EHang Inc. v. Wang

Background

EHang Inc. sued Gary Wang based on alleged misconduct while Wang was employed by EHang. The original complaint asserted claims for breach of fiduciary duty and negligence and willful misconduct. EHang alleged that Wang mismanaged operations while serving as EHang’s general manager and took confidential commercial information and employees’ personal identifying information when he left the company.

Wang moved to dismiss, arguing among other things that EHang lacked standing because EHang had filed for Chapter 7 bankruptcy. The court explained that legal claims arising before a Chapter 7 bankruptcy filing generally become property of the bankruptcy estate and, unless abandoned by the bankruptcy trustee, may be asserted only by the estate’s representative. On August 27, 2021, the court granted Wang’s motion to dismiss the original complaint for lack of standing, with leave to amend. The court stated that the amendment was limited to the standing issue and that Wang could raise other grounds later if appropriate.

Amended Complaint and Motions

EHang filed a first amended complaint. The court found that the amended complaint did not cure or address EHang’s lack of standing. It also added allegations and claims that the court had not authorized. Wang moved to strike the amended complaint and separately filed an administrative motion to stay discovery and advance or decide the hearing on the motion to strike.

EHang conceded that it lacked standing in the current lawsuit. EHang stated that the claims were unscheduled property of the bankruptcy estate that had not been administered in the Chapter 7 case. EHang said it had moved to reopen the bankruptcy case and speculated that the trustee might either substitute into the lawsuit or abandon the claims to EHang. EHang asked the court to defer ruling on the motion to strike while the bankruptcy proceedings continued.

Court’s Analysis

The court agreed that the amended complaint did not comply with, and exceeded the scope of, its prior order allowing amendment. The court also concluded that the standing problem could not be cured by another amendment because EHang’s ability to obtain standing depended on discretionary decisions by the Bankruptcy Court and the bankruptcy trustee. The court declined to delay the case based on the possibility that reopening the bankruptcy case might eventually give EHang standing.

The court determined that any further amendment would be futile. It stated that it ordinarily would dismiss the action at that point, without prejudice to a new action by the trustee or by EHang if the trustee abandoned the claims to EHang. However, Wang had filed a motion for sanctions under Federal Rule of Civil Procedure 11 that sought a monetary award and dismissal with prejudice as a sanction. The court therefore deferred dismissal until after deciding the sanctions motion.

Disposition

The court granted Wang’s motion to strike the first amended complaint. It terminated Wang’s administrative motion as moot. Although the court determined that the case was subject to dismissal for lack of standing, it did not dismiss the case in this order; instead, it kept the case open pending a decision on Wang’s Rule 11 sanctions motion. The hearing on the motion to strike was vacated because the court decided the motions without oral argument.