Li v. Xu-Nuo Pharma, Inc.

• Court: Superior Court of Delaware
• Decided: December 13, 2022
• Docket: N22C-08-417 PRW CCLD
• Status: Published

Opinion

SUPERIOR COURT OF THE STATE OF DELAWARE

PAUL R. WALLACE LEONARD L. WILLIAMS JUSTICE CENTER JUDGE 500 N. KING STREET, SUITE 10400 WILMINGTON, DELAWARE 19801 (302) 255-0660

Date Submitted: December 9, 2022 Date Decided: December 13, 2022

John G. Harris, Esquire Eric M. Andersen, Esquire BERGER HARRIS LLP ANDERSEN SLEATER SIANNI LLC 1105 N. Market St., 11th Floor 2 Mill Road, Suite 202 Wilmington, Delaware 19801 Wilmington, Delaware 19806

Angus F. Ni, Esquire AFN LAW, PLLC 506 2nd Avenue, Suite 1400 Seattle, Washington 98104

RE: Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD Defendant Yinglin Mark Xu’s Motion to Dismiss Count II

Dear Counsel: This Letter Order resolves Defendant Yinglin Mark Xu’s pending Motion to Dismiss Count II of Plaintiff Zuoli Li’s Amended Complaint. I. FACTUAL AND PROCEDURAL BACKGROUND In January 2019, Plaintiff Zuoli Li entered into two contracts with non-party

Xynomic Pharmaceuticals, Inc. (“Xynomic”) for the purpose of helping Xynomic:

(1) become a publicly-traded company, and (2) join the NASDAQ Index.1 The first

1 Am. Compl. ¶ 1, Sept. 8, 2022 (D.I. 3). Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 2 of 13

agreement, entered into on January 1, 2019, was a consulting agreement, and the

second, entered into on January 21, 2019, was a stock option agreement. 2 The

consulting agreement was to run between January 1, 2019 and December 31, 2020. 3

As part of her consulting agreement, Ms. Li was awarded stock options.4

On May 15, 2019, Xynomic became a public company through a SPAC

merger, with the surviving public company named Xynomic Pharmaceuticals

Holdings, Inc. (“Xynomic Holdings”).5

After the merger, “99.3% of all SPAC investors exercised their right to a

return of their capital.” 6 And soon thereafter, because Xynomic Holdings could not

“meet the minimum capital requirements” of the index, NASDAQ removed

Xynomic Holdings from its index.7

Xynomic Holdings blamed Ms. Li for this failure.8 So, on November 30, 2020

(a month before the consulting agreement was to end by its own terms), Xynomic

Holdings—alleging Ms. Li materially breached its terms—terminated the consulting

2 Id. 3 Id. 4 Id. 5 Id. ¶ 2. 6 Id. ¶ 3. 7 Id. ¶ 4. 8 Id. ¶¶ 5-6. Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 3 of 13

agreement for cause. 9

The stock option agreement provided that if Ms. Li was terminated for cause,

then her stock option would immediately terminate. 10

Xynomic Holdings’ CEO Yinglin Mark Xu notified Ms. Li on November 30th

that the consulting agreement was terminated. 11

The next day, Ms. Li sought to exercise her options to purchase shares of

Xynomic Holdings. 12

Just about two months later, Xynomic Holdings was acquired by co-defendant

Xu-Nuo Pharma, Inc. (“Xu-Nuo Pharma”) through a short-form merger.13 To

effectuate this acquisition, shareholders were able to either transfer their shares or

have their shares bought out. 14 To cash-out those shareholders electing that option,

Mr. Xu personally loaned his company, Xu-Nuo Pharma, the money through a non-

interest-bearing promissory note.15

9 Id. 10 Id., Ex. B § 2.2(d). 11 Id. ¶ 19. He did so via his personal email (i.e., Gmail) account. And he did so without first discussing the termination with Xynomic Holdings’ Board. Id. 12 Id. ¶ 7. 13 Id. ¶ 8. 14 Id. ¶ 18; see id., Ex. C at 3. 15 Id., Ex. C. at 3 (“Yinglin Mark Xu, as the sole director of Parent, agreed to loan the fund to Parent to pay out the Company Remaining Shares. Such loan is evidenced by a noninterest-bearing Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 4 of 13

