Ke v. Bimi Holdings Inc.

Background

Jian Ke alleged that, beginning in 2020, he worked with BIMI Holdings Inc. to help the company raise capital by selling its securities. In return, he received warrants—rights to purchase shares of BIMI common stock. He received warrants in three batches totaling 4,032,838 warrants.

In June 2023, Ke wanted to exercise the warrants and sell the resulting stock. According to the amended complaint, BIMI’s chief executive officer, Tiewei Song, told Ke that exercising the warrants would cause BIMI’s stock price to fall and proposed that BIMI buy back the warrants at a discounted price. Ke and BIMI entered into a Warrant Purchase Agreement on November 27, 2023, under which BIMI agreed to buy the warrants for $0.30 each, totaling $1,209,851. The agreement required payment by January 29, 2024. Ke later agreed to extend the deadline to March 1, 2024, but BIMI did not pay.

Ke also alleged that he partially exercised some warrants in March 2024, but BIMI delivered only 75,000 of the 358,067 shares he sought. He further alleged that, in conversations in May 2024, Oudom Fnu represented that BIMI had authorized a six-month extension of certain warrants. No signed agreement reflecting that extension was completed, and the defendants later maintained that the warrants expired in June 2024.

Ke asserted two breach-of-contract claims against BIMI and a fraud claim against BIMI, Song, and Fnu. BIMI and Song had not appeared, and the court stated that Ke had filed separate motions seeking default judgments against them. Those motions were not decided in this opinion.

Motion to dismiss

Fnu moved to dismiss the fraud claim under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, and Rule 9(b), which requires fraud to be described with particularity. Fnu argued that the amended complaint did not provide enough detail about statements he made or about any relationship or scheme involving him and Song. He also argued that the fraud claim was duplicative of the breach-of-contract claims, meaning that it improperly repackaged an alleged contract breach as fraud.

For purposes of the motion, the court accepted the complaint’s factual allegations as true and drew reasonable inferences in Ke’s favor. Under Rule 9(b), the complaint had to identify the allegedly fraudulent statements, the speaker, where and when the statements were made, and why they were fraudulent. It also had to allege facts supporting a strong inference of fraudulent intent.

Fraud pleading

The court held that Ke’s allegations satisfied Rule 9(b). The amended complaint identified the alleged misrepresentations: that BIMI could, would, and intended to purchase Ke’s warrants under the agreement, and that the June warrants would be extended. It also described when and how the communications allegedly occurred, including conversations with Song in June 2023 and around January 2024, and conversations with Fnu by telephone and in person at Fnu’s offices in May 2024.

The court also found that Ke plausibly alleged a relationship or scheme between Fnu and Song. Ke alleged that Song negotiated the warrant agreement at Fnu’s direction, represented that he was acting under Fnu’s authority, and indicated that corporate action required Fnu’s approval. Ke further alleged that Fnu provided financial support to Song and that Song acted as Fnu’s agent. The court emphasized that it was not deciding whether Song actually was Fnu’s agent; at the motion-to-dismiss stage, Ke only had to allege facts making that relationship plausible.

The court concluded that Ke had identified the statements, the relevant speaker or speakers, the time and place of the statements, and why the statements were allegedly fraudulent. It therefore denied Fnu’s motion to dismiss on the ground that the fraud claim was not pleaded with sufficient particularity.

Whether the fraud claim duplicated the contract claims

The court explained that, generally, a claim that a party entered a contract while intending not to perform it is not enough by itself to support a separate fraud claim under New York law. But a fraud claim may proceed alongside a contract claim when, among other circumstances, it concerns a separate legal duty, a misrepresentation collateral to the contract, or damages not recoverable as contract damages.

The court held that Ke’s fraud claim against Fnu was not duplicative. Ke had not asserted a breach-of-contract claim against Fnu, and Fnu was not a party to the Warrant Purchase Agreement. In addition, Ke alleged more than that the defendants entered the agreement intending to breach it. He alleged that Fnu and the other defendants used the agreement and promises to extend the June warrants to delay his exercise of the warrants. The court treated the alleged promise to extend the warrants as a promise of future action collateral to the contract.

The court therefore denied Fnu’s motion to dismiss on the ground that the fraud claim duplicated the contract claims.

Disposition

The court denied Fnu’s motion to dismiss the amended complaint in its entirety. It also denied Fnu’s initial motion to dismiss the original complaint as moot and directed the clerk to terminate the docket entries corresponding to those motions.