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Wang v. New Mighty U.S. Trust

United States District Court, District of Columbia

August 15, 2017

YUEH-LAN WANG, by and through her attorney-in-fact, Winston Wen-Young Wong, Plaintiff,
v.
NEW MIGHTY U.S. TRUST, et al., Defendants.

          MEMORANDUM OPINION

          JAMES E. BOASBERG, UNITED STATES DISTRICT JUDGE.

         This case begins in a Taiwanese rags-to-riches tale. Yung-Ching (Y.C.) Wang was born in 1917 into a tea-farming family so poor that he could not afford to attend high school. By his death in 2008, he was his country's second wealthiest person - a plastics tycoon worth an estimated $6.8 billion.

         But, as is often true on both sides of the Pacific: more money, more problems. Y.C. died without a known will, and his heirs - belonging to three “Families” - have since been locked in an international struggle for his assets. This case is one chapter of that saga. Winston Wen-Young Wong, Y.C.'s son from his Second Family, filed this suit in 2010 in the name of Plaintiff Yueh-Lan Wang, Y.C.'s wife from his First Family. Operating under a power-of-attorney from Yueh-Lan, who was herself childless, Winston brought her claims seeking assets held by Defendants as part of her marital share under Taiwanese law. Yueh-Lan has since died, and the Executors of her estate now seek to take over and revise the Complaint. As the Court ultimately concludes that this is permissible and that some of Defendants' objections to the contrary should be reserved for later briefing, it will grant the Executors' Motion to do so.

         I. Background

         Because the core question at this stage is whether the Executors' proposed Second Amended Complaint could survive a motion to dismiss, the Court draws its facts from that pleading and accepts them as true. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); see In re Interbank Funding Corp. Securities Litigation, 629 F.3d 213, 218 (D.C. Cir. 2010). The Court does not, however, “accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

         A teen bride, Yueh-Lan was married to Y.C. for 72 years - about the average life expectancy of a newborn today. See ECF No. 37-3 (Proposed Second Amended Complaint), ¶ 1. (As many individuals in this case share the same last name, the Court refers to them by their first names for sake of convenience and not as a mark of disrespect.) Over the course of their long union, Y.C. founded several companies, most notably the Formosa Plastics Group, which is “one of Taiwan's biggest and most profitable manufacturing conglomerates with annual sales of over $60 billion and operations in five countries.” Id., ¶ 17. These ventures made him the second wealthiest person in Taiwan by 2006 with a conservative estimated net worth of around $6.8 billion. Id., ¶ 18.

         Two years later, in 2008, Y.C. died in New Jersey without a known will. Id., ¶ 16. Because he had distributed his riches around the world, his estate in Taiwan eventually identified less than $2 billion in assets for disbursement to his heirs. Id., ¶ 18. Complicating matters further still, during his long marriage to Yueh-Lan (his “First Family”), Y.C. created other families by fathering children with two other women - Wang Yang Chiao and Pao Chu (P.C.) Lee. Id., ¶ 26. While he and Yueh-Lan had no offspring, his relationship with Wang Yang Chiao resulted in the birth of five children known as the “Second Family, ” and his relationship with P.C. Lee produced another four known as the “Third Family.” Id.

         Perhaps not surprisingly given such fecundity, Y.C.'s intestate death has spawned a good deal of international litigation among his three families, this action being one example. It was first filed on October 14, 2010, by Dr. Winston Wen-Young Wong, a member of the Second Family and Y.C.'s eldest son, who asserted that he was acting through a valid power-of-attorney in bringing the suit on Yueh-Lan's behalf. See ECF No. 1 (Complaint). Yueh-Lan's claims sought property allegedly transferred by Y.C. to Defendants during the five years prior to his death on the ground that Taiwanese law would entitle her to recover these assets as part of her 50% spousal share upon his passing. Wang ex rel. Wong v. New Mighty U.S. Trust (Wang I), 841 F.Supp.2d 198, 200 (D.D.C. 2012). Defendants are a trust formed under the laws of the District of Columbia - New Mighty U.S. Trust - as well as its trustee, Clearbridge, LLC, and a beneficiary of the trust, New Mighty Foundation. See SAC, ¶¶ 19-21. (Both the Foundation and Clearbridge, it should be noted, are linked to children of the Third Family. See ECF No. 38-29 (Declaration of Susan Wang), ¶ 1; ECF No. 38-30 (Declaration of William Wong), ¶ 5.)

