Jenkins v. iQIYI, Inc. et al, No. 4:2020cv02882 - Document 64 (N.D. Cal. 2020)
Court Description: ORDER GRANTING 13 IQIYI'S UNOPPOSED MOTION TO TRANSFER ACTION TO THE EASTERN DISTRICT OF NEW YORK AND TERMINATING 19 22 27 34 38 44 48 PENDING MOTIONS FOR APPOINTMENT AS LEAD PLAINTIFF by Judge Phyllis J. Hamilton. (pjhlc2S, COURT STAFF) (Filed on 7/6/2020)
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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 THOMAS JENKINS, 9 v. 10 IQIYI, INC., et al., ORDER GRANTING DEFENDANT IQIYI, INC.’S UNOPPOSED MOTION TO TRANSFER AND TERMINATING PENDING MOTIONS FOR APPOINTMENT AS LEAD PLAINTIFF Defendants. 11 United States District Court Northern District of California Case No. 20-cv-02882-PJH Plaintiff, 8 Re: Dkt. 13, 19, 22, 27, 34, 38, 44, 48 12 13 Defendant iQIYI, Inc. (“iQIYI”) has moved to transfer this action to the United 14 States District Court for the Eastern District of New York (the “Eastern District of New 15 York”). Dkt. 13. Plaintiff Thomas Jenkins (“plaintiff”) failed to oppose transfer. Having 16 carefully considered the parties’ submissions, the relevant law, and the arguments of 17 counsel, the court GRANTS iQIYI’s motion. 18 BACKGROUND 19 On April 27, 2020, plaintiff filed a class action complaint in this court against iQIYI, 20 as well as various of its executive officers and directors—namely, Yu Gong, Xiaodong 21 Wang, Robin Yanhong Li, Qi Lu, Herman Yu, Xuyang Ren, Victor Zhixiang Liang, and 22 Chuan Wang (collectively, the “individual defendants”). Dkt. 1 (Class Action Complaint 23 (“CAC”)). 24 In his CAC, plaintiff alleges various claims under the federal securities laws related 25 to IQIY’s March 29, 2018 initial public offering (“IPO”), including ones for violation of 26 Section 11 of the Securities Act (Title 15 U.S.C. § 77k), Section 15 of that act (Title 15 27 U.S.C. § 77o), Section 10(b) of the Exchange Act (Title 15 U.S.C. § 78j(b)) as well as its 28 Rule 10b-5 counterpart, and Section 20(a) of that act (Title 15 U.S.C. § 78t(a)). CAC ¶¶ 1 73-102. 2 [A]ll persons and entities other than Defendants that purchased or otherwise acquired: (a) iQIYI American Depository Shares (“ADSs”) pursuant and/or traceable to the Company’s initial public offering conducted on or about March 29, 2018 (the “IPO” or “Offering”); or (b) iQIYI securities between March 29, 2018, and April 7, 2020, both dates inclusive (the “Class Period”). CAC ¶¶ 1, 64. 3 4 5 On June 5, 2020, defendant iQIYI moved to transfer this action to the Eastern 6 7 District of New York. Dkt. 13. Based on the parties’ prior representations, the individual 8 defendants, who live in China, have not yet been served with process in this action. Dkt. 9 11. To date, plaintiff has failed to file any opposition to this motion. 10 A. iQIYI and its ADSs iQIYI provides online entertainment services in China. CAC ¶ 3. It is a Cayman 11 United States District Court Northern District of California Plaintiff seeks to represent a class generally comprising the following: 12 Islands company with a principal place of business in Beijing. Id. ¶ 16. iQIYI has an 13 agent for service of process in New York but otherwise maintains no other presence in 14 the United States. Dkt. 13-1 at 113 ¶ 6. On March 29, 2018, iQIYI conducted the IPO of its American Depositary Shares 15 16 (“ADSs”)1 pursuant to a Form F-1 registration statement and Form 424B4 prospectus (the 17 “Offering Documents”). CAC ¶¶ 4-5. iQIYI prepared the Offering Documents in Hong 18 Kong and transmitted them from there to the SEC in Washington, D.C. Dkt. 13-1 at 114 19 ¶¶ 14-15. Following the IPO, iQIYI’s ADSs began trading on NASDAQ. CAC ¶ 2. On March 16, 2018, iQIYI filed a Form F-6 registration statement with the SEC, 20 21 which attached a “form of deposit agreement” between iQIYI, JPMorgan, and iQIYI ADS 22 holders. Dkt. 13-1 at 65. That deposit agreement states that its terms bind iQIYI’s ADS 23 holders. Dkt. 13-1 at 77 § 2(c) (“Holders shall be bound by the terms and conditions of 24 25 26 27 28 An ADS “is the security that represents an ownership interest” in a foreign company’s “deposited securities.” Am. Depositary Receipts, Release No. 274, 1991 WL 294145, at *2 n.5 (May 23, 1991). Throughout this order, the court will cite documents referencing a related but technically distinct item, namely “American Depositary Receipts” (“ADRs”). An ADR “is the physical certificate that evidences ADSs.” Id. The SEC has previously noted that investors in the foreign securities market “largely do not differentiate between ADRs and ADSs” and, thus, “it appears appropriate to eliminate the ADR/ADS distinction.” Id. To simplify, the court will use only the term “ADS” in its analysis. 