at 7.) But the Supreme

20 Court and the Ninth Circuit have instructed that the specific jurisdiction analysis “must

21 focus on the defendant’s contacts with the forum state, not the defendant’s contacts with a

22 resident of the forum.” Picot, 780 F.3d at 1214; see Walden, 571 U.S. at 285. Thus, an

23 assertion that it was foreseeable that third-parties would suffer harm in the forum – like an

24 assertion that it was foreseeable that plaintiffs would suffer harm in the forum – by itself

25 is insufficient to support specific personal jurisdiction over a defendant. See Free

26 Conferencing Corp. v. T-Mobile US, Inc., No. 2:14-CV-07113-ODW, 2014 WL 7404600,

27 at *11 (C.D. Cal. Dec. 30, 2014) (“[I]f Walden precludes personal jurisdiction on the basis

28 of where the plaintiff suffers the harm, the alleged harm to non-parties is utterly

1 irrelevant.”); see also Walden, 571 U.S. at 286 (“[A] defendant’s relationship with a

2 plaintiff or third party, standing alone, is an insufficient basis for jurisdiction.”).

3 In sum, Plaintiffs have failed to satisfy the express aiming element of the purposeful

4 direction test as to Defendant Eastone. As a result, Plaintiffs have failed to establish that

5 the Court has specific personal jurisdiction over Defendant Eastone. See GemCap Lending

6 I, 2019 WL 6468580, at *7-9 (concluding that the court lacked personal jurisdiction over

7 the plaintiff’s fraud and other tort claims against the defendants where the evidence merely

8 showed that the defendants knew the plaintiff was based in California and that their actions

9 might have an effect in California).

10 ii. Dual Officer Allegations

11 Defendant Eastone also argues that the Court lacks personal jurisdiction over it

12 because Plaintiffs have failed to allege sufficient facts showing that the conduct at issue

13 may be attributed to Eastone for the purposes of establishing specific jurisdiction. (Doc.

14 No. 17-1 at 10-13.) Specifically, Eastone notes that the allegedly fraudulent conduct at

15 issue was performed by individuals who were dual directors/officers at both Belter and

16 Eastone during the relevant period, but Plaintiffs have failed to allege sufficient facts

17 showing that these individuals were acting on behalf of Eastone, and not Belter, with

18 respect to the relevant conduct. (See id.)

19 In United States v. Bestfoods, the Supreme Court explained: “‘[D]irectors and

20 officers holding positions with a parent and its subsidiary can and do “change hats” to

21 represent the two corporations separately, despite their common ownership.’ . . . [C]ourts

22 generally presume ‘that the directors are wearing their “subsidiary hats” and not their

23 “parent hats” when acting for the subsidiary.’” 524 U.S. 51, 69 (1998). Thus, a mere

24 allegation that a corporate director/officer held positions with both a parent and its

25 subsidiary without more is insufficient to demonstrate contact by the parent company with

26 the forum state. See id.; see, e.g., GEC US 1 LLC v. Frontier Renewables, LLC, No. 16-

27 CV-1276 YGR, 2016 WL 4677585, at *11-12 (N.D. Cal. Sept. 7, 2016) (dismissing parent

28 company for lack of personal jurisdiction where the plaintiff failed to demonstrate that the

1 dual officers at issue were acting on behalf of the parent company); Rojas v. Hamm, No.

2 18-CV-01779-WHO, 2019 WL 3779706, at *10 (N.D. Cal. Aug. 12, 2019) (same); Haller

3 v. Advanced Indus. Computer, Inc., No. CV-13-02398-PHX-DGC, 2015 WL 854954, at

4 *4 (D. Ariz. Feb. 27, 2015) (same and explaining that “[e]vidence beyond common officers

5 is required”); see also whiteCryption Corp. v. Arxan Techs., Inc., No. 15-CV-00754-WHO,

6 2015 WL 3799585, at *2 (N.D. Cal. June 18, 2015) (“[P]arent corporations are held directly

7 or indirectly liable under California law for the acts of their subsidiaries only in unusual

8 situations.”).

9 In the FAC, Plaintiffs’ claim for fraud against Defendant Eastone is premised on

10 alleged representations made by Defendants Tong and Zhong. (See Doc. No. 16, FAC ¶¶

11 58, 61, 76.) In previous filings, Plaintiffs have acknowledged that Defendants Tong and

12 Zhong held positions with both Belter and Eastone during the relevant period. (See Doc.

13 No. 8 at 6.) During the relevant time period, Defendant Tong was a member of Belter’s

14 board of directors and a member of Eastone’s board of directors, and Defendant Zhong was

15 also a member of Belter’s board of directors and a member of Eastone’s board of directors.