Xu-Nuo Pharma paid Ms. Li no consideration from this acquisition because it

found she was not a proper shareholder of Xynomic Holdings. 16

Ms. Li later filed a complaint in the Court of Chancery to contest Xu-Nuo

Pharma’s actions.17 The Court of Chancery questioned whether it had jurisdiction

over the action.18 And the parties then stipulated this Court was the appropriate

forum to hear the action and asked for a transfer here.19 The Court of Chancery

obliged.20

Ms. Li filed—and soon thereafter amended—her Complaint here. 21

In Count I (breach of contract against Xu-Nuo Pharma), Ms. Li alleges

Xynomic Holdings (and its successor Xu-Nuo Pharma) breached the consulting

agreement and stock option agreement by not issuing her Xynomic Holdings shares

promissory note issued by the Parent which is payable in cash or the same value of newly issued shares of common stock of the Parent at a price of Cash Merger Consideration upon the closing of the Merger, at the holder’s choice, within one year of the issuance (the “Promissory Note”).”) (bold in original). 16 Id. ¶ 9. 17 C.A. 2021-1019-MTZ (“Chancery Action”) D.I. 1 (Del. Ch. Nov. 23, 2021). 18 Chancery Action, D.I. 27 at 38 (“THE COURT: Well, on that point, I mean, I’ll be transparent with you. I don’t think that I have subject matter jurisdiction over the claim as pled. And it seems to me that the choices are either arbitration or Superior Court. And I think that the law tells me that when there is a choice like that, it is not for a court that completely lacks subject matter jurisdiction to make that decision.”) (Del. Ch. Aug. 3, 2022). 19 Chancery Action, D.I. 25 (Del. Ch. July 25, 2022). 20 Chancery Action, D.I. 26 (Del. Ch. July 27, 2022). 21 D.I. 1; D.I. 3. Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 5 of 13

pursuant to those agreements. 22

In Count II (tortious interference of a contract against Yinglin Mark Xu),

Ms. Li alleges Mr. Xu tortiously interfered in the consulting and stock option

agreements. 23

II. STANDARD OF REVIEW A. Motion to Dismiss Under Rule 12(b)(2)

“A non-resident defendant may move to dismiss for lack of personal

jurisdiction under this Court’s Civil Rule 12(b)(2).”24 “Generally, a plaintiff does

not have the burden to plead in its complaint facts establishing a court’s personal

jurisdiction over [a non-resident] defendant.”25 But when 12(b)(2) is invoked, the

plaintiff does carry this burden.26 Where no discovery has been conducted,

22 Compl. ¶ 11. 23 Id. ¶¶ 13-14. 24 Green Am. Recycling, LLC v. Clean Earth, Inc., 2021 WL 2211696, at *3 (Del. Super. Ct. June 1, 2021) (citing Del. Super. Ct. Civ. R. 12(b)(2)). 25 Focus Fin. P’rs, LLC v. Holsopple, 241 A.3d 784, 800 (Del. Ch. 2020) (citation omitted). Precedent resolving dismissal motions filed under the Court of Chancery’s analogous rules is usually of equal influence when addressing those filed under this Court’s rules. See, e.g., CLP Toxicology, Inc. v. Casla Bio Hldgs. LLC, 2020 WL 3564622, at *9 n.65 (Del. Ch. June 29, 2020) (finding no difference in the Rule 12(b)(2) context and collecting authority); see also Green Am. Recycling, 2021 WL 2211696, at *3 n.40. 26 Green Am. Recycling, 2021 WL 2211696, at *3 (citing AeroGlobal Cap. Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 437-38 (Del. 2005)). Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 6 of 13

plaintiff’s burden is a prima facie one.27 As such, “the Court ‘is not limited to the

