Schmitt v. China XD Plastics Company, Limited

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

--------------------------------------X

JOSHUA SCHMITT, individually and on

behalf of all others similarly

situated, MEMORANDUM AND ORDER

20-cv-6028 (KAM)(SJB)

Plaintiff,

-against-

CHINA XD PLASTICS COMPANY, LIMITED,

FAITH DAWN LIMITED, FIATH HORIZON,

INC., XD ENGINEERING PLASTICS COMPANY

LIMITED, JIE HAN, TAYLOR ZHANG, LINYUAN

ZHAI, HUIYI CHEN and GUANBOA HUANG,

Defendants.

--------------------------------------X

MATSUMOTO, United States District Judge:

Plaintiff Joshua Schmitt (“Schmitt” or “Plaintiff”)

commenced this action on December 10, 2020, against Defendants

China XD Plastics Company, Limited (“China XD”), Faith Dawn

Limited (“FDL”), Faith Horizon, Inc. (“FHI”), XD Engineering

Plastics Company Limited (“XD Engineering”), Jie Han (“Han”),

Taylor Zhang (“Zhang”), Linyuan Zhai (“Zhai”), Huiyi Chen

(“Chen”), and Guanboa Huang (“Huang”), collectively,

“Defendants.” In the Second Amended Complaint (SAC), filed on

August 16, 2021, Plaintiff alleges, in Count One, violations of

15 U.S.C. §78n (“Section 14(a)” of the Securities and Exchange

Act of 1934) and 17 C.F.R. § 240.14a–9 (“Rule 14(a)-9”) by

Defendant China XD (the “Company Defendant”). In Count Two,

Plaintiffs allege violations of 15 U.S.C. § 78t (“Section 20(b)”

of the Securities and Exchange Act of 1934) by all Defendants

other than China XD, including Defendants FDL, FHI, and XD

Engineering (the “Controlling Shareholders”) as well as

Defendants Han, Zhang, Zhai, Chen, and Huang (the “Individual

Defendants”). (SAC ¶¶ 51-67.) In Count Three, Plaintiff

alleges breach of fiduciary duty under Nevada law, and, in Count

Four, Plaintiff alleges aiding and abetting breach of fiduciary

duty under Nevada law, as against the Individual Defendants.

(SAC ¶¶ 68-75.)

PROCEDURAL BACKGROUND

After filing the initial Complaint on December 10, 2020,

Plaintiff amended the Complaint on February 17, 2021 to include

class claims. (ECF No. 19.) Schmitt then moved the Court to be

appointed lead plaintiff on April 30, 2021, pursuant to 15

U.S.C. § 78u-4(a)(3)(B). (ECF No. 21.) Shortly thereafter, on

May 3, 2021, two other groups of China XD shareholders moved the

Court to be appointed lead plaintiff. (ECF Nos. 22, 23.) The

Court denied all three motions on August 2, 2021 as moot because

Schmitt indicated that he intended to file a Second Amended

Complaint. The Court issued an order stating that “Plaintiff

Schmitt shall file a Second Amended Complaint by August 16,

2021.” (Aug. 2, 2021 Order.) Plaintiff filed the Second

Amended Complaint on August 16, 2021, (ECF No. 39, “SAC.”)

After filing the Second Amended Complaint, Plaintiff renewed his

motion to be appointed lead plaintiff and, on February 4, 2022,

Magistrate Judge Sanket J. Bulsara granted Plaintiff’s unopposed

motion.1 (ECF No. 57.)

Before the Court are Defendants’ motions to dismiss the

Second Amended Complaint, pursuant to Federal Rule of Civil

Procedure 12(b)(6) and 15 U.S.C. § 78u-4, the Private Securities

Law Reform Act (“PSLRA”), on the grounds that Plaintiff has

failed to state claims upon which relief can be granted and that

Plaintiff has failed to meet the heightened pleading requirement

imposed by the PSLRA. See generally (ECF Nos. 67, 78, 81.)

Defendant China XD, the only Defendant named in Count One, moves

to dismiss Count One. (ECF Nos. 67, “China XD and Zhang Mem.”;

71, “China XD and Zhang Reply.”) The Controlling Shareholders

and the Individual Defendants move to dismiss Count Two. (China

XD and Zhang Mem.; ECF Nos. 78, “Contr. Def. and Han Mem.”; 81,

“Zhai, Chen, and Huang Mem.”; China XD and Han Reply; ECF Nos.

76, “Contr. Def. and Han Reply”; 80, “Zhai, Chen, and Huang

Reply.”) The Controlling Shareholders and the Individual

Defendants also move to dismiss Count Three and Count Four.

1 Pursuant to Magistrate Judge Bulsara’s February 4, 2022 order, Plaintiff is

Lead Plaintiff of a putative class of China XD shareholders pursuant to 15

U.S.C. § 78u-4(a)(3)(B). Although Magistrate Judge Bulsara found that

Plaintiff made a preliminary showing that two out of the four requirements

for class certification under Fed. R. Civ. P. 23 were satisfied, (ECF No. 57

at 9-10) Plaintiff has not yet moved the Court for class certification

pursuant to Fed. R. Civ. P. 23. As such, the Court refers to Schmitt as an

individual Plaintiff in this Memorandum and Order.

(China XD and Zhang Mem.; Contr. Def. and Han Mem; Zhai, Chen,

and Huang Mem.; China XD and Zhang Reply.; Contr. Def. and Han

Reply; Zhai, Chen, and Huang Reply.) Plaintiff opposes all

three of Defendants’ motions to dismiss his claims. (ECF No.

70, “Ptf. Opp.”)

For the reasons set forth below, Defendant China XD’s

motion to dismiss Count One as well as the Controlling

Shareholders’ and the Individual Defendants’ motions to dismiss

Count Two are GRANTED and Plaintiff’s claims under Section 14(a)

and Section 20(a) are DISMISSED with prejudice. The Controlling

Shareholders’ and Individual Defendants’ motion to dismiss Count

Three and Count Four are GRANTED and Plaintiff’s claims under

Nevada state law are DISMISSED without prejudice.

FACTUAL BACKGROUND

“To survive a motion to dismiss, a complaint must contain

sufficient factual matter, accepted as true, to state a claim to

relief that is plausible on its face.” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (internal quotation marks and citation

omitted). Pursuant to Fed. R. Civ. P. 12(b)(6) and the PSLRA,

the Court reviews the operative Second Amended Complaint,

accepting as true the factual allegations therein. The Court

draws all reasonable inferences in Plaintiff’s favor. Melendez

v. City of New York, 16 F.4th 992, 1010 (2d Cir. 2021). To the

extent Plaintiff alleges “legal conclusion[s] couched as factual

allegation[s]” however, the Court is not bound to accept such

statements as true. Drimal v. Tai, 786 F.3d 219, 223 (2d Cir.

