Gao v. Sinova Specialties, Inc.
Opinion
Gao v. Sinova Specialties, Inc., 2018 NCBC 72.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 16 CVS 6709
JIANXUN “BILL” GAO, individually, and derivatively on behalf of Sinova Specialties, Inc.,
Plaintiff,
v.
SINOVA SPECIALTIES, INC., a North Carolina Corporation; ORDER AND OPINION ON JOHANNES HECKMANN; PLAINTIFF’S MOTIONS TO DISMISS YAN “ELLEN” LIU; NEW SHORE, PURSUANT TO RULE 12(b)(6) INC., a North Carolina Corporation,
Defendants,
SINOVA SPECIALTIES, INC., a North Carolina Corporation,
Nominal Defendant.
1. THIS MATTER is before the Court on Plaintiff’s motions to dismiss the
counterclaims of Defendant/Nominal-Defendant Sinova Specialties, Inc. (“Sinova
US”), Defendant Johannes Heckmann (“Heckmann”), and Defendant Yan “Ellen” Liu
(“Liu”) (collectively, the “Counterclaimants”) pursuant to Rule 12(b)(6) of the North
Carolina Rules of Civil Procedure (“Rule(s)”). Having considered the motions, the
briefs, and the arguments of counsel at a hearing on the motions1, the Court
GRANTS in part and DENIES in part the motions.
1 At the hearing, the Court also heard arguments of counsel on Plaintiff’s motions to
dismiss pursuant to Rule 12(b)(1) and Plaintiff’s motion for summary judgment. The Court has issued a separate order and opinion on Plaintiff’s Rule 12(b)(1) motions, Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Jeffrey E. Oleynik, Jessica Thaller-Moran, and Ryan C. Fairchild, and Greenberg Traurig, LLP, by Gabriel Aizenberg, Andrew J. Enschedé, and Lucia Marker-Moore, for Plaintiff.
Erwin, Bishop, Capitano & Moss, P.A., by Joseph W. Moss, Jr., for Defendant/Nominal-Defendant Sinova Specialties, Inc.
Essex Richards, PA, by Marc E. Gustafson, for Defendants Johannes Heckmann and New Shore, Inc.
Higgins & Owens, PLLC, by Sara W. Higgins, for Defendant Yan “Ellen” Liu.
Robinson, Judge.
I. FACTUAL BACKGROUND
2. The Court does not make findings of fact on the motions; rather, the Court
recites the following factual allegations of the counterclaims that are relevant and
necessary to the Court’s determination of the motions.
A. The Parties and Related Entities
3. Sinova US, a North Carolina corporation, was formed in 2009.
(Heckmann’s Am. Countercls. ¶¶ 3, 8, ECF No. 267; Liu’s Am. Countercls. ¶¶ 3, 8,
ECF No. 268; Sinova US’s Second Am. Countercls. ¶¶ 1, 8, ECF No. 266.) Sinova US
develops and sells chemical compounds. (Heckmann’s Am. Countercls. ¶¶ 9−11; Liu’s
Am. Countercls. ¶¶ 9−11; Sinova US’s Second Am. Countercls. ¶¶ 9−11.)
4. Plaintiff Jianxun “Bill” Gao (“Gao”), Heckmann, and Liu are the sole
shareholders, directors, and officers of Sinova US. (See Heckmann’s Am. Countercls.
(ECF No. 332), and the Court will issue a separate order and opinion on Plaintiff’s motion for summary judgment. ¶ 85; Liu’s Am. Countercls. ¶ 85; Sinova US’s Second Am. Countercls. ¶ 86; Verified
Am. Compl. Ex. C, ECF No. 56.)
5. In 2011, Feng Sujin, Zhang Lanjun, and Wang Shufen, Gao’s mother-in-
law, formed Sinova Chemicals Limited (“Sinova HK”), a Hong Kong corporation.
(Heckmann’s Am. Countercls. ¶ 3; Heckmann’s Am. Answer, Affirmative Defenses &
Countercls. ¶ 14, ECF No. 221 [“Heckmann’s Answer”]; Liu’s Am. Countercls. ¶ 3;
Liu’s Am. Answer, Affirmative Defenses & Countercls. ¶ 14, ECF No. 215 [“Liu’s
Answer”]; Sinova US’s Second Am. Countercls. ¶ 3; Sinova US’s Answer to Am.
Compl. ¶ 14, ECF No. 195 [“Sinova US’s Answer”].)
6. In 2012, Gao, Liu, and Feng Sujin formed Sinova Specialties, Inc. (Beijing)
(“Sinova Beijing”), a Chinese corporation. (Heckmann’s Am. Countercls. ¶ 3;
Heckmann’s Answer ¶ 15; Liu’s Am. Countercls. ¶ 3; Liu’s Answer ¶ 15; Sinova US’s
Second Am. Countercls. ¶ 3; Sinova US’s Answer ¶ 15.)
7. Sinova US, Sinova Beijing, and Sinova HK are collectively referred to
herein as the “Sinova Companies.”
8. Xin Yong Zhong Da Chemicals (“XYZD”) is a Chinese corporation indirectly
controlled by Heckmann, Liu, and Gao through Liu’s mother, Gao’s mother-in-law,
and a third party. (Heckmann’s Am. Countercls. ¶ 4; Liu’s Am. Countercls. ¶ 4;
Sinova US’s Second Am. Countercls. ¶ 4.) In 2012, XYZD exported chemical
compounds on behalf of Sinova US before Sinova Beijing was formed. (Heckmann’s
Am. Countercls. ¶ 4; Liu’s Am. Countercls. ¶ 4; Sinova US’s Second Am. Countercls.
¶ 4.) 9. The Sinova Companies and XYZD are collectively referred to herein as the
“Sinova Group.”
B. Business Operations
10. The responsibilities of Sinova US were shared by Heckmann, Liu, and Gao.
(Heckmann’s Am. Countercls. ¶ 7; Liu’s Am. Countercls. ¶ 7; Sinova US’s Second Am.
Countercls. ¶ 7.) Heckmann was primarily responsible for sales, Liu was primarily
responsible for operations, and Gao was primarily responsible for the chemistry and
technical aspects of the business. (Heckmann’s Am. Countercls. ¶ 7; Liu’s Am.
Countercls. ¶ 7; Sinova US’s Second Am. Countercls. ¶ 7.)
11. From 2009 to 2012, Sinova US’s operations consisted of assisting Sinomax
Solutions Inc. (“SMBJ”), a separate Chinese company in which neither Heckmann,
Liu, nor Gao owned an interest, with its sales of the chemical compounds “PP,” “BFA,”
and “TSS” in the United States and Europe. (Heckmann’s Am. Countercls. ¶ 9; Liu’s
Am. Countercls. ¶ 9; Sinova US’s Second Am. Countercls. ¶ 9.) In 2012, the Sinova
Companies purchased SMBJ’s business, including SMBJ’s customer lists and the
licensing rights to PP, BFA, and TSS, and Sinova US began selling chemical
compounds in the United States and Europe on behalf of the Sinova Companies.
(Heckmann’s Am. Countercls. ¶ 10; Liu’s Am. Countercls. ¶ 10; Sinova US’s Second
Am. Countercls. ¶ 10.) As a result, the Sinova Companies needed their own lab in
order to do research and development, testing, and quality control for their products.
(Heckmann’s Am. Countercls. ¶ 11; Liu’s Am. Countercls. ¶ 11; Sinova US’s Second
Am. Countercls. ¶ 11.) 12. From May 2012 through early 2014, Gao operated a lab in Beijing that was
to be used for the benefit of the Sinova Group and for the purpose of creating products
for sale by the Sinova Companies. (Heckmann’s Am. Countercls. ¶ 12; Liu’s Am.
Countercls. ¶ 12; Sinova US’s Second Am. Countercls. ¶ 12.) The Sinova Group paid
all the costs of the lab, which included the cost of an office lease, equipment, supplies,
reagents, testing, and salaries of approximately eleven employees. (Heckmann’s Am.
Countercls. ¶ 13; Liu’s Am. Countercls. ¶ 13; Sinova US’s Second Am. Countercls.
¶ 13.)
C. CDA and 2012 Board Agreement
13. On or about September 16, 2012, the Sinova Group, Heckmann, Liu, and
Gao entered into a “CDA and Non-Compete Agreement” (the “CDA”).2 (Heckmann’s
Am. Countercls. ¶ 79; Liu’s Am. Countercls. ¶ 79; Sinova US’s Second Am. Countercls.
¶ 80; Am. Compl. Ex. A.) The CDA provides that “[t]he three persons in this
agreement” are Heckmann, Liu, and Gao, and that “[t]he company in this agreement
is Sinova Specialties Inc. (Beijing) and its related company [sic] in USA, HK and
China.” (Am. Compl. Ex. A, at 1.) The CDA imposes an obligation on each of the
individual parties to the agreement to “keep the secrecy of the company” and to “not
leak the market, technology and operation secrecy to any third party directly or
indirectly at any time.” (Am. Compl. Ex.
