Bao v. Wang

Background

Shuzhong Bao and Bibo Zeng sued Xuguang Wang, also known as Jason Wang, Yifen Bao, Zoe Wang, Sunwoo Trade Inc., and 506 Piermont Avenue Holding Corp. They asserted New York-law claims for breach of contract, unjust enrichment, and fraud. Defendants asserted five counterclaims, including fraudulent inducement and breach of fiduciary duty.

The court held a three-day bench trial from March 14 through March 16, 2022. After trial, the parties submitted written arguments. The court found that it had subject-matter jurisdiction because Plaintiffs were citizens of China and Defendants were citizens of the United States. It also found that Plaintiffs’ asylum-related status did not make them lawful permanent residents for purposes of the diversity-jurisdiction rule at issue.

Findings About the Investment

In 2016, Shuzhong Bao and Xuguang Wang reached an oral agreement concerning the purchase and operation of the property and restaurants at 506 Piermont Avenue. The court found that the agreement required Bao to invest $600,000, while Wang would obtain a loan to complete the project’s financing. In exchange, Bao would receive a 50-percent ownership interest in the property and restaurants, through a 50-percent interest in 506 Piermont Avenue Holding Corp. and Sunwoo Trade Inc.

The court rejected Bao’s position that the original investment amount was $775,000. It credited evidence showing that the agreed amount was $600,000, including the 12 transfers of $50,000 each, the allegations in the Complaint, and a receipt referring to Bao’s $600,000 investment.

The court also found that providing stock certificates or other written ownership documents was not a material term of the oral agreement. Although Defendants never provided such documents, the court found that Bao nevertheless became and remained a 50-percent owner of Sunwoo Trade Inc. and 506 Piermont Avenue Holding Corp. The court identified Bao, rather than both Plaintiffs, as the owner because the evidence showed that Bao alone entered into the 2016 agreement with Wang. The court stated that any separate agreement between Bao and Zeng was not before it.

The court found no proof that Defendants misused the $600,000 investment. It credited Wang’s testimony about how the money was used for the Piermont project and found Bao’s testimony about alleged misuse speculative or not credible. The court also found that the circumstances surrounding Bao’s later transfer of an additional $267,000 were unclear and that the additional money was not provided at Wang’s request or under another agreement.

Plaintiffs’ Claims

For breach of contract, the court found that the parties had a valid oral contract. But Plaintiffs did not prove a breach. The failure to provide ownership documents was not a breach because the court found that documentation was not part of the agreement. The court also found no proof that Defendants failed to use the $600,000 for the Piermont project. The court therefore concluded that Plaintiffs had not proved Defendants were liable for breach of contract.

The court rejected the unjust-enrichment claim. Unjust enrichment is an equitable claim generally unavailable when a valid contract covers the same subject. Because the oral contract governed the $600,000 investment, the claim based on that money duplicated the contract claim. The court also found that the later $267,000 transfer did not unjustly enrich Defendants at Plaintiffs’ expense because Bao, as a 50-percent owner, continued to benefit from money placed into the company.

The court rejected the fraud claim. Plaintiffs’ allegations that Defendants promised a 50-percent ownership interest and would use the money to buy the restaurant and property substantially repeated their contract allegations. The court found that those allegations could not support a separate fraud claim. As to the additional $267,000, Plaintiffs did not prove that Defendants made any material misrepresentation or omission to induce the transfer.

Defendants’ Counterclaims and Disposition

Defendants presented no evidence supporting their five counterclaims and acknowledged in their post-trial filing that they had not presented proof on them. The court therefore dismissed Defendants’ counterclaims in their entirety.

The court concluded that Plaintiffs had failed to prove, by a preponderance of the evidence, that Defendants were liable on any of Plaintiffs’ claims. It also concluded that Defendants had failed to prove that Plaintiffs were liable on any counterclaims. Judge Andrew E. Krause directed the Clerk to enter judgment in favor of Defendants on all Plaintiffs’ claims, enter judgment in favor of Plaintiffs on all Defendants’ counterclaims, and close the case.