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Ramzan v. GDS Holdings Limited

United States District Court, E.D. Texas, Sherman Division

September 30, 2019

HAMZA RAMZAN, Individually and On Behalf of All Others Similarly Situated, Plaintiffs,
v.
GDS HOLDINGS LIMITED, WILLIAM WEI HUANG, and DANIEL NEWMAN, Defendants.

          MEMORANDUM OPINION AND ORDER

          KIMBERLY C. PRIEST JOHNSON, UNITED STATES MAGISTRATE JUDGE.

         Pending before the Court is Defendants’ Motion to Dismiss the Amended Complaint and Alternatively, to Transfer Venue to the Southern District of New York, and Memorandum of Law in Support (the “Motion”) (Dkt. 24). In accordance with the provisions of 28 U.S.C. 636(c), the parties consented to proceed before the undersigned for the limited purpose of deciding the Motion. See Dkt. 37. For the reasons set forth below, the Motion is GRANTED.

         I. BACKGROUND

         Plaintiff Hamza Ramzan, a New York resident, initially commenced this action; on October 26, 2018; the Court subsequently appointed Yuanli He, a California resident, as Lead Plaintiff.[1] See Dkts. 1, 20, 21, 24-8 at 5. Yuanli He filed the operative Complaint on behalf of himself and other persons or entities who acquired GDS Holdings Limited (“GDS”) securities publicly traded on the NASDAQ from March 29, 2018, through July 31, 2018 (“Plaintiffs”), against GDS, William Wei Huang (“Huang”), and Daniel Newman (“Newman”) (collectively, “Defendants”), asserting violations of the Securities Exchange Act of 1934 (the “Exchange Act”). See Dkt. 21 at 2. GDS is a Cayman Islands corporation headquartered in the People’s Republic of China, where it purports to develop and operate data centers. See Id . at 7. Huang is GDS’s founder, Chairman of the Board of Directors, and Chief Executive Officer, and Newman is GDS’s Chief Financial Officer. See id. Both Huang and Newman reside in Hong Kong. See Dkt. 24 at 9.

         In the Motion, Defendants argue: (1) Defendants have no contacts with Texas that would permit the Court to exercise personal jurisdiction over them; (2) venue in the Eastern District of Texas is improper; (3) the case should alternatively be transferred to the Southern District of New York; and (4) the case should be dismissed for failure to state a claim. See Dkt. 24. Plaintiffs filed a response (Dkt. 31) and Defendants filed a reply (Dkt. 33). The Court held a hearing on the Motion on September 16, 2019 (the “Hearing”). At the Hearing, Plaintiffs raised an additional basis on which to establish personal jurisdiction under Federal Rule of Civil Procedure 4(k)(2). The Court ordered further briefing on the matter. See Dkts. 38, 39, 40, 43.

         II. LEGAL STANDARD

         A. Rule 12(b)(2)

         Federal Rule of Civil Procedure 12(b)(2) requires a court to dismiss the claims presented if it does not have personal jurisdiction over the defendant. Holmes v. New Logic Business Loans Inc., 2015 WL 12748311, at *1 (E.D. Tex. Oct. 7, 2015); Fed.R.Civ.P. 12(b)(2). “When a court rules on a motion to dismiss for lack of personal jurisdiction without holding an evidentiary hearing, the party asserting jurisdiction is required to present facts sufficient to constitute a prima facie case of personal jurisdiction to satisfy its burden.” Duke Energy Int’l, L.L.C. v. Napoli, 748 F.Supp.2d 656, 678 (S.D. Tex. 2010) (citing Central Freight Lines Inc. v. APA Transport Corp., 322 F.3d 376, 380 (5th Cir. 2003); Alpine View Co. v. Atlas Copco A.B., 205 F.3d 208, 214 (5th Cir. 2000)). “[O]n a motion to dismiss for lack of jurisdiction, uncontroverted allegations in the plaintiff’s complaint must be taken as true, and conflicts between the facts contained in the parties’ affidavits must be resolved in the plaintiff’s favor for purposes of determining whether a prima facie case for personal jurisdiction exists.” Bullion v. Gillespie, 895 F.2d 213, 217 (5th Cir. 1990).

         B. Rule 12(b)(3)

         Federal Rule of Civil Procedure 12(b)(3) allows a party to move to dismiss an action for “improper venue.” Fed.R.Civ.P. 12(b)(3). Once a defendant raises improper venue by motion, “the burden of sustaining venue will be on [the] Plaintiff.” Cincinnati Ins. Co. v. RBP Chem. Tech., Inc., 2008 WL 686156, at *5 (E.D. Tex. Mar. 6, 2008). “Plaintiff may carry this burden by establishing facts that, if taken to be true, establish proper venue.” Id. (citations omitted). The Court “must accept as true all allegations in the complaint and resolve all conflicts in favor of the plaintiff.” Mayfield v. Sallyport Glob. Holdings, Inc., 2014 WL 978685, at *1 (E.D. Tex. Mar. 5, 2014) (citing Ambraco, Inc. v. Bossclib, B.V., 570 F.3d 233, 237–38 (5th Cir. 2009)). In determining whether venue is proper, “the Court may look beyond the complaint to evidence submitted by the parties.” Ambraco, 570 F.3d at 238. If venue is improper, the Court must dismiss, “or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” 28 U.S.C. § 1406(a); Fed.R.Civ.P. 12(b)(3).