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Gao v. Sinova Specialties, Inc., 2018 NCBC 72.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION MECKLENBURG COUNTY 16 CVS 6709
JIANXUN “BILL” GAO, individually, and derivatively on behalf of Sinova Specialties, Inc.,
Plaintiff,
v.
SINOVA SPECIALTIES, INC., a North Carolina Corporation; ORDER AND OPINION ON JOHANNES HECKMANN; PLAINTIFF’S MOTIONS TO DISMISS YAN “ELLEN” LIU; NEW SHORE, PURSUANT TO RULE 12(b)(6) INC., a North Carolina Corporation,
Defendants,
SINOVA SPECIALTIES, INC., a North Carolina Corporation,
Nominal Defendant.
1. THIS MATTER is before the Court on Plaintiff’s motions to dismiss the
counterclaims of Defendant/Nominal-Defendant Sinova Specialties, Inc. (“Sinova
US”), Defendant Johannes Heckmann (“Heckmann”), and Defendant Yan “Ellen” Liu
(“Liu”) (collectively, the “Counterclaimants”) pursuant to Rule 12(b)(6) of the North
Carolina Rules of Civil Procedure (“Rule(s)”). Having considered the motions, the
briefs, and the arguments of counsel at a hearing on the motions1, the Court
GRANTS in part and DENIES in part the motions.
1 At the hearing, the Court also heard arguments of counsel on Plaintiff’s motions to
dismiss pursuant to Rule 12(b)(1) and Plaintiff’s motion for summary judgment. The Court has issued a separate order and opinion on Plaintiff’s Rule 12(b)(1) motions, Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Jeffrey E. Oleynik, Jessica Thaller-Moran, and Ryan C. Fairchild, and Greenberg Traurig, LLP, by Gabriel Aizenberg, Andrew J. Enschedé, and Lucia Marker-Moore, for Plaintiff.
Erwin, Bishop, Capitano & Moss, P.A., by Joseph W. Moss, Jr., for Defendant/Nominal-Defendant Sinova Specialties, Inc.
Essex Richards, PA, by Marc E. Gustafson, for Defendants Johannes Heckmann and New Shore, Inc.
Higgins & Owens, PLLC, by Sara W. Higgins, for Defendant Yan “Ellen” Liu.
Robinson, Judge.
I. FACTUAL BACKGROUND
2. The Court does not make findings of fact on the motions; rather, the Court
recites the following factual allegations of the counterclaims that are relevant and
necessary to the Court’s determination of the motions.
A. The Parties and Related Entities
3. Sinova US, a North Carolina corporation, was formed in 2009.
(Heckmann’s Am. Countercls. ¶¶ 3, 8, ECF No. 267; Liu’s Am. Countercls. ¶¶ 3, 8,
ECF No. 268; Sinova US’s Second Am. Countercls. ¶¶ 1, 8, ECF No. 266.) Sinova US
develops and sells chemical compounds. (Heckmann’s Am. Countercls. ¶¶ 9−11; Liu’s
Am. Countercls. ¶¶ 9−11; Sinova US’s Second Am. Countercls. ¶¶ 9−11.)
4. Plaintiff Jianxun “Bill” Gao (“Gao”), Heckmann, and Liu are the sole
shareholders, directors, and officers of Sinova US. (See Heckmann’s Am. Countercls.
(ECF No. 332), and the Court will issue a separate order and opinion on Plaintiff’s motion for summary judgment. ¶ 85; Liu’s Am. Countercls. ¶ 85; Sinova US’s Second Am. Countercls. ¶ 86; Verified
Am. Compl. Ex. C, ECF No. 56.)
5. In 2011, Feng Sujin, Zhang Lanjun, and Wang Shufen, Gao’s mother-in-
law, formed Sinova Chemicals Limited (“Sinova HK”), a Hong Kong corporation.
(Heckmann’s Am. Countercls. ¶ 3; Heckmann’s Am. Answer, Affirmative Defenses &
Countercls. ¶ 14, ECF No. 221 [“Heckmann’s Answer”]; Liu’s Am. Countercls. ¶ 3;
Liu’s Am. Answer, Affirmative Defenses & Countercls. ¶ 14, ECF No. 215 [“Liu’s
Answer”]; Sinova US’s Second Am. Countercls. ¶ 3; Sinova US’s Answer to Am.
Compl. ¶ 14, ECF No. 195 [“Sinova US’s Answer”].)
6. In 2012, Gao, Liu, and Feng Sujin formed Sinova Specialties, Inc. (Beijing)
(“Sinova Beijing”), a Chinese corporation. (Heckmann’s Am. Countercls. ¶ 3;
Heckmann’s Answer ¶ 15; Liu’s Am. Countercls. ¶ 3; Liu’s Answer ¶ 15; Sinova US’s
Second Am. Countercls. ¶ 3; Sinova US’s Answer ¶ 15.)
7. Sinova US, Sinova Beijing, and Sinova HK are collectively referred to
herein as the “Sinova Companies.”
8. Xin Yong Zhong Da Chemicals (“XYZD”) is a Chinese corporation indirectly
controlled by Heckmann, Liu, and Gao through Liu’s mother, Gao’s mother-in-law,
and a third party. (Heckmann’s Am. Countercls. ¶ 4; Liu’s Am. Countercls. ¶ 4;
Sinova US’s Second Am. Countercls. ¶ 4.) In 2012, XYZD exported chemical
compounds on behalf of Sinova US before Sinova Beijing was formed. (Heckmann’s
Am. Countercls. ¶ 4; Liu’s Am. Countercls. ¶ 4; Sinova US’s Second Am. Countercls.
¶ 4.) 9. The Sinova Companies and XYZD are collectively referred to herein as the
“Sinova Group.”
B. Business Operations
10. The responsibilities of Sinova US were shared by Heckmann, Liu, and Gao.
(Heckmann’s Am. Countercls. ¶ 7; Liu’s Am. Countercls. ¶ 7; Sinova US’s Second Am.
Countercls. ¶ 7.) Heckmann was primarily responsible for sales, Liu was primarily
responsible for operations, and Gao was primarily responsible for the chemistry and
technical aspects of the business. (Heckmann’s Am. Countercls. ¶ 7; Liu’s Am.
Countercls. ¶ 7; Sinova US’s Second Am. Countercls. ¶ 7.)
11. From 2009 to 2012, Sinova US’s operations consisted of assisting Sinomax
Solutions Inc. (“SMBJ”), a separate Chinese company in which neither Heckmann,
Liu, nor Gao owned an interest, with its sales of the chemical compounds “PP,” “BFA,”
and “TSS” in the United States and Europe. (Heckmann’s Am. Countercls. ¶ 9; Liu’s
Am. Countercls. ¶ 9; Sinova US’s Second Am. Countercls. ¶ 9.) In 2012, the Sinova
Companies purchased SMBJ’s business, including SMBJ’s customer lists and the
licensing rights to PP, BFA, and TSS, and Sinova US began selling chemical
compounds in the United States and Europe on behalf of the Sinova Companies.
(Heckmann’s Am. Countercls. ¶ 10; Liu’s Am. Countercls. ¶ 10; Sinova US’s Second
Am. Countercls. ¶ 10.) As a result, the Sinova Companies needed their own lab in
order to do research and development, testing, and quality control for their products.
(Heckmann’s Am. Countercls. ¶ 11; Liu’s Am. Countercls. ¶ 11; Sinova US’s Second
Am. Countercls. ¶ 11.) 12. From May 2012 through early 2014, Gao operated a lab in Beijing that was
to be used for the benefit of the Sinova Group and for the purpose of creating products
for sale by the Sinova Companies. (Heckmann’s Am. Countercls. ¶ 12; Liu’s Am.
Countercls. ¶ 12; Sinova US’s Second Am. Countercls. ¶ 12.) The Sinova Group paid
all the costs of the lab, which included the cost of an office lease, equipment, supplies,
reagents, testing, and salaries of approximately eleven employees. (Heckmann’s Am.
Countercls. ¶ 13; Liu’s Am. Countercls. ¶ 13; Sinova US’s Second Am. Countercls.
¶ 13.)
C. CDA and 2012 Board Agreement
13. On or about September 16, 2012, the Sinova Group, Heckmann, Liu, and
Gao entered into a “CDA and Non-Compete Agreement” (the “CDA”).2 (Heckmann’s
Am. Countercls. ¶ 79; Liu’s Am. Countercls. ¶ 79; Sinova US’s Second Am. Countercls.