2 1 1 this Deposit Agreement and of the form of ADR . . .”); id. at 84 § 18 (“the Holder and 2 owners of ADRs from time to time shall be parties to this Deposit Agreement and shall be 3 bound by all of the provisions hereof.”). The Offering Documents reiterate the deposit 4 agreement’s application. Id. at 60 (Form F-1 referencing application of the deposit 5 agreement’s terms); id. at 63 (Form 424B4 excerpt referencing the same). The deposit agreement states that an ADS holder agrees that all actions brought United States District Court Northern District of California 6 7 by the holder against the Company “arising out of or based upon . . . the ADSs or the 8 ADRs or the transactions contemplated hereby . . . may only be instituted in a state or 9 federal court in New York, New York (‘New York, NY’).” Id. at 85 § 20(b) (emphasis 10 added). That agreement also provides that iQIYI waives any objection to laying venue in 11 New York courts for proceedings against it that arise out of the above cited subject 12 matter. Id. at 84 § 20(a). 13 B. Alleged Acts During the Class Period From October 30, 2018 to March 12, 2020, iQIYI filed two annual reports and 14 15 issued three press releases. CAC ¶¶ 46-59. The three press releases were prepared in 16 Beijing. Dkt. 13-1 at 114 ¶¶ 16-17, 19. The two annual reports were also prepared in 17 Beijing and then filed electronically with the SEC in Washington, D.C. Id. at 114 ¶¶ 18, 18 20. iQIYI made no efforts to specifically transmit the annual reports and the press 19 releases into this district. Id. at 114-15 ¶¶ 16-20. On April 7, 2020, a research and due diligence firm released a report (the 20 21 “Report”) alleging that iQIYI made false and misleading statements by, among other 22 things, inflating its 2019 revenue by 27% to 44% and inflating its expenses to burn its 23 overstated revenues. CAC ¶ 60. The next day, iQIYI ADS prices fell 4.57%. Id. ¶ 61. 24 C. 25 The Pending Eastern District of New York Action On April 16, 2020, Jean Lee, an alleged holder of iQIYI ADSs, filed Jean Lee v. 26 iQIYI, Inc., et. al., 20-cv-1830-LDH-JO (E.D.N.Y.), a federal securities class action 27 complaint in the Eastern District of New York on behalf of all holders who purchased 28 iQIYI securities between March 29, 2018 and April 7, 2020 (the “EDNY Action”). Dkt. 133 1 1 at 6 ¶ 1. The EDNY Action asserts claims under (1) Section 10(b) and Rule 10b-5 of 2 the Exchange Act against iQIYI, Gong, and X. Wang and (2) Section 20(a) of that act 3 against Gong and X. Wang. Id. at 24-28 ¶¶ 50-65. Among other things, the EDNY 4 Action alleges that the defendants made false or misleading statements regarding iQIYI’s 5 revenue figures, user numbers and expenses in (i) the Offering Documents, and (ii) other 6 public statements between February 2018 and April 2020. Id. at 8-22 ¶¶ 15-43. DISCUSSION 7 8 A. Legal Standards iQIYI advances three independent bases in support of its motion to transfer, only United States District Court Northern District of California 9 10 two of which the court analyzes here: (1) the deposit agreement’s forum selection clause; 11 and (2) a conventional analysis under Title 28 U.S.C. § 1404(a). Dkt. 13 at 16 12 1. Transfer Pursuant to a Forum Selection Clause 13 A district court considering a § 1404(a) motion should give “controlling weight” to a 14 valid forum selection clause “in all but the most exceptional cases.” Atl. Marine Constr. 15 Co. v. U.S. Dist. Court, 571 U.S. 49, 63 (2013). A valid forum selection clause changes 16 the court’s usual Section 1404(a) analysis in three ways. First, the plaintiff's choice of 17 forum merits “no weight.” Id. Second, the court may “consider arguments about public- 18 interest factors only” since the parties stipulated to a particular forum. Id. at 64. Finally, 19 the party opposing transfer bears the burden of demonstrating that the action should not 20 be transferred. Id. at 64. 21 22 2. Discretionary Transfer Under 28 U.S.C. § 1404(a) "For the convenience of parties and witnesses, in the interest of justice, a district 23 court may transfer any civil action to any other district or division where it might have 24 been brought." 28 U.S.C. § 1404(a). For a court to transfer venue under § 1404(a), it 25 must find that (1) “the [transferee] court is one where the action might have been brought” 26 and (2) the “convenience of parties and witnesses in the interest of justice favor transfer.” 27 Hatch v. Reliance Ins. Co., 758 F.2d 409, 414 (9th Cir. 1985). Courts maintain broad 28 discretion to adjudicate motions for transfer on a “case-by-case” basis. Stewart Org. Inc. 4 United States District Court Northern District of California 1 v. Ricoh Corp., 487 U.S. 22, 29 (1988). 