16 (Doc. No. 17-2, He Decl. ¶14; see also Doc. No. 8 at 6.)

17 In the Court’s October 20, 2020 order, the Court explained that the allegations in

18 Plaintiffs’ first amended complaint were insufficient to establish that Tong and Zhong were

19 specifically acting on behalf of Eastone with respect to the relevant conduct. (Doc. No. 15

20 at 13-14 & n.6.) In an attempt to remedy this defect, Plaintiffs simply allege in the SAC

21 that with respect to the relevant conduct, Defendant Tong and Zhong were acting “on

22 behalf of Eastone” without alleging any factual support for these assertions. (See, e.g.,

23 Doc. No. 16, FAC ¶¶ 58, 61, 76.) These conclusory allegations are still insufficient.

24 Plaintiffs concede that Defendants Tong and Zhong held dual positions with Belter and

25 Eastone, and all of the alleged fraudulent conduct at issue related to Belter’s contractual

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1 relationship with Meditex. Courts presume that directors/officers are wearing their

2 “subsidiary hats” and not their “parent hats” when acting for the subsidiary. BestFoods,

3 524 U.S. at 69. Plaintiffs’ conclusory allegations are insufficient to overcome that

4 presumption. As such, this provides an additional basis for dismissing Defendant Eastone

5 for lack of personal jurisdiction.5

6 C. Conclusion

7 In sum, Plaintiffs have failed to establish that the Court has specific personal

8 jurisdiction over Defendant Eastone. Because the defects in the second amended complaint

9 have previously been identified to Plaintiffs in the Court’s prior order, (see Doc. No. 15 at

10 13-14 & n.6), and Plaintiffs were unable to overcome those defects through additional

11 allegations, the Court declines to grant Plaintiffs further leave to amend. See Telesaurus

12 VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010) (“A district court may deny a

13 plaintiff leave to amend if it determines that ‘allegation of other facts consistent with the

14 challenged pleading could not possibly cure the deficiency,’ or if the plaintiff had several

15 opportunities to amend its complaint and repeatedly failed to cure deficiencies.”). As such,

16 the Court dismisses Defendant Eastone from the action for lack of personal jurisdiction.

17 II. Defendants Belter’s Rule 12(b)(6) Motion to Dismiss

18 In the second amended complaint, Plaintiff alleges a claim for fraud against

19 Defendants Eastone and Belter. (Doc. No. 16, SAC ¶¶ 44-86.) Defendants Eastone and

20 Belter move to dismiss this fraud claim for failure to state a claim. (Doc. Nos. 17-1 at 13-

21 15, 18.) As Defendant Eastone has been dismissed from the action for lack of personal

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23 4 Importantly, Plaintiffs have dropped their claim for breach of contract against Defendant Eastone,

24 and Plaintiffs do not assert that Defendant Eastone was a party to any of the contracts at issue. (See Doc.

No. 8 at 5; Doc. No. 15 at 6, 15; Doc. No. 16, SAC ¶¶ 22-26, 31.)

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5 The Court notes that because these allegations are insufficient to establish that the relevant conduct

26 may be attributed to Defendant Eastone, Plaintiffs have also failed to state a claim for fraud against

Defendant Eastone for this same reason. See, e.g., Bastidas v. Good Samaritan Hosp., No. C 13-04388

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SI, 2014 WL 3362214, at *4-5 (N.D. Cal. July 7, 2014) (dismissing claim against parent company for

28 failure to state a claim where the plaintiff failed to allege sufficient facts that would support direct liability

1 jurisdiction, see supra, the Court will evaluate whether Plaintiff has stated a claim for fraud

2 against Defendant Belter.

3 A. Legal Standards for a Rule 12(b)(6) Motion to Dismiss

4 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal

5 sufficiency of the pleadings and allows a court to dismiss a complaint if the plaintiff has

6 failed to state a claim upon which relief can be granted. See Conservation Force v. Salazar,

7 646 F.3d 1240, 1241 (9th Cir. 2011). Federal Rule of Civil Procedure 8(a)(2) requires that

8 a pleading stating a claim for relief containing “a short and plain statement of the claim

9 showing that the pleader is entitled to relief.” The function of this pleading requirement is

10 to “give the defendant fair notice of what the . . . claim is and the grounds upon which it

11 rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

12 A complaint will survive a Rule 12(b)(6) motion to dismiss if it contains “enough

13 facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,

14 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual

15 content that allows the court to draw the reasonable inference that the defendant is liable

16 for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A pleading

17 that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of

18 action will not do.’” Id. (quoting Twombly, 550 U.S. at 555). “Nor does a complaint

19 suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Id.