¶ 80; Am. Compl. Ex. A.) The CDA provides that “[t]he three persons in this
agreement” are Heckmann, Liu, and Gao, and that “[t]he company in this agreement
is Sinova Specialties Inc. (Beijing) and its related company [sic] in USA, HK and
China.” (Am. Compl. Ex. A, at 1.) The CDA imposes an obligation on each of the
individual parties to the agreement to “keep the secrecy of the company” and to “not
leak the market, technology and operation secrecy to any third party directly or
indirectly at any time.” (Am. Compl. Ex. A, at 2.) The CDA further provides that
“[a]nyone who breaches the [CDA] shall pay RMB 5million to the company. At the
2 Most of the agreements and other documents involved in this case were originally
written in Chinese and then translated into English, often with grammar and sentence structures that are difficult to understand. same time, he/she shall compensate all the lost [sic] that caused [sic] to the company
by his/her violating the [CDA].” (Am. Compl. Ex. A, at 3−4.) The CDA is signed by
Sinova Beijing, Heckmann, Liu, and Gao. (Am. Compl. Ex. A, at 4.)
14. Also on or about September 16, 2012, Heckmann, Liu, and Gao entered into
a board agreement (the “2012 Board Agreement”). (Heckmann’s Am. Countercls.
¶ 84; Liu’s Am. Countercls. ¶ 84; Sinova US’s Second Am. Countercls. ¶ 85; Am.
Compl. Ex. B.) The 2012 Board Agreement states that the shareholders of Sinova US
and Sinova Beijing “are allowed to set up non-related other companies but are not
allowed to do business compete [sic] with [Sinova US or Sinova Beijing]. The other
companies are not allowed to provide or accept the product or service of [Sinova US
or Sinova Beijing].” (Am. Compl. Ex. B, at 1.)
D. 2014 Board Agreement
15. In the middle of 2013, Heckmann, Liu, and Gao were negotiating the
separation of their business interests. (Heckmann’s Am. Countercls. ¶ 26; Liu’s Am.
Countercls. ¶ 26; Sinova US’s Second Am. Countercls. ¶ 26.) The parties extensively
negotiated which chemical products would continue to be manufactured and sold by
the Sinova Group (the “Common Projects”). (Heckmann’s Am. Countercls. ¶ 27; Liu’s
Am. Countercls. ¶ 27; Sinova US’s Second Am. Countercls. ¶ 27.) Over the course of
its business, the Sinova Group had attempted to develop many products that never
came to fruition. (Heckmann’s Am. Countercls. ¶ 30; Liu’s Am. Countercls. ¶ 30;
Sinova US’s Second Am. Countercls. ¶ 30.) As a result, Heckmann, Liu, and Gao
agreed that the Common Projects would include the Sinova Group’s marketable and profitable chemical compounds and those chemical compounds that were still under
development with a potential upside as of January 2014. (Heckmann’s Am.
Countercls. ¶¶ 28−29; Liu’s Am. Countercls. ¶¶ 28−29; Sinova US’s Second Am.
Countercls. ¶¶ 28−29.)
16. To determine which projects should be designated as Common Projects,
Heckmann and Liu asked Gao to identify all the projects that had been run or
developed in the lab. (Heckmann’s Am. Countercls. ¶ 33; Liu’s Am. Countercls. ¶ 33;
Sinova US’s Second Am. Countercls. ¶ 33.) Counterclaimants allege that, over
several months beginning in mid-2013 through early 2014, Heckmann, Liu, and Gao
discussed what Heckmann and Liu were led by Gao to believe were all of the projects
being worked on in the lab. (Heckmann’s Am. Countercls. ¶ 32; Liu’s Am. Countercls.
¶ 32; Sinova US’s Second Am. Countercls. ¶ 32.)
17. On July 11, 2013, Heckmann sent an e-mail to Gao and Liu stating: “It has
come to my attention that the lab is running projects unknown to me. And these
projects were not listed when I asked about lab projects. In order to come clean I ask
to receive what projects the lab is running, for what customers, pricing and status.”
(Heckmann’s Am. Countercls. ¶ 34; Liu’s Am. Countercls. ¶ 34; Sinova US’s Second
Am. Countercls. ¶ 34.) Gao responded that “it is the project that we do for them and
they do C12 Chemistry for 35 DCMC.” (Heckmann’s Am. Countercls. ¶ 35; Liu’s Am.
Countercls. ¶ 35; Sinova US’s Second Am. Countercls. ¶ 35.)
18. In October 2013, Liu sent a directive to all lab employees, including Gao,
stating that all data and records belong to the company, all lab data must be recorded in a lab record book, the lab cannot be used to develop private projects, and the
company would impose liability for the destruction or theft of lab data. (Heckmann’s
Am. Countercls. ¶ 36; Liu’s Am. Countercls. ¶ 36; Sinova US’s Second Am. Countercls.
¶ 36.)
19. In late December 2013, Liu received text messages from a Sinova Beijing
employee, Wang Zongchao (“Zongchao”) stating that lab employees were working on
a chemical compound referred to as “ANT,” that a 50 gram sample of ANT was sent
overseas, and that Gao directed Sinova Beijing’s employees who worked in the lab
not to create records or reports regarding ANT and to otherwise conceal this
information from Sinova US, Heckmann, and Liu. (Heckmann’s Am. Countercls.
¶ 40; Liu’s Am. Countercls. ¶ 40; Sinova US’s Second Am. Countercls. ¶ 40.)
Zongchao’s text messages to Liu further stated that Gao directed Sinova Beijing
employees to falsify payroll records to conceal the nature and extent of their work,
“and that ‘it seems there is a chance to commercialize [ANT].’” (Heckmann’s Am.
Countercls. ¶ 41; Liu’s Am. Countercls. ¶ 41; Sinova US’s Second Am. Countercls.
¶ 41 (alteration in original).)
20. On January 2, 2014, Liu sent a supplementary directive to all lab
employees, including Gao, requesting that they report to Liu on what they were doing
and that they come to the Sinova Beijing office once per week for a face-to-face
meeting. (Heckmann’s Am. Countercls. ¶ 42; Liu’s Am. Countercls. ¶ 42; Sinova US’s
Second Am. Countercls. ¶ 42.) The next day, Gao rejected Liu’s demand for information and face-to-face meetings. (Heckmann’s Am. Countercls. ¶ 42; Liu’s Am.
Countercls. ¶ 42; Sinova US’s Second Am. Countercls. ¶ 42.)
21. In the two to three weeks following Zongchao’s text messages, Gao never
disclosed that ANT had been developed in the lab or that it was a commercially viable
project, and Gao refused to allow lab employees to respond to Liu. (Heckmann’s Am.
Countercls. ¶ 43; Liu’s Am. Countercls. ¶ 43; Sinova US’s Second Am. Countercls.
¶ 43.) As a result, Counterclaimants allege that Heckmann and Liu justifiably
assumed that ANT was not commercially viable in any respect. (Heckmann’s Am.
Countercls. ¶ 44; Liu’s Am. Countercls. ¶ 44; Sinova US’s Second Am. Countercls.
¶ 44.)
22. On or about January 15, 2014, Heckmann, Liu, and Gao entered into a
board agreement (the “2014 Board Agreement”). (Am. Compl. Ex. C.) The 2014 Board
Agreement identifies seven Common Projects, including RC2, PP, and BFA. (Am.
Compl. Ex. C, ¶ 7.) ANT is not listed as a Common Project. The 2014 Board
Agreement states that the participants, who are identified as Heckmann, Liu, and
Gao, agree to “[k]eep minimum necessary budget for operation [sic] the common
projects in [Sinova Beijing]” and to “[k]eep funding available for common projects at
$3.5 million.” (Am. Compl. Ex. C, ¶¶ 3−4.) The 2014 Board Agreement provides that
“[a]ll projects that are not common projects are to be done outside of any common
office facilities and at their own risk.” (Am. Compl. Ex. C, ¶ 3.)
23. The 2014 Board Agreement further provides that “[e]ach board member will
adhere to professional rules of conduct toward each other and promises to promote the common projects to the best of their abilities and not to cause adverse effects to
another board member. Should such action occur damages may be sought.” (Am.
Compl. Ex. C, ¶ 11.) The 2014 Board Agreement expressly incorporates the prior
confidentiality and non-compete obligations set forth in the CDA and the 2012 Board
Agreement. (Am. Compl. Ex. C, ¶ 2.)
24. Counterclaimants allege that, unbeknownst to them, Gao used the lab to
develop ANT and other chemical compounds for the benefit of himself and companies
other than the Sinova Group. (Heckmann’s Am. Countercls. ¶¶ 21−22; Liu’s Am.
Countercls. ¶¶ 21−22; Sinova US’s Second Am. Countercls. ¶¶ 21−22.)