2015) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009))

(internal quotation marks omitted). Based on the foregoing,

this Court accepts as true the following allegations.

I. The Parties

Plaintiff is a resident of Waterloo, Iowa and the

beneficial owner of 52,327 shares of China XD common stock as of

August 16, 2021. (SAC ¶ 9.) China XD, in which Plaintiff is

invested, is a company that researches, develops, manufactures

and sells modified plastics products that are used in the

production of automobiles, railways, airplanes, ships, and

electronic appliances. (SAC ¶¶ 10, 23.) China XD is a Nevada

corporation that maintains a place of business in Queens, New

York. (SAC ¶ 10.)

According to Plaintiff, China XD is a leading producer of

high polymer materials, which it primarily sells to automobile

manufactures in China and the United Arab Emirates. (SAC ¶ 24.)

Plaintiff alleges that in 2009, China XD was included among on

the Nasdaq as “the first high polymer material enterprise in

greater China.” In 2016, China XD was listed in the Top Hundred

Corporations of Chemical Industry by the China Petroleum and

Chemical Industry Federation (“CPCIF”). (SAC ¶¶ 24 - 25.)

Plaintiff asserts that more recently, China XD had begun

expanding its product offerings beyond the automobile industry,

an effort that resulted in “a rapid increase of customer orders

in non-automobile applications, evidenced by [] stable sales

growth[.]” (SAC ¶ 26.) Plaintiff alleges that although China

XD has maintained a “thriving, profitable business” for many

years and despite these efforts to expand its product offerings,

the COVID-19 pandemic resulted in significant setbacks to China

XD’s business. (SAC ¶ 24.)

According to Plaintiff, Defendant Han is the founder of

China XD and currently serves as the Chief Executive Officer

(“CEO”) and Chairman of the Board of Directors of China XD.

(SAC ¶ 11.) Plaintiff alleges that Han is also the sole owner

and beneficiary of XD Engineering, through which Han owns

approximately 33,065,054 shares or 50.1% of China XD’s

“outstanding Common Stock and control shares of China XD’s Class

A Common Stock and Class B Common Stock.” (SAC ¶¶ 11, 17.)

Plaintiff further alleges that in December 2019, XD Engineering

purchased 500,000 additional China XD shares and that Defendant

Han’s total China XD shareholdings, including the China XD

shares he owns through XD Engineering, comprise 70% of China

XD’s total voting power. (SAC ¶¶ 11, 17.) Plaintiff contends

that Defendant Han is also the owner and sole director of

Defendant FDL, and FDL subsidiary, FHI. (SAC ¶¶ 18-19.)

Plaintiff refers to the entities owned or controlled by

Defendant Han, including FDL, FHI, and XD Engineering, as the

“Controlling Shareholders.” (SAC ¶ 20.)

Defendants Zhang, Zhai, Chen, and Huang are members of the

Board of Directors of China XD. (SAC ¶¶ 12-15.) Defendant

Zhang is also the Chief Financial Officer (“CFO”) of China XD.

(SAC ¶¶ 12–15.) Plaintiff refers to Han, Zhang, Zhai, Chen,

and Huang as the “Director Defendants” and alleges that in

January 2020, the Director Defendants “had recently joined the

board [of directors].” (SAC ¶ 49.)

II. The January 2020 Proxy Statement

On January 14, 2020, China XD filed a Form DEF 14A or

definitive proxy statement with the Securities and Exchange

Commission (“SEC”). The January 14, 2020 Form DEF 14A proxy

statement (the “Proxy”), sought approval from shareholders of a

2020 Stock Incentive Plan (the “2020 Plan” or the “Plan”), which

was incorporated into the Proxy by reference and also as an

attachment to the Proxy.2 (ECF No. 79-1, Zhai, Chen, Huang Def.

Mem., Matteo Decl., Ex. A., “Proxy” at 54-69.) Prior to issuing

the Proxy, the China XD Board of Directors approved the Plan on

January 10, 2020. (SAC ¶ 27.) The Proxy proposed the Plan for

2 Defendants include the Proxy as Exhibit A to the Declaration of Joseph A.

Matteo. (ECF No. 79-1, the “Proxy.”) The Court finds that this document is

incorporated into the Second Amended Complaint by reference, and thus the

Court may consider it when deciding Defendants’ motion to dismiss. See

Nicosia v. Amazon.com, Inc., 834 F.3d 220, 230–31 (2d Cir. 2016) (courts may

consider on a motion to dismiss “any statements or documents incorporated in

[the SAC] by reference”) (internal citation omitted).

a shareholder vote at the annual shareholder meeting, which took

place on February 11, 2020. (SAC ¶ 27.)

Plaintiff notes that, pursuant to the Proxy, “the Board []

strongly believe[d] that the approval of the 2020 Plan [would

be] essential to the Company’s success.” (SAC ¶ 30.) In

particular, Plaintiff quoted language from the Proxy stating the

Board of Director’s position that, because “[China XD’s]

employees are its most valuable assets[,] . . . the awards

permitted under the 2020 Plan are vital to [China XD’s] ability

to attract and retain outstanding and highly skilled individuals

in the extremely competitive labor markets in which the Company

competes.” (SAC ¶ 37.)

The Proxy set forth the “notice of annual meeting of

stockholders for a stockholder meeting to be held on February

11, 2020 to vote on, inter alia, approval of the [Plan]” and in

particular, the issuance of “13,000,000 shares . . . to

‘eligible’ employees, directors and independent contractors.”

(SAC ¶ 27.) Prior to the Plan, on November 8, 2019, Plaintiff

contends “China XD had 66,948,841 shares” such that the Proxy

contemplated a “20% dilution” in the value of China XD’s

existing shares. (SAC ¶ 28.) Plaintiff alleges that at the

same time China XD issued the Proxy seeking shareholder approval

of the Plan, the China XD “stock price was crashing under the

leadership of Defendants Han, Zhang” and non-party Quing Ma.

(SAC ¶ 28.) Plaintiff further alleges that during this time

period, Defendants were secretly negotiating “a going private

merger.” (SAC ¶ 28.)

