Haining Zhang v. Schlatter

13-1532-cv
Zhang v. Schlatter
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
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SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
ASUMMARY ORDER@). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 2nd day of January, two thousand fourteen.
PRESENT: REENA RAGGI,
DENNY CHIN,
CHRISTOPHER F. DRONEY,
Circuit Judges.
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HAINING ZHANG and CHINA VENTURE PARTNERS,
INC.,
Plaintiffs-Appellants,
v. No. 13-1532-cv
GARY H. SCHLATTER, ORALABS, INC., ROBERT C.
GUST, MICHAEL I. FRIESS, ALLEN R. GOLDSTONE,
CREATIVE BUSINESS STRATEGIES, INC., CHINA
PRECISION STEEL, INC., BELMONT CAPITAL
GROUP LIMITED, HENNY WEE & CO., SOON
CHIANG HENNY WEE, KAM KAU EDDIE WONG,
EDWON, INC., HUNG WAN, ADVANZ CAPITAL,
INC., and ORALABS HOLDING CORP.,
Defendants-Appellees.
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APPEARING FOR APPELLANTS: KEVIN K. TUNG, ESQ., Kevin Kervung Tung,
P.C., Flushing, New York.
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APPEARING FOR APPELLEES: ANTHONY L. LEFFERT, Robinson Waters &
O’Dorisio, P.C., Denver, Colorado, for
Appellees Gary H. Schlatter, OraLabs, Inc.,
Robert C. Gust, Michael I. Friess, Allen R.
Goldstone, and Creative Business Strategies,
Inc.
JOHN MICHAEL DEITCH, Coughlin Duffy
LLP, Morristown, New Jersey, for Appellees
China Precision Steel, Inc. and OraLabs
Holding Corp.
MARY H. TOLBERT (Harry A. Woods, Jr.,
Bruce W. Day, and Tara A. LaClair, Crowe &
Dunlevy, P.C., Oklahoma City, Oklahoma;
Thomas J. Mullaney, Leventhal, Cursio,
Mullaney & Sliney, LLP, Roslyn, New York, on
the brief) Crowe & Dunlevy, P.C.,
Oklahoma City, Oklahoma, for Appellees
Belmont Capital Group Limited, Henny Wee &
Co., Soon Chiang Henny Wee, Kam Kau Eddie
Wong, Edwon, Inc., Hung Wan, and Advanz
Capital, Inc.
Appeal from a judgment of the United States District Court for the Southern District
of New York (Andrew L. Carter, Jr., Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment entered on March 19, 2013, is AFFIRMED.
Plaintiffs Haining Zhang and China Venture Partners, Inc. (“CVP”) appeal the
dismissal of their Amended Complaint, challenging, among other things, the district
court’s determination that (1) their breach of contract and unjust enrichment claims are
barred by the applicable statutes of limitations, (2) they failed adequately to plead a claim
for fraud, and (3) their breach of contract claim against Belmont Capital Group Limited
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(“Belmont Capital”) is subject to arbitration. “We review de novo the dismissal of a
complaint under Federal Rule of Civil Procedure 12(b)(6), accepting all factual allegations
as true and drawing all reasonable inferences in favor of the plaintiff.” Askins v. Doe No.
1, 727 F.3d 248, 252–53 (2d Cir. 2013) (internal quotation marks omitted). We assume
the parties’ familiarity with the facts and the record of prior proceedings, which we
reference only as necessary to explain our decision to affirm.
1. Claims Against OraLabs Defendants
a. Breach of Contract Claims
“Under New York law, a claim for breach of contract must be filed within six years
of when the claim accrues.” Muto v. CBS Corp., 668 F.3d 53, 57 (2d Cir. 2012) (citing
N.Y. C.P.L.R. § 213(2)). “A cause of action for breach of contract ordinarily accrues and
the limitations period begins to run upon breach.” Guilbert v. Gardner, 480 F.3d 140, 149
(2d Cir. 2007). “The plaintiff need not be aware of the breach or wrong to start the period
running.” Id. “If, however, a contract requires continuing performance over a period of
time, each successive breach may begin the statute of limitations running anew.” Id. at
150.
