Heng Ren Investments LP v. Sinovac Biotech Ltd.

United States District Court

District of Massachusetts

)

Heng Ren Investments LP, )

)

Plaintiff, )

)

v. )

) Civil Action No.

Sinovac Biotech Ltd., et al., ) 19-11612-NMG

)

Defendants. )

)

)

MEMORANDUM & ORDER

GORTON, J.

This action arises out of a public investment in private

equity transaction (“the PIPE transaction”) in which nearly 12

million new shares of Sinovac Biotech Ltd. (“Sinovac” or

“defendant”) stock allegedly were issued and sold to two private

investors affiliated with Sinovac’s founder and Chief Executive

Officer (“CEO”), Weidong Yin (“Yin”), at below-market price.

Sinovac contends that proper service has not been made with

respect to Yin and that counsel for the company does not

currently appear on his behalf.

Plaintiff Heng Ren Investments LP (“Heng Ren” or

“plaintiff”) submits that the PIPE transaction was intended to

dilute the shares of minority shareholders and divest them of

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their rights. Accordingly, in May, 2019, it filed this action

in Massachusetts Superior Court for breach of fiduciary duty and

wrongful equity dilution.

In July, 2019, defendant Sinovac removed the action to this

Court based on diversity jurisdiction and designated it as

related to another lawsuit that it had initiated in this Court:

Sinovac Biotech Ltd. v. 1Globe Capital LLC et al. (“1Globe”),

No. 18-cv-10421-NMG (D. Mass., filed Mar. 5, 2018). Pending

before the Court is Sinovac’s motion to dismiss for lack of

personal jurisdiction, failure to state a claim and forum non

conveniens. For the reasons that follow, that motion will be

denied.

I. Background

A. The Parties

Heng Ren is a Boston-based Massachusetts limited

partnership and a minority shareholder of Sinovac. Sinovac is a

NASDAQ-listed, publicly-traded biopharmaceutical company that is

incorporated in Antigua, West Indies and has its principal place

of business in Beijing, China.1 The company researches,

develops, manufactures and commercializes vaccines for a variety

1 Due to other litigation challenging the legality of the PIPE

transaction in 2019, NASDAQ has halted all trading in Sinovac

stock for more than two years.

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of diseases, including polio, mumps and COVID-19. It was

allegedly founded by Yin, who currently serves as Sinovac’s

Chairman, President and CEO.

B. The Facts

Plaintiff contends that, since at least 2016, Yin and a

group of allied investors (“the Yin Group”) have “colluded” to

“take complete control of Sinovac on the cheap”. Heng Ren

asserts that, in January, 2016, the Yin Group submitted to the

board of directors a bid to acquire all of Sinovac’s shares at

below market value in a “going private” transaction. That bid

was later rescinded, however, because other Sinovac investors,

together with Sinobioway Group Co. Ltd. (“Sinobioway”), a large,

publicly-traded Chinese company, had engineered a counter-offer

at a higher price per share.

In March, 2017, Yin purportedly caused Sinovac’s board of

directors to adopt a “Rights Agreement” which Heng Ren maintains

was designed to ensure Yin’s control over the company.

Specifically, Heng Ren claims that the Agreement included a

“poison pill” provision whereby, if any group of stockholders

holding 15% or more of Sinovac’s stock entered into an agreement

to vote their shares in unison, the board would “massively

dilute all such stockholders”. Plaintiff asserts that the

provision was used as a shield to prevent other investors from

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effectively mounting another competing bid against the Yin

Group.

In June, 2017, Sinovac announced that it had entered into a

definitive agreement with the Yin Group whereby the latter would

acquire the company by purchasing all of Sinovac’s shares

(purportedly at below market value). Two days later, Sinobioway

submitted a revised counter-proposal to acquire all of the

shares of Sinovac at a 14.9% premium over the purchase price

offered by the Yin Group. In response, Sinovac once again

retracted the agreement and apparently Yin rejected Sinobioway’s

counter-offer.