III. The 2020 Stock Incentive Plan

The Plan, as outlined in the Proxy, consisted of two

components, (1) a stock issuance program, and (2) an option

grant program. (SAC ¶ 29; Proxy at 56, 62.) In total, the

shares reserved for issuance under the Plan amounted to

13,000,000 shares. According to Plaintiff, the last time China

XD executed a Stock Incentive Plan was in 2009 (the “2009

Plan”). (SAC ¶ 32.) The 13,000,000 shares reserved for

issuance under the 2020 Plan represented a 67% increase in the

amount of shares reserved, as compared to the 2009 Plan. (SAC ¶

32) (“under [the 2009 Plan] the Board of Directors reserved

7,800,000 shares of common stock for issuance.”). Moreover,

Plaintiff asserts that since the time the 2009 Plan was

announced, the China XD share price had fallen by approximately

90%. (SAC ¶ 33.)

A. The Stock Issuance Program

Plaintiff describes the stock issuance program as the

component of the Plan through which “eligible persons may, at

the discretion of the Plan Administrator, be issued shares of

Common Stock directly, either through the immediate purchase of

such shares or as a bonus for services rendered to the

Corporation (or any parent or Subsidiary).” (SAC ¶ 29.) The

Proxy states that “Stock issuances [would] vest in accordance

with the terms and conditions established by the Board in its

sole discretion” and that “[t]he Board [would] determine the

number of shares granted pursuant to an Award of stock.” (SAC ¶

37.) The stock issuance program is described in further detail

in the Proxy and also in the Plan, which is attached to the

Proxy. (Proxy at 62-64.)

B. The Option Grant Program

Plaintiff asserts that under the option grant program,

“eligible persons [could], at the discretion of the Plan

Administrator, be granted options to purchase shares of Common

Stock[.]” (SAC ¶ 29.) Plaintiff quotes portions of the Proxy

that describe the option grant program and which state, in

relevant part, that “the Board is able to grant nonqualified

stock options and incentive stock options under the [Plan]” and

that “the Board determines the number of shares subject to each

option.” (SAC ¶ 37.) The option grant program is described in

further detail in the Proxy and also in the Plan, which is

attached to the Proxy. (Proxy at 56-62.)

C. Administration of the Plan

According to the Proxy, the Board of Directors maintained

authority to “administer the 2020 Plan.” (SAC ¶ 37.) However,

the Board of Directors were authorized, under the Plan, to

delegate “any or all administrative functions otherwise

exercisable by the Board . . . to a committee of one or more

Board members appointed by the Board to exercise one or more

administrative functions under the plan.” (SAC ¶ 37.) See also

(SAC ¶ 29) (“[u]nder the Plan, the administrator could delegate

[] decisions to, inter alia, any committee of the Board.”)

D. Vesting Provision

Plaintiff notes that, according to the Proxy, the Plan

“granted participants ‘full stockholder rights’ with respect to

any shares of common stock issued to the participant . . .

whether or not the participant’s interest in those shares []

vested[.]” (SAC ¶ 31) (quoting Proxy at 62.) Based on this

vesting provision, the participants of the stock issuance

program “[would] have the right to vote [on the basis of] such

shares and to receive any regular cash dividends paid on such

shares.’” (SAC ¶ 31) (quoting Proxy at 62.) Essentially, this

permitted participants to maintain voting power with respect to

shares that they were not yet the beneficial owners of, which

Plaintiff alleges is a “violation of Nasdaq rule 5640[.]” (SAC

¶ 39.)

E. Financing

Plaintiff also asserts that the Plan included a financing

provision, which offered “a loan from [China XD] to purchase

shares or options secured only with the options or stock[.]”

(SAC ¶ 40.) The Proxy states, in relevant part, that “[t]he

Plan Administrator may permit any [] Participant to pay the

option exercise price under the Option Grant Program or the

purchase price for shares issued under the Stock Issuance

Program by delivering a full-recourse, interest bearing

promissory note secured by the purchased shares” and that the

“remaining terms of the note” would be set upon the Plan

Administrator’s consideration of any “potential adverse tax and

accounting consequences[.]” (Proxy at 64.)

IV. The Contemplated Merger

Plaintiff alleges that “[o]nly four months after approval

of the [Plan], [Defendants] Han and XD Engineering, facilitated

by the Director Defendants, caused China XD to enter into a

going private Merger at a price per share of $1.20 per share to

minority shareholders[.]” (SAC ¶46.) Plaintiff notes that this

share price is “nearly 50% less than [XD Engineering’s] December

2019 purchase of shares from certain of its officers and

directors.” (SAC ¶ 46.) Plaintiff asserts that neither the

Proxy nor the Plan gave notice to shareholders of the

contemplated merger. (SAC ¶ 47.) No other SEC filings made

during the relevant time period made any reference to the

contemplated merger either, according to Plaintiff. (SAC ¶ 47.)

Plaintiff points to the change-of-control provision in the

Plan that protects participants’ interests in the event of a

change of control, as evidence of China XD’s awareness of the

anticipated merger. (SAC ¶¶ 40 – 41.) Ultimately, no merger

was ever consummated.

V. Approval of the Plan

The Plan “was approved by a vote of shareholders on

February 11, 2020 which included voting by the majority owners

of China XD[.]” (SAC ¶ 43.) According to Plaintiff,

“Defendants cashed in on the [Plan] when the Board approved a

grant of 3,600,000 common shares to themselves (according to an

August 28, 2020 SEC filing) which vested immediately (according

to a September 9, 2020 Proxy) at no cost to the Defendants Han,

Zhang, and Quing Ma, China XD’s Chief Operating Officer.” (SAC

¶ 44) (emphasis omitted). Of the 3,600,000 common shares

alleged to have been issued to Defendants, Plaintiff contends

1,800,000 were issued to Defendant Han and 500,000 were issued

to Defendant Zhang. (SAC ¶ 45.) Plaintiff alleges that the

primary beneficiaries of the Plan “[were] not [China XD’s]

public stockholders.” (SAC ¶ 48.) Rather, the beneficiaries

were, according to Plaintiff, conflicted directors and executive

officers. (SAC ¶ 48) (“[t]he Board and Company’s executive

officers . . . secured unique benefits for themselves not

available to Plaintiff and the public stockholders of China XD

in the form of continued employment, board seats, and the

ability to participate in China XD’s recovery as the auto

industry outlook worldwide continues to improve despite the

pandemic”). (SAC ¶ 48.)

