United States District Court, D. Nevada
before the court is plaintiff Barna Capital Group Ltd.'s
(“Barna”) motion to remand. (ECF No. 15).
Defendants Tong Shiping, Cheng Weihong, Meng Dong, Lv Fuqui,
Yu Jun, Bai Shaohua, Xinwei Wang, and Lili Yang (collectively
“individual defendants”) filed a response (ECF
No. 17), to which Barna replied (ECF No. 19).
a shareholder derivative action in which Barna, a Cyprus
corporation with offices in the Republic of Cyprus and the
Russian Federation, is suing on behalf of CALI, a Nevada
corporation. (ECF Nos. 1-3, 17). The complaint contains the
in the business of selling imported luxury vehicles in the
People's Republic of China (“China”) and
provides services related to automobile importation. (ECF No.
1-3). CALI's business model consists of purchasing luxury
automobiles primarily in North America and selling them in
China for more than two or three times the purchase price.
Id. CALI reports over $400, 000, 000 per year in
revenue and a profit margin of around 0.4%. Id.
CALI's profit margin is low in comparison to its
competitors, which report profit margins around 12%.
has been a minority shareholder of CALI at all times relevant
to this litigation and currently holds 20% of the outstanding
CALI shares. Id. Defendant Shiping and his wife,
defendant Weihong, own through various business entities a
majority of CALI's shares. Id. Shiping is also
the president, chief executive officer, and a board member of
CALI. Id. Weihong is a former board member and
former vice-president of CALI. Id. Shiping and
Weihong effectively control CALI. Id.
Weihong was a board member and vice-president of CALI, she
and her husband secretly owned and operated a web of
interrelated companies that sold imported vehicles in China.
Id. These companies included defendant Calistar
Automall Sales and Services, Ltd. (“Calistar”),
which Weihong owned. Id. Weihong's son-in-law
and nephew owned and operated Tianjin Binhai International
Car City Co., Ltd. (“Tianjin”), which is another
company involved in selling imported vehicles. Id.
One of CALI's board members, defendant Yang Lili, was
also on Tianjin's board of directors. Id.
about June 2, 2016, Calistar entered into a Strategic
Cooperative Agreement (“the agreement”) with
Tianjin. Id. In accordance with the agreement,
Tianjin would purchase vehicles below market price from CALI
and sell those vehicles to Calistar at cost. Id.
This arrangement ensured that Tianjin would not make any
money. Id. Calistar would later sell those cars at
market prices, earning a high profit margin. Id. In
effect, profits that originally belonged to CALI and its
shareholders were diverted to Calistar, Shiping, and Weihong.
September 30, 2016, Weihong, through her business entity
defendant Mighty Mark Investments Limited (“Mighty
Mark”), sold all of its shares in a group of companies,
including Tianjin and Calistar, to defendant LISI Group
(Holdings) Limited (“LISI”). Id. The
only significant asset in the transaction was the agreement
between Tianjin and Calistar. Id. LISI paid for the
acquisition by issuing LISI stock to entities that Weihong
owned and controlled. Id. The value of that stock
now exceeds $400, 000, 000. Id. In addition, LISI
reported sales of approximately $200, 000, 000 in the first
six months after it purchased Calistar. Id.
discovering Shiping and Weihong's scheme, Barna demanded
that CALI allow Barna to inspect CALI's accounts,
financial records, public communications, internal
communication relating to Weihong's business dealings,
invoices and contracts with Tianjin, disclosures of conflicts
of interest, and related actions by the board of directors.
Id. CALI denied Barna's demand. Id.
March 20, 2018, Barna sent CALI's counsel a draft of the
complaint and demanded that CALI and the individual
defendants to cease diverting CALI's profits.
Id. Barna also demanded that the individual
defendants to disgorge their ill-gotten gains. Id.
On March 30, 2018, CALI's counsel sent a letter inviting
BARNA to meet with Shiping in China but did not offer to
cease diverting its profits to entities owned by Weihong.
March 31, Barna sent a letter to CALI's counsel in which
Barna declined to meet in China but offered to meet in the
State of Nevada or Moscow, Russia. Id. CALI's
counsel thereafter sent an email to Barna stating, “We
will pass your response on to our client and get back to
you.” Id. On April 4, 2018, CALI's chief
operating officer, Jin Yang, contacted Barna and offered to
schedule a teleconference. Id. Two days later,
CALI's counsel informed Barna that CALI's audit
committee retained the law firm DLA Piper to investigate
Barna's allegations. Id.
April 6, 2018, Barna initiated this lawsuit in state court,
asserting six causes of action: (1) breach of fiduciary duty;
(2) abuse of control; (3) waste of corporate assets; (4)
conspiracy; (5) unjust enrichment; and (6) injunctive relief.
Id. The defendants in this litigation consist of the
individual defendants; CALI; LISI; Mighty Mark; Calistar;
Tianjin; Mega Convention Group Limited; Tianjin Calistar
Automall Operation Management Co., Ltd.; Tianjin Calistar
Industrial Company, Ltd.; World Vast International Enterprise
Limited; and Tianjin Bohai Car Supply Chain Management Co.,
Ltd. (collectively “defendants”). Id.
after Barna initiated this lawsuit, DLA Piper resigned and
CALI stated in a public SEC filing that it did not believe
that it would complete the investigation into Barna's
allegations. (ECF No. 19-1). Thereafter, CALI's
accounting firm resigned because CALI prevented the
accounting from completing an audit of the company by
refusing to provide reliable information. Id.
January 28, 2019, defendants removed this action to federal
court. (ECF No. 1). Now, Barna moves to remand this case back
to state court. (ECF No. 15).