3 F. Supp. 3d 137
S.D.N.Y.2014Background
- Puda Coal, Inc. is a U.S. company; Shanxi Coal was 90% owned by Puda before September 2009 with Zhao owning the remaining 10%.
- Zhao transferred 49% of Shanxi to CITIC in July 2010 for CITIC Fund I shares; Zhao pledged the remaining 51% to CITIC for a large loan.
- CITIC allegedly controlled Shanxi Coal and disclosed ownership and control in filings and a 2010 marketing report; Puda later allegedly misrepresented Shanxi’s ownership in U.S. offerings.
- Puda’s 2010 and 2011 U.S. offerings misstated ownership of Shanxi and Puda’s revenues; Zhao’s transfer of Shanxi occurred before CITIC’s involvement.
- Puda’s stock declined after a short-seller report; Puda’s Audit Committee later confirmed Zhao’s fraud allegations; several related lawsuits were filed in 2011 and consolidated.
- The plaintiff filed this action in 2018 asserting various securities law and related claims against CITIC for aiding and abetting, conspiracy, and other theories.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction over CITIC | Plaintiff argues CITIC’s U.S. ties and effects support jurisdiction | CITIC contends no minimum contacts or purposeful availment | Lack of personal jurisdiction; no sufficient minimum contacts or purposeful availment |
| Causation under Section 20(a) | CITIC controlled Puda and participated in fraud | No evidence of actual control or culpable participation | Claim dismissed for lack of control and culpable participation |
| Control over primary violator | CITIC indirectly controlled Puda via Zhao and Shanxi | No day-to-day control or ownership of Puda; indirect influence insufficient | No control for §20(a) liability |
| Conspiracy/Derivative theories | Conspiracy and derivative theories show coordination | Claims are conclusory and lack factual basis of joint misconduct | Conspiracy/derivative theories insufficient to sustain jurisdiction or liability |
| Jurisdictional discovery | Discovery could yield jurisdictional facts | No prima facie case; discovery not warranted | Denied jurisdictional discovery |
Key Cases Cited
- ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir.2007) (requirements for control liability under §20(a))
- Lehman Bros. Mortg.-Backed Secs. Litig., 650 F.3d 167 (2d Cir.2011) (definition of control for §20(a) analysis)
- Parmalat Secs. Litig., 414 F.Supp.2d 428 (S.D.N.Y.2006) (pleading control and responsibility under PSLRA)
- Twombly v. Bell Atl. Corp., 550 U.S. 544 (U.S.2007) (plausibility standard for pleading)
- Iqbal v. Ashcroft, 556 U.S. 662 (U.S.2009) (pleading standard; no mere conclusory statements)
- Calder v. Jones, 465 U.S. 783 (U.S.1984) (purposeful targeting in effects test for jurisdiction)
- Terrorist Attacks on Sept. 11, 2001, 538 F.3d 71 (2d Cir.2008) (effects test and intentional targeting)
- In re Satyam Computer Servs. Ltd. Secs. Litig., 915 F.Supp.2d 450 (S.D.N.Y.2012) (jurisdictional analysis for §20(a) claims)
- Maersk, Inc. v. Neewra, Inc., 554 F.Supp.2d 424 (S.D.N.Y.2008) (conspiracy jurisdiction standards)
- Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120 (2d Cir.2002) (purposeful availment and jurisdiction principles)
- J. McIntyre Mach., Ltd. v. Nicastro, 131 S. Ct. 2780 (U.S.2011) (jurisdiction standards for foreign defendants)