Plaintiff alleges that in the early spring of 2020, after

the announcement of the approval of the Plan, China XD’s stock

declined in value by approximately 50%. (SAC ¶ 42.) Plaintiff

also acknowledges that this timing coincides with the onset of

the COVID-19 pandemic, which had substantial adverse impacts on

China XD’s business. (SAC ¶ 24.)

LEGAL STANDARD

“The PSLRA dictates the pleading standards for Plaintiffs’

claim under” any provision of the SEC Act of 1934, including

Section “14(a) and Rule 14a-9,” as well as Section 20(a). Bond

Opportunity Fund v. Unilab Corp., No. 99-cv-11074, 2003 WL

21058251, at *3 (S.D.N.Y. May 9, 2003). “Plaintiff faces a high

pleading standard in this case,” Bisel v. Acasti Pharma, Inc.,

No. 21-cv-6051, 2022 WL 4538173, at *6 (S.D.N.Y. 2022), as

compared to claims subject only to Fed. R. Civ. P. 12(b)(6),

because the claims arise under the PSLRA.

In order to plead violations of Section 14(a) and Section

20(a), based on alleged omissions, Plaintiff must “specify each

statement alleged to have been misleading, the reason or reasons

why the statement is misleading, and, if an allegation regarding

the statement or omission is made on information and belief, the

[Plaintiff] shall state with particularity all facts on which

the belief is formed.” 15 U.S.C. § 78u-4(b)(1). The PSLRA, for

its part, has imposed heightened pleading requirements and a

loss causation requirement upon ‘any private action’ arising

from the Securities Exchange Act.” Bisel, 2022 WL 4538173, at

*6 (quoting In re Bank of Am. Corp. Sec., Derivate, & Emp. Ret.

Income Sec. Act (ERISA) Litig., 757 F. Supp. 2d 260, 286

(S.D.N.Y. 2010)).

DISCUSSION

I. Count One: Section 14(a) and Rule 14a-9 Claims Against

China XD

Section 14(a) is the provision of the SEC Act of 1934 that

governs a public company’s duties with respect to the proxy

materials issued to shareholders. Specifically, Section 14(a)

makes it “unlawful for any person . . . in contravention of such

rules and regulations as the Commission may prescribe as

necessary . . . to solicit . . . any proxy or consent or

authorization in respect of any security[.]” 15 U.S.C. §

78n(a)(1). Rule 14a-9, which is promulgated under Section

14(a), states, in relevant part, that “[n]o solicitation . . .

shall be made by means of any proxy statement . . . which, at

the time and in light of the circumstances under which it is

made, is false or misleading with respect to any material fact,

or which omits to state any material fact necessary in order to

make the statements therein not false or misleading[.]” 17

C.F.R. § 240.14a–9. “To state a claim under Section 14(a) and

Rule 14a-9(a), a plaintiff must allege that: [i] a proxy

statement contained [a] material . . . omission, which [ii]

caused plaintiffs’ injury, and [iii] that the proxy solicitation

itself, rather than the particular defect in the solicitation

materials, was an essential link [in] the accomplishment of the

transaction.” Bisel, 2022 WL 4538173, at *7 (internal quotation

marks and citation omitted). “The plain language of Rule 14a-9

requires a plaintiff to show both materiality and a false or

misleading statement as a result of the omission. Omission of

information from a proxy statement will violate these provisions

if either the SEC regulations specifically require disclosure of

the omitted information . . . or the omission makes other

statements in the proxy statement materially false or

misleading.” Bisel, 2022 WL 4538173, at *8 (internal citation

omitted).

A fact is material “if there is a substantial likelihood

that a reasonable shareholder would consider it important in

deciding how to vote.” Virginia Bankshares, Inc. v. Sandberg,

501 U.S. 1083, 1084 (1991) (internal citation omitted). In

particular, the omission of a fact is material “if either the

SEC regulations specifically require disclosure of the omitted

information in a proxy statement, or the omission makes other

statements in the proxy statement materially false or

misleading.” Resnik v. Swartz, 303 F.3d 147, 151 (2d Cir.

2002). Omitted facts “need not be important enough that [they]

‘would have caused the reasonable investor to change his vote’ .

. . Rather, the information need only be important enough that

it would have assumed actual significance in the deliberations

of the reasonable shareholder.” Folger Adam Co. v. PMI

Industries, Inc., 938 F.2d 1529, 1533 (2d Cir. 1991) (quoting

TSCI Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449

(1976)). Although the question of materiality is “a mixed

question of law and fact,” TSCI Industries, 426 U.S. at 450,

“the Court may dismiss for lack of materiality [] if the facts

that are alleged to have been omitted or misleading are ‘so

obviously unimportant to a reasonable investor that reasonable

minds could not differ on the question of their importance.’”

Bond Opportunity Fund v. Unilab Corp., 99-cv-11074, 2003 WL

21058251, at *4 (S.D.N.Y. May 9, 2003) (quoting In re: MCI

Worldcom, Inc. Sec. Litig., 93 F. Supp. 2d 276, 282 (E.D.N.Y.

2000)

In addition to demonstrating the materiality of an alleged

omission, a plaintiff must plead loss causation to state a claim

under Section 14(a). Plaintiff must point to either (1) a

negative market reaction “to a corrective disclosure of the

alleged fraud or that [his] loss was caused by the

materialization of the risk concealed by the fraud.” In re

Liberty Tax, Inc. Sec. Litig., 435 F. Supp. 3d 457, 471

(E.D.N.Y. 2020). Plaintiff must “disaggregate those losses

caused by changed economic circumstances, changed investor

expectations, new industry-specific or firm-specific facts,

conditions, or other events, from disclosures of the truth

behind the alleged misstatements.” In re Flag Telecom Holdings,

Ltd. Sec. Litig., 574 F.3d 29, 36 (2d Cir. 2009) (internal

citation omitted). An alleged “drop in stock price following an

announcement of bad news” is insufficient, without more, to

prove loss causation. Liberty, 435 F. Supp. 3d at 471 (internal

citation omitted).

