Fasano v. Li

Background

Plaintiffs Joe Fasano, Altimeo Optimum Fund, and Altimeo Asset Management brought a putative class action challenging a 2016 “going private” merger involving E-Commerce China Dangdang Inc. Plaintiffs alleged that Defendants made misrepresentations about the merger, including the independence of counsel, the fairness of the merger, and the Controlling Group’s plans after the merger. The amended complaint asserted claims under Sections 13(e), 10(b), and 20(a) of the Securities Exchange Act of 1934 and related regulations, along with claims for negligent misrepresentation, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty.

Defendants renewed a motion to dismiss based on forum non conveniens, a doctrine allowing a court to dismiss a case when another forum is more appropriate. In the alternative, Defendants moved under Federal Rule of Civil Procedure 12(b)(6) for dismissal for failure to state a legal claim.

The court had previously dismissed the action on forum non conveniens grounds because it found the Cayman Islands to be an adequate alternative forum and found that the relevant private and public interests favored the Cayman Islands. The Second Circuit vacated that decision and sent the case back because the court had not considered a forum-selection clause in the Deposit Agreement governing Dangdang’s American Depositary Shares.

Forum-Selection Clause

The court held that the clause was mandatory and had been reasonably communicated. But, reading the Deposit Agreement as a whole, the court concluded that the clause applied only to claims relating to or based on federal securities laws and regulations. The clause did not cover Plaintiffs’ common law claims because those claims were based on state or foreign law rather than federal securities law.

Only Dangdang signed the Deposit Agreement. The court nevertheless held that the clause could also be enforced against four non-signatories because Plaintiffs’ allegations made it foreseeable that they would be bound by the clause: Dangdang Holding Company Limited, Guoqing Li, Peggy Yu Yu, and Min Kan. The court found no sufficient connection between the clause and the other Defendants, including Kewen Holding Co. Limited, Science & Culture International Limited, First Profit Management Limited, Danqian Yao, Lijun Chen, and the three unserved Defendants. Thus, the clause was presumptively enforceable only for the federal securities claims against five Defendants.

The court rejected Defendants’ argument that the clause should not be enforced because doing so might require parallel proceedings. It found that Defendants had not shown fraud, overreaching, unfairness, a conflict with New York public policy, or inconvenience so severe that Plaintiffs would effectively lose their opportunity to litigate.

Forum Non Conveniens Analysis

The court determined that the unusual scope of the forum-selection clause did not require keeping the entire action in New York. The clause covered only some claims and five of thirteen Defendants, while the action primarily concerned a merger involving Cayman Islands entities and events connected to the Cayman Islands.

The court emphasized that the Cayman Islands had the closer connection to the parties and events. A related proceeding had already taken place there, and the Cayman Islands had an interest in resolving a controversy involving a Cayman Islands corporation and a merger carried out under Cayman Islands law. The court also concluded that Plaintiffs’ common law claims would be governed by Cayman Islands law, which further supported dismissal. The court noted skepticism about whether the Section 13(e) claim could survive a motion to dismiss, but it did not decide that issue.

Disposition

The court granted Defendants’ motion to dismiss for forum non conveniens. It did not decide the alternative Rule 12(b)(6) motion because that motion was moot. The Clerk was directed to terminate the pending motions, adjourn remaining dates, and close the case.