Shao v. Beta Pharma, Inc.
3:14-cv-01177
D. Conn.Nov 1, 2017Background
- Plaintiffs are five individual investors in Zhejiang Beta Pharma Co., Ltd. (ZBP); defendants are Beta Pharma, Inc. (BP) and Don Zhang. Song Lu (Lu) is a plaintiff who signed a November 2010 Stock Purchase Agreement (SPA) with Zhang.
- Lu paid for shares in two instruments: a March 2010 agreement (90,620 shares, paid in USD) and the November 2010 SPA (additional 15,000 shares, paid in RMB).
- The November SPA includes an unsigned “Sub-Agreement and Memo” listing five purchasers and allocating shares and payment amounts among them (Lu plus four non-party Sub-Purchasers who are Chinese residents).
- In 2013 BP repurchased shares and paid Lu directly; plaintiffs now challenge the adequacy of repurchase payments. Defendants move under Rule 12(b)(7) to dismiss that portion of Lu’s claims attributable to the Sub-Purchasers, arguing those non-parties are necessary and joinder is infeasible.
- The court assumes joinder of the Sub-Purchasers to be infeasible for purposes of the motion, and addresses whether they are "necessary" under Rule 19(a) and "indispensable" under Rule 19(b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the four non-party Sub-Purchasers are "necessary" parties under Fed. R. Civ. P. 19(a) such that Lu's claims (for the shares purchased on their behalf) must be dismissed if joinder is infeasible | Lu (and plaintiffs) argue the SPA and Sub-Agreement show Lu acted as representative and can adequately protect Sub-Purchasers' interests; court can afford complete relief against defendants without joining them | Defendants contend the Sub-Purchasers have an interest in the shares, their absence could impede their ability to protect interests, and defendants face risk of inconsistent or double liability if those non-parties are not joined | Court held the Sub-Purchasers are not "necessary": their absence does not prevent complete relief between Lu and defendants, nor is there evidence their interests would be impaired or that double liability is likely |
| If necessary, whether the Sub-Purchasers are "indispensable" under Rule 19(b) such that the case (as to those shares) must be dismissed because joinder is infeasible | Lu argues he adequately represents their interests and defendants previously treated him as representative (including in repurchase negotiations) | Defendants argue joinder is infeasible and non-joinder risks inconsistent obligations and foreign parallel suits | Court held even assuming necessity, the Sub-Purchasers are not indispensable: dismissal would be inequitable and speculative double liability concerns are insufficient to compel dismissal; motion denied |
Key Cases Cited
- Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102 (Sup. Ct.) (explains two-step Rule 19 analysis and distinction between "necessary" and "indispensable" persons)
- Marvel Characters, Inc. v. Kirby, 726 F.3d 119 (2d Cir.) (sets factors for Rule 19(b) balancing)
- CP Solutions PTE, Ltd. v. General Elec. Co., 553 F.3d 156 (2d Cir.) (rejects blanket rule that all contract parties are indispensable)
- MasterCard Int'l Inc. v. Visa Int'l Serv. Ass'n, Inc., 471 F.3d 377 (2d Cir.) (explains impairment/impediment standard under Rule 19)
- Health-Chem Corp. v. Baker, 915 F.2d 805 (2d Cir.) (speculative possibility of future litigation does not support compulsory joinder)
- Prescription Plan Serv. Corp. v. Franco, 552 F.2d 493 (2d Cir.) (advocates flexible, equitable approach to indispensability under Rule 19)