Zhu v. Li

Background

Teetex, LLC is a California-based limited liability company that imports textiles from China for resale in the United States. Jiajie Zhu alleged that Jing Li and Dong Chen misrepresented Teetex’s profits and consequently underpaid Zhu when he sold his interest in Teetex to Jing Li.

The defendants moved to dismiss under the federal rule allowing dismissal for lack of subject-matter jurisdiction, arguing that Zhu lacked standing—the legal requirement that a plaintiff have a sufficient connection to the alleged injury and that a court can remedy it. They contended that Zhu was only a nominal member acting for Anwen Li and therefore did not own the membership interest he claimed to have sold. Zhu disputed that account and argued that the agreements he signed established his membership rights.

Agreements and Standing

The operating agreement identified Zhu, Jing Li, and Xin Guan as Teetex members. A later assignment stated that Guan transferred a 10% membership interest to Zhu and that Zhu then held a 70% interest. The sale agreement, signed by Zhu and Jing Li, described Zhu as a 70% member and as the beneficial and record owner of 70% of Teetex. It also governed the sale of Zhu’s interest and payments connected to Teetex’s accumulated profits and losses.

The defendants relied primarily on an internal agreement stating that Anwen Li held the underlying shares and that Zhu, Jing Li, and Guan were nominal shareholders. The court found that the submitted English translation of that agreement was not properly authenticated because it was not accompanied by evidence establishing the translator’s identity, qualifications, or the accuracy of the translation.

The court further held that the internal agreement would not defeat standing even if it were properly authenticated. The operating agreement identified Zhu as a member and established a procedure for transferring membership. The internal agreement did not comply with that procedure and was not signed by the relevant parties to the operating agreement. The court also concluded that the signed sale agreement prevented Jing Li from arguing that Zhu was not the 70% owner described in that agreement. In addition, the court stated that the parol evidence rule generally bars outside evidence from changing the terms of an integrated written agreement, and both the operating agreement and sale agreement were integrated agreements.

Other Rulings and Disposition

The court granted Zhu’s unopposed request for judicial notice of seven documents. It took notice that the documents were publicly available and of the fact of their contents, but not of disputed facts stated within them.

The defendants also mentioned that Anwen Li might be an indispensable party under Federal Rule of Civil Procedure 19. Because the defendants did not fully brief that issue or explain why the complaint should be dismissed under the applicable rule, the court declined to address its merits.

The court denied the defendants’ motion to dismiss. It set an initial case management conference for January 24, 2020, and required the parties’ joint case management statement by January 17, 2020.