Chinacast Education Corp. v. Zhuoguo Chen

• Court: Court of Appeals for the Ninth Circuit
• Decided: June 19, 2018
• Docket: 17-55447
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION JUN 19 2018 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

CHINACAST EDUCATION No. 17-55447 CORPORATION, D.C. No. 2:15-cv-05475-AB-E Plaintiff-Appellant,

v. MEMORANDUM*

ZHUOGUO CHEN, Erroneously sued as Chen Zhou Guo and HUAN WANG,

Defendants-Appellees.

Appeal from the United States District Court for the Central District of California Andre Birotte, Jr., District Judge, Presiding

Argued and Submitted June 7, 2018 Pasadena, California

Before: D.W. NELSON and CHRISTEN, Circuit Judges, and SHEA,** District Judge.

On June 3, 2010, Plaintiff Chinacast Education Corp. issued stock to

Motivation International Investment Co. Ltd, an entity wholly owned by

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Edward F. Shea, United States District Judge for the Eastern District of Washington, sitting by designation. Defendants Zhuoguo Chen (Chen) and Huan Wang. Chinacast claims it never

received consideration for these shares and instituted a diversity suit in California

federal district court to recover their value.1 Defendants raised a statute of

limitations defense and moved for summary judgment. The district court reasoned

that Chinacast’s causes of action arose in China because the “round-trip” deposits

creating the illusion of payment for Chinacast’s stock were executed through

Chinese bank accounts in China. And because Chinacast’s claims were untimely

under Chinese law, California’s borrowing statute precluded them from being

brought in California. Cal. Civ. Proc. Code § 361. The district court accordingly

dismissed Chinacast’s complaint. Chinacast timely appeals.2 We have jurisdiction

pursuant to 28 U.S.C. § 1291, and we reverse.

California’s borrowing statute provides that a cause of action that “has

arisen” in a foreign country may not be prosecuted in California if it “cannot there

be maintained against a person by reason of the lapse of time.”3 § 361.

“[A]pplication of [the borrowing statute] generally is straightforward in a case

1 The complaint accused Chen of fraud, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and alleged causes of action against the Defendants for unjust enrichment, conversion, and money had and received. Only the last three claims are relevant to this appeal. 2 As the parties are familiar with the facts, we do not recount them here. 3 Save for one exception not relevant here. 2 involving, for example, a typical automobile accident—in which the allegedly

tortious conduct, the resulting injury, and compensable damage all occur at the

same time and in the same place . . . .” McCann v. Foster Wheeler LLC, 48 Cal.

4th 68, 85-86 (2010). Complications arise, however, where the dispute involves a

commercial transaction spanning multiple jurisdictions. “Section 361 does not

define the term ‘has arisen.’” Zacher v. Robinson Helicopter Co., No. B279673,

2017 WL 6333908 at *3 (Cal. Ct. App. December 12, 2017). Courts applying

borrowing statutes have generally “h[e]ld that a cause of action sounding in tort

arises in the jurisdiction where the last act necessary to establish liability occurred,

i.e., the jurisdiction in which injury was received[,]” Sosa v. Alvarez-Machain, 542

U.S. 692, 705 (quoting John W. Ester, Borrowing Statutes of Limitation and

Conflict of Law, 15 U. Fla. L. Rev. 33, 47 (1962)) (internal quotation marks

omitted); see also Aryeh v. Canon Bus. Solutions, Inc., 55 Cal. 4th 1185, 1191

(2013).

The round-trip deposits implicated in this case were completed by June 1,

2010. Using the slips generated from these transactions as proof of consideration,

on June 2, 2010, Chinacast’s then-CFO instructed Continental Stock Transfer &

Trust Co. to issue 2,482,758 shares to Motivation in Hong Kong. The round-trip

deposits were therefore not the last act establishing liability for conversion, money

3 had and received, and unjust enrichment because Plaintiff’s claims only arose after

Motivation received and wrongfully exercised dominion over Chinacast’s shares.

Defendants argue that Chen took possession of the stock certificate from

Chinacast’s ex-CEO, Ron Chan (Chan), in China. Motivation, they strenuously

insist, never maintained a place of business in Hong Kong. The Hong Kong

address listed on the stock certificate was nominally ascribed to Motivation but

“regularly used by Chan for numerous other purposes.” Be that as it may, we are

obliged at this stage of the proceedings to construe all the evidence in the light

most favorable to the non-moving party, Chinacast. Narayan v. EGL, 616 F.3d

895, 899 (9th Cir. 2010). Chinacast alleged “collusion” between Chen and Chan.

Given the numerous red flags surrounding the HIUBC purchase, a rational jury

could believe that the two men were acting in cahoots to loot the company.

Furthermore, a rational jury could decide that while Chan “receive[d] the [stock]

certificate[] in Hong Kong and then deliver[ed] them to . . . Chen in Hubei,” he did

so as Chen’s co-conspirator and not as a corporate officer of Chinacast. On these

facts, Chen, through his agent Chan, wrongfully exercised dominion over the

certificate in Hong Kong.

Viewing the evidence in the light most favorable to Chinacast, Plaintiff’s

causes of action against the Defendants arose in Hong Kong. Because these claims

4 were not untimely under Hong Kong law, they are not barred by California’s

borrowing statute.

REVERSED and REMANDED.