2 Under § 1404(a), the court must “weigh multiple factors in its [transfer] 3 determination.” Jones v. GNC Franchising, Inc., 211 F.3d 495, 498 (9th Cir. 2000). 4 Courts in this district typically weigh the following factors in its transfer determination: (1) 5 the plaintiff's choice of forum, (2) the convenience of the parties, (3) the convenience of 6 the witnesses, (4) the ease of access to the evidence, (5) the familiarity of each forum 7 with the applicable law, (6) the feasibility of consolidation of other claims, (7) any local 8 interest in the controversy, and (8) the relative court congestion and time of trial in each 9 forum. Martin v. Glob. Tel*Link Corp., 2015 WL 2124379, at *2 (N.D. Cal. May 6, 2015). 10 Lastly, the moving party bears the burden of justifying the requested transfer. 11 Commodity Futures Trading Comm'n v. Savage, 611 F.2d 270, 279 (9th Cir. 1979). 12 B. Analysis 13 1. The Forum Selection Clause Mandates Transfer 14 The Ninth Circuit has recognized that a deposit agreement may bind an ADS 15 holder to the agreement’s terms. Batchelder v. Kawamoto, 147 F.3d 915, 919 (9th Cir. 16 1998), as amended (July 15, 1998) (“[A]s noted above, ADR holders are deemed to have 17 agreed to all terms in the deposit agreement by their acceptance and holding of ADRs.’”) 18 citing Am. Depositary Receipts, Release No. 274, 1991 WL 294145, at *11 n.63 (May 23, 19 1991). Accordingly, the court concludes that the form deposit agreement filed by iQIYI on 20 March 16, 2018 may limit plaintiff’s venue selection rights as an iQIYI ADS holder. 21 22 23 24 25 26 27 28 In relevant part, that agreement includes a forum and venue selection clause that provides the following: “By holding an ADS or an interest therein, Holders and owners of interests in ADSs each also irrevocably agree that any legal suit, action or proceeding against or involving the Company . . . brought by Holders or owners of interests in ADSs, arising out of or based upon this Deposit Agreement, the ADSs or the ADRs or the transactions contemplated hereby or thereby, may only be instituted in a state or federal court in New York, New York.” Dkt. 13-1 at 85 § 20(b). This action involves iQIYI and plainly arises out of the IPO contemplated by the 5 1 deposit agreement and issued iQIYI ADSs. At core, plaintiff alleges that defendants 2 misled him and other putative class members into purchasing iQIYI’s ADSs by falsely 3 representing the numbers of users of the Company’s services as well as its financial 4 information. CAC ¶¶ 45-59. Plaintiff seeks to recover damages based on “the 5 precipitous decline in the market value of iQIYI’s securities.” Id. ¶¶ 10, 81, 96. Given his 6 non-opposition to defendant’s motion, plaintiff failed to proffer any evidence of fraud that 7 would justifying finding this clause invalid. Accordingly, the court concludes that the 8 deposit agreement’s forum selection clause itself warrants the requested transfer 2. 9 Independent of the above, the court concludes that defendant further justified 10 United States District Court Northern District of California 11 Traditional § 1404(a) Analysis Warrants Transfer transfer under a traditional analysis of Title 28 U.S.C. § 1404(a). a. 12 Plaintiff Could Have Initiated This Action in the Eastern District of New York 13 14 “In determining whether an action might have been brought in a district, the court 15 looks to whether the action initially could have been commenced in that district.” Hatch, 16 758 F.2d at 414. 17 Here, iQIYI consented in the deposit agreement to jurisdiction and venue in any 18 New York court for suits involving such agreement or its ADSs. Dkt. 13-1 at 84 § 20(a) 19 (“The Company irrevocably agrees that any legal suit . . . involving the Company brought 20 by . . . any Holder, arising out of or based upon this Deposit Agreement, the ADSs or the 21 ADRs or the transactions contemplated hereby . . . may be instituted in any state or 22 federal court in New York, New York, and irrevocably waives any objection which it 23 may now or hereafter have to the laying of venue of any such proceeding, and 24 irrevocably submits to the non-exclusive jurisdiction of such courts in any such 25 suit, action or proceeding.”) (emphasis added). Accordingly, the court concludes that 26 plaintiff may have filed this action in the Eastern District of New York.2 27 28 2 The court acknowledges that the individual defendants may subsequently object to personal jurisdiction in the Eastern District of New York. Given plaintiff’s failure to 6 b. 1 Here, the court concludes that the interests of justice favor granting the requested 2 3 transfer. Significantly, the court finds that the feasibility of consolidating this action with 4 the EDNY Action following transfer outweighs any deference owed to plaintiff’s choice of 5 forum. 