         Defendants moved to dismiss these claims on numerous grounds, and this Court granted that entreaty. Wang I, 841 F.Supp.2d at 208; see Wang ex rel. Wong v. New Mighty U.S. Trust (Wang II), 843 F.3d 487, 488 (D.C. Cir. 2016). While recognizing the question was “close” and one of first impression, it held that a traditional trust like New Mighty assumed the citizenship of all of its beneficiaries for the purposes of diversity jurisdiction and, accordingly, diversity was lacking in this case. Wang I, 841 F.Supp.2d at 203.

         Plaintiff appealed this ruling, but Yueh-Lan died shortly thereafter. Wang II, 843 F.3d at ¶ 489. The D.C. Circuit thus had to hold the case in abeyance for years while the Taiwanese courts determined who should act as the executors of her will because Yueh-Lan had named Winston as her sole heir but failed to appoint an executor. Id.; see SAC, ¶ 14. Eventually, Chen-Teh Shu, Dong-Xung Dai, and Robert Shi were chosen by the courts, and the three men moved to substitute themselves as Yueh-Lan's personal representatives under the appropriate Federal Rule of Appellate Procedure while the case was still pending at the D.C. Circuit. Wang II, 843 F.3d at ¶ 489. Before ruling on that motion, though, the D.C. Circuit again stayed the case after the Supreme Court granted certiorari in Americold Realty Trust v. ConAgra Foods, Inc., 136 S.Ct. 1012 (2016), which addressed the appropriate citizenship test for a real-estate trust. Wang, 843 F.3d at 489 n.6.

         Based on the decision in Americold, the D.C. Circuit eventually reversed this Court's dismissal of Yueh-Lan's complaint after holding that the citizenship of a traditional trust like New Mighty Trust depends only on the trustee's citizenship, not the beneficiaries', as this Court had ruled. Id. at 489-96. As a result, diversity was not lacking. Id. The Circuit, at the same time, also granted the Executors' substitution motion “without prejudice to the defendants' ability to renew in district court those arguments they ha[d] pressed before” it about Winston's potentially defective POA and the consequences flowing therefrom. Id. at 496.

         Now back in this Court, Plaintiff Executors filed the current Motion for Leave to File a Second Amended Complaint and for Other Relief. See ECF No. 37. Defendants have opposed, contending that the proposed new Complaint remains defective for myriad reasons. The matter is now ripe.

         II. Legal Standard

         A plaintiff may amend her complaint once as a matter of course within 21 days of serving it or within 21 days of the filing of a responsive pleading. See Fed.R.Civ.P. 15(a)(1). Otherwise, she must seek consent from the defendant or leave from the court. The latter permission “should [be] freely give[n] . . . when justice so requires.” Fed.R.Civ.P. 15(a)(2). In deciding whether to grant leave to file an amended complaint, courts may consider “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.” Foman v. Davis, 371 U.S. 178, 182 (1962). In this Circuit, “it is an abuse of discretion to deny leave to amend unless there is sufficient reason.” Firestone v. Firestone, 76 F.3d 1205, 1208 (D.C. Cir. 1996). “The defendant bears the burden of demonstrating that a plaintiff's motion to file an amended complaint should be denied.” Clayton v. District of Columbia, 999 F.Supp.2d 178, 183 (D.D.C. 2013).