Counterclaimants further allege that, during Heckmann, Liu, and Gao’s negotiations,
Gao concealed that he had developed ANT in the lab and that it was, or had the
potential to be, commercially viable. (Heckmann’s Am. Countercls. ¶¶ 37, 39; Liu’s
Am. Countercls. ¶¶ 37, 39; Sinova US’s Second Am. Countercls. ¶¶ 37, 39.)
Counterclaimants contend that, as a result, ANT was not included as a Common
Project in the 2014 Board Agreement, and Counterclaimants entered into a
materially different agreement than they otherwise would have if they had known
about ANT and its potential commercial viability. (Heckmann’s Am. Countercls.
¶¶ 45, 145; Liu’s Am. Countercls. ¶¶ 45, 146; Sinova US’s Second Am. Countercls.
¶¶ 45, 163.)
E. Gao’s Sales of ANT and Disclosure of Confidential Information
25. After Heckmann, Liu, and Gao executed the 2014 Board Agreement, Liu
met Gao at the lab in January 2014 to audit all lab records. (Heckmann’s Am. Countercls. ¶ 47; Liu’s Am. Countercls. ¶ 47; Sinova US’s Second Am. Countercls.
¶ 47.) Counterclaimants allege that Gao failed to produce any records for ANT or any
other private projects that he had worked on in the lab and that had existing
marketability or potential future upside. (Heckmann’s Am. Countercls. ¶ 48; Liu’s
Am. Countercls. ¶ 48; Sinova US’s Second Am. Countercls. ¶ 48.)
26. Counterclaimants allege that Gao owns or controls, directly or indirectly
through his wife or others, a company known as Beijing PTG Advanced Catalyst Co.,
Ltd. (“PTG Beijing”) and a second company known as PTG Advanced Catalyst Co.,
Limited – Hong Kong (“PTG Hong Kong”). (Heckmann’s Am. Countercls. ¶ 52; Liu’s
Am. Countercls. ¶ 52; Sinova US’s Second Am. Countercls. ¶ 52.) PTG Beijing and
PTG Hong Kong are collectively referred to herein as the “PTG Entities.”
27. Counterclaimants allege that the PTG Entities obtained ANT from and
through Gao while Gao was an officer and director of Sinova US. (Heckmann’s Am.
Countercls. ¶ 61; Liu’s Am. Countercls. ¶ 61; Sinova US’s Second Am. Countercls.
¶ 61.) Counterclaimants contend that, under Gao’s direction and control, the PTG
Entities engaged plants to manufacture ANT exclusively for the PTG Entities, which
they then purchased and sold to their customers at a substantial profit from
December 2013 through the present. (Heckmann’s Am. Countercls. ¶¶ 52, 57, 62,
65−66, 74; Liu’s Am. Countercls. ¶¶ 52, 57, 62, 65−66, 74; Sinova US’s Second Am.
Countercls. ¶¶ 52, 57, 62, 65−66, 75.) Counterclaimants allege that, in addition to
ANT, Gao marketed and sold Common Projects through the PTG Entities. (Heckmann’s Am. Countercls. ¶¶ 91, 94; Liu’s Am. Countercls. ¶¶ 91, 94; Sinova US’s
Second Am. Countercls. ¶¶ 92, 95.)
28. Counterclaimants further allege that Gao improperly disclosed confidential
information of Sinova US and its customers. Sinova US has agreements with its
customers to keep information regarding the chemical compounds that Sinova US
sells to those customers confidential. (Heckmann’s Am. Countercls. ¶ 96; Liu’s Am.
Countercls. ¶ 96; Sinova US’s Second Am. Countercls. ¶ 97.) Sinova US’s agreement
with one such customer, Shell Chemical LP (“Shell”), prohibited Sinova US and its
representatives from disclosing Shell’s confidential information, which included all
products—specifically, RC2—that Sinova US might manufacture for Shell and all
information related thereto. (Heckmann’s Am. Countercls. ¶¶ 97−98, 101; Liu’s Am.
Countercls. ¶¶ 97−98, 101; Sinova US’s Second Am. Countercls. ¶¶ 98−99, 102.) The
Shell agreement also prohibited Sinova US from including Shell’s confidential
information in any patent application. (Heckmann’s Am. Countercls. ¶ 99; Liu’s Am.
Countercls. ¶ 99; Sinova US’s Second Am. Countercls. ¶ 100.)
29. In March 2015, Gao caused PTG Beijing to apply for a patent for RC2.
(Heckmann’s Am. Countercls. ¶ 102; Liu’s Am. Countercls. ¶ 102; Sinova US’s Second
Am. Countercls. ¶ 103.) Counterclaimants allege that the RC2 patent application
disclosed Shell’s confidential information, as well as confidential and proprietary
processes that were developed by the Sinova Group in the lab. (Heckmann’s Am.
Countercls. ¶¶ 103, 105; Liu’s Am. Countercls. ¶¶ 103, 105; Sinova US’s Second Am.
Countercls. ¶¶ 104, 106.) Counterclaimants further allege that Gao disclosed detailed information about the chemical compounds that belonged to Shell and
Chevron Phillips, another customer of Sinova US, which Sinova US was obligated to
keep confidential. (Heckmann’s Am. Countercls. ¶¶ 107, 111−12, 116−17, 119−20;
Liu’s Am. Countercls. ¶¶ 107, 111−12, 116−17, 119−20; Sinova US’s Second Am.
Countercls. ¶¶ 108, 112−13, 117−18, 120−21.)
II. PROCEDURAL HISTORY
30. The Court recites only those portions of the procedural history that are
relevant to its determination of the motions.
31. Gao filed his complaint on April 8, 2016 and an amended complaint on July
8, 2016. The amended complaint asserts direct claims for judicial dissolution of
Sinova US, inspection of Sinova US’s corporate records, breach of fiduciary duty,
constructive fraud, and unjust enrichment.3 (Am. Compl. 37, 40, 43, 45, 47.) The
amended complaint asserts derivative claims on behalf of Sinova US for breach of
fiduciary duty, constructive fraud, corporate waste, unjust enrichment, and breach of
contract. (Am. Compl. 41, 44, 46−48.)
32. This action was designated as a mandatory complex business case by order
of the Honorable Mark Martin, Chief Justice of the Supreme Court of North Carolina,
dated April 11, 2016, (ECF No. 4), and assigned to the Honorable Louis A. Bledsoe,
III by order of then Chief Business Court Judge James L. Gale dated April 14, 2016,
3 The amended complaint also asserted a direct claim for corporate waste, which the
Court dismissed with prejudice by order and opinion dated December 21, 2016. (ECF No. 188.) (ECF No. 5). This case was later reassigned to the undersigned by order dated July
5, 2016. (ECF No. 54.)
33. All Defendants answered the amended complaint, and Sinova US,
Heckmann, and Liu asserted counterclaims against Gao. (ECF Nos. 97, 195, 215,
221.)
34. On June 30, 2017, Sinova US filed its second amended counterclaims, and
Heckmann and Liu each filed first amended counterclaims. Sinova US, Heckmann,
and Liu each assert counterclaims against Gao for fraud and breach of contract—
Sinova US alleges that Gao breached the CDA, the 2012 Board Agreement, and the
2014 Board Agreement, and Heckmann and Liu allege that Gao breached the 2012
Board Agreement and the 2014 Board Agreement.4 (Heckmann’s Am. Countercls. 18,
20; Liu’s Am. Countercls. 18, 20; Sinova US’s Second Am. Countercls. 24, 26.) Sinova
US asserts additional counterclaims against Gao for breach of fiduciary duty,
constructive fraud, unfair and deceptive trade practices (“UDTP”), and unjust
enrichment. (Sinova US’s Second Am. Countercls. 22−23, 29−30.)
35. On July 28, 2017, Gao filed his motions to dismiss all counterclaims against
him pursuant to Rule 12(b)(6). (ECF Nos. 272−73.)
36. The motions have been fully briefed, and the Court held a hearing on the
motions on December 6, 2017. The motions are now ripe for resolution.
4 Heckmann and Liu also allege that Gao breached the CDA. By order and opinion dated July 16, 2018, the Court dismissed Heckmann’s and Liu’s breach of contract counterclaims to the extent these claims were based on the CDA. (ECF No. 332.) III. LEGAL STANDARD
37. In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the Court
reviews the allegations of the counterclaims in the light most favorable to the
counterclaimant. The Court’s inquiry is “whether, as a matter of law, the allegations
of the [counterclaims], treated as true, are sufficient to state a claim upon which relief
may be granted under some legal theory.” Harris v. NCNB Nat’l Bank of N.C., 85
N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987). The Court construes the
counterclaims liberally and accepts all factual allegations as true. Laster v. Francis,
199 N.C. App. 572, 577, 681 S.E.2d 858, 862 (2009).
38. Where the pleading refers to and depends on certain documents, the Court
may consider those documents without converting the motion into one for summary
judgment under Rule 56. Schlieper v. Johnson, 195 N.C. App. 257, 261, 672 S.E.2d
548, 551 (2009). At the same time, the Court may not consider materials that are not
mentioned, contained, or attached in or to the pleading; otherwise, a Rule 12(b)(6)
motion will be converted into a Rule 56 motion and subject to its standards of
consideration and review. Fowler v. Williamson, 39 N.C. App. 715, 717, 251 S.E.2d
889, 890−91 (1979).