6 7 United States District Court Northern District of California Transfer Would Advance the Interests of Justice i. Plaintiff’s Choice of Forum While a plaintiff’s choice of forum is generally entitled to some deference, courts 8 assign such deference less weight where, as here, the suit is a class action. Lou v. 9 Belzberg, 834 F.2d 730, 739 (9th Cir. 1987). Such assignment is further diminished 10 where, again, as here, plaintiff does not live in this district. Vu v. Ortho-McNeil Pharm., 11 Inc., 602 F. Supp. 2d 1151, 1156-57 (N.D. Cal. 2009). Accordingly, to the extent 12 plaintiff’s choice of forum is entitled to any deference, such deference is minimal. 13 ii. Feasibility of Consolidation 14 The Exchange Act contemplates consolidating class actions that assert 15 “substantially the same claim or claims” under its provisions. 15 U.S.C. §78u- 16 4(a)(3)(B)(ii). Both this action and the EDNY Action share common defendants, allege 17 the same underlying facts, assert similar claims under the Exchange Act, and seek the 18 same relief on behalf of identical putative plaintiff classes. Indeed, based on a post- 19 motion filing by iQIYI on June 26, 2020, it appears that process has already commenced 20 with respect to another action previously pending in the Southern District of New York 21 (apparently now dismissed). Dkt. 54. Given the above, the court concludes that this 22 action’s consolidation with the EDNY Action is feasible. 23 iii. Convenience of the Parties and Witnesses 24 None of the parties live or do business in this district. iQIYI does not maintain an 25 agent for service of process in this district. The court has no basis to conclude that any 26 27 28 oppose the instant motion and the individual defendants appear not yet to have been served in this action, the court makes no judgment about whether the Eastern District of New York would in fact retain personal jurisdiction over those defendants. 7 1 witnesses with the knowledge of the alleged acts are located in this district. Accordingly, 2 litigating this action in this district would not provide any marginal convenience for the 3 parties or witnesses. Because transferring this action would help the parties avoid 4 wasting resources and engaging in duplicative litigation by its potential relation and 5 consolidation to the EDNY Action, this factor cuts in favor of transfer. iv. United States District Court Northern District of California 6 Relative Local Interest 7 As discussed above, the Eastern District of New York is already considering a 8 similar action that appears properly before it on the basis of the deposit agreement’s 9 forum selection clause. Given that, the Eastern District of New York has a local interest 10 that the instant district does not. Separately, as previously mentioned, the parties in this 11 action do not have a relationship to this district and none of the events giving rise to it 12 occurred here. Accordingly, this factor cuts in favor of transfer. v. 13 The Remaining Factors The remaining factors are either neutral or cut in favor of transfer. Neither this 14 15 district nor the Eastern District of New York have any relative advantages for accessibility 16 to evidence. Both know federal law. Transfer would decrease congestion in this district 17 without adding congestion in the Eastern District of New York. Lastly, there is no 18 cognizable different in the rate at which either district conducts its proceedings.3 CONCLUSION 19 For the foregoing reasons, the court GRANTS iQIYI’s motion to transfer. Given 20 21 that the court will no longer retain jurisdiction of this action, it hereby TERMINATES the 22 various pending motions for appointment as lead plaintiff and counsel (Dkts. 19, 22, 27, 23 34, 38, 44, 48) without decision. The clerk shall transfer this action to the United States 24 District Court for the Eastern District of New York. IT IS SO ORDERED. 25 26 27 28 The court also notes that, in the alternative, transfer is further warranted under the “firstto-file” rule because plaintiff Jean Lee commenced the EDNY Action eleven days before this one. Compare CAC with Dkt. 13-1 at 5. 8 3 1 2 3 Dated: July 6, 2020 /s/ Phyllis J. Hamilton PHYLLIS J. HAMILTON United States District Judge 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9
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