Wang v. Haitou Global Inc.

Background

Li Wang invested $1.4 million in three Platform Notes issued by Haitou Global (Cayman) Inc. The money was used to make loans to Carloha Inc., a used-car retailer. The notes matured in May and June 2024, but Wang alleged that she had not received full repayment. She received $100,000 after Carloha repaid that amount to Haitou Global, but alleged that no further repayment occurred.

Wang sued Haitou Global, Hi2 Investment Management, LLC, Hi2 GP LLC, Jinlong (Jerry) Wang, Carloha Inc., and Liang Long. Her claims against Haitou Global and the Hi2 Defendants included securities-fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act, fraudulent inducement, and breach of contract. Her claims against the Carloha Defendants included unjust enrichment, breach of contract, and aiding and abetting securities fraud and fraudulent inducement.

Wang had signed three Subscription Agreements with Haitou Global. Each agreement contained the same provision allowing either party, at its sole election, to require final and binding arbitration of a covered claim. The agreements defined a claim to include a controversy involving Wang and Haitou Global or persons connected with Haitou Global.

Before this ruling, the court had ordered Carloha’s crossclaims against Haitou Global, Hi2 GP, and Hi2 Investment to arbitration based on a stipulation. The court also stayed Liang Long’s crossclaims against those defendants pending that arbitration.

Haitou Global’s Motion to Compel Arbitration

The court held that the Subscription Agreements contained a binding arbitration agreement and that Wang’s statutory and common-law claims against Haitou Global fell within its scope. The court rejected Wang’s argument that Haitou Global had to make a separate arbitration demand before moving to compel arbitration. It held that Haitou Global exercised its contractual right through the motion to compel.

The court also rejected Wang’s argument that Haitou Global had to seek arbitration of her claims against every defendant. The Hi2 Defendants and Carloha Defendants were not parties to the Subscription Agreements. Because arbitration is based on consent through a contract, a signatory could not require nonsignatories to arbitrate merely because they were closely affiliated with the signatory.

The court therefore granted Haitou Global’s motion to compel arbitration. If Haitou Global seeks to enforce the arbitration clause, it must commence arbitration within 30 days.

Wang’s Cross-Motion

Wang alternatively asked the court to compel arbitration of all her claims against all defendants. She relied on two theories that can sometimes bind a nonsignatory to an arbitration agreement: piercing the corporate veil and estoppel. Piercing the corporate veil is a legal doctrine that treats separate corporate entities as connected when the required level of control and misuse of that control is shown. Estoppel can apply when a nonsignatory knowingly accepts a direct benefit from a contract containing an arbitration clause.

The court rejected the veil-piercing theory. Although Wang alleged that the entities were controlled by J. Wang, shared office space and an online communications platform, and pooled funds, the evidence showed that Haitou Global, Hi2 GP, and Hi2 Investment operated independently, kept separate financial records, and were independently audited. The court found no sufficient evidence of disregarded corporate formalities, inadequate capitalization, personal use of corporate funds, or domination of Haitou Global by the other entities.

The court also rejected estoppel. It found that Wang had not shown that the Hi2 Defendants or the Carloha Defendants received a direct benefit from her Subscription Agreements. The Carloha Defendants’ receipt of loan funds and the Hi2 Defendants’ relationship with Haitou Global were not enough to establish the required direct benefit. The court denied Wang’s motion to compel arbitration against the Hi2 Defendants and Carloha Defendants.

Stay of the Case

Because some claims would proceed in arbitration while other claims remained in court, the court considered whether to stay the remaining proceedings. It found a stay appropriate because two arbitrations would address issues related to the lawsuit: Wang’s claims against Haitou Global and Carloha’s crossclaims against Haitou Global and the Hi2 Defendants. Allowing Wang’s claims against the other defendants to proceed at the same time could harm Haitou Global’s interests and cause inefficient duplication of litigation.

The court granted the Hi2 Defendants’ motion to stay the case. It stated that Wang could apply to lift the stay if Haitou Global did not commence arbitration of her claims against it within 30 days.

Disposition

The court granted Haitou Global’s motion to compel arbitration, granted the Hi2 Defendants’ motion to stay the case pending arbitration of Wang’s claims against Haitou Global, and denied Wang’s cross-motion to compel arbitration against all defendants. The action was stayed.