39. Dismissal of a claim pursuant to Rule 12(b)(6) is proper “(1) when the
[pleading] on its face reveals that no law supports [the] claim; (2) when the [pleading]
reveals on its face the absence of fact sufficient to make a good claim; [or] (3) when
some fact disclosed in the [pleading] necessarily defeats the . . . claim.” Oates v. JAG,
Inc., 314 N.C. 276, 278, 333 S.E.2d 222, 224 (1985); see also Jackson v. Bumgardner, 318 N.C. 172, 175, 347 S.E.2d 743, 745 (1986). Otherwise, the counterclaims “should
not be dismissed for insufficiency unless it appears to a certainty that
[counterclaimant] is entitled to no relief under any state of facts which could be
proved in support of the claim.” Sutton v. Duke, 277 N.C. 94, 103, 176 S.E.2d 161,
166 (1970).
IV. ANALYSIS
A. Gao’s Motion to Dismiss Heckmann’s and Liu’s Counterclaims
1. Breach of Contract
40. Gao argues that Heckmann and Liu fail to sufficiently allege that Gao
breached the 2012 or 2014 Board Agreement. (Pl.’s Mem. Supp. Mot. Dismiss Am.
Countercls. of Liu & Heckmann Pursuant to Rule 12(b)(6), at 9−15, ECF No. 274
[“Pl.’s Mem. Supp. Heckmann & Liu Mot.”].)
41. “The elements of a claim for breach of contract are (1) existence of a valid
contract and (2) breach of the terms of that contract.” Poor v. Hill, 138 N.C. App. 19,
26, 530 S.E.2d 838, 843 (2000). “Interpreting a contract requires the court to examine
the language of the contract itself for indications of the parties’ intent at the moment
of execution.” RME Mgmt., LLC v. Chapel H.O.M. Assocs., LLC, 795 S.E.2d 641, 645
(N.C. Ct. App. 2017). When a contract is plain and unambiguous, the Court can
determine the parties’ intent as a matter of law. 42 E., LLC v. D.R. Horton, Inc., 218
N.C. App. 503, 513, 722 S.E.2d 1, 8 (2012). If a contract is ambiguous, however,
interpretation of the contract is a question of fact for the jury. Variety Wholesalers,
Inc. v. Salem Logistics Traffic Servs., LLC, 365 N.C. 520, 525, 723 S.E.2d 744, 748 (2012). An ambiguity exists when the effect of provisions is uncertain or capable of
several reasonable interpretations. Id.
42. Paragraph 1 of the 2012 Board Agreement provides:
The share holders [sic] of Sinova Specialties Inc. (Beijing and USA, will be called as Company in below [sic]) are allowed to set up non-related other companies but are not allowed to do business compete [sic] with the Company. The other companies are not allowed to provide or accept the product or service of the Company. It is not allowed to separate the existing business of the Company in any method.
(Am. Compl. Ex. B, ¶ 1.) Gao argues that this provision prohibits non-related
companies, rather than Heckmann, Liu, and Gao, from doing business to compete
with Sinova US or Sinova Beijing. (Pl.’s Reply Supp. Mot. Dismiss Am. Countercls.
of Liu & Heckmann Pursuant to Rule 12(b)(6), at 7, ECF No. 294.) Accordingly, Gao
argues that, because he is not a non-related company, he did not breach the 2012
Board Agreement by allegedly competing with Sinova US and Sinova Beijing.
43. The Court concludes that the 2012 Board Agreement—specifically, the first
sentence of paragraph 1—can reasonably be interpreted as prohibiting the
shareholders, rather than other non-related companies, from doing business to
compete with Sinova US or Sinova Beijing. Heckmann and Liu allege that Gao
breached the 2012 Board Agreement by using the Sinova Group’s lab, resources,
technology, and employees to develop ANT for his own benefit and for the benefit of
companies controlled by Gao, which then sold ANT for a substantial profit.
(Heckmann’s Am. Countercls. ¶¶ 21−22, 24, 74; Liu’s Am. Countercls. ¶¶ 21−22, 24,
74.) Heckmann and Liu allege that these sales should have been made by Sinova US.
(Heckmann’s Am. Countercls. ¶ 45; Liu’s Am. Countercls. ¶ 45.) The Court concludes that these allegations are sufficient to state that Gao did business in competition with
Sinova US and Sinova Beijing in breach of the 2012 Board Agreement.
44. The Court likewise concludes that Heckmann and Liu sufficiently allege
that Gao breached the 2014 Board Agreement. The 2014 Board Agreement expressly
incorporates the confidentiality provision of the CDA, which obligates Heckmann,
Liu, and Gao to “keep the secrecy of the company” and to “not leak the market,
technology and operation secrecy to any third party directly or indirectly at any time.”
(Am. Compl. Ex. A, ¶ 3; Am. Compl. Ex. C, ¶ 2.) Heckmann and Liu allege that, in
March 2015, Gao caused PTG Beijing to apply for a patent for RC2, and that the
patent application disclosed the Sinova Group’s confidential and proprietary
processes that had been developed in the lab. (Heckmann’s Am. Countercls. ¶¶ 102,
105; Liu’s Am. Countercls. ¶¶ 102, 105.) These allegations are sufficient to state that
Gao disclosed the Sinova Group’s confidential and proprietary processes to PTG
Beijing and thereby leaked “market, technology, and operation secrecy” to a third
party in breach of the 2014 Board Agreement.
45. Having concluded that the allegations are sufficient to state a claim that
Gao breached the 2012 and 2014 Board Agreements, the Court declines to address
Gao’s arguments as to the sufficiency of each alleged breach of these agreements. The
Court believes this is consistent with the purpose of a motion to dismiss under Rule
12(b)(6) and our notice pleading standard. See Corwin v. British Am. Tobacco PLC,
796 S.E.2d 324, 333 (N.C. Ct. App. 2016) (“The purpose behind this pleading
standard, generally referred to as notice pleading, is to resolve controversies on the merits, after an opportunity for discovery, instead of resolving them based on the
technicalities of pleadings.” (quotation marks omitted)); Brittian v. Brittian, 243 N.C.
App. 6, 10, 776 S.E.2d 867, 871 (2015) (“Our Supreme Court has long recognized that
‘[t]he only purpose of a Rule 12(b)(6) motion is to test the legal sufficiency of the
pleading against which it is directed.’” (alteration in original) (quoting White v. White,
296 N.C. 661, 667, 252 S.E.2d 698, 702 (1979))).
46. Therefore, Gao’s motion to dismiss Heckmann’s and Liu’s breach of contract
counterclaims is denied.
2. Fraud
47. Heckmann and Liu allege that, in the course of negotiating the separation
of their business interests, Gao fraudulently concealed from Heckmann and Liu that
ANT was a marketable project with potential upside that had been developed in the
lab. (Heckmann’s Am. Countercls. ¶ 142; Liu’s Am. Countercls. ¶ 143.) Heckmann
and Liu further allege that, as a result of Gao’s fraud, Heckmann and Liu entered
into a materially different 2014 Board Agreement than they otherwise would have if
they had known of ANT’s commercial viability and that it had been developed in the
lab. (Heckmann’s Am. Countercls. ¶ 145; Liu’s Am. Countercls. ¶ 146.)
48. To state a claim for fraud, Heckmann and Liu “must plead five elements:
(1) False representation or concealment of a material fact, (2) reasonably calculated
to deceive, (3) made with intent to deceive, (4) which does in fact deceive, (5) resulting
in damage to the injured party.” Head v. Gould Killian CPA Grp., P.A., 812 S.E.2d
831, 837 (N.C. 2018) (quotation marks omitted). “Additionally, reliance on alleged false representations must be reasonable.” Sullivan v. Mebane Packaging Grp., Inc.,
158 N.C. App. 19, 26, 581 S.E.2d 452, 458 (2003).
49. Gao argues that Heckmann’s and Liu’s fraud claims fail because they
cannot establish reasonable reliance. (Pl.’s Mem. Supp. Heckmann & Liu Mot. 17.)
In support, Gao substantially relies on a document attached to his brief in support of
his motion to dismiss that contains photographs of text messages between Liu and
Zongchao in Chinese and the English translations thereof. (Pl.’s Mem. Supp.
Heckmann & Liu Mot. Ex. 1, ECF No. 272.2.) Gao argues that the Court can consider
this document in ruling on his motion to dismiss because Heckmann and Liu
explicitly rely on and refer to the text messages in their counterclaims. (Pl.’s Mem.