pleadings and can consider affidavits, briefs of the parties,’ and the record as a

whole.”28 “Still, unless contradicted by affidavit, the Court must (1) accept as true

all well-pleaded allegations in the complaint; and (2) construe the record in the light

most favorable to the plaintiff.”29

B. Motion to Dismiss Under Rule 12(b)6)

“Under Superior Court Civil Rule 12(b)(6), the legal issue to be decided is,

whether a plaintiff may recover under any reasonably conceivable set of

circumstances susceptible of proof under the complaint.”30 Under that Rule, the

Court will

(1) accept all well pleaded factual allegations as true, (2) accept even vague allegations as “well pleaded” if they give the opposing party notice of the claim, (3) draw all reasonable inferences in favor of the non-moving party, and (4) not dismiss the claims unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances. 31

27 Id.; see also id. at *3 n.42. 28 Id. at *3 (quoting Hartsel v. Vanguard Gp., Inc., 2011 WL 2421003, at *7 (Del. Ch. June 15, 2011)). 29 Id. (internal quotation marks and citations omitted); see also id. at *3 n.44-45. 30 Vinton v. Grayson, 189 A.3d 695, 700 (Del. Super. Ct. 2018) (quoting Super. Ct. Civ. R. 12(b)(6)). 31 Id. (quoting Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 535 (Del. 2011)). Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 7 of 13

“If any reasonable conception can be formulated to allow Plaintiffs’ recovery, the

motion must be denied.” 32

The Court must accept as true all well-pleaded allegations for Rule 12(b)(6)

purposes.33 Every reasonable factual inference will be drawn in the non-moving

party’s favor.34 If the claimant may recover under that standard, then the Court must

deny the motion to dismiss. 35 This is because “[d]ismissal is warranted [only] where

the plaintiff has failed to plead facts supporting an element of the claim, or that under

no reasonable interpretation of the facts alleged could the complaint state a claim for

which relief might be granted.”36

III. DISCUSSION A. THE COURT DOESN’T HAVE PERSONAL JURISDICTION OVER MR. XU.

Mr. Xu first asserts lack of personal jurisdiction in Delaware.37 In response,

Ms. Li argues the Court has personal jurisdiction over Mr. Xu under both the

32 Id. (citing Cent. Mortg. Co., 27 A.3d at 535). 33 Anderson v. Tingle, 2011 WL 3654531, at *2 (Del. Super. Ct. Aug. 15, 2011). 34 Wilmington Sav. Fund Soc’y, F.S.B. v. Anderson, 2009 WL 597268, at *2 (Del. Super. Ct. Mar. 9, 2009) (citing Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005)). 35 Spence v. Funk, 396 A.2d 967, 968 (Del. 1978). 36 Hedenberg v. Raber, 2004 WL 2191164, at *1 (Del. Super. Ct. Aug. 20, 2004). 37 Def.’s Mot. to Dismiss at 1, Sept. 20, 2022 (D.I. 6). Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 8 of 13

Director Consent Statute and the Delaware Long-Arm Statute. 38

“[T]o assess whether personal jurisdiction exists over non-resident

defendants, Delaware courts apply a two-step analysis, asking first whether there is

a statutory basis for jurisdiction and then inquiring into whether the exercise of

personal jurisdiction over the defendants would be consistent with due process.”39

In applying the constitutional requirement for personal jurisdiction, our

Supreme Court has adopted the International Shoe test, and its progeny, for

minimum contacts.40 And this applies to both personal jurisdiction under the

Director Consent Statute and the Long-Arm Statute.41

The Court of Chancery found in BAM International, LLC v. MSBA Group,

Inc., the defendants did not have the constitutionally required minimum contacts

with Delaware because

Delaware has no real interest in this case other than the exercise of personal jurisdiction over officers and directors . . . the only harms alleged to have been committed by the Moving Defendants sound in tort—they are not fiduciary duties, nor do they implicate corporate governance practices. And the actions allegedly giving rise to their