         It is clear, however, that amendment should not be permitted if it would be futile. Foman, 371 U.S. at 182 (noting “futility of amendment” is permissible reason to deny Rule 15(a) motion). In other words, if the new causes of action would still be deficient notwithstanding the proposed amendment, courts need not grant leave. Interbank Funding, 629 F.3d at 218 (“[A] district court may properly deny a motion to amend if the amended pleading would not survive a motion to dismiss.”); James Madison Ltd. v. Ludwig, 82 F.3d 1085, 1099 (D.C. Cir. 1996) (“Courts may deny a motion to amend a complaint as futile . . . if the proposed claim would not survive a motion to dismiss.”).

         III. Analysis

         Defendants oppose Plaintiff Executors' Second Amended Complaint on a congeries of grounds that primarily fall under the rubric of either futility or bad faith. The Court addresses the futility-related arguments first and then turns to the much easier question of whether the Executors have demonstrated any bad faith in seeking amendment here. It next considers whether the SAC, having survived these arguments, relates back to the date of the filing of the original Complaint or is instead barred by statutes of limitations. Finally, the Court takes up Defendants' more focused arguments that New Mighty Foundation (a beneficiary of the trust) and New Mighty Trust should be dismissed from any surviving action for reasons particular to them.

         A. Futility

         Most of Defendants' objections to the SAC are in essence futility arguments. In other words, they contend that the pleading “would not survive a motion to dismiss, ” and thus leave to file should not be granted. Interbank Funding, 629 F.3d at 218. They advance four such arguments, which the Court weighs in turn: 1) this action was a legal nullity from its inception because Winston's Power of Attorney was defective; 2) required persons are absent from the suit and cannot be joined; 3) this is not the proper forum for this litigation; and 4) the SAC fails to state a claim. The Court rejects the first three and concludes that the last should be at least partially reserved for later briefing.

         1. Ratification by Executors

         Defendants loose most of their arrows on a single target: the Power of Attorney that Winston used to initiate this action on Yueh-Lan's behalf back in 2010. According to them, the POA did not authorize him to commence a legal action in her name because the mandate had facial defects, it lacked an express authorization to bring suit in her name, and Yueh-Lan became incompetent prior to this action's filing. See Opp. at 12-13. Defendants claim that the Court, as a result, lacks jurisdiction to hear a case that was a legal nullity since its inception. Id. at 14-15. Because the Federal Rules of Civil Procedure cannot expand this Court's jurisdiction, moreover, Defendants further contend that this Court cannot swap in the Executors under those Rules to cure that defect now. Id. The Court disagrees. Any alleged problem with Winston's POA did not present an insurmountable jurisdictional hurdle.

         At the outset of its analysis, the Court sets aside two issues. First, it need not rule on the lengthy affidavits on Taiwanese law that each party submits about the POA's scope and validity. It instead assumes for purposes of this Motion that Defendants are correct that the POA was ineffective. Second, the Court does not rehash whether, if the case survives, the Executors are Yueh-Lan's proper substitutes under Federal Rule of Civil Procedure 25. See Fed.R.Civ.P. 25(a)(1) (“If a party dies and the claim is not extinguished, the court may order substitution of the proper party.”). The D.C. Circuit has already found that the Executors would be the parties in a proper action under the appellate version of this rule. That ship has rightly sailed.

         The Circuit nevertheless expressly reserved the nub of the parties' dispute on this score for this Court's consideration on remand. Wang II, 843 F.3d at 496. That question asks: If Winston's POA was ineffective, was this suit a legal nullity from its inception, which Plaintiff Executors' substitution could not revive and thus should be dismissed? Id.