Supp. Heckmann & Liu Mot. 4 n.4.)
50. “On a motion to dismiss under Rule 12(b)(6), if ‘matters outside the pleading
are presented to and not excluded by the court, the motion shall be treated as one for
summary judgment and disposed of as provided in Rule 56.’” Pinney v. State Farm
Mut. Ins. Co., 146 N.C. App. 248, 251, 552 S.E.2d 186, 189 (2001) (quoting N.C. Gen.
Stat. § 1A-1, Rule 12(b)). However, “a document that is the subject of a [claimant]’s
action that he or she specifically refers to in the [pleading] may be attached as an
exhibit by the [movant] and properly considered by the trial court without converting
a Rule 12(b)(6) motion into one of summary judgment.” Holton v. Holton, __ N.C.
App. __, No. COA17-467, 2018 N.C. App. LEXIS 297, at *19 (N.C. Ct. App. Mar. 20,
2018); see also Bucci v. Burns, 2018 NCBC LEXIS 37, at *8 (N.C. Super. Ct. Apr. 25, 2018) (noting that a classic example of such a document “is the contract at the heart
of a claim for breach of contract”).
This is due to the fact that [t]he obvious purpose of . . . Rule 12(b) is to preclude any unfairness resulting from surprise when an adversary introduces extraneous material on a Rule 12(b)(6) motion, and to allow a party a reasonable time in which to produce materials to rebut an opponent’s evidence once the motion is expanded to include matters beyond those contained in the pleadings.
....
. . . Certainly the [claimants] cannot complain of surprise when the trial court desires to familiarize itself with the instrument upon which the [claimants] are suing because the [claimants] have failed to reproduce or incorporate by reference the particular instrument in its entirety in the [pleading].
Bank of Am., N.A. v. Rice, 244 N.C. App. 358, 370−71, 780 S.E.2d 873, 882 (2015)
(first alteration and omission in original) (quotation marks omitted).
51. The Court concludes that the document may not be considered in ruling on
Gao’s Rule 12(b)(6) motion. Although Counterclaimants refer to December 2013 text
messages between Liu and Zongchao, the text messages are not the subject of the
counterclaims. See Holton, 2018 N.C. App. LEXIS 297, at *20 (“[W]here a [claimant]
simply refers to a document that was not the subject of his or her action, and the
[movant] attaches that document or an affidavit concerning that document to support
a Rule 12(b)(6) . . . motion, the trial court’s consideration of that document converts
the motion into one for summary judgment.”). Thus, the Court does not consider the
document in ruling on Gao’s motion to dismiss.
52. Gao argues that Counterclaimants cannot establish reasonable reliance
because they were aware of the facts that they allege Gao concealed and the acts of concealment, and they fail to allege that they were denied the opportunity to
investigate.
53. Our appellate courts have stated that “reasonable” reliance “is most
succinctly defined in the negative: Reliance is not reasonable where the [claimant]
could have discovered the truth of the matter through reasonable diligence, but failed
to investigate.” Bumpers v. Cmty. Bank of N. Va., 367 N.C. 81, 90, 747 S.E.2d 220,
227 (2013) (quotation marks omitted); see also Everts v. Parkinson, 147 N.C. App.
315, 326–27, 555 S.E.2d 667, 675 (2001) (citing and discussing Rosenthal v. Perkins,
42 N.C. App. 449, 257 S.E.2d 63 (1979)); Hudson-Cole Dev. Corp. v. Beemer, 132 N.C.
App. 341, 346, 511 S.E.2d 309, 313 (1999) (“[W]hen the party relying on the false or
misleading representation could have discovered the truth upon inquiry, the
[pleading] must allege that he was denied the opportunity to investigate or that he
could not have learned the true facts by exercise of reasonable diligence.”). “When it
appears ‘a [claimant] seeking relief from alleged [fraud] must have known the truth,
the doctrine of reasonable reliance will prevent him from recovering for a
misrepresentation which, if in point of fact made, did not deceive him.’” Collier v.
Bryant, 216 N.C. App. 419, 435, 719 S.E.2d 70, 83 (2011) (second alteration in
original) (quoting Johnson v. Owens, 263 N.C. 754, 758, 140 S.E.2d 311, 314 (1965)).
The reasonableness of a party’s reliance is a question for the jury “unless the facts
are so clear that they support only one conclusion.” Head, 812 S.E.2d at 837.
54. The Court concludes that Liu fails to allege sufficient facts to state that she
reasonably relied on Gao’s concealment or misrepresentation. The counterclaims allege that, in December 2013—after Heckmann and Liu had asked Gao to identify
all projects that had been developed in the lab—Zongchao informed Liu that lab
employees were working on ANT, that Gao directed lab employees not to create
records or reports regarding ANT and to conceal this information from
Counterclaimants, and that it seemed there was a chance to commercialize ANT.
(Liu’s Am. Countercls. ¶¶ 40–41.) Thus, the counterclaims allege that Liu was
informed, prior to execution of the 2014 Board Agreement, that ANT was being
developed in the lab and that it had potential commercial value and, therefore, that
Gao should have disclosed ANT as a Common Project. Further, the allegations of the
counterclaims disclose that Liu was aware prior to executing the 2014 Board
Agreement that Gao had directed lab employees to conceal ANT from
Counterclaimants.
55. Liu alleges that, prior to executing the 2014 Board Agreement, she was
aware that ANT had been developed in the lab, Gao directed lab employees to conceal
ANT from her, and there was a chance to commercialize ANT. Therefore, the Court
concludes that Liu fails to allege that she reasonably relied on Gao’s concealment of
ANT or his misrepresentation regarding all the projects that had been developed in
the lab and those with potential commercial value. As a result, Gao’s motion to
dismiss Liu’s fraud counterclaim is granted, and this claim is dismissed with
prejudice.
56. The counterclaims do not allege, however, that Heckmann—prior to
executing the 2014 Board Agreement—had knowledge of the text messages that Liu received from Zongchao or that Heckmann was otherwise aware of ANT or Gao’s
concealment thereof. The counterclaims allege that Gao exercised complete control
and discretion over the operations of and access to the lab, including the lab
employees. (Heckmann’s Am. Countercls. ¶¶ 15, 18.) The counterclaims further
allege that Heckmann asked Gao to identify all projects that had been run or
developed in the lab, and Gao did not identify ANT. (Heckmann’s Am. Countercls.
¶¶ 33, 37.) On July 11, 2013, Heckmann sent an e-mail to Gao stating that it had
come to his attention that the lab was running projects unknown to him and which
Gao did not previously identify, and again asked for all projects that the lab was
running. (Heckmann’s Am. Countercls. ¶ 34.) Gao responded and identified another
project, but did not identify ANT. (Heckmann’s Am. Countercls. ¶ 35.) Heckmann
alleges that he had no opportunity to discover Gao’s concealment of his use of the lab
to develop ANT as a commercially viable project because Gao dominated and
controlled the lab and its employees and directed that records relating to ANT not be
maintained or provided to Heckmann. (Heckmann’s Am. Countercls. ¶ 147.)
57. Therefore, the Court concludes that Heckmann alleges sufficient facts to
plead reasonable reliance and, as a result, Gao’s motion to dismiss Heckmann’s fraud
counterclaim is denied. B. Gao’s Motion to Dismiss Sinova US’s Counterclaims
a. CDA
58. Gao argues that Sinova US fails to allege that Gao breached the CDA. (Pl.’s
Mem. Supp. Heckmann & Liu Mot. 9–15.) As discussed above with respect to Gao’s
motion to dismiss Heckmann’s and Liu’s counterclaims for breach of the 2014 Board
Agreement, the confidentiality provision of the CDA obligates Heckmann, Liu, and
Gao to “keep the secrecy of the company” and to “not leak the market, technology and
operation secrecy to any third party directly or indirectly at any time.” (Am. Compl.
Ex. A, ¶ 3.) Sinova US alleges that, in March 2015, Gao caused PTG Beijing to apply
for a patent for RC2 and that the patent application disclosed the Sinova Group’s
confidential and proprietary processes that had been developed in the lab. (Sinova
US’s Second Am. Countercls. ¶¶ 103, 106.) These allegations are sufficient to state
that Gao disclosed the Sinova Group’s confidential and proprietary processes to PTG
Beijing and thereby leaked “market, technology, and operation secrecy” to a third
party in breach of the CDA. Therefore, Gao’s motion to dismiss Sinova US’s breach
of contract counterclaim is denied to the extent this claim is based on the CDA.
b. 2012 and 2014 Board Agreements
59. Gao argues that Sinova US fails to allege claims for breach of the 2012 and
2014 Board Agreements because it is neither a party to, nor a third-party beneficiary
of, these agreements. (Pl.’s Mem. Supp. Mot. Dismiss Second Am. Countercl. of Sinova US Pursuant to Rule 12(b)(6), at 3–5, ECF No. 273.1 [“Pl.’s Mem. Supp. Sinova
US Mot.”].)
