Greentree Financial Group, Inc. v. Chijet Motor Company, Inc.

Background

Greentree sued Chijet Motor Company, Inc. and Equiniti Trust Company, LLC for alleged breaches of agreements requiring the transfer or issuance of Chijet shares after specified trigger events. Greentree alleged that Chijet failed to register shares after its stock price fell below specified floors and that Chijet failed to notify Equiniti that it had not met revenue targets. Greentree also alleged that Equiniti failed to release shares under the Contingent Value Rights Agreement.

Chijet answered and asserted a counterclaim against Greentree and Weiheng Cai for breach of fiduciary duty. Chijet alleged that Greentree had served as its financial adviser but failed to disclose conflicts involving Greentree’s ownership interests and relationships with special purpose acquisition companies involved in Chijet’s planned public listing. Greentree moved to dismiss the counterclaim for lack of subject-matter jurisdiction and, alternatively, sought permission to file a Second Amended Complaint. Equiniti moved to dismiss Greentree’s amended complaint for failure to state a claim.

Equiniti’s Motion to Dismiss

The court applied New York law because the relevant agreements selected New York law. The Contingent Value Rights Agreement contained an exculpatory clause limiting Equiniti’s liability for actions or inactions unless they resulted from willful misconduct, bad faith, or gross negligence.

The court held that Greentree’s allegations did not plausibly show any of those exceptions. Greentree alleged that Equiniti knew, or should have known, that Chijet had missed its revenue targets and nevertheless failed to transfer the shares. The court concluded that these allegations described an ordinary alleged contract breach, not intentional wrongdoing, dishonest conduct, bad faith, or gross negligence. The court therefore granted with prejudice Equiniti’s motion to dismiss Greentree’s breach-of-contract claim. The court stated that dismissal with prejudice was appropriate because Greentree had already amended its pleading in response to an earlier motion based on the same grounds.

Arbitration of Chijet’s Counterclaim

The court treated Greentree’s motion to dismiss for lack of subject-matter jurisdiction as a motion to compel arbitration. The court explained that the motion required it to determine whether Chijet’s fiduciary-duty counterclaim was covered by arbitration agreements, and Greentree had expressly sought to compel arbitration.

The service agreements required arbitration before the China International Economic and Trade Arbitration Commission in Beijing, China, for disputes arising from or connected with the agreements or any legal relationship associated with them. The court found that the agreements were valid and that the counterclaim fell within their broad scope. The agreements described services—including helping Chijet prepare for a United States public listing, introducing Chijet to special purpose acquisition companies, responding to Nasdaq listing questions, and preparing a code of conduct—that corresponded to the conduct underlying Chijet’s fiduciary-duty allegations.

The court also concluded that the 2021 and 2022 service agreements with Shandong Baoya New Energy Automobile Co., Ltd. and their arbitration provisions applied to Chijet under an agency theory. The court held that Chijet’s counterclaim against Greentree must be arbitrated in China.

Stay and Disposition

Because other claims in the case— including Greentree’s claims against Chijet—would not be resolved through the arbitration, the court stayed Chijet’s counterclaim against Greentree rather than dismissing it. The court also denied as moot Greentree’s alternative motion for leave to file a Second Amended Complaint.

The court’s stay applies only to Chijet’s counterclaim against Greentree. The opinion expressly states that nothing in the order stays Chijet’s counterclaim against Cai, who had not appeared in the action. Judge Valerie Caproni directed the Clerk of Court to terminate the specified open motions.