Opinion
X06CV146044253
07-05-2019
ZHAOYIN WANG v. BETA PHARMA, INC. et al.
UNPUBLISHED OPINION
OPINION
Barbara N. Bellis, J.
This action was originally brought by the plaintiff, Zhaoyin Wang, against a business for which he had previously performed services, Beta Pharma, Inc. (Beta Pharma), a Delaware corporation with its principal place of business in New Jersey, as well as Beta Pharma’s president, Don Zhang, a New Jersey resident (collectively, "original defendants"). Subsequently, the plaintiff amended his complaint to add claims against additional defendants, including the two presently at issue, Beta Pharma USA, Inc. (Beta Pharma USA), a Delaware corporation with its principal place of business in Delaware, and Beta Pharma (Hong Kong) Holding Company, Ltd. (Beta Pharma Hong Kong), a business allegedly organized under the laws of Hong Kong with its principal place of business in Hong Kong. Beta Pharma USA and Beta Pharma Hong Kong now move to dismiss the plaintiff’s claims against them, arguing that this court lacks personal jurisdiction over either defendant. For the reasons discussed herein, the defendants’ motion to dismiss is denied.
The original defendants have not contested personal jurisdiction and would in any event be unable to do so at this point, having waived any objections to personal jurisdiction by filing their answer, special defenses, and counterclaims to the plaintiff’s complaint. See, e.g., Connecticut Light & Power Co. v. St. John, 80 Conn.App. 767, 772 n.7, 837 A.2d 841 (2004).
Because the present motion to dismiss pertains only to Beta Pharma USA and Beta Pharma Hong Kong, any references to "the defendants" herein refer exclusively to these two defendants, unless otherwise noted.
As set forth in the plaintiff’s amended complaint, the plaintiff, a medicinal chemist, allegedly signed a partnership agreement with Beta Pharma on March 26, 2010, in which he agreed to provide his services to Beta Pharma in exchange for a salary and equity compensation. At the time the agreement was signed, the plaintiff avers, Beta Pharma had its principal place of business in Connecticut and Zhang was a Connecticut resident. The plaintiff goes on to allege that despite his satisfactory performance under the agreement, he did not receive the full amount of compensation to which he was entitled. Subsequently, the plaintiff initiated the present matter in October 2014, seeking to recover against the original defendants for their alleged failure to adequately perform under the agreement.
Zhang states in his affidavit that Beta Pharma moved from Connecticut to New Jersey in November 2011.
The plaintiff also alleges that, as of December 2014, two additional actions had also been filed against these defendants arising out of similar circumstances, Shao v. Beta Pharma, Inc., United States District Court, Docket No. 3:14CV01177 (CSH) (D.Conn.) and Xie v. Beta Pharma, Inc., Superior Court, judicial district of Waterbury, Complex Litigation Docket, Docket No. X06-CV-13-6025526-S.
The plaintiff alleges that Zhang owns 100 percent of Beta Pharma’s stock and serves as its president and director. The plaintiff further alleges that on December 24, 2014, the original defendants formed Beta Pharma USA as a wholly owned subsidiary of Beta Pharma and that, between December 2014, and April 2015, the original defendants "caused Beta Pharma to transfer substantially all of its disclosed American assets" to Beta Pharma USA. Subsequently, the plaintiff alleges, Zhang and Beta Pharma, through Beta Pharma USA, formed Beta Pharma Hong Kong as a wholly owned subsidiary of Beta Pharma USA on April 12, 2015, and transferred assets from Beta Pharma USA to Beta Pharma Hong Kong. The plaintiff alleges that the intent behind these transfers was to avoid financial liability for any adverse legal claims against these defendants, including those brought as part of the present matter, and that following these transfers, Zhang and Beta Pharma became financially incapable of satisfying the plaintiff’s claims against them.
On May 30, 2018, the plaintiff filed an amended complaint asserting claims of fraudulent transfer against Beta Pharma USA and Beta Pharma Hong Kong. In these fraudulent transfer claims as well as a claim for "continuity of enterprise liability," the plaintiff alleged that the defendants are mere continuations of Beta Pharma and, ultimately, Zhang, and that "Zhang owns, operates, manages and controls Beta Pharma, [Beta Pharma USA], and [Beta Pharma Hong Kong] as a single, unified business entity, exercising complete control and domination of the activities of those corporations and that entity." The plaintiff also alleged that Zhang "has commingled his personal assets with those of Beta Pharma ..."
On August 2, 2018, the defendants filed the present motion to dismiss, arguing that they do not transact business in Connecticut, did not engage in tortious conduct in Connecticut, and have no connection to Connecticut that would otherwise give this court jurisdiction under Connecticut’s longarm statute. In support of their arguments, the defendants submitted Zhang’s affidavit, in which he attests to the fact that Beta Pharma is not incorporated in Connecticut, that Beta Pharma does not have a principal place of business in Connecticut, that Beta Pharma conducts no business in Connecticut, and that Beta Pharma does no banking in Connecticut. Zhang also attested to the fact that neither Beta Pharma USA nor Beta Pharma Hong Kong are incorporated in or have a principal place of business in Connecticut, that the entities do not conduct business or have any facilities in Connecticut, and that the entities have never banked in nor received a transfer of assets from Connecticut.
The plaintiff filed an opposition to the defendants’ motion to dismiss on October 22, 2018, arguing that the receipt of funds fraudulently transferred out of Connecticut constitutes tortious activity in Connecticut for purposes of the applicable longarm statute, General Statutes § 33-929(f)(4), and again referring to the high degree of control exerted over the defendants by Zhang and Beta Pharma. The defendants filed their reply on November 30, 2018, reiterating that neither Beta Pharma USA nor Beta Pharma Hong Kong have a sufficient connection to Connecticut to subject them to personal jurisdiction. Arguments on the motion were heard at short calendar on March 18, 2019.
DISCUSSION
Practice Book § 10-30(a) provides in relevant part: "A motion to dismiss shall be used to assert ... lack of jurisdiction over the person ..." "When a ... court decides a jurisdictional question raised by a pretrial motion to dismiss, it must consider the allegations of the complaint in their most favorable light ... In this regard, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader ... Where, however, as here, the motion is accompanied by supporting affidavits [and other evidence] containing undisputed facts, the court may look to their content for determination of the jurisdictional issue." (Internal quotation marks omitted.) Samelko v. Kingstone Ins. Co., 329 Conn. 249, 255-56, 184 A.3d 741 (2018). Further, "[i]f the defendant challenging the court’s personal jurisdiction is a foreign corporation or a nonresident individual, it is the plaintiff’s burden to prove the court’s jurisdiction." Cogswell v. American Transit Ins. Co., 282 Conn. 505, 515, 923 A.2d 638 (2007).
Here, although the parties’ arguments focused mainly on Connecticut’s longarm statute and whether the purported actions of the defendants constituted tortious conduct under it, the plaintiff’s amended complaint alleges and the opposition memorandum also argues that the court should disregard the defendants’ corporate form and find the defendants to be a unified entity with the original defendants. In general, "[w]here corporate formalities are substantially observed and [a] parent does not dominate [a] subsidiary, a parent and a subsidiary are two separate entities and the acts of one cannot be attributed to the other." (Internal quotation marks omitted.) Hersey v. Lonrho, Inc., 73 Conn.App. 78, 85, 807 A.2d 1009 (2002). This concept remains true even in cases of wholly owned subsidiaries. See, e.g., Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 781 n.13, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984) ("nor does jurisdiction over a parent corporation automatically establish jurisdiction over a wholly owned subsidiary"). Nevertheless, "[c]ourts will ... disregard the fiction of a separate legal entity to pierce the shield of immunity afforded by the corporate structure in a situation in which the corporate entity has been so controlled and dominated that justice requires liability to be imposed on the real actor." (Internal quotation marks omitted.) Naples v. Keystone Building & Development Corp., 295 Conn. 214, 231, 990 A.2d 326 (2010). That said, "in Connecticut a court will disregard the corporate structure and pierce the corporate veil only under exceptional circumstances, for example, where the corporation is a mere shell, serving no legitimate purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice." (Internal quotation marks omitted.) SFA Folio Collections, Inc. v. Bannon, 217 Comm 220, 230, 585 A.2d 666, cert. denied sub nom., Commissioner of Revenue Services v. SFA Folio Collections, Inc., 501 U.S. 1223, 111 S.Ct. 2839, 115 L.Ed.2d 1008 (1991).
"The issue of whether the corporate veil [should be] pierced presents a question of fact ..." (Internal quotation marks omitted.) KLM Industries, Inc. v. Tylutki, 75 Conn.App. 27, 32, 815 A.2d 688, cert. denied, 263 Conn. 916, 821 A.2d 770 (2003). "When determining whether piercing the corporate veil is proper, our Supreme Court has endorsed two tests: the instrumentality test and the identity test. The instrumentality rule requires, in any case but an express agency, proof of three elements: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff’s legal rights; and (3) that the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of ...
"The identity rule has been stated as follows: If a plaintiff can show that there was such a unity of interest and ownership that the independence of the corporations had in effect ceased or had never begun, an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise." (Internal quotation marks omitted.) Hersey v. Lonrho, Inc., supra, 73 Conn.App. 87. "[T]he identity rule is applicable against individuals, as well as corporations"; Naples v. Keystone Building & Development Corp., supra, 295 Conn. 237; and is meant to "prevent injustice in the situation where two corporate entities are, in reality, controlled as one enterprise because of the existence of common owners, officers, directors or shareholders and because of the lack of observance of corporate formalities between the two entities." Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 187 Conn. 544, 560, 447 A.2d 406 (1982).
Under either the instrumentality test or the identity test, an entity can be found to be the "alter ego" of another and thus lose the legal protection that would normally be afforded to a truly separate entity. See, e.g., Utzler v. Braca, 115 Conn.App. 261, 266, 972 A.2d 743 (2009) ("[e]ach of these entities was the defendant’s alter ego, both under the ‘identity rule’ ... and under the ‘instrumentality rule’ [citation omitted]). Further, "[i]t is ... well established that the exercise of personal jurisdiction over an alter ego corporation does not offend due process." Southern New England Telephone Co. v. Global NAPs Inc., 624 F.3d 123, 138 (2d Cir. 2010). Additionally, "Connecticut recognizes that its longarm statute may extend personal jurisdiction based on a corporate alter ego theory." Lego A/S v. Best-Lock Construction Toys, Inc., 886 F.Supp.2d 65, 78 (D.Conn. 2012) (citing Hersey v. Lonrho, Inc., supra, 73 Conn.App. 86).
Here, the plaintiff has alleged that Beta Pharma USA and Beta Pharma Hong Kong are both wholly owned subsidiaries of Beta Pharma, which is itself wholly owned by Zhang. While this ownership structure alone would be insufficient to give rise to personal jurisdiction over the defendants, the plaintiff further alleges that each entity is under the complete control and domination of Zhang and Beta Pharma, and that Zhang has commingled his personal assets with those of Beta Pharma. Additionally, the plaintiff alleges that the defendants were created shortly after the present litigation began and that Beta Pharma’s assets were shortly thereafter transferred to them, thereby rendering Beta Pharma and Zhang incapable of satisfying any ultimate legal judgment against them. Although the plaintiff does not explicitly argue in favor of either the instrumentality test or the identity test, he has pleaded facts that support piercing the corporate veil under either approach, particularly given the favorable reading afforded to such allegations in evaluating a motion to dismiss.
In contrast to the plaintiff’s arguments, the defendants have neither argued against nor submitted any relevant evidence to contradict the plaintiff’s allegations regarding piercing the corporate veil. Although Zhang’s affidavit contains numerous assertions regarding the locations of the different entities involved in the present matter, it contains nothing to rebut the plaintiff’s allegations concerning the original defendants’ degree of control over the defendants or the commingling of Zhang’s personal assets with those of Beta Pharma. Consequently, the court must assume the plaintiff’s allegations to be true for purposes of this motion and find personal jurisdiction over the defendants as a result of this court’s jurisdiction over the original defendants. Therefore, the defendants’ motion to dismiss is denied.
The plaintiff’s complaint also included claims against a related business entity, Zhejiang Beta Pharma Co., Ltd., but these claims have since been withdrawn.