A. Plaintiff’s Allegations of Material Omissions

Although Plaintiff asserts that “the proxy statements

soliciting the merger were defective and in violation of SEC

Rule 14 and Rule 14a-9 because they contained untrue statements

of fact,” (SAC ¶ 55) Plaintiff does not identify any purportedly

untrue statements in the Proxy. Plaintiff does, however,

identify four alleged omissions. First, Plaintiff alleges that

the Proxy was “materially misleading in that it failed to

disclose the dilutive effects of the issuance of options,

separate and apart from the vesting of stock or conversion of

the options to stock.” (SAC ¶ 38.) Plaintiff alleges that this

warning was included in the commentary to Nasdaq Rule 5635, but

that Defendants had a duty to include the same warning in the

Proxy. (SAC ¶ 38.) Second, Plaintiff alleges that the Proxy

failed to inform shareholders of the vesting provisions of the

Stock Issuance Program in the Plan, whereby plan participants

would obtain full stockholder rights whether or not their

interest in the relevant shares vested. (SAC ¶ 39.) Plaintiff

alleges that this vesting provision also violates Nasdaq Rule

5640. (SAC ¶ 39.) Third, Plaintiff alleges that the Proxy

failed to inform class members that Plan participants could

obtain a loan from China XD to purchase shares or options under

the Plan and that the loan could be secured by the very shares

and options the loan was being used to purchase. (SAC ¶ 40.)

Fourth, Plaintiff alleges that the Proxy failed to notify

investors of an upcoming merger that was purportedly being

negotiated at the time China XD issued the Proxy. (SAC ¶ 41.)

In connection with Plaintiff’s allegation that the Proxy omitted

information about the anticipated merger, Plaintiff also

specifies that the Proxy failed to disclose “material

transactions by China XD in anticipation of taking China XD

private” and omitted information about Defendant Han’s and XD

Engineering’s “plan to take China XD private.” (SAC ¶ 57.)

Despite three iterations of the Complaint, Plaintiff fails to

plead sufficient facts under PSLRA and Fed. R. Civ. P. 12(b)(6)

to state a Section 14(a) claim with respect to any of the four

alleged omissions.

1. The Dilutive Effects of the 2020 Plan

Plaintiff’s first allegation of a material omission in the

January 2020 Proxy relates to the alleged failure “to disclose

the dilutive effects of the” Plan. (SAC ¶ 38.) Plaintiff

acknowledges that the shareholder approval of the Plan was

secured, “pursuant to Nasdaq Rule 5635(c)” and that “the

commentary to Nasdaq Rule 5635[] explicitly warns: ‘these plans

can potentially dilute shareholders’ interests[.]’” (SAC ¶ 38.)

Plaintiff notes, however, that this warning was not

independently included in the Proxy and that “it would take a

financial analyst to spot the tension between the [Nasdaq 5635

warning] and the [January 2020 Proxy]” such that the January

2020 Proxy was misleading by omission, notwithstanding the

Nasdaq 5635 warning. (Ptf. Obj. at 9–10.)

Defendant China XD argues, first, that the dilutive effect

of the Plan is a self-evident feature of any stock issuance plan

and is, therefore, so obvious that reasonable minds could not

differ on the immaterial nature of such a warning. (China XD

and Han Mem. at 17-18.) Defendant China XD further states that

even if such a warning were necessary, the warning that exists

in the Nasdaq 5635 and the incorporation, by reference, of the

Nasdaq 5635 commentary, constitutes sufficient notice of the

dilutive effect. (China XD and Han Mem. At 17-18.)

First, the Court addresses whether the absence of a

specific warning in the Proxy, regarding the dilutive effect of

the Plan, is a material omission under Section 14(a). Plaintiff

does not appear to allege that the extent of dilution or any

other specific characteristic of the dilution was omitted in

violation of Section 14(a). See (SAC ¶ 38) (the Proxy “failed

to disclose the dilutive effects of the issuance options . . .

In fact, [] the [] Nasdaq Rule 5635 . . . commentary []

explicitly warns: ‘these plans can potentially dilute

shareholders’ interests.’ That warning was not included in the

Proxy.”) Plaintiff’s reference to the warning in the Nasdaq

5635 commentary, presumably as an example of the type of warning

Defendants failed to include in the Proxy, suggests that,

according to Plaintiff, the fact of the dilutive effect itself

should have been disclosed in the Proxy pursuant to Section

14(a). Section 14(a), however, does not contemplate or impose

such a requirement. A “corporation is free to enter into

numerous transactions, all of which may result legitimately in

the dilution of the stake of present equity holders.” F5

Capital v. Pappas, 856 F.3d 61, 72 (2d Cir. 2017) (citing

Feldman v. Cutaia, 956 A.2d 644, 656 (Del. 2008)) (“dilution is

a natural and necessary consequence of investing in a

corporation.”). Furthermore, the Proxy advises investors that

China XD was “seeking approval of 13,000,000 shares under the

2020 Plan.” (SAC ¶ 37.) Plaintiff asserts that “[a]s of

November 8, 2019, China XD had 66,948,841 shares outstanding.”

(SAC ¶ 27.) A reasonable shareholder would understand that a

dilutive effect is the “natural and necessary consequence” of an

infusion of 13,000,000 shares into an existing 66,948,841 share

count. Feldman, 956 A.2d at 656. Indeed, Plaintiff himself

seems to have understood the dilutive consequence of the

proposed issuance of 13,000,000 shares. See (SAC ¶ 28) (“the

[2020 Stock Incentive Plan] called for 13,000,000 shares for

issuance” and “China XD had 66,948,841 shares outstanding.

Accordingly, the 2020 Stock [Incentive] Plan threatened

shareholders with 20% dilution[.]”) Plaintiff does not cite any

support for his contention that an explicit warning of dilutive

effects in addition to the explanation within the proxy of the

precise number of shares that would be added to the total share

count, is required under Section 14(a). Under the

circumstances, such a warning is “‘so obviously unimportant to a

reasonable investor that reasonable minds could not differ on

the question of their importance.’” In re: MCI Worldcom, Inc.

Sec. Litig., 93 F. Supp. 2d 276, 282 (E.D.N.Y.) (quoting Koppel

v. 4987 Corp., 167 F.3d 125, 133 (2d Cir. 1999).

Moreover, Plaintiff’s assertion that an explicit warning of

dilutive effects should have been included in the Proxy,

notwithstanding the inclusion of such a warning in the Nasdaq

5635 commentary, is exactly the sort of “nitpicking” that the

Second Circuit has warned “should not become the name of the

game” in Section 14(a) cases. Kennecott Copper Corp. v.

Curtiss-Wright Corp., 584 F.2d 1195, 1200 (2d Cir. 1978)

(internal citation omitted). “’[T]here is no duty to disclose

information to one who reasonably should be aware of it.’”

Seibert v. Sperry Rand Corp., 586 F.2d 949, 952 (2d Cir.

1978)(internal citation omitted); see also St. Clair-Hibbard v.