Heng Ren further alleges that, in or about April, 2018, Yin

and Sinovac received positive clinical trial results with

respect to a new polio vaccine which they concealed from the

public in order to deflate the company’s stock price. At the

same time, the company had apprised two private investors, Vivo

Capital, LLC (“Vivo”) and Advantech Capital Partners, Ltd.

(“Advantech”), of the vaccine’s success. In July, 2018, Sinovac

announced that it had issued nearly 12 million shares of its

stock in a PIPE transaction with Vivo and Advantech. Heng Ren

contends that the investors were members of the Yin Group who

purchased the shares at a discounted price in a further attempt

by Yin to gain control of the corporate defendant at below

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market value and to dilute the voting interest of minority

shareholders.

Plaintiff avers that, since then: 1) a multitude of

domestic and international litigation has caused NASDAQ to halt

the trading of Sinovac’s shares, 2) as a consequence, there is a

“staggering amount of value locked up in Sinovac’s illiquid

shares” and 3) Heng Ren has been unable to access its investment

in the company, thereby causing the partnership to sustain

losses and suffer direct damages.

C. The “Related” Action

In March, 2018, Sinovac filed in this Court a complaint

against the Chiang Li family and 1Globe Capital LLC (“1Globe”),

a company controlled by that family and one of Sinovac’s largest

shareholders. Sinovac seeks to enjoin 1Globe from electing a

new board of directors, acquiring additional Sinovac shares and

voting its existing Sinovac shares.

In response, 1Globe filed counter-claims for securities

fraud and abuse of process in May, 2018. It alleges, just as

does Heng Ren, that, beginning in 2016, Yin and other members of

the then-board of directors (“the Old Board”) have caused

Sinovac to undertake a series of acts to maintain its control

over the company. In addition to the failed attempts by Yin to

acquire all of Sinovac’s shares at below market value, 1Globe

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asserts that the Old Board refused to relinquish management and

control of the corporation, although it had been voted out of

office by a majority of the shareholders (including 1Globe) at

an annual meeting held in February, 2018 (“the February

election”). Moreover, 1Globe maintains that Sinovac brought the

underlying complaint for the ulterior purpose of entrenching the

Old Board and furthering Yin’s illicit attempt to acquire

control of the company.

In August, 2018, one month after the PIPE transaction,

1Globe amended its counter-claims and also moved for a

preliminary injunction to enjoin the Old Board from “illegally”

issuing the stock it intended to issue to the private investors

pursuant to the PIPE transaction. In support of that motion,

1Globe argues that the transaction violates federal securities

law because it was done without the authorization of the

legitimate board of directors (i.e., the new board that was

elected in February, 2018) and was part of a fraudulent scheme

to “prop up” the Old Board.

In October, 2018, this Court denied 1Globe’s motion for a

preliminary injunction for lack of standing and failure to

demonstrate irreparable harm. That case is currently stayed due

to the interminably unresolved appeal of yet another related

case in the Eastern Caribbean Supreme Court in the High Court of

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Justice, Antigua and Barbuda (“the Antiguan Court”), 1Globe

Capital, LLC, and Sinovac Biotech Ltd. (Claim No. ANUHCV

2018/0120).

II. Motion to Dismiss

A. Lack of Personal Jurisdiction

Defendant Sinovac asserts that it is not subject to

personal jurisdiction in Massachusetts because it has no

meaningful contacts with the Commonwealth and none of its

business is conducted there. It adds that this action is

“wholly distinct” from 1Globe because this case arises from the

PIPE transaction which took place nearly four months after

Sinovac initiated the lawsuit against 1Globe.

Plaintiff responds that regardless of Sinovac’s prior

contacts with Massachusetts, if any, defendant has waived its

personal jurisdiction defense by initiating a related lawsuit in

this Court. Plaintiff submits that Sinovac marked the instant

action as related to 1Globe when it filed its notice of removal

in this case. It also asserts that both actions

involve attempts by investors to stop the PIPE Transaction,

a dilutive, self-serving sale of Sinovac shares at an

unfairly low price [and] allege a long-running scheme by

Defendants to depress the value of Sinovac’s shares in

order to buy shares on the cheap and tighten Yin’s control

of the Company – allowing a future windfall.

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For those reasons, Heng Ren suggests that the two cases share a

common nucleus of operative facts.

1. Legal Standard

On a motion to dismiss for lack of personal jurisdiction

pursuant to Fed. R. Civ. P. 12(b)(2), the plaintiff bears the

burden of showing that the Court has authority to exercise

jurisdiction over defendants. Cossart v. United Excel Corp., 804

F.3d 13, 18 (1st Cir. 2015). Where, as here, the Court will

decide a motion to dismiss for lack of personal jurisdiction

without first holding an evidentiary hearing, the Court applies

the “prima facie” standard of review and takes the plaintiff’s

properly documented evidentiary proffers as true and

construe[s] them in the light most favorable to

[plaintiff’s] jurisdictional claim.

A Corp. v. All Am. Plumbing, Inc., 812 F.3d 54, 58 (1st Cir.

2016). A plaintiff cannot, however, rely on “unsupported

allegations” and “must put forward evidence of specific facts to

demonstrate jurisdiction exists.” Id. (internal citations

omitted); see also Philips v. Prairie Eye Center, 530 F.3d 22,

26 (1st Cir. 2008) (explaining that, in order for a plaintiff to

make a prima facie showing of jurisdiction, it “ordinarily

cannot rest upon the pleadings but is obliged to adduce evidence

of specific facts.”).

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In a diversity suit, this Court acts as “the functional

equivalent of a state court sitting in the forum state.” See

Astro–Med, Inc. v. Nihon Kohden America, Inc., 591 F.3d 1, 8

(1st Cir. 2009). As such, to make a prima facie showing of

personal jurisdiction in diversity cases, the plaintiff must

typically demonstrate that the exercise of jurisdiction 1) is

statutorily permitted and 2) coheres with the Due Process Clause

of the Fourteenth Amendment of the United States Constitution.

Id.

Those requirements, however, “may be obviated by the

defendant’s consent to the court’s jurisdiction”. Marron v.

Whitney Group, 662 F. Supp. 2d 198, 200 (D. Mass. 2009). Thus,

where “the defendant has voluntarily submitted [it]self to the

jurisdiction of the forum state”, a court may bypass the typical

jurisdictional analysis. Id. A defendant manifests such consent

by, inter alia,

failing to raise a jurisdictional defense in a timely

manner, by expressing acquiescence to the forum, or by

impliedly submitting to the jurisdiction through conduct.

Id. (citing Gen. Contracting & Trading Co. v. Interpole, 940

F.2d 20, 22 (1st Cir. 1991)). A defendant who initiates another

lawsuit in the forum state impliedly submits to that forum’s

jurisdiction with respect to all actions “arising from the same

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nucleus of operative facts, or sharing the same transactional

core”. Id.

2. Application

This Court concludes that Sinovac has submitted to the

jurisdiction of this Court because it filed a case in this

district which arises from the same nucleus of operative facts

as the instant action. A Court

is obligated to construe the facts in a light most

favorable to the [ ] Plaintiff[’s] jurisdictional claim,

whether or not [ ] Defendant disputes those facts.

Marron, 662 F. Supp. 2d at 201. So construing the facts alleged

herein, this Court infers that Sinovac’s lawsuit to enjoin

1Globe from electing a new board of directors is part of Yin’s

continued effort to maintain control of Sinovac through alleged

improper means which is the same conduct out of which this

action arises. See id.

Furthermore, although the subject PIPE transaction took

place nearly four months after Sinovac sued 1Globe, that

transaction has been subsequently challenged in 1Globe.

Furthermore, the legitimacy of that transaction turns, in part,

on the validity of the preceding vote by 1Globe and other

shareholders to remove the Old Board which is contested in

1Globe. In any event, defendant has apparently conceded the

connection between the two lawsuits because it designated them

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as related when it filed its notice of removal in this case. See

LR, D. Mass 40.1(g)(1) (defining “related” civil cases as those

where at least some of the parties are the same and which either

involve the same or substantially similar issues of fact and/or

arise out of the same transaction or occurrence).

Accordingly, the Court is satisfied that, under the prima

facie standard, 1Globe shares a common transactional core with

this case and finds that, by initiating 1Globe in this Court,

Sinovac has waived its jurisdictional defense here. See Marron,

662 F. Supp. 2d at 201 (“[O]ne who enjoys the full benefits of

access to a forum’s courts as plaintiff may not simultaneously

claim immunity from that forum’s authority as defendant.”). The

Court will, therefore, deny Sinovac’s motion to dismiss for lack

of personal jurisdiction.

B. Failure to State a Claim

1. Legal Standard

To survive a motion under Fed. R. Civ. P. 12(b)(6), the

subject pleading must contain sufficient factual matter to state

a claim for relief that is actionable as a matter of law and

“plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

(2007)). A claim is facially plausible if, after accepting as

true all non-conclusory factual allegations, the court can draw

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the reasonable inference that the defendant is liable for the

misconduct alleged. Ocasio-Hernandez v. Fortuno-Burset, 640 F.3d

1, 12 (1st Cir. 2011).

When rendering that determination, a court may not look

beyond the facts alleged in the complaint, documents

incorporated by reference therein and facts susceptible to

judicial notice. Haley v. City of Boston, 657 F.3d 39, 46 (1st

Cir. 2011). A court also may not disregard properly pled

factual allegations even if actual proof of those facts is

improbable. Ocasio-Hernandez, 640 F.3d at 12. Rather, the

relevant inquiry focuses on the reasonableness of the inference

of liability that the plaintiff is asking the court to draw. Id.

at 13.

2. Application

The parties disagree as to whether the substantive law of

Massachusetts or Antigua and Barbuda governs this diversity

suit. Sinovac contends that Antiguan law applies and that, for

that reason, Heng Ren has failed to state a claim. It argues,

specifically, that the Antiguan International Business

Corporations Act (“the IBCA”) sets forth the possible causes of

action that Heng Ren, as a stockholder, can assert against

Sinovac. Sinovac adds that the IBCA reserves for the Antiguan

Court exclusive jurisdiction over claims arising under it.

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When a district court’s jurisdiction is based upon

diversity of citizenship, the court must apply the choice-of-law

rules of the forum state. Klaxon v. Stentor Elec. Mfg., 313 U.S.

487, 496 (1941). For disputes regarding the internal affairs of

a corporation, Massachusetts courts typically apply the law of

the state of incorporation because “only one State should have

the authority to regulate [those] affairs”. See Mariasch v.

Gillette Co., 521 F.3d 68, 71–72 (1st Cir. 2008) (internal

quotation marks and citation omitted).

Sinovac is incorporated in Antigua and thus Antiguan law

governs matters of Sinovac’s corporate governance and internal

affairs. Those affairs include matters particular to

“the relationships among or between [Sinovac] and its current

officers, directors, and shareholders”, such as the fiduciary

duty owed to its minority shareholders. Id. at 72; see also

Natale v. Espy Corp., 2 F. Supp. 3d 93, 102–03 (D. Mass. 2014).

Even assuming, arguendo, that the internal affairs doctrine

dictates that Antiguan law governs this dispute, however, the

Court finds that dismissal thereunder would be premature.

Defendant has offered only a cursory review of the IBCA and

proffered no compelling argument to define its content.2 Thus,

2 Although this Session concluded in 1Globe that the IBCA imposes

a requirement that a shareholder apply to the Antiguan Court

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the Court declines to conclude, at this time, that Heng Ren’s

claims are barred by that foreign statute.

Federal courts have discretion when determining the

contours of foreign law pursuant to Fed. R. Civ. P. 44.1. A

court “may consider any relevant material or source” and is

permitted, but not required, to conduct its own research. Fed.

R. Civ. P. 44.1; Mackley v. Sullivan & Liapakis, P.C., No. 98-

cv-8460, 2001 U.S. Dist. LEXIS 21723, at *10–11 (S.D.N.Y. Dec.

27, 2001). It can also direct the parties to brief a particular

question with respect to the relevant foreign law and/or demand

a more “complete presentation [of that law] by counsel”. See

Mackley, 2001 U.S. Dist. LEXIS 21723, at *11; see also Fed. R.

Civ. P. 44.1 advisory committee’s note to 1966 amendments

(“[T]he court is free to insist on a complete presentation [of

the relevant foreign law] by counsel.”); Pfizer Inc. v. Elan

Pharm. Research Corp., 812 F. Supp. 1352, 1361 (D. Del. 1993)

(“Nothing in Rule 44.1 requires a court to engage in private

before he, she, it can file a derivative suit on behalf of a

corporation, that determination is not controlling here because

in 1Globe 1) the question was whether to enter a preliminary

injunction rather than dismiss the complaint and 2) the

discussion addressed the IBCA only to the extent it applies to

derivative rather than direct shareholder claims. See No. 18-cv-

10421-NMG, Dkt No. 73 (D. Mass. Oct. 15, 2018).

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research; the rule preserves the court’s right to insist upon a

complete presentation by counsel on the foreign-law issue.”).

Furthermore, although the First Circuit Court of Appeals

has yet to render an opinion on the matter, several other

circuits have held that whichever party is seeking the

application of foreign law has the burden of proving the

relevant legal principles thereof. See, e.g., McGee v. Arkel

Int'l, LLC, 671 F.3d 539, 546 (5th Cir. 2012) (referencing the

plaintiff's “burden of proving foreign law” and requiring that

litigants “present to the district court clear proof of the

relevant legal principles” (internal quotations and citations

omitted)); Baker v. Booz Allen Hamilton, Inc., 358 F. App'x 476,

481 (4th Cir. 2009) (indicating that the “party claiming foreign

law applies carries . . . the burden of proving foreign

law[.]”); Ferrostaal, Inc. v. M/V Sea Phoenix, 447 F.3d 212, 216

(3d Cir. 2006) (explaining that, because courts have no duty

under Fed. R. Civ. P. 44.1 to conduct independent research into

foreign law, the parties “carry the burden of proving [it]”);

Mut. Serv. Ins. Co. v. Frit Indus., Inc., 358 F.3d 1312, 1321

(11th Cir. 2004) (noting that a district court is not required

to conduct research into foreign law if the party urging its

application declines to do so); Esso Standard Oil S.A. v. S.S.

Gasbras Sul, 387 F.2d 573, 581 (2d Cir. 1967) (holding that,

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under the “new Rule 44.1”, the party seeking to invoke foreign

law “still has the task of persuasion”).

Here, Sinovac is the party seeking to invoke Antiguan

corporate law but it has provided little advocacy to help this

Court define its contours. Koshani v. Barton, 374 F. Supp. 3d

365, 710 (E.D. Tenn. 2019) (noting that, when the parties have

provided little to no guidance to the court with respect to

foreign law, Fed. R. Civ. P. 44.1 imposes no duty on the court

to research the law independently). It has submitted only a

superficial summary of the IBCA and has failed to address

whether Heng Ren has stated plausibly, for instance, a claim for

aiding and abetting breaches of fiduciary duty under the common

law of Antigua and Barbuda. See COMMON LAW (DECLARATION OF APPLICATION)

ACT, CHAPTER 92 OF THE LAWS OF ANTIGUA AND BARBUDA (extending the

application of English common law to Antiguan courts); see also

In re PHC, Inc. Shareholder Litig., 894 F.3d 419, 433 (1st Cir.

2018) (“[I]t is a familiar tenet that when a statute addresses

issues previously governed by common law, an inquiring court

should presume that—except where explicit changes are made—the

legislature intended to retain the substance of preexisting

law.”).

Accordingly, this Court will deny without prejudice

defendant Sinovac’s motion to dismiss for failure to state a

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claim under Antiguan law. If Sinovac continues to invoke

Antiguan law, it shall provide this Court with a more complete

presentation thereof, addressing more fully, inter alia, whether

1) Heng Ren’s claims are direct or derivative under Antiguan

law, 2) those claims are governed by the IBCA or common law and

3) there is any prerequisite to initiating a lawsuit under the

IBCA.

C. Forum Non Conveniens

Finally, defendant Sinovac argues that this action is most

conveniently litigated in Antigua and Barbuda because it deals

with the internal affairs of an Antiguan corporation, relates to

conduct which occurred outside of Massachusetts and is governed

by Antiguan law. Plaintiff retorts that 1) there is a strong

presumption in favor of plaintiff’s choice of forum and 2) the

public interest favors access to a U.S. court here because this

dispute relates to the use (or abuse) of an American securities

market.

1. Legal Standard

The doctrine of forum non conveniens provides courts with

the discretionary power

to dismiss a case because the chosen forum . . . is so

inconvenient that it would be unfair to conduct the

litigation in that place.

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Howe v. Goldcorp Investments, Ltd., 946 F.2d 944, 947 (1st Cir.

1991). That power is limited “by the overarching principle that

a plaintiff’s choice of forum should rarely be disturbed.”

Adelson v. Hananel, 510 F.3d 43, 53 (1st Cir. 2007) (internal

quotation marks omitted) (quoting Piper Aircraft Co. v. Reyno,

454 U.S. 235, 241 (1981)). Thus, as explained by the First

Circuit, the moving party bears

[a] heavy burden of establishing that an adequate

alternative forum exists and that considerations of

convenience and judicial efficiency strongly favor

litigating the claim in the second forum.

Id. (emphasis in original) (internal quotation marks omitted).

That is especially so when, as here, plaintiff brings suit in

its home forum. See Koster v. Lumbermens Mut. Cas. Co., 330 U.S.

518, 524 (1947).

2. Application

It is apparently undisputed that the Antiguan Court

provides an adequate alternative forum in which to litigate this

action. Defendant Sinovac has failed, however, to meet its

burden to establish that a consideration of convenience and

judicial efficiency strongly favors litigating this dispute

there. Although Antiguan law may govern Heng Ren’s claims,

that, without more, fails to rebut the presumption in favor of

plaintiff’s choice of forum. See Mercier v. Sheraton Intern.,

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Inc., 981 F.2d 1345, 1357 (1st Cir. 1992) (noting that the

application of foreign law should be neither dispositive nor

“ascribed undue importance”).

The Court finds that both considerations of convenience and

judicial efficiency weigh in favor of the current forum. With

respect to convenience, Massachusetts is Heng Ren’s domicile and

also the state in which Sinovac chose to initiate 1Globe, the

related lawsuit. By filing 1Globe in this Court, Sinovac has

demonstrated its ability (and willingness) to litigate in this

forum, thereby defeating any argument that proceeding in

Massachusetts would be “so inconvenient that transfer is needed

to avoid serious unfairness [to Sinovac]”. Howe, 946 F.2d 944

(internal quotation marks omitted). As for judicial efficiency,

this Session is already tasked with deciding 1Globe and it would

be efficient to resolve simultaneously the two cases which share

a common nucleus of operative facts.

In any event, as Heng Ren submits, there is a strong public

interest in making U.S. courts available to resolve disputes

such as this, which allegedly involve the improper issuance and

sale of shares of a company traded on the NASDAQ stock exchange,

an American securities market. See Piper Aircraft Co., 454 U.S.

at 241 n.6 (finding relevant to the forum non conveniens

analysis the “local interest in having localized controversies

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decided at home”); see also DiRienzo v. Philip Serv. Corp., 294

F.3d 21, 28 (2d Cir. 2002) (explaining that the United States

has an interest in having U.S. courts enforce U.S. securities

laws). Accordingly, dismissal on forum non conveniens grounds

is unwarranted.

ORDER

For the foregoing reasons, the motion of defendant Sinovac

Biotech Ltd. to dismiss the complaint (Docket No. 28) is DENIED

without prejudice.

So ordered.

/s/ Nathaniel M. Gorton

Nathaniel M. Gorton

United States District Judge

Dated June 3, 2021

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