Plaintiffs specifically allege that defendants OraLabs, Inc., Gary H. Schlatter,
Robert C. Gust, Michael I. Friess, and Allen R. Goldstone (together, “OraLabs
Defendants”) breached the Non-Disclosure/Non-Circumvention Agreement at issue by
meeting with representatives from Belmont Capital and Partner Success Holdings Limited
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(later named China Precision Steel, Inc. (“CPSI”)) between December 2005 and January
2006, a time frame more than six years before the March 2012 filing of the instant suit.
See Am. Compl. ¶¶ 97–98, J.A. 150–52. This pleading belies the contention that the date
of breach is “unclear” and requires discovery. Appellants’ Br. 11.
Plaintiffs also argue that (1) obligations under the Non-Disclosure/
Non-Circumvention Agreement were ongoing, such that conduct in December 2005 was,
at most, an anticipatory repudiation, and subsequent breaches after March 2006 re-started
the limitations clock; and (2) the OraLabs Defendants should be equitably estopped from
asserting a limitations defense (or the limitations period should be equitably tolled)
because they concealed their breach.
Because plaintiffs failed to argue anticipatory repudiation in the district court, we
deem the argument forfeited. See In re Flanagan, 503 F.3d 171, 182 (2d Cir. 2007) (“We
generally will not consider arguments raised for the first time on appeal.”). In any event,
the argument fails because plaintiffs do not allege a breach by Goldstone—the only
OraLabs Defendant who signed the Agreement—that occurred after OraLabs, Inc. and
CPSI signed their letter of intent on January 9, 2006, that could re-trigger the statute of
limitations. Indeed, plaintiffs cannot plausibly allege that Goldstone “re-disclosed”
confidential information to Belmont Capital and CPSI or “re-circumvented” plaintiffs’ role
in the reverse merger after the essential terms of the transaction had been agreed upon.
Nor can plaintiffs benefit from equitable tolling or estoppel. Even assuming that
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the OraLabs Defendants fraudulently concealed their breach in December 2005, plaintiffs
unquestionably were aware of the breach in April 2006 when the transaction between
OraLabs, Inc. and CPSI was publicly announced and filed with the Securities and
Exchange Commission, which provided plaintiffs with sufficient time to investigate and
timely file their claims for breach of contract by December 2011. See Putter v. N. Shore
Univ. Hosp., 7 N.Y.3d 548, 553–554, 825 N.Y.S.2d 435, 438 (2006) (holding equitable
estoppel “inappropriate as a matter of law” because defendant’s alleged misstatement “did
not alter [plaintiff’s] timely awareness of the facts requiring him to make further inquiry
before the statute of limitations expired”); Simcuski v. Saeli, 44 N.Y.2d 442, 449–50, 406
N.Y.S.2d 259 (1978) (holding that, where equitable estoppel applies, “burden is on the
plaintiff to establish that the action was brought within a reasonable time after the facts
giving rise to the estoppel have ceased to be operational”); Kotlyarsky v. N.Y. Post, 195
Misc. 2d 150, 154, 757 N.Y.S.2d 703, 707 (N.Y. Sup. Ct. 2003) (“A plaintiff seeking to
invoke either the doctrines of equitable estoppel or equitable tolling is required to
demonstrate that the failure to timely commence the lawsuit is not attributable to a lack of
diligence on his or her part.”). The district court thus correctly dismissed all breach of
contract claims against the OraLabs Defendants.
b. Fraud Claims
Reasonable reliance on the part of the plaintiff is also an element of fraud under
New York law. See Crigger v. Fahnestock & Co., 443 F.3d 230, 234 (2d Cir. 2006). For
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reasons already discussed in rejecting plaintiffs’ equitable arguments, plaintiffs cannot
plausibly plead reasonable reliance on oral statements that OraLabs, Inc. did not intend to
consummate a reverse merger with CPSI to state a claim for fraud. To the extent plaintiffs
allege fraud based upon statements that the OraLabs Defendants would not disclose
confidential and proprietary data provided by plaintiffs, would not circumvent plaintiffs,
and would compensate plaintiffs for their efforts, the district court properly held that such
claims were not sufficiently distinct from the defendants’ contract obligations under the
Non-Disclosure/Non-Circumvention Agreement to avoid dismissal. See A.L. Eastmond
& Sons, Inc. v. Keevily, Spero-Whitelaw, Inc., 107 A.D.3d 503, 503, 968 N.Y.S.2d 436,
437 (1st Dep’t 2013) (“[P]laintiff’s proposed fraud claims fail since plaintiff failed to plead
a breach of duty distinct from, or in addition to, the breach of contract or failure to perform
under the contract.”).
c. Unjust Enrichment Claim
“Under New York law, for a plaintiff to prevail on a claim of unjust enrichment, he
must establish (1) that the defendant was enriched; (2) that the enrichment was at the
plaintiff’s expense; and (3) that the circumstances are such that in equity and good
conscience the defendant should return the money or property to the plaintiff.” Golden
Pac. Bancorp v. F.D.I.C., 273 F.3d 509, 519 (2d Cir. 2001). Unjust enrichment claims are
subject to a six-year statute of limitations, which “accrues ‘upon the occurrence of the
wrongful act giving rise to a duty of restitution and not from the time the facts constituting
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the fraud are discovered.’” Cohen v. S.A.C. Trading Corp., 711 F.3d 353, 364 (2d Cir.
2013) (quoting Coombs v. Jervier, 74 A.D.3d 724, 724, 906 N.Y.S.2d 267, 268 (2d Dep’t
2010)).
As discussed above, plaintiffs allege that the OraLabs Defendants wrongfully
disclosed plaintiffs’ proprietary information to CPSI and Belmont Capital and improperly
circumvented plaintiffs’ role in the reverse merger. In other words, the OraLabs
Defendants allegedly committed the “wrongful act[s] giving rise to a duty of restitution” in
December 2005 when they contacted Belmont Capital employees and CPSI. At the very
latest, the OraLabs Defendants were unjustly enriched when plaintiffs’ proprietary
information resulted in the execution of the letter of intent between OraLabs, Inc. and CPSI
on January 6, 2006. As this alleged misconduct occurred more than six years prior to the
filing of the instant suit in March 2012, plaintiffs’ unjust enrichment claim is time-barred.
2. Claims Against the Belmont Defendants
Plaintiffs submit that the district court erred in dismissing CVP’s contract claim
against Belmont Capital as subject to the arbitration provision of the Investment Banking
and Reverse Merger Cooperation Agreement (“Cooperation Agreement”) because
subsequent agreements between these parties, which are not the basis for CVP’s breach of
contract claim, fail to include an arbitration clause. 1 The Federal Arbitration Act
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Plaintiffs do not sufficiently develop their challenges to the district court’s conclusion
that because only CVP and Belmont Capital executed the Cooperation Agreement,
(1) Zhang cannot state a claim for breach of contract against Belmont Capital, Henny Wee
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“establishes a national policy favoring arbitration when the parties contract for that mode
of dispute resolution.” Preston v. Ferrer, 552 U.S. 346, 349 (2008). “[T]hough the
presumption in favor of arbitration is strong, the law still requires that parties actually agree
to arbitration before it will order them to arbitrate a dispute.” Opals on Ice Lingerie v.
Bodylines Inc., 320 F.3d 362, 369 (2d Cir. 2003).