         The Court now concludes that it was not. Federal courts have long been reluctant to allow a party to be trapped into forfeiting a potentially legitimate claim based on the sort of honest defect or incidental mistake that Defendants seek to exploit here. Federal Rule of Civil Procedure 17(a), in fact, was amended in 1966 to reflect this modern trend toward leniency when an honest and reasonable mistake as to the personal representative has been made at the outset of a case. See Fed.R.Civ.P. 17 advisory committee notes on 1966 amendment (mentioning “action may be filed in the name of John Doe (a fictitious person), as personal representative” of another, “in the hope that at a later time . . . the real name of the real personal representative” is substituted); see also Fed.R.Civ.P. 9(a)(1)(B) (setting pleading requirements for “a party's authority to sue or be sued in a representative capacity”). This is especially true where, as in this action, the proper party in interest - Yueh-Lan and her Executors - seeks to cure such an innocent defect by later ratifying the action and where the mistake caused no prejudice to Defendants. See, e.g., Link Aviation, Inc. v. Downs, 325 F.2d 613, 614-15 (D.C. Cir. 1963) (rejecting argument that suit improperly brought in name of insured, rather than real party in interest - the insurance company - was a legal nullity and allowing substitution as well as relation back to avoid running of statute of limitations). This is the wisest and most appropriate outcome in a case such as this one.

         Contrary to Defendants' contention, there is no jurisdictional obstacle to this course of action. The matter of a person's capacity or authority to sue on behalf of someone else who indisputably has standing to bring the asserted claims does not raise a jurisdictional problem at all. See Davis v. Lifetime Capital, Inc., 560 F.App'x 477, 478 (6th Cir. 2014) (“Generally, capacity is considered an affirmative defense, not a jurisdictional issue.”); see also 5A Charles Alan Wright, Arthur R. Miller, et al., Federal Practice & Procedure § 1294 (3d ed. 2014) (treating “specific denial as to a party's capacity, authority, or legal existence required by Rule 9(a)” as “an affirmative defense”).

         A recent case out of the Fifth Circuit illustrates why. In Rideau v. Keller Independent School District, 819 F.3d 155 (5th Cir. 2016), parents of a severely disabled child successfully sued, as their son's next friend, the school district where he had suffered abuse. Four days after the verdict, the district brought additional arguments “relating to whether the Rideaus had Article III ‘standing'” to bring the suit on their child's behalf. Id. at 159-60. In considering these claims on appeal, the Circuit first rejected the school district's “attempt[] to shoehorn all of its post-trial arguments into the doctrine of constitutional standing” because the question of who could properly sue on the child's behalf was merely one of “capacity.” Id. at 161. Instead, “[i]t recognized that the question of who could pursue those damages on [another's] behalf is a capacity problem, not a standing problem.” Id. (emphases added). While it ultimately agreed that the Rideaus lacked capacity to bring the child's claims under Texas estates law, it concluded that the district court had abused its discretion by not allowing the child's trustee (the legal guardian of his assets) to ratify the suit under Rule 17(a). Id.

         Other courts have likewise distinguished authority-to-sue issues from questions of jurisdictional standing. See, e.g., Esposito v. United States., 368 F.3d 1271, 1277 (10th Cir. 2004) (rejecting argument that case should be dismissed as “nullity” and forfeited due to running of statute of limitations simply because suit was mistakenly brought in name of decedent who lacked “capacity to sue”); De Saracho v. Custom Food Mach., Inc., 206 F.3d 874, 878 n.4 (9th Cir. 2000) (“Even if defendants are correct that [a corporation] lacked authorization to sue, this court does not lack subject matter jurisdiction in the sense that it would if plaintiffs lacked standing to sue under the ‘case or controversy' requirement of Article III of the Constitution.”); cf. CFPB v. Gordon, 819 F.3d 1179, 1187-90 (9th Cir. 2016) (rejecting notion that CFPB director's lack of authority to bring suit given his improper recess appointment deprived him of standing to initiate suit). To the extent, moreover, that other courts to confront such issues have spoken in terms of standing, they have indicated that issues of capacity and authority are a prudential, rather than constitutional, aspect of that doctrine. See, e.g., Zanowick v. Baxter Healthcare Corp., 850 F.3d 1090, 1096 n.11 (9th Cir. 2017) (noting defendants could waive “prudential standing” issues of wife's failure to “file a successor-in-interest declaration”); Brown v. Keller, 274 F.2d 779, 780 (6th Cir. 1960) (“This is not strictly a question of jurisdiction, but lack of capacity on the part of the plaintiffs to sue is a bar to the action.”). As a result, they are subject to the same principles of waