EHang Inc. v. Wang

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 8 EHANG INC., Case No. 21-cv-02700-BLF

9 Plaintiff, ORDER GRANTING DEFENDANT’S 10 v. MOTION TO STRIKE FIRST AMENDED COMPLAINT; 11 GARY WANG, TERMINATING DEFENDANT’S ADMINISTRATIVE MOTION AS 12 Defendant. MOOT; AND ADDRESSING FURTHER PROCEEDINGS IN THE CASE 13 [Re: ECF 43, 47] 14

15 16 Before the Court are two motions filed by Defendant Gary Wang (“Wang”): (1) a motion 17 to strike the first amended complaint (“FAC”) and (2) an administrative motion to stay discovery 18 and advance the hearing on the motion to strike. The Court finds both motions to be appropriate 19 for decision without oral argument, and for that reason the February 24, 2022 hearing on the 20 motion to strike is VACATED. For the reasons discussed below, the motion to strike is 21 GRANTED and the administrative motion is TERMINATED AS MOOT. 22 EHang’s Complaint 23 Plaintiff EHang, Inc. (“EHang”) filed this suit against Wang on April 15, 2021, alleging 24 claims arising out of Wang’s alleged misconduct while employed by EHang.1 See Compl., ECF 1. 25 The complaint alleges that while acting as EHang’s general manager from July 20, 2015 to August 26 31, 2016, Wang mismanaged operations so badly that EHang was forced to close its California 27 1 office and file for bankruptcy. See id. ¶¶ 7-12. The complaint also alleges that Wang took 2 confidential information when he left the company, including commercial information belonging 3 to EHang and personal identifying information belonging to a number of EHang’s employees. See 4 id. ¶¶ 16-20. Based on those allegations, EHang filed a complaint asserting two claims, the first 5 for breach of fiduciary duty and the second for negligence and willful misconduct. See id. ¶¶ 33- 6 42. 7 Dismissal of the Complaint with Leave to Amend for Lack of Standing 8 Wang filed a motion to dismiss the complaint on numerous grounds, including EHang’s 9 lack of standing to bring this action as a result of its Chapter 7 bankruptcy proceedings. See Mot. 10 to Dismiss, ECF 12. Wang requested judicial notice of EHang’s Chapter 7 Voluntary Bankruptcy 11 Petition filed in December 2017, arguing that because EHang’s claims against him arose prior to 12 that date, the claims are the property of the bankruptcy estate. See id. at 2-3. Legal claims 13 accruing before the filing of a Chapter 7 bankruptcy petition are the property of the bankruptcy 14 estate and, unless abandoned by the bankruptcy trustee, may be asserted only by the estate as the 15 real party in interest. See Estate of Spirtos v. One San Bernardino County Super. Ct., 443 F.3d 16 1172, 1176 (9th Cir. 2006) (“the bankruptcy code endows the bankruptcy trustee with the 17 exclusive right to sue on behalf of the estate”); see also, Britto v. Bank of America, N.A., No. C 18 13–03508 WHA, 2013 WL 5587400, at *2 (N.D. Cal. Oct. 10, 2013) (“Property is not abandoned 19 by the trustee by operation of law unless the debtor formally schedules the property before the 20 close of the case.”); In re Edwards, BAP No. CC-11-10100PaMkAl, 2011 WL 4485560, at *4 (9th 21 Cir. BAP Aug. 26, 2011) (claims arising out of prepetition foreclosure proceedings were property 22 of the estate such that the chapter 7 trustee had “the exclusive authority to prosecute these claims 23 on behalf of the estate”). 24 Before the scheduled hearing on the motion to dismiss, the Court held the Initial Case 25 Management Conference. See Minute Entry, ECF 32. The Court noted the pendency of the 26 motion to dismiss and expressed concern that EHang might not have standing to proceed with the 27 case due to the Chapter 7 bankruptcy. See Tr. at 2-3, ECF 44. EHang suggested that the Court 1 apparent lack of standing could be cured. See id. at 6. Wang’s counsel agreed to that proposed 2 approach. See id. On August 27, 2021, the Court issued a brief order granting the motion to 3 dismiss the complaint for lack of standing, with leave to amend. See Order Granting Mot. to 4 Dismiss, ECF 34. The Court recognized that Wang had raised a number of other grounds for 5 dismissal in his motion, and stated that those grounds could be raised in a future motion if 6 appropriate, as the Court’s dismissal with leave to amend was limited to the issue of standing. See 7 id. at 2. 