20 (quoting Twombly, 550 U.S. at 557). Accordingly, dismissal for failure to state a claim is

21 proper where the claim “lacks a cognizable legal theory or sufficient facts to support a

22 cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104

23 (9th Cir. 2008).

24 In reviewing a Rule 12(b)(6) motion to dismiss, a district court must accept as true

25 all facts alleged in the complaint, and draw all reasonable inferences in favor of the

26 claimant. See Retail Prop. Trust v. United Bhd. of Carpenters & Joiners of Am., 768 F.3d

27 938, 945 (9th Cir. 2014). But, a court need not accept “legal conclusions” as true. Ashcroft

28 v. Iqbal, 556 U.S. 662, 678 (2009). Further, it is improper for a court to assume the

1 claimant “can prove facts which it has not alleged or that the defendants have violated the

2 . . . laws in ways that have not been alleged.” Associated Gen. Contractors of Cal., Inc. v.

3 Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).

4 In addition, a court may consider documents incorporated into the complaint by

5 reference and items that are proper subjects of judicial notice. See Coto Settlement v.

6 Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010). If the court dismisses a complaint for

7 failure to state a claim, it must then determine whether to grant leave to amend. See Doe

8 v. United States, 58 F.3d 494, 497 (9th Cir. 1995); see Telesaurus, 623 F.3d at 1003 (9th

9 Cir. 2010).

10 B. Analysis

11 Plaintiffs’ claim for fraud against Defendants Eastone and Belter is four-part.

12 Plaintiffs’ claim for fraud is based on: (1) allegedly fraudulent misrepresentations made by

13 Yanling Feng in March 2016; (2) allegedly fraudulent misrepresentations made by

14 Defendants Tong, Zhong, Xu, and Wang in August 2018; (3) allegedly fraudulent

15 misrepresentations by Tong and Zhong in May 2019; and (4) allegedly fraudulent

16 misrepresentations in early 2020 regarding a patent application. (See Doc. No. 16, SAC

17 ¶¶ 44-86.) In their motion to dismiss, Defendants Eastone and Belter only challenge

18 Plaintiffs’ allegations regarding the August 2018 and May 2019 misrepresentations.6 (See

19 Doc. No. 17-1 at 13-15; Doc. No. 18 at 1.)

20 The elements of fraud are (1) a material false representation, (2) that was made with

21 knowledge or recklessness as to its falsity, (3) with the intent to induce reliance, and (4)

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6 In its joinder in reply brief, Belter argues for the first time that the allegations of fraud based on

25 representations in early 2020 regarding a patent application fail to state a claim because Plaintiffs are

unable to satisfy the justifiable reliance element with respect those allegations of fraud. (Doc. No. 22 at

26 1-2 (citing SAC ¶ 81).) This specific argument was not raised in Eastone’s motion or Belter’s joinder to

the motion. (See generally Doc. Nos. 17-1, 18.) The Court declines to address this specific argument as

27

it was raised for the first time in a reply brief. See Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007)

28 (“The district court need not consider arguments raised for the first time in a reply brief.”); Bazuaye v.

1 that the other party ‘actually and justifiably relied upon,’ causing him injury.” Garcia v.

2 Vera, 342 S.W.3d 721, 725 (Tex. App. 2011) (citing Ernst & Young, L.L.P. v. Pac. Mut.

3 Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001)); see also Lazar v. Superior Court, 12 Cal.

4 4th 631, 638 (1992). “Fraud by false promise” is a theory “by which the misrepresentation

5 element of fraud can be proven.” Columbia/HCA Healthcare Corp. v. Cottey, 72 S.W.3d

6 735, 744 (Tex. App. 2002). “A promise to do an act (or . . . refrain from doing an act) in

7 the future is actionable fraud only when made with the intention, design and purpose of

8 deceiving, and with no intention of performing the act. Plaintiff must show that the promise

9 was false at the time it was made.” Airborne Freight Corp. v. C.R. Lee Enterprises, Inc.,

10 847 S.W.2d 289, 294 (Tex. App. 1992); see also Tarmann v. State Farm Mut. Auto. Ins.