CVP and Belmont Capital clearly agreed to arbitrate any disputes concerning the
Cooperation Agreement, which requires that “[a]ny controversy, dispute or claim
regarding the interpretation or performance of this Agreement shall be resolved by binding
arbitration” in Hong Kong. Cooperation Agreement ¶ 10, J.A. 372. The subsequent
agreements executed by these two entities do not address this arbitration clause, let alone
alter its clear and broad mandate. Indeed, the Cooperation Agreement specifies that
“[c]ontract addendums may alter details on individual deals but not the overall Agreement
between the two parties.” Id. ¶ 13, J.A. 372. Accordingly, like the district court, we
conclude that CVP’s breach of contract claim against Belmont Capital—the only
potentially viable claim against any of the Belmont Defendants—is unambiguously subject
to arbitration and, therefore, required no discovery to support dismissal. See Collins v.
& Co., Soon Chiang Henny Wee, Kam Kau Eddie Wong, Edwon, Inc., Hung Wan, and
Advanz Capital, Inc. (together, “Belmont Defendants”); and (2) CVP cannot state a breach
of contract claim against every Belmont Defendant apart from Belmont Capital. These
claims are therefore deemed abandoned. See United States v. Botti, 711 F.3d 299, 313 (2d
Cir. 2013) (“It is a settled appellate rule that issues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are deemed waived.” (internal
quotation marks omitted)).
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Harrison-Bode, 303 F.3d 429, 433 (2d Cir. 2002) (“Under New York law, the question of
ambiguity vel non must be determined from the face of the agreement, without reference to
extrinsic evidence.” (footnote omitted)).
3. Claims Against CPSI and OraLabs Holding Corp.
Because plaintiffs have failed meaningfully to challenge the dismissal of their
claims against CPSI and OraLabs Holding Corp., we deem these claims abandoned. See
United States v. Botti, 711 F.3d 299, 313 (2d Cir. 2013). In any event, for reasons already
discussed with respect to the OraLabs Defendants, plaintiffs’ contract claims against
OraLabs Holding Corp. and CPSI are time-barred. Further, all allegations of fraud in the
Amended Complaint refer only to statements of the OraLabs Defendants and, thus, are not
attributed with the requisite particularity to CPSI or OraLabs Holding Corp. See
Nakahata v. New York-Presbyterian Healthcare Sys., Inc., 723 F.3d 192, 197 (2d Cir.
2013) (reiterating that particularity requirement of Fed. R. Civ. P. 9(b) requires plaintiff
(1) to specify fraudulent statements, (2) to identify the speaker, (3) to state where and when
statements were made, and (4) to explain why statements were fraudulent).
4. Claims Against Creative Business Strategies, Inc.
In opposing defendants’ motion to dismiss, plaintiffs voluntarily withdrew their
claims against Creative Business Strategies, Inc. (“CBSI”), “reserving the right to seek
leave to add CBSI as a defendant should discovery reveal a basis to assert valid causes of
action against CBSI.” Pls.’ Mot. to Dismiss Opp’n 6 n.5, J.A. 471. On appeal, the
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OraLabs Defendants request that the court “dismiss with prejudice any and all remaining
claims against CBSI . . . because Plaintiffs have abandoned all claims against CBSI and
have failed to allege or state any cause of action against CBSI.” OraLabs Defendants’ Br.
1 n.1 (emphasis in original). Because the OraLabs Defendants failed to request this relief
in the district court, see Zhang v. Schlatter, No. 12-CV-1793 (ALC) (GWG), 2013 U.S.
Dist. LEXIS 138968, at *5 (S.D.N.Y. Mar. 13, 2013) (stating only that “Plaintiffs’
Opposition dismissed CBSI without prejudice”), we decline to award it on appeal but
without prejudice to CBSI making a proper application in the district court. See In re
Flanagan, 503 F.3d at 182.
We have considered plaintiffs’ remaining arguments and conclude that they too are
without merit. We therefore AFFIRM the judgment of the district court.
FOR THE COURT:
CATHERINE O=HAGAN WOLFE, Clerk of Court
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