60. To maintain a claim for breach of contract, the claimant must allege that it
is in privity of contract or a third-party beneficiary of the contract. Woolard v.
Davenport, 166 N.C. App. 129, 136, 601 S.E.2d 319, 324 (2004). Unlike the CDA,
which is on Sinova US letterhead, signed by Sinova Beijing, and states that Sinova
US and Sinova Beijing are parties thereto, the 2012 and 2014 Board Agreements are
not on Sinova US letterhead, are not signed by the Sinova Companies, and do not
state that Sinova US or any other entity is a party to the agreements. The 2012
Board Agreement states that Sinova US’s board members “are willing to sign and
obey” the agreement. (Am. Compl. Ex. B, at 1.) Similarly, the 2014 Board Agreement
states that the participants in the agreement are Heckmann, Liu, and Gao. Sinova
US fails to allege any other facts to support the conclusion that it is a party to either
the 2012 or 2014 Board Agreement.
61. To assert rights under a contract as a third-party beneficiary, a claimant
must allege “(1) that a contract exists between two persons or entities; (2) that the
contract is valid and enforceable; and (3) that the contract was executed for the direct,
and not incidental, benefit of the [third party].” Town of Belhaven v. Pantego Creek,
LLC, 793 S.E.2d 711, 719 (N.C. Ct. App. 2016) (alteration in original). “A person is a
direct beneficiary of the contract if the contracting parties intended to confer a legally
enforceable benefit on that person.” Hospira Inc. v. AlphaGary Corp., 194 N.C. App.
695, 703, 671 S.E.2d 7, 13 (2009). “It is not enough that the contract, in fact, benefits the [third party], if, when the contract was made, the contracting parties did not
intend it to benefit the [third party] directly.” Town of Belhaven, 793 S.E.2d at 719
(alterations in original). “When a party seeks enforcement of a contract as a third-
party beneficiary, the contract must be construed strictly against the party seeking
enforcement.” Michael v. Huffman Oil Co., 190 N.C. App. 256, 269, 661 S.E.2d 1, 10
(2008).
62. The Court concludes that Sinova US fails to allege that the 2012 or 2014
Board Agreement were executed for Sinova US’s direct benefit. The first paragraph
of the 2012 Board Agreement states that it is “to protect the rights and interest of the
parties in this agreement”—who are Heckmann, Liu, and Gao. (Am. Compl. Ex. B.)
The first paragraph of the 2014 Board Agreement states that it is “to maintain the
common companies’ smoothly [sic] operation and [Heckmann, Liu, and Gao’s]
interests[.]” (Am. Compl. Ex. C.) Further, Sinova US’s counterclaims contain only
conclusory allegations that it is a third-party beneficiary of the 2012 and 2014 Board
Agreements and that the 2014 Board Agreement was executed for its benefit. (Sinova
US’s Second Am. Countercls. ¶¶ 86, 147, 149.)
63. As Sinova US fails to allege sufficient facts to state that the 2012 or 2014
Board Agreement were executed for its direct benefit, Sinova US fails to state a claim
for breach of these agreements. Accordingly, Gao’s motion to dismiss Sinova US’s
breach of contract counterclaim is granted to the extent this claim is based on the
2012 and 2014 Board Agreements, and this claim is dismissed with prejudice. 2. Fraud
64. Gao argues that Sinova US’s fraud claim must be dismissed because Sinova
US is not a party to the 2014 Board Agreement and, as a result, could not have been
fraudulently induced into entering this agreement. (Pl.’s Mem. Supp. Sinova US Mot.
5–6.) Sinova US argues that it is a party to the 2014 Board Agreement and thus has
stated a claim for fraud. (Sinova US’s Br. Opp’n Pl.’s Rule 12(b)(6) Mot. Dismiss 12,
ECF No. 284.)
65. Having determined that Sinova US is not a party to the 2014 Board
Agreement, the Court concludes that Sinova US fails to state a claim for fraud. Gao’s
motion to dismiss Sinova US’s fraud counterclaim is granted, and this claim is
dismissed with prejudice.
3. Unjust Enrichment
66. Gao argues that Sinova US’s unjust enrichment claim must be dismissed
because there is an express contract between the parties and Sinova US fails to allege
that it volitionally conferred a benefit on Gao. (Pl.’s Mem. Supp. Sinova US Mot. 10–
11.)
67. An unjust enrichment claim is a claim in quasi contract or a contract
implied in law. M Series Rebuild, LLC v. Town of Mount Pleasant, 222 N.C. App. 59,
67, 730 S.E.2d 254, 260 (2012). “A quasi contract or a contract implied in law is not
a contract. The claim is not based on a promise but is imposed by law to prevent an
unjust enrichment. If there is a contract between the parties the contract governs
the claim and the law will not imply a contract.” Booe v. Shadrick, 322 N.C. 567, 570, 369 S.E.2d 554, 556 (1988). “Only in the absence of an express agreement of the
parties will courts impose a quasi contract or a contract implied in law in order to
prevent an unjust enrichment.” Paul L. Whitfield, P.A. v. Gilchrist, 348 N.C. 39, 42,
497 S.E.2d 412, 415 (1998).
68. Notwithstanding that an express contract precludes an implied contract
concerning the same matter, it is also well established under North Carolina law that
a party may plead claims in the alternative. James River Equip., Inc. v. Mecklenburg
Utils., Inc., 179 N.C. App. 414, 419, 634 S.E.2d 557, 560 (2006) (concluding that
plaintiff may plead her express contract and quantum meruit claims in the
alternative even though plaintiff may not ultimately be able to prevail on both). Here,
Sinova US expressly pleaded its unjust enrichment claim in the alternative. (Sinova
US’s Second Am. Countercls. 30.) Thus, although Sinova US may not ultimately be
able to prevail on both its breach of contract and unjust enrichment claims, at the
pleading stage, the Court cannot conclude that the express agreement precludes
Sinova US from recovering on its unjust enrichment claim.
69. To state a claim for unjust enrichment, a claimant must allege facts that
show “that it conferred a benefit on another party, that the other party consciously
accepted the benefit, and that the benefit was not conferred gratuitously or by an
interference in the affairs of the other party.” Se. Shelter Corp. v. BTU, Inc., 154 N.C.
App. 321, 330, 572 S.E.2d 200, 206 (2002).
70. Sinova US alleges that the Sinova Group paid for all lab expenses, including
the lease, equipment, supplies, reagents, testing, and salaries of lab employees, with the expectation that Gao’s work in the lab would exclusively benefit the Sinova
Group. (Sinova US’s Second Am. Countercls. ¶¶ 13–14.) Sinova US alleges that Gao
instead used the lab and its resources to develop products for his own benefit and,
therefore, that Sinova US conferred a benefit on Gao. (Sinova US’s Second Am.
Countercls. ¶¶ 21–22, 76.) These allegations are sufficient to state that Sinova US
conferred a benefit on Gao, and Gao’s motion to dismiss Sinova US’s unjust
enrichment claim is denied.
4. Breach of Fiduciary Duty
71. To state a claim for breach of fiduciary duty, Sinova US must allege that
Gao owed it a fiduciary duty, that Gao breached that duty, and that this breach
proximately caused injury to Sinova US. Farndale Co., LLC v. Gibellini, 176 N.C.
App. 60, 68, 628 S.E.2d 15, 20 (2006).
72. Gao lodges a number of arguments against the sufficiency of Sinova US’s
allegations, all of which the Court finds unavailing. Gao, as a director of Sinova US,
owed fiduciary duties to Sinova US. Governor’s Club, Inc. v. Governors Club Ltd.
P’ship, 152 N.C. App. 240, 248, 567 S.E.2d 781, 786 (2002). Sinova US alleges that
Gao breached his fiduciary duties by disclosing Sinova US’s confidential information,
using Sinova US’s assets for his own benefit and the benefit of other companies, and
selling ANT, PP, and RC2 through the PTG Entities, rather than through Sinova US,
at a substantial profit. (Sinova US’s Second Am. Countercls. ¶¶ 125, 127, 130.) These
allegations are sufficient to state a claim for breach of fiduciary duty, and Gao’s
motion to dismiss this claim is denied. 5. Constructive Fraud
73. “To assert a cause of action for constructive fraud, the [claimant] must
allege facts and circumstances (1) which created the relation of trust and confidence,
and (2) led up to and surrounded the consummation of the transaction in which
defendant is alleged to have taken advantage of his position of trust to the hurt of
[claimant].” Head, 812 S.E.2d at 837 (quotation marks omitted). A constructive fraud
claim requires the existence of a fiduciary duty. Brissett v. First Mount Vernon Indus.
