Case Name: Ying Xiong, et al. v. Pingyi Yan, et al.
Case No.: 16-CV-292330

This is an action for fraud and rescission of stock purchase agreements brought by plaintiffs Yunlong Wang (“Wang”) and his wife Ying Xiong (“Xiong”) (collectively, “Plaintiffs”) against defendants Pingyi Yan (“Yan”), Micropoint Bioscience, Inc. (“Micropoint”) and Shenzhen Micropoint Bioscience, Inc. (“SMBI”) (collectively, “Defendants”).

Micropoint is a California corporation with its principal place of business in Santa Clara, California. (Compl., ¶ 5.) SMBI is a Chinese corporation with its principal place of business in Shenzhen, Guangdong Province, China. (Compl., ¶ 6.) Micropoint is a wholly-owned subsidiary of SMBI. (Compl., ¶¶ 5-6.) Micropoint researches and develops biomedical technology for SMBI, which SMBI then sells and distributes in China. (Compl., ¶ 9.)

Wang was a corporate officer of both Micropoint and SMBI and held 24 percent of the outstanding shares in each corporation. (Compl., ¶ 11.) SMBI and Micropoint needed to raise additional capital in order to remain solvent, but purportedly had no offers for financing from venture capital firms. (Compl., ¶ 12.) Consequently, Yan, the chairman of the boards of Micropoint and SMBI, approached Wang about purchasing his shares in each corporation. (Compl., ¶¶ 4, 13, 15.) At the time, Yan owned 43.99 percent of the outstanding shares in Micropoint and SMBI. Yan misrepresented the valuations of Micropoint and SMBI, and offered a low price for Plaintiffs’ shares based on his representation that both corporations were worth only 4 million dollars. (Compl., ¶¶ 13-14.)

The parties executed two stock purchase agreements for the sale of the Micropoint and SMBI shares. (Compl., ¶¶ 22-24.) Several years later, Plaintiffs heard Yan had actually been in financing negotiations with several venture capital firms at the time he approached Wang about the stock purchase. (Compl., ¶ 28.) Plaintiffs also learned that shortly after the execution of the stock purchase agreements, Micropoint and SMBI closed a round of financing based on a valuation of 12 million dollars, not 4 million dollars as Yan previously represented. (Compl., ¶ 28.)

Based on these allegations, Plaintiffs assert causes of action against Defendants for: (1) breach of fiduciary duty; (2) fraud; (3) negligent misrepresentation; (4) constructive fraud; (5) rescission; (6) unfair competition; and (7) quantum valebant.

Currently before the Court is SMBI’s motion to quash service of the summons and complaint, or in the alternative, to stay or dismiss the action on the ground California is an inconvenient forum.

“A defendant, on or before the last day of his or her time to plead or within any further time that the court may for good cause allow, may serve and file a notice of motion. . . [t]o quash service of summons on the ground of lack of jurisdiction of the court over him or her.” (Code Civ. Proc., § 418.10, subd. (a)(1).) SMBI moves to quash service of the summons and complaint on the ground the court lacks jurisdiction over it based on improper service and insufficient minimum contacts.

“When a defendant challenges the court’s personal jurisdiction on the ground of improper service of process ‘the burden is on the plaintiff to prove the existence of jurisdiction by proving, inter alia, the facts requisite to an effective service.’ [Citation.]” (Summers v. McClanahan (2006) 140 Cal.App.4th 403, 413.) Similarly, “[w]hen a nonresident defendant challenges personal jurisdiction [based on minimum contacts], the plaintiff bears the burden of proof by a preponderance of the evidence to demonstrate the defendant has sufficient minimum contacts with the forum state to justify jurisdiction.” (DVI, Inc. v. Superior Court (2002) 104 Cal.App.4th 1080, 1090.)

The Court is presently conflicted as to whether the evidence presented by Plaintiffs is sufficient to support a finding of jurisdiction over SMBI. Plaintiffs made a request for authorization to conduct jurisdictional discovery if necessary. “A trial court has discretion to continue the hearing on a motion to quash service of summons for lack of personal jurisdiction to allow the plaintiff to conduct discovery on jurisdictional issues.” (Burdick v. Superior Court (2015) 233 Cal.App.4th 8, 30.) Given the circumstances and the record before the Court, the Court finds it appropriate to authorize Plaintiffs to conduct limited discovery with respect to jurisdictional issues only, including the nature of the relationship between SMBI and Micropoint and the manner in which these corporations were either separately or jointly operated and controlled. The Court will therefore continue the hearing on SMBI’s motion to allow Plaintiffs to conduct this jurisdictional discovery.

SMBI also moves the Court to stay or dismiss this action based on (1) a forum selection clause in a contract to which SMBI was not a party and (2) the convenience to the parties under the doctrine of forum non conveniens in the event the Court finds there is a basis for exerting personal jurisdiction over it. Since this motion was made in the alternative and the Court must first decide the fundamental issue of personal jurisdiction, the hearing on the motion to stay or dismiss is continued as well.

Based on the foregoing, the hearing on SMBI’s motion to quash, or in the alternative, to stay or dismiss the action is hereby continued to Thursday, October 6, 2016 at 9:00 a.m. in Department 9. Plaintiffs shall serve and file a supplemental brief, not to exceed 7 pages, addressing the jurisdictional issues as well as any supporting evidence no later than Friday, September 23, 2016. SMBI may serve and file a supplemental brief in reply, not to exceed 7 pages, as well as any responsive evidence no later than Friday, September 30, 2016.

The Court will prepare the order.