38 Pl.’s Answering Br. at 5, Oct. 19, 2022 (D.I. 9). 39 BAM Int’l, LLC v. MSBA Gp., Inc., 2021 WL 5905878, at *5 (Del. Ch. Dec. 14, 2021) (citation omitted). 40 Hazout v. Tsang Mun Ting, 134 A.3d 274, 278 (Del. 2016) (citing Int’l Shoe Co. v. Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310 (1945) and its progeny). 41 Id. at 291. Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 9 of 13

liability were not taken as officers of [the company].42

Here, Ms. Li’s claim against Mr. Xu sounds in tort, does not implicate

corporate governance practices, and, according to Ms. Li for this specific count,

asserts alleged acts taken in his personal capacity. 43 Thus, for this tortious

interference claim as pled, minimum contacts do not exist for this Court to exercise

personal jurisdiction over Mr. Xu. That lack of personal jurisdiction over Mr. Xu

would be enough in this instance to dismiss Count II of Ms. Li’s complaint.

B. MS. LI’S TORTIOUS INTERFERENCE WITH A CONTRACT CLAIM FAILS UNDER RULE 12(B)(6).

In addition to his personal jurisdiction argument, Mr. Xu invokes Rule

12(b)(6). “Under Delaware law, the elements of a claim for tortious interference

with a contract are: (1) a contract, (2) about which defendant knew, and (3) an

intentional act that is a significant factor in causing the breach of such contract, (4)

without justification, (5) which causes injury.” 44

As this Court has observed: “in order to state a claim for tortious interference

42 BAM Int’l, 2021 WL 5905878, at *10 (internal citation omitted). 43 As the Court of Chancery noted in BAM International, LLC v. MSBA Group, Inc., the plaintiff in Hazout v. Tsang Mun Ting was litigating a change in corporate control action, not a “garden- variety commercial contract” and thus Delaware had an interest in seeing the issue litigated on its turf. BAM Int’l, 2021 WL 5905878, at *9 (citing Hazout, 134 A.3d at 291 & n.60). 44 Bhole, Inc. v. Shore Invs., Inc., 67 A.3d 444, 453 (Del. 2013) (emphasis in original) (citation and quotation marks omitted). Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 10 of 13

against a corporate officer, a plaintiff must plead adequately that the officer (1) ‘was

not pursuing legitimate profit-seeking activities of the affiliated enterprise in good

faith,’ or (2) ‘was motivated by some malicious or other bad faith purpose to injure

the plaintiff.’” 45 “Delaware law presumes that a corporate officer’s actions that

cause the corporation to breach a contract were taken for the corporation’s benefit.”46

So a plaintiff must adequately allege the officer was acting outside the scope of his

employment for a tortious interference with a contract claim to survive.47

Here, Mr. Xu argues Count II should be dismissed under Rule 12(b)(6)

because Ms. Li has failed to show there was an intentional act that was a significant

factor in causing the breach of contract without justification.48

Ms. Li says that Mr. Xu terminated the consulting agreement because he

personally did not want Ms. Li to exercise her stock options. According to Ms. Li,

because she was unable to exercise her options and maybe take the cash-out option

that was available, Mr. Xu was eventually saved millions of dollars by not having to

45 Am. Bottling Co. v. Repole, 2020 WL 7787043, at *6 (Del. Super. Ct. Dec. 30, 2020) (quoting Yu v. GSM Nation, LLC, 2018 WL 2272708, at *15-16 (Del. Super. Ct. Apr. 24, 2018)). 46 Id. (citation omitted). 47 Id.; Grand Ventures, Inc. v. Paoli’s Rest., Inc., 1996 WL 30022, at *4-5 (Del. Super. Ct. Jan. 4, 1996). 48 Def.’s Mot. to Dismiss at 15; Bhole, Inc., 67 A.3d at 453 (citation omitted). Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 11 of 13

loan Xu-Nuo Pharma more money.49

The claim must be dismissed; the Complaint lacks sufficient factual

allegations that Mr. Xu acted outside the scope of his employment. In her briefing,

Ms. Li noted Mr. Xu used his personal email account to terminate the consulting

agreement and that the contract termination was done without prior approval of the

board of directors.50 But at argument, Ms. Li conceded that neither her agreements,

the corporate governing documents, nor general corporate governance law

prohibited Mr. Xu’s termination of this run-of-the-mill services contract such that

his actions could be deemed outside the scope of his authority or employment.

