EHang Inc. v. Wang

Background

EHang, Inc. sued Gary Wang for breach of fiduciary duty, negligence, and willful misconduct based on Wang’s alleged conduct while employed by EHang, Inc. Wang disputed that employment relationship and said he was employed by related companies.

Wang moved to dismiss, including on the ground that EHang, Inc. lacked standing because it had filed for Chapter 7 bankruptcy. The court explained that claims arising before a Chapter 7 bankruptcy petition generally become property of the bankruptcy estate and, unless the trustee abandons them, may be pursued only by the estate. At a case-management conference, EHang’s counsel represented that the standing problem could be cured by amendment, and Wang agreed to dismissal for lack of standing with permission to amend. The court then dismissed the original complaint on that ground and allowed amendment, while leaving other dismissal arguments for a later motion.

EHang’s first amended complaint did not address or cure standing and added allegations and claims beyond the permission granted. The court struck that complaint and postponed deciding whether to dismiss the action until it resolved Wang’s sanctions motion.

Motion for Reconsideration

EHang asked the court to reconsider striking the first amended complaint. It argued that the bankruptcy trustee had abandoned the action to EHang after the complaint was stricken, and it also asked the court to accept the complaint’s new allegations and claims under Rule 15, the federal rule governing amendments to pleadings.

The court denied reconsideration. It found that the first amended complaint neither addressed the standing problem nor stayed within the scope of the permission to amend. The court saw no reason to change that ruling based on EHang’s later acquisition of the right to pursue the suit from the trustee. It also said it was unclear whether the trustee’s abandonment cured the standing defect because standing is assessed based on the facts existing when the lawsuit was filed and cannot be created retroactively. The court further concluded that a reconsideration motion was not the proper vehicle for seeking amendment and that amendment at this stage was governed by Rule 16, not Rule 15.

The court nevertheless allowed EHang to file a separate motion for permission to amend under Rule 16, provided the motion could be filed consistently with Rule 11 and addressed the standing and other defects identified by Wang. The motion had to be filed by April 25, 2022, be no longer than 10 pages, and include a proposed second amended complaint. Wang’s opposition was due May 9, 2022, was also limited to 10 pages, and no reply was permitted. The court stated that if EHang filed no such motion, the action would be dismissed without further notice.

Rule 11 Sanctions

Wang requested monetary and dismissal sanctions against EHang and its counsel under Rule 11. He asserted that the first amended complaint was filed for an improper purpose, contained an unsupported factual contention about standing, and lacked a legal basis.

The court found that the record did not support Wang’s improper-purpose argument. It also treated standing as a legal issue rather than a factual contention and noted that the first amended complaint simply failed to address standing. Regarding the legal-basis argument, the court found the complaint objectively baseless because it did not establish or address EHang’s standing despite the court’s earlier discussion and order. But the court declined to impose a dismissal sanction because it was allowing EHang to seek permission to amend.

The court also explained that it could not impose a monetary sanction on EHang, a represented party, for the asserted Rule 11 legal-contention violation. It declined to impose monetary sanctions on EHang’s lawyer, Mr. Liu, because he had entered the case on the day the amended complaint was filed, it was unclear how much time he had to investigate the claims, and he may have misunderstood the court’s concern about bankruptcy standing. The court therefore denied Wang’s motion for Rule 11 sanctions.

Disposition

The court denied EHang’s motion for reconsideration and denied Wang’s motion for Rule 11 sanctions. It allowed EHang to file a motion for leave to file a second amended complaint by April 25, 2022. The order did not decide whether the action would ultimately be dismissed; it stated that dismissal would follow without further notice if EHang filed no motion.