         III. ANALYSIS

         A. Venue

         Plaintiffs assert that venue is proper in this judicial district pursuant to 28 U.S.C. § 1391(b) (“Section 1391”) and Section 27 of the Exchange Act (15 U.S.C. § 78aa) (“Section 27”). Under Section 1391, the general venue statute, “for all venue purposes . . . a defendant not resident in the United States may be sued in any judicial district.” 28 U.S.C. § 1391(c)(3). Section 27’s venue provision reads: “Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any violation of such chapter or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business.” 15 U.S.C. § 78aa.

         1. Section 27

         Outside of the solitary reference to the statute in their Amended Complaint, Plaintiffs make no attempt to demonstrate that venue is appropriate under Section 27. Rather, Plaintiffs state in one footnote in their response to the Motion, “Courts have also held that venue could be established under Section 27 for any publicly-traded company on the NASDAQ, such as GDS.” Dkt. 31 at 23. The only case cited for this general proposition contains one statement, in dicta, that it is “theoretically” possible venue could exist in any district under Section 27 due to the NASDAQ listing. See Id . (citing In re Geopharma, Inc., No. 04 CIV. 9463 (SAS), 2005 WL 1123883, at *1 n.12 (S.D.N.Y. May 11, 2005)) (“Indeed, because GeoPharma was a publicly traded company on the NASDAQ National Market and the alleged misstatements were widely disseminated and defrauded a nationwide class, plaintiffs could theoretically have brought suit under section 27 in any district in the United States.”). The Court has not found, and Plaintiffs have not cited, any case in which the NASDAQ listing alone established venue under Section 27. In fact, courts require action by a defendant that “reaches into” the forum district that is “of material importance” to the consummation of the alleged violation. See GRM v. Equine Inv. & Mgmt. Grp., 596 F.Supp. 307, 312 (S.D. Tex. 1984) (citing Hilgeman v. Nat’l Ins. Co. of Am., 547 F.2d 298, 301 (5th Cir. 1977)). Notably. Plaintiffs not only abandon but entirely contravene their previously pled position regarding Section 27 in their supplemental briefing. See Dkt. 40 at 8 (“The Court should find that the existence of Section 27 of the Exchange Act, a situation-specific federal statute granting jurisdiction to other courts, is irrelevant the Rule 4(k)(2) analysis because it does not grant jurisdiction to this Court.”). Plaintiffs have not pled any such facts in this case, and therefore, Plaintiffs have not demonstrated that venue is proper herein under Section 27.

         2. Section 1391

         Plaintiffs argue venue is proper under the general venue statute, Section 1391, as Section 1391 applies even when a cause of action has a particular, restrictive venue statute. See Dkt. 31 at 18. In Brunette Mach. Works, Ltd. v. Kockum Indus., Inc., the Supreme Court held that Section 1391 is “properly regarded” as a “declaration of the long-established rule that suits against aliens are wholly outside the operation of all the federal venue laws, general and special.” 406 U.S. 706, 714 (1972). Defendants recognize the “long-established rule, ” but argue that because Section 1391 was amended in 2011, there is no reason to interpret the statute as applying differently for alien defendants than for domestic defendants. See Dkt. 24 at 22.

         In TC Heartland LLC v. Kraft Foods Grp. Brands LLC, the Supreme Court addressed the relationship of Section 1391 and the patent venue statute, 28 U.S.C. § 1400(b), in cases involving domestic defendants. 137 S.Ct. 1514 (2017). The Supreme Court explained their findings related only to domestic defendants:

The parties dispute the implications of petitioner's argument for foreign corporations. We do not here address that question, nor do we express any opinion on this Court's holding in Brunette Machine Works, Ltd. v. Kockum Industries, Inc., 406 U.S. 706, 92 S.Ct. 1936, 32 L.Ed.2d 428 (1972) (determining proper venue for foreign corporation under then existing statutory regime).

Id. at 1519, n.2. The Federal Circuit recently addressed whether the ruling in TC Heartland contravened the “long-established rule that suits against aliens are wholly outside the operation of all the federal venue laws, ” as stated in Brunette. See In re HTC Corp., 889 F.3d 1349 (Fed. Cir. 2018). In In re HTC, a Taiwanese company headquartered in Taiwan contended venue was not proper in the District of Delaware, and the 2011 amendments to Section 1391 (the “savings clause”) meant the express venue statute for patent cases governs and displaces Section 1391. The Federal Circuit ruled that, despite the existence of a patent venue statute, “the 2011 amendments do not sufficiently indicate an intent to make venue protections applicable to alien defendants, ” and the Supreme Court’s “decision in TC Heartland does not alter” the conclusion in Brunette that when § 1391(d) was codified in 1948, “Congress was apparently quite content to leave suits against alien defendants exempt from the venue statutes, in patent cases as in all others.” Id. at 1356–57.

         In this District, Chief Judge Gilstrap recently applied the finding in In re HTC, holding, “BIScience, as a foreign corporation, is subject to suit in any judicial district for venue purposes.” Luminati Networks Ltd. v. BIScience Inc., No. 2:18-CV-483-JRG, 2019 WL 2084426, at *7 (E.D. Tex. May 13, 2019). Likewise, the Court finds that the “long-established rule” holds true, such that neither general nor special venue laws apply to alien defendants. Accordingly, as GDS, Huang, and Newman reside outside of the United States, venue is proper pursuant to Section 1391 in any district, including the Eastern District of Texas.

         B. ...


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