Indeed, Ms. Li admitted that termination of such a consulting agreement was

precisely the type of action Mr. Xu was, as Xynomic Holdings’ CEO, empowered

to, and as a matter of course would, take without any need for board approval. While

Ms. Li attempts to liken this contract termination to a major corporate decision that

could only be done with board consent—such as a merger—that argument is

unavailing and truly unpled.51

49 Pl.’s Answering Br. at 13-14. Ms. Li argues that this case should be distinguished from the traditional cash-out merger scenario because of Mr. Xu’s personal loan. Id. at 13-15. 50 See id. at 15-16. 51 Of note here too, Ms. Li—even in Count I—never pleads that consulting agreement’s termination was in fact unjustified. She only suggests that Mr. Xu might have had some additional Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 12 of 13

Under no reasonable interpretation of Ms. Li’s factual allegations could her

tortious interference claim against Mr. Xu survive.52 Given even the most generous

read possible, Ms. Li’s allegations do not suggest Mr. Xu was failing to pursue

Xynomic Holdings’ legitimate profit-seeking activities in good faith when he

terminated her consultancy or that he was motivated by some malicious or other bad

faith purpose to injure her. Put simply, Ms. Li has failed to plead the necessary

elements of her tortious interference claim. Accordingly, Count II warrants

dismissal under Rule 12(b)(6).

or ulterior personal motive for ending her consultancy when the company he headed was removed from the NASDAQ index. In determining whether a defendant acted improperly or without justification, our Supreme Court in Cousins v. Goodier reaffirmed a seven-factor test based on the Restatement (Second) of Torts, which looks at: (a) the nature of the actor’s conduct, (b) the actor’s motive, (c) the interests of the other with which the actor’s conduct interferes, (d) the interests sought to be advanced by the actor, (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other, (f) the proximity or remoteness of the actor’s conduct to the interference, and (g) the relations between the parties. 283 A.3d 1140, 1166 (Del. 2022) (citation omitted). While a tortious interference claim is not necessarily precluded if “the alleged tortfeasor can identify one proper motive among many unseemly ones,” alleging one potential improper motive among many seemly ones weighs against finding improper motive. See id. at 1166-67. Here, Ms. Li intimates that Mr. Xu’s motive was some potential future financial savings—which would require very liberal read to deem improper. Again, this allusion to a mere speculative gain balanced against Mr. Xu’s admitted duties and the six other Cousin factors fails to adequately allege Mr. Xu acted improperly or without justification. 52 Hedenberg, 2004 WL 2191164, at *1. Zuoli Li v. Xu-Nuo Pharma, Inc. and Yinglin Mark Xu C.A. No. N22C-08-417 PRW CCLD December 13, 2022 Page 13 of 13

IV. CONCLUSION No doubt, there is some legal irony to this outcome. For Ms. Li’s tortious

interference claim to survive Rule 12(b)(6), she must argue that Mr. Xu was acting

outside his corporate role. Yet to survive Rule 12(b)(2) here, Ms. Li must argue that

Mr. Xu was acting in his corporate role. Ms. Li’s decision to argue Mr. Xu was

acting outside the scope of his corporate role dooms this specific claim under

12(b)(6) for factual insufficiency; and it does so under 12(b)(2) for legal

insufficiency.

Defendant Yinglin Mark Xu’s Motion to Dismiss the Tortious Interference

with a Contract (Count II) claim, which is alleged only against him as an individual,

is GRANTED.

IT IS SO ORDERED.

_______________________ Paul R. Wallace, Judge