American Finance Trust, Inc., 812 F. App’x 36, 38 (2d Cir. 2020)

(“[Defendant] had no duty to disclose information that its

shareholders (and the general market) already knew . . .

[including information that] credit rating agencies, industry

analysis, and the SEC have all issued bulletins . . . warning

investors” about). Section 14(a) does not absolve Plaintiff of

his responsibility to review relevant investor materials in

advance of a shareholder vote. See United Paperworks Intern.

Union, 985 F.2d at 1998 (“[i]n considering a claim of material

omission in violation of Rule 14a-9, [] the court ordinarily

should not consider the proxy statement alone . . . the ‘total

mix’ of information may include data sent to shareholders by a

company in addition to its proxy materials . . . [and] proxy

statements need not ‘duplicate . . . information reasonably

available to the shareholders”) (internal citation omitted).

Plaintiff does not allege that the reference to dilutive

effects in the Nasdaq 5635 commentary was “buried by being

dispersed among or immersed in irrelevant data.” Rodman v.

Grant Foundation, 608 F.2d 64, 70 (2d Cir. 1979). Nor does

Plaintiff allege that the Nasdaq 5635 commentary was unavailable

to him. See United Paperworkers Intern. Union v. International

Paper Co., 985 F.2d 1190, 1199 (2d Cir. 1993) (“[c]orporate

documents that have not been distributed to the shareholders

entitled to vote on the proposal should rarely be considered

part of the total mix of information reasonably available to

those shareholders.”) Instead, Plaintiff asks the Court to

consider his responsibility to review relevant investor

materials other than the Proxy, as a “challenge [to his]

critical wits.” (Ptf. Obj. at 10) (citing Virginia Bankshares,

Inc., 501 U.S. at 1097). The Court trusts that Plaintiff’s

critical wits are not so easily challenged by commonsense

knowledge that issuing shares “‘can potentially dilute

shareholders’ interest.’” (SAC ¶ 38) (quoting Nasdaq 5635(c)

Commentary.)

Plaintiff was explicitly informed in the Nasdaq 5635(c)

commentary of the fact that dilutive effects can result from

shareholders’ adoption of the Plan. That same result was

readily surmisable from the statements in the Proxy itself.

Accordingly, Plaintiff “w[as], in fact, given the information

from which [he] could have concluded” the logical result of the

Plan. “That is all that [Section] 14(a) requires.” Bond

Opportunity, 2003 WL 21058251, at *7; see also In re GTx, Inc.

Shareholders Litig., No. 19-cv-3239, 2020 WL 3439356, at *3

(S.D.N.Y. Jun. 23, 2020) (“[w]hether a misrepresentation is

material is determined by the ‘total mix’ of information, not

the alleged misstatement in isolation”) (quoting Koppel, 167

F.3d at 131).

Plaintiff, accordingly, fails to plead sufficient facts

under PSLRA and Fed. R. Civ. P. 12(b)(6) to state a Section

14(a) claim against Defendant China XD with respect to the

alleged omission from the Proxy of an explicit warning regarding

the consequence of a dilutive effect on existing shares

resulting from the Plan.

2. The Vesting Provisions of the 2020 Plan

Plaintiff’s second allegation regarding a material omission

under Section 14(a) relates to the alleged failure to disclose

the vesting provisions of the Plan. (SAC ¶ 39.) Specifically,

Plaintiff alleges that “the Proxy failed to inform class members

[that] . . . the Plan [] would allow [] participants to have

‘full stockholder rights with respect to any shares of Common

Stock issued to the Participant under the Stock Issuance

Program, whether or not the Participant’s interest in those

shares is vested.’” (SAC ¶ 39) (quoting Proxy at 62.)

Remarkably, Plaintiff quotes the very language from the Proxy

that he alleges “the Proxy failed to inform class members of[.]”

(SAC ¶ 39.)

Plaintiff states, in his opposition memorandum, that

although the “bare language of the Proxy discloses that a non-

vested grantee will have ‘stockholder rights’ . . . nowhere does

the Proxy explain to shareholders that those ‘rights’ include

voting rights which can lift the overall insider’s ownership

from 50.1% to over 70% giving insiders a supermajority.” (Ptf.

Opp. at 10.) Yet, the next sentence in the Proxy, which

Plaintiff also quotes, states “[a]ccordingly the participant

shall have the right to vote such shares and to receive any

regular cash dividends paid on such shares.” (SAC ¶¶ 31, 37)

(quoting Proxy at 62.) To the extent Plaintiff seeks to convert

his claim that Defendants failed to disclose the vesting

provision of the Plan in the Proxy into a claim that Defendant

Han had a duty to explicitly enumerate the percentage of shares

he would hold, as compared to the voting power of those shares,

following the 2020 Plan, or to assert a new claim to this

effect, the Court declines to review such a claim, which was

“raised . . . [for the first time] in [Plaintiff’s] submissions

in opposition to defendants [] motion to dismiss” and which

Plaintiff failed to allege in his Complaint, Amended Complaint,

or Second Amended Complaint. Mathie v. Goord, 267 F. App’x 13,

14 (2d Cir. 2008) (“to the extent [Plaintiff] raised a new []

challenge in his submissions in opposition to [the] motion to

dismiss . . . we [] agree . . . that the amended complaint did

not encompass that claim.”).

At risk of belaboring the obvious, a statement quoted

directly from a proxy statement, cannot also be a material

omission from that same proxy statement. See Silberstein v.

Aetna, Inc., No. 13-cv-8759, 2015 WL 1424058, at *12 (S.D.N.Y.

Mar. 26, 2015) (“[e]ven taking Plaintiff’s factual allegations

as true and applying the materiality standard that governs at

the motion to dismiss stage . . . Plaintiff’s allegations are

facially insufficient to state a claim because. . . the [alleged

omission] was disclosed on the face of the [] Proxy Statement.”)

Plaintiff, accordingly, fails to plead sufficient facts

under the PSLRA and Fed. R. Civ. P. 12(b)(6) to state a Section

14(a) claim with respect to the alleged omission from the Proxy

of information regarding the vesting provisions of the Stock

Issuance Program in the Plan, because that information is

contained in the Proxy.

