Baliga v. Link Motion Inc.

Background

Wayne Baliga sued Link Motion Inc., formerly known as NQ Mobile Inc., and Vincent Wenyong Shi, Roland Wu, and Zemin Xu. The operative complaint asserted direct securities claims and an unjust-enrichment claim. Earlier in the case, the court had issued a preliminary injunction and appointed Robert W. Seiden as a temporary receiver to protect Link Motion’s assets and maintain the company’s status quo.

Baliga’s original pleading included derivative claims—claims brought on behalf of the company—but his Second Amended Complaint abandoned those claims and asserted only direct claims. Shi then moved to dissolve the preliminary injunction and discharge the receiver. Magistrate Judge Debra Freeman recommended granting that motion in part and denying it in part. She recommended dissolving the preliminary injunction, discharging the receiver after a final accounting, requiring Link Motion to pay reasonable receiver costs incurred through October 5, 2020, and addressing later costs after further briefing and accounting.

Objections to the Report and Recommendation

Baliga objected to discharging the receiver and argued that Link Motion should bear the receivership costs. Shi objected to the court’s jurisdiction, the allocation of costs, the decision not to undo the receiver’s prior actions, and the recommendation that he not be restored to earlier board positions. Shi also raised several arguments for the first time in his objections. The court declined to consider those new arguments because he had not presented them to the magistrate judge and had not shown a compelling reason for the omission.

The court rejected Shi’s repeated arguments that Baliga lacked standing to bring his earlier derivative securities claims. It agreed with the magistrate judge that Baliga had standing and that the court had subject-matter jurisdiction when the case was filed. The court therefore declined to invalidate the original receivership order from the beginning.

Receivership and Costs

The court agreed that continuing the receivership was not warranted. Because Baliga’s operative claims sought money damages, the court concluded that he had not shown the kind of harm that cannot be remedied with money damages. It also noted that Baliga asserted securities claims against the individual defendants, who could be jointly and severally liable under the cited federal securities statute.

The court adopted October 5, 2020, as the dividing line for allocating receivership costs. Link Motion was responsible for reasonable costs incurred through that date. After that date, Baliga was responsible for costs that would not have arisen without continuing the receiver’s appointment. However, costs that Link Motion would have incurred even without a receiver, or that provided Link Motion a genuine benefit, could be charged to Link Motion. The court deferred those questions until the receiver’s accounting.

Shareholder Meetings

Shi sought an order blocking the receiver from convening extraordinary shareholder meetings to vote on Link Motion’s board. A Cayman Islands court had authorized the receiver to convene the meetings at the request of Lilin “Francis” Guo, but the receiver had been unable to reach Guo and his whereabouts were unknown. Rather than decide the injunction request immediately, the court required additional briefing on whether Guo’s disappearance made the request moot.

American Depositary Receipts

The parties also disputed whether holders could convert Link Motion’s American Depositary Receipts into common stock. The court concluded that this issue was not connected to the claims Baliga was litigating and therefore was not properly before the court as an independent legal question. The court directed the receiver to take no action regarding that conversion.

Disposition

The court adopted Magistrate Judge Freeman’s Report and Recommendation in its entirety on Shi’s motion to dissolve the preliminary injunction and discharge the receiver. It denied Baliga’s objections and denied Shi’s objections. The parties had 30 days to propose a schedule for the receivership accounting, and the parties and receiver had 14 days to submit letters addressing whether Guo’s disappearance affected the proposed shareholder meeting. The court deferred the motion to block those meetings and ordered the receiver to take no action regarding conversion of the American Depositary Receipts into common stock.