8 EHang’s First Amended Complaint and Concession that it Lacks Standing 9 EHang filed the current FAC on September 10, 2021. See FAC, ECF 38. The FAC does 10 not cure, or even address, EHang’s lack of standing to bring this action. See id. Instead, the FAC 11 adds new allegations and claims not authorized by the Court in its dismissal order. See id. Wang 12 responded with the present motion to strike the FAC on the basis that it does not comply with, and 13 exceeds the scope of, the Court’s order dismissing with leave to amend for lack of standing. See 14 Mot. to Strike, ECF 43. Wang also filed the present administrative motion to stay discovery 15 pending decision on the motion to strike, and asking the Court to advance the hearing on the 16 motion to strike or decide it on the papers. See Admin. Mot., ECF 47. 17 EHang concedes that it lacks standing to proceed with the present lawsuit. Specifically, 18 EHang states that the claims asserted in this action are unscheduled property of the bankruptcy 19 estate that was not administered in the Chapter 7 case. See Opp. to Admin. Mot. at 4, ECF 48. 20 EHang advises that it has filed a motion to reopen the Chapter 7 case, and speculates that the 21 trustee may then seek to substitute into this case as the real party in interest, or may abandon the 22 current claims to EHang. See id. at 4-5. EHang represents that its motion to reopen is set for 23 hearing before the Bankruptcy Court on November 18, 2021, and it requests that the Court defer 24 ruling on the motion to strike pending the bankruptcy proceedings. See id. 25 Further Proceedings 26 This Court agrees with Wang that EHang’s FAC does not comply with, and exceeds the 27 scope of, the Court’s order dismissing the complaint with leave to amend for lack of standing. 1 administrative motion to stay discovery pending a ruling on the motion to strike is 2 || TERMINATED AS MOOT. 3 More importantly, it is clear that the basis on which the Court dismissed the original 4 || complaint — lack of standing — is not curable by amendment. EHang concedes that several 5 discretionary decisions would have to be made by the Bankruptcy Court and bankruptcy trustee 6 || before it might obtain standing. On this basis, the Court declines EHang’s invitation to delay 7 litigation of this case based on speculation that its motion to reopen the Chapter 7 case may result 8 || in EHang acquiring standing at some point in the future. Accordingly, although the Court 9 || previously dismissed the complaint under Federal Rule of Civil Procedure 12(b)(6) with leave to 10 amend, the Court now determines that any further amendment would be futile. 11 Having made this determination, the Court ordinarily would dismiss this action at this 12 || time, without prejudice to the filing of a new action by the trustee or by EHang should the trustee 5 13 abandon the estate’s claims to EHang. However, on October 27, 2021, Wang filed a motion for 14 sanctions under Federal Rule of Civil Procedure 11, seeking a monetary award and dismissal with 3 15 || prejudice as sanctions. The Court therefore will defer dismissal of the case pending decision on a 16 || Wang’s Rule 11 motion, including Wang’s request for dismissal with prejudice as a sanction for 3 17 improper conduct. ORDER 19 (1) Wang’s motion to strike the FAC (ECF 43) is GRANTED. 20 (2) Wang’s administrative motion (ECF 47) is TERMINATED AS MOOT. 21 (3) While the Court has determined that this case is subject to dismissal for lack of 22 standing, the case will remain open pending decision on Wang’s motion for Rule 23 11 sanctions. 24 25 Dated: October 29, 2021 han het Lh ama BETH LABSON FREEMAN 27 United States District Judge 28