3. The China XD Loan Available to 2020 Plan

participants

Plaintiff asserts a third material omission under Section

14(a), the “fail[ure] to inform class members that option or

stock grantees under the plan could get a loan from [China XD]

to purchase shares or options secured only with the options or

stock itself and that such loan could include the amount of

taxes due.” (SAC ¶ 40.) Here, Plaintiff again references

information that was disclosed and available to him in the

Proxy. Specifically, Plaintiff quotes from the financing

provision of the Plan, which was included as an attachment to

and by reference in the Proxy. See (Ptf. Opp. at 10) (“‘[t]he

Plan Administrator may permit any . . . Participant to pay the

option exercise price via a note secured by the purchased

shares’ in an amount equal to the purchase price plus any

applicable income and employment tax liability incurred by the

Optionee”) (quoting Proxy at 64.) With respect to the alleged

duty to disclose financing options available to Plan

participants, the information included in the Plan itself, which

was provided to Plaintiff as an attachment to the Proxy, is part

of “the ‘total mix’ of information . . . ‘reasonably available

to [Plaintiff].’” United Paperworks Intern. Union, 985 F.2d at

1998 (internal citation omitted).

Accordingly, Plaintiff fails to plead sufficient facts

under PSLRA and Fed. R. Civ. P. 12(b)(6) to state a Section

14(a) claim with respect to the alleged omission of information

regarding the availability of financing, as described in the

“Financing” section of the Plan.

4. The Anticipated Merger

Plaintiff’s fourth allegation of a material omission

pursuant to Section 14(a) is the alleged “fail[ure] to warn or

notify of an upcoming plan for a going private merger[.]” (SAC

¶ 41.) Plaintiff cites the “favorable provision for

participants in the event of a change of control” as an

indication that “Defendants were well aware that a change in

control was imminent” and that the Proxy omitted “any plans or

ideas of a going private merger which at the time was being

planned.” (SAC ¶ 41.) Plaintiff notes that “four months after

the approval of the [Plan]” and five months after the

publication of the Proxy, China XD “enter[ed] into a going

private Merger[.]” (SAC ¶ 47.) Subsequent press coverage

clarifies that the merger that Plaintiff alleges China XD

“enter[ed] into” was not consummated.3

The Supreme Court has held that there is no bright line

rule regarding the materiality of merger negotiations under

Section 14(a) because, “where . . . the [negotiation process in

anticipation of a potential merger] is contingent or speculative

in nature, it is difficult to ascertain whether the ‘reasonable

investor’ would have considered the omitted information

significant at the time.” Basic Inc. v. Levinson, 485 U.S. 224,

232 (1988). Even assuming the materiality of the going private

merger, however, Plaintiff fails to adequately plead loss

3 The Court takes judicial notice of this fact. See Arkansas Public Employees

Retirement System v. Bristol-Myers Squibb Co., 28 F.4th 343, 352 (2d Cir.

2022) (“it is proper to take judicial notice of the fact that press coverage,

prior lawsuit, or regulatory filings contain[] certain information”); see

also Chambers v. Time Warner, Inc., 282 F.3d 147, 152–53 (2d Cir. 2002) (“on

a motion to dismiss, the Court may consider matters of which judicial notice

may be taken.”).

causation resulting from an omission in the Proxy regarding

purported merger negotiations.

Plaintiff alleges that following the shareholder approval

of the Proxy on February 11, 2020, China XD’s stock declined in

value by approximately 50%. (SAC ¶ 42.) Notwithstanding the

fact that Plaintiff fails to allege facts establishing a causal

connection between the decline in China XD’s share price and the

alleged “plans or ideas of a going private merger,” (SAC ¶ 41)

Plaintiff fails to allege any basis on which the Court may

disaggregate the drop in China XD’s share price from the highly

relevant market events at the time. Indeed, Plaintiff

acknowledges that the timing of the adoption of the Plan

coincides with the onset of the COVID-19 pandemic and that the

pandemic had significant adverse impacts on China XD’s business.

(SAC ¶ 24.) Moreover, Plaintiff does not articulate any theory

of loss in connection to the alleged Section 14(a) omissions,

even as it relates to a claim for damages. Instead, Plaintiff

seeks only “an order [of] forfeiture of all shares granted to

insiders” under the Plan. (SAC ¶ 60.) Plaintiff does not

allege any facts establishing “a causal link between the alleged

[omission] and the economic harm [that he] ultimately

suffered[.]” Lentell v. Merrill Lynch & Co., Inc., 396 F.3d

161, 172 (2d Cir. 2005). Accordingly, Plaintiff fails to plead

sufficient facts under PSLRA and Fed. R. Civ. P. 12(b)(6) to

state a Section 14(a) claim with respect to the alleged omission

of information about the alleged merger negotiations.

II. Count Two: Plaintiff’s Section 20(a) Against the

Controlling Shareholders and Individual Defendants

Section 20(a) of the SEC Act of 1934 enables plaintiffs to

hold individuals liable for a company’s violations of the SEC

Act of 1934 if the individual acted as a control person. See 15

U.S.C. § 78t (“[e]very person who . . . controls any person

liable under any provision of this chapter or of any rule or

regulation thereunder shall also be liable jointly and severally

. . . to the same extent as such controlled person[.]”)

Plaintiff brings claims against the Individuals Defendants

under Section 20(a), alleging that “[t]he Individual Defendants

acted as controlling persons of China XD within the meaning of

Section 20(a). “To establish a prima facie case of control

person liability [under Section 20(a)], a plaintiff must show

(1) a primary violation by the controlled person, (2) control of

the primary violator by the defendant, and (3) that the

defendant was, in some meaningful sense, a culpable participant

in the controlled person’s fraud.” ATSI Communications, Inc. v.

Shaar Fund, Ltd., 493 F.3d 87, 108 (2d Cir. 2007) (internal

citation omitted). Plaintiff alleges that the liability of the

Controlling Shareholders and Individual Defendants under Section

20(a) is derived from a primary violation of Section 14(a) by

China XD. However, “[w]here there is no primary violation,

there can be no ‘control person’ liability under Section 20(a).”

Monroe Cnty. Empl.s’ Retirement Sys. v. YP Sociedad Anonima, 15

F. Supp. 3d 336, 351 (S.D.N.Y. 2014) (internal citation

omitted). The alleged primary violation in connection to which

Plaintiff brings a Section 20(a) claim is the “incomplete and

misleading statements contained in the Proxy Materials[.]”

Because Plaintiff has failed to state a claim under the PSLRA

and Fed. R. Civ. P. 12(b)(6) with respect to his Section 14(a)

claim of alleged omissions, there is no primary violation.

Accordingly, Plaintiff’s Section 20(a) claim is dismissed.