11 Co., 2 Cal. App. 4th 153, 158 (1991).

12 Further, Federal Rule of Civil Procedure “9(b)’s particularity requirement applies to

13 state-law causes of action.” Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1103 (9th

14 Cir. 2003). Under Federal Rule of Civil Procedure 9, a plaintiff must plead fraud with

15 particularity. “Averments of fraud must be accompanied by ‘the who, what, when, where,

16 and how’ of the misconduct charged.” Vess, 317 F.3d at 1106 (quoting Cooper v. Pickett,

17 137 F.3d 616, 627 (9th Cir. 1997)). “‘[A] plaintiff must set forth more than the neutral

18 facts necessary to identify the transaction. The plaintiff must set forth what is false or

19 misleading about a statement, and why it is false.’” Id. (quoting In re GlenFed, Inc. Sec.

20 Litig., 42 F.3d 1541, 1548 (9th Cir. 1994)). “While statements of the time, place and nature

21 of the alleged fraudulent activities are sufficient, mere conclusory allegations of fraud” are

22 not. Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989).

23 Defendant Belter argues that Plaintiffs’ claim for fraud by false promise related to

24

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7 As previously noted by the Court, it is unclear from the parties’ briefing whether Plaintiffs’ claim

26 for fraud is governed by Texas law or California law. (See Doc. No. 15 at 11-12 n.5; see, e.g., Doc. No.

3-1 at 16-17; Doc. No. 6-1 at 19-20; Doc. No. 7 at 16.) The Court need not resolve this conflict in law

27

between the parties because in analyzing Plaintiffs’ claim for fraud, the Court will cite to both Texas law

28 and California law, and there does not appear to be a material difference between the two with respect to

1 the August 10, 2018 amendment should be dismissed for failure to state a claim because

2 Plaintiffs have failed to adequately allege the intent element with respect to these

3 allegations of fraud. (Doc. No. 17-1 at 13-15; Doc. No. 21 at 8-10; Doc. No. 18 at 1.) Rule

4 9(b) provides that when pleading a claim for fraud, “intent . . . and other conditions of a

5 person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). Nevertheless, “‘[a]lthough

6 intent can be averred generally under Rule 9(b), a plaintiff must point to facts which show

7 that defendant harbored an intention not to be bound by terms of the contract at formation.’”

8 SVGRP LLC v. Sowell Fin. Servs., LLC, No. 5:16-CV-07302-HRL, 2017 WL 5495987,

9 at *6 (N.D. Cal. Nov. 16, 2017) (quoting UMG Recordings, Inc. v. Global Eagle

10 Entertainment, Inc., 117 F. Supp.3d 1092, 1109-10 (C.D. Cal. 2015)); accord Glob. Plastic

11 Sheeting v. Raven Indus., No. 17-CV-1670 DMS (KSC), 2018 WL 3078724, at *4 (S.D.

12 Cal. Mar. 14, 2018).

13 In the Court’s October 20, 2020 order, the Court dismissed Plaintiffs’ claim for fraud

14 for failure to state a claim because Plaintiffs had failed to provide any factual allegations

15 that showed that Defendants harbored an intention not to perform its obligations under the

16 August 10, 2018 amendment at the time of formation. (See Doc. No. 15 at 12-13.) In the

17 second amend complaint, Plaintiffs remedied this defect. In the SAC, Plaintiffs allege that

18 in 2018, Belter had no intention of implementing the VENDYS project in China; rather,

19 Belter’s goal in entering into the agreement was to display strength and stability to

20 investors, employees, and the media. (Doc. No. 16, SAC ¶¶ 66-67.) Plaintiffs explain that

21 this display of strength and stability to the public was important at that time because the

22 media had recently published very negative stories about Belter’s former owner and

23 President’s embezzlement and imprisonment. (Id. ¶¶ 60, 66.) These factual allegations

24 are sufficient to support Plaintiffs’ assertion that Belter harbored an intention not to

25 perform its obligations under the August 10, 2018 amendment at the time of formation.8

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28 8 The factual allegations at issue are also sufficient to provide the who, what, when, where, and how

1 || As such, the Court declines to dismiss Plaintiffs’ fraud claim for failure to state a claim.

2 CONCLUSION

3 For the reasons above, the Court grants Defendant Eastone’s motion to dismiss for

4 of personal jurisdiction, and the Court denies Defendant Belter’s motion to dismiss

5 failure to state a claim. The Court dismisses Defendant Eastone from the action for

6 || lack of personal jurisdiction. The action will proceed against the remaining Defendants.

7 IT IS SO ORDERED.

8 || DATED: February 9, 2021 | | ul | | |

MARILYN ¥W. HUFF, District/Judge

10 UNITED STATES DISTRICT COURT

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