Loan Ass’n, 233 N.C. App. 241, 252, 756 S.E.2d 798, 806 (2014). The difference
between a constructive fraud claim and a breach of fiduciary duty claim is that a
claim for constructive fraud requires that defendant sought to benefit himself. White
v. Consol. Planning, Inc., 166 N.C. App. 283, 294, 603 S.E.2d 147, 156 (2004).
74. The Court has concluded that Sinova US’s allegations are sufficient to state
a claim for breach of fiduciary duty. Sinova US alleges that Gao used Sinova US’s
assets to develop chemical products for his benefit and, thus, sufficiently alleges the
additional element of a constructive fraud claim that Gao sought to benefit himself.
(Sinova US’s Second Am. Countercls. ¶¶ 125, 130.) Therefore, Gao’s motion to
dismiss Sinova US’s constructive fraud counterclaim is denied.
6. UDTP
75. Gao argues that Sinova US’s UDTP claim must be dismissed because the
alleged unfair or deceptive conduct occurred solely within a single market participant
and, therefore, was not “in or affecting commerce.” (Pl.’s Mem. Supp. Sinova US Mot.
6–7.) 76. In order to state a UDTP claim, Sinova US must allege (1) an unfair or
deceptive act or practice, (2) in or affecting commerce, (3) which proximately caused
injury to Sinova US. Belcher v. Fleetwood Enters., Inc., 162 N.C. App. 80, 85, 590
S.E.2d 15, 18 (2004). “‘[C]ommerce’ includes all business activities, however
denominated, but does not include professional services rendered by a member of a
learned profession.” N.C. Gen. Stat. § 75-1.1(b). “Although this statutory definition
of commerce is expansive, [section 75-1.1] is not intended to apply to all wrongs in a
business setting.” Alexander v. Alexander, 792 S.E.2d 901, 904 (N.C. Ct. App. 2016)
(quoting HAJMM Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 593, 403 S.E.2d
483, 492 (1991)). “‘Business activities’ is a term which connotes the manner in which
businesses conduct their regular, day-to-day activities, or affairs, such as the
purchase and sale of goods, or whatever other activities the business regularly
engages in and for which it is organized.” HAJMM Co., 328 N.C. at 594, 403 S.E.2d
at 493. As further explained by our Supreme Court, section 75-1.1 regulates “two
types of interactions in the business setting: (1) interactions between businesses, and
(2) interactions between businesses and consumers.” White v. Thompson, 364 N.C.
47, 52, 691 S.E.2d 676, 679 (2010). Section 75-1.1 does not apply to the internal
conduct of individuals within a single market participant. Alexander, 792 S.E.2d at
904. Rather, “the General Assembly intended [section 75-1.1] to apply to interactions
between market participants. As a result, any unfair or deceptive conduct contained
solely within a single business is not covered by [section 75-1.1].” White, 364 N.C. at
53, 691 S.E.2d at 680. 77. The essence of Sinova US’s allegations is that Gao wrongfully competed
with Sinova US in breach of his fiduciary duty and the CDA by disclosing the
confidential information of Sinova US and its customers to third parties, and by using
the lab to develop chemical compounds for his own benefit and the benefit of the PTG
Entities. Sinova US contends that ANT was a corporate opportunity wrongfully
usurped by Gao and that Gao sold ANT, PP, and RC2 through the PTG Entities at a
substantial profit and for personal gain to the detriment of Sinova US. Sinova US
alleges that these sales should have been made by Sinova US.
78. Sinova US alleges that Gao’s actions, individually and through the PTG
Entities—specifically, the sales of ANT, PP, and RC2—were in or affecting commerce.
(Sinova US’s Second Am. Countercls. ¶ 173.) The alleged unfair and deceptive
conduct, however, occurred solely within Sinova US. Sinova US does not allege any
unfairness or deception in the marketplace—that is, in interactions between separate
market participants. The unfairness and deception of Gao’s alleged conduct lies in
his relationship with Sinova US as an officer and director thereof.
79. For these reasons, the cases cited by Sinova US are distinguishable. In
Sara Lee Corp. v. Carter, 351 N.C. 27, 519 S.E.2d 308 (1999), defendant-employee
was hired by plaintiff-employer to order and purchase computer parts for plaintiff at
the lowest possible prices. During his employment and unknown to plaintiff,
defendant created separate businesses. Defendant engaged in self-dealing by selling
computer parts and services through his businesses to plaintiff at excessive cost.
Plaintiff, trusting that the transactions were legitimate and that defendant had secured competitive prices, regularly conducted business with defendant’s companies
without knowledge of defendant’s interest therein. Thus, the unfair or deceptive
conduct occurred in interactions between two market participants—defendant’s
businesses and plaintiff.
80. Similarly, in Songwooyarn Trading Co. v. Sox Eleven, Inc., 213 N.C. App.
49, 714 S.E.2d 162 (2011), the president of Songwooyarn formed a separate
corporation, Sox Eleven, as an intermediary for the purpose of selling Songwooyarn’s
products to wholesalers. Songwooyarn wired a monthly payment to Sox Eleven.
Defendant, who was hired to manage Sox Eleven’s daily affairs, was to take his salary
out of this monthly payment, and the remainder was to be used for Sox Eleven’s
operating expenses. Defendant deceived Songwooyarn about the use of the funds
Songwooyarn wired to Sox Eleven, and the Court of Appeals concluded that by
misappropriating those funds, defendant interrupted the commercial relationship
between Songwooyarn and Sox Eleven. Thus, as in Sara Lee, the unfair or deceptive
conduct occurred in interactions between two market participants—Songwooyarn
and Sox Eleven.
81. Here, Sinova US does not allege any unfairness or deception in the broader
marketplace; rather, Gao’s alleged conduct is unfair and deceptive only as to Sinova
US. The fact that Gao allegedly disclosed confidential information and diverted
corporate opportunities to entities controlled by him does not change the fundamental
nature of the dispute from an internal corporate dispute to one in or affecting
commerce. See White, 364 N.C. at 54, 691 S.E.2d at 680 (“Because defendant . . . unfairly and deceptively interacted only with his partners, his conduct
occurred completely within the . . . partnership and entirely outside the purview of
[section 75-1.1].”); Alexander, 792 S.E.2d at 905−06 (concluding that defendant’s
misappropriation of corporate funds through payments he caused the company to
make to himself and his family and friends was not in or affecting commerce); Potts
v. KEL, LLC, 2018 NCBC LEXIS 24, at *4, *13−16 (N.C. Super. Ct. Mar. 27, 2018)
(granting motion to dismiss where plaintiff-shareholder alleged that defendant, an
officer and director, improperly transferred corporate funds and assets to a
corporation formed by defendant). “[W]hen the unfair or deceptive conduct alleged
only affects relationships within a single business or market participant, and not
dealings with other market participants, that conduct is not ‘in or affecting’ commerce
within the meaning of section 75-1.1, even if other market participants may be
indirectly involved in the unfair or deceptive acts.” Powell v. Dunn, 2014 NCBC
LEXIS 3, at *9 (N.C. Super. Ct. Jan. 28, 2014).
82. As the alleged unfair or deceptive conduct concerns only the internal
operations of a single market participant, the Court concludes that Sinova US fails
to state a claim for UDTP, and this counterclaim is dismissed with prejudice.
V. CONCLUSION
83. For the foregoing reasons, the Court GRANTS in part and DENIES in
part Gao’s motions to dismiss as follows:
A. The Court DENIES Gao’s motion to dismiss Heckmann’s and Liu’s
breach of contract counterclaims. B. The Court GRANTS Gao’s motion to dismiss Liu’s fraud
counterclaim, and this claim is dismissed with prejudice.
C. The Court DENIES Gao’s motion to dismiss Heckmann’s fraud
counterclaim.
D. The Court DENIES Gao’s motion to dismiss Sinova US’s breach of
contract counterclaim to the extent this claim is based on the CDA.
E. The Court GRANTS Gao’s motion to dismiss Sinova US’s breach of
contract counterclaim to the extent this claim is based on the 2012
Board Agreement and the 2014 Board Agreement, and this claim is
F. The Court GRANTS Gao’s motion to dismiss Sinova US’s fraud
G. The Court DENIES Gao’s motion to dismiss Sinova US’s unjust
enrichment counterclaim.
H. The Court DENIES Gao’s motion to dismiss Sinova US’s breach of
fiduciary duty counterclaim.
I. The Court DENIES Gao’s motion to dismiss Sinova US’s
constructive fraud counterclaim.
J. The Court GRANTS Gao’s motion to dismiss Sinova US’s UDTP
counterclaim, and this claim is dismissed with prejudice. SO ORDERED, this the 16th day of July, 2018.
/s/ Michael L. Robinson Michael L. Robinson Special Superior Court Judge for Complex Business Cases
2018 NCBC 72 (Gao v. Sinova Specialties, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.