III. Counts Three and Four: Plaintiff’s Remaining State Law

Claims Against the Individual Defendants

In Count Three, Plaintiff asserts a state common law claim

for breach of fiduciary duties under Nevada law against the

Individual Defendants and the Controlling Shareholders. In

particular, Plaintiff cites the “fiduciary duties [of the

Individual Defendants] . . . to ensure that the majority owners

did not propose to enter into unfair transactions” and the

“fiduciary duties [of the Controlling Shareholders] to minority

shareholders to avoid self-dealing.” (SAC ¶ 70.) In Count

Four, Plaintiff also asserts a claim against the Individual

Defendants for aiding and abetting breach of fiduciary duties,

and asserts that “[e]ach of the Individual Defendants knowingly

participated in breaches of fiduciary duty by other Defendants

and thus, is liable for aiding and abetting fiduciary breaches.”

(SAC ¶ 74.)

“Claims of breach of fiduciary duty to a corporation arise

under the law of the state of incorporation[,]” which, in this

case, is Nevada. H.S.W. Enterprises, Inc. v.l Woo Law Oak,

Inc., 171 F. Supp. 2d 135, 143 (S.D.N.Y. 2001) (citing Walton v.

Morgan Stanley & Co., 623 F.2d 796, 798 (2d Cir. 1980). As

noted by Plaintiff, the Court has supplemental jurisdiction over

his Nevada state law claims pursuant to 28 U.S.C. § 1367. 28

U.S.C. § 1367(c) states, in relevant part, that “district courts

may decline to exercise supplemental jurisdiction over a claim

if . . . (3) the district court has dismissed all claims over

which it has original jurisdiction.” The Second Circuit has

held that “‘if the federal claims are dismissed before trial,

even though not insubstantial in a jurisdictional sense, the

state claims should be dismissed as well.’” Castellano v. Board

of Trustees, et al., 937 F.2d 752, 758 (2d Cir. 1991) (internal

citation omitted). In deciding whether to dismiss state law

claims under 28 U.S.C. § 1367(c)(3), courts “balance the ‘values

of judicial economy, convenience, fairness, and comity.’”

Norton v. Town of Brookhaven, No. 22-cv-1015, 2023 WL 3477123,

at *4 (2d Cir. May 16, 2023) (citing Kolari v. N.Y.-Presbyterian

Hosp., 455 F.3d 118, 122 (2d Cir. 2006)). “[I]n the usual case

in which all federal-law claims are eliminated before trial,”

however, the Supreme Court has advised that “the balance of

factors to be considered . . . will point toward declining to

exercise jurisdiction over the remaining state-law claims.”

Carnegie-Mellon University v. Cohill, 484 U.S. 343, 350 n. 7

(1988); see also United Mine Workers of America v. Gibbs, 383

U.S. 715, 726 (1966) (“[n]eedless decisions of state law should

be avoided both as a matter of comity and to promote justice

between the parties, by procuring for them a surer-footed

reading of applicable law.”)

Here, although Plaintiff commenced this action in 2020,

discovery has not yet commenced4 and the parties have not

articulated a federal interest at stake in Count Three and Count

Four of Plaintiff’s Second Amended Complaint that justifies the

continued exercise of supplemental jurisdiction absent existing

federal claims. Nor “can [the Court] discern [any]

extraordinary inconvenience or inequity occasioned by permitting

the [Nevada] claims to be refiled in state court where they will

be afforded a sure-footed reading of applicable state law.”

Kolari, 455 F.3d at 123 (quoting Gibbs, 383 U.S. at 726).

Although Plaintiff’s state law claims do not raise “novel or

unresolved questions of state law,” district courts in this

4 Pursuant to the Court’s April 19, 2021 Order, discovery has been stayed,

pursuant to the PSLRA in light of the motion to dismiss. See (April 19, 2021

Order) (citing Sedona Corp. v. Ladenburg Thalmann, No. 03-cv-3120, 2005 WL

2647945, at *2 n.1 (S.D.N.Y. Oct. 14, 2005) (“There is no dispute that the

PSLRA stay of discovery applies when an initial motion to dismiss is

contemplated, but has not yet been filed.”))

circuit routinely decline to exercise supplemental jurisdiction

over state breach of fiduciary duty claims. See Tchernitsky v.

Pigott, No. 16-cv-0418, 2019 WL 1492908, at *3 (E.D.N.Y. Mar.

31, 2019) (“[c]onsidering the [Cohill] factors, there is no

justifiable reason for the Court to exercise supplemental

jurisdiction over Plaintiff’s remaining state law claims”);

Bongiorno v. Baquet, No. 20-cv-7288, 2021 WL 4311169, at *22

(S.D.N.Y. 2021) (“declin[ing] to exercise supplemental

jurisdiction over [Plaintiff’s] state-law claims,” including

breach of fiduciary duty, where “Plaintiffs’ RICO claim [was]

dismissed] for failure to state a claim”) This is the “usual

case” where courts decline to exercise supplemental

jurisdiction, as contemplated by the Supreme Court in Cohill.

Accordingly, the Court declines to exercise supplemental

jurisdiction in light of its decision to dismiss Plaintiff’s

federal claims under Section 14(a) and Section 20(a). Count

Three and Count Four are dismissed without prejudice.

CONCLUSION

For the foregoing reasons, Defendant China XD’s motion to

dismiss Count One is GRANTED. The Controlling Shareholders’ and

the Individual Defendants’ motions to dismiss Count Two are

GRANTED. Plaintiff’s claims in Count One, under Section 14(a),

and in Count Two, under Section 20(a), are DISMISSED with

prejudice. The Controlling Shareholders’ and Individual

Defendants’ motion to dismiss Count Three and Count Four are

GRANTED and Plaintiff’s claims in Count Three and Count Four,

under Nevada state law, are DISMISSED without prejudice.

Although the Second Circuit has advised that “the usual

practice upon granting a motion to dismiss [is] to allow leave

to replead,” Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d

42, 48 (2d Cir. 1991) (internal citation omitted), Plaintiff has

already been granted leave to amend his Complaint twice.

Accordingly, the Court will not grant further leave to amend.

See Ruotolo v. City of New York, 514 F.3d 184, 191 (2d Cir.

2008) (“leave to amend, though liberally granted, may properly

be denied for . . . failure to cure deficiencies by amendments

previously allowed”) (internal citation omitted).

The Clerk of Court is respectfully requested to enter the

judgement dismissing all claims against all Defendants.

SO ORDERED.

Dated: September 29, 2023

Brooklyn, New York

Yn en

y eee te

KIYO¥Y A. MATSUMOTO

United States District Judge

Eastern District of New York

36