Heng Ren Silk Road Investments LLC v. Sino Agro Food, Inc.

Background

The plaintiffs filed a shareholder derivative action against Sino Agro Food, Inc. and several employees. They alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as state common-law claims for breach of fiduciary duty.

The court preliminarily approved a settlement in 2020, later held a final-approval hearing, approved the settlement over one shareholder’s objection, and dismissed the lawsuit and all claims contained in it with prejudice. The judgment incorporated the settlement and stated that the court retained exclusive jurisdiction over further matters arising out of or connected with the settlement.

In November 2021, the plaintiffs filed a separate related case alleging that the defendants had made little effort to comply with the settlement. They also moved for appointment of a temporary receiver. After the court questioned whether the later case had subject-matter jurisdiction, the plaintiffs refiled the receivership motion in the 2019 case.

The Plaintiffs’ Requested Relief

The plaintiffs sought appointment of Randel Lewis as a temporary custodial receiver over Sino Agro Food, Inc. They asked the receiver to manage the company, preserve its assets, control its subsidiaries and bank accounts, remove directors, officers, employees, contractors, and agents from company control, and delegate tasks to representatives and professionals, including Deloitte Hong Kong. The plaintiffs’ memorandum focused largely on alleged mismanagement rather than on particular settlement terms.

Court’s Analysis

The court explained that ancillary jurisdiction is a limited form of federal authority over matters related to a case that was properly before the court. After a case is dismissed, that authority can include enforcing a settlement when the settlement is made part of the dismissal order or the order expressly retains jurisdiction. Here, both conditions were met: the settlement was incorporated into the judgment, and the judgment retained jurisdiction over matters connected with the settlement.

The court nevertheless held that this authority was limited. It allowed the court to enforce the settlement agreement, but it did not give the court general power to take over Sino Agro Food, ensure that it was well managed, or help the plaintiffs maximize their investment returns. The settlement contained eleven specific terms, and it did not grant the plaintiffs or their designees control over the company. The court also noted that some terms had been fulfilled, some lacked definite compliance dates, the plaintiffs had not nominated a representative for the Tri-Way Board, and other provisions appeared to be agreements to explore or analyze possible future actions.

The court described appointment of a receiver as an extraordinary remedy that should be used cautiously and only when clearly necessary. The plaintiffs did not establish that appointing a receiver was necessary or appropriate to enforce the settlement. The court also found no identified case in which a court had used ancillary enforcement jurisdiction to appoint a receiver for an alleged breach of a settlement agreement.

Disposition

The court concluded that the plaintiffs were attempting to address continuing institutional problems and impose new requirements, rather than enforce the settlement’s agreed terms. Because the plaintiffs were bound by the settlement and the court could not use its retained jurisdiction to modify that agreement absent special circumstances, the court DENIED the motion for appointment of a receiver. It directed the Clerk of Court to terminate ECF No. 115.