Shao v. Beta Pharma, Inc.
3:14-cv-01177
D. Conn.Apr 19, 2018Background
- Plaintiffs are five individual investors in Zhejiang Beta Pharma Co., Ltd. (ZBP) asserting breach of contract and tort claims against existing defendants Beta Pharma, Inc. (BP, Inc.) and Don Zhang; case removed to federal court on diversity grounds.
- Plaintiffs moved (unopposed) to supplement the Second Amended Complaint under Fed. R. Civ. P. 15(d) and to join two new defendants: Beta Pharma (USA) Inc. (BPUSA) and Beta Pharma (Hong Kong) Holding Co. (BPHK), via Fed. R. Civ. P. 20(a).
- Plaintiffs allege BPUSA (Delaware corporation) and BPHK (Hong Kong limited company) were formed by Zhang and BP, Inc. after the original pleading and are controlled by them; supplemental allegations relate mainly to those entities.
- Court applied Rule 15(d) liberal standard and, absent objection or prejudice, granted leave in principle to supplement the complaint, subject to a jurisdictional issue.
- Court found Rule 20(a) joinder prerequisites satisfied (joint/several liability and common facts), but held joinder must also respect fairness and subject-matter jurisdiction (complete diversity).
- Because BPHK may be treated as a citizen of China (foreign state), joinder could destroy diversity; 28 U.S.C. § 1447(e) then permits either denial of joinder or joinder followed by remand. Court granted leave in principle to join BPUSA but deferred filing of the amended complaint and ordered Plaintiffs to brief the jurisdictional basis for joining BPHK by May 3, 2018.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Whether to permit supplemental pleading under Rule 15(d) | Plaintiffs seek to add events and entities formed after SAC to pursue same claims | Defendants did not oppose supplementation | Granted in principle; supplementation allowed absent prejudice or bad faith |
| 2. Whether BPUSA and BPHK may be permissively joined under Rule 20(a) | Joined defendants arise from same series of transactions; common questions of law/fact | No substantive opposition noted; court must still assess fairness | Rule 20(a) prerequisites met; joinder permissible in principle |
| 3. Whether joinder of BPHK destroys complete diversity and thus federal jurisdiction | Plaintiffs must show jurisdictional basis for including BPHK | Defendants previously removed on diversity; joinder may prompt remand | Court raised jurisdiction sua sponte; directed Plaintiffs to brief BPHK citizenship and §1447(e) consequences; filing deferred |
| 4. Citizenship characterization of a Hong Kong limited company for diversity | Plaintiffs alleged BPHK is a Hong Kong company; did not fully address citizenship consequences | Court must determine whether BPHK is an alien (Chinese) citizen for diversity analysis | Court treated precedent as likely that Hong Kong companies are foreign (China) citizens for §1332 purposes; this likely would destroy diversity if Plaintiffs are also foreign citizens |
Key Cases Cited
- Quarantino v. Tiffany & Co., 71 F.3d 58 (2d Cir. 1995) (standard for granting leave to file supplemental pleadings)
- Wight v. BankAmerica Corp., 219 F.3d 79 (2d Cir. 2000) (court’s independent obligation to ensure subject-matter jurisdiction)
- JPMorgan Chase Bank v. Traffic Stream (BVI) Infrastructure Ltd., 536 U.S. 88 (U.S. 2002) (foreign corporations deemed citizens or subjects of their state for jurisdictional analysis)
- Linardos v. Fortuna, 157 F.3d 945 (2d Cir. 1998) (party invoking federal jurisdiction bears burden to prove it)
- St. Paul Fire & Marine Ins. Co. v. Universal Builders Supply, 409 F.3d 73 (2d Cir. 2005) (complete diversity requires that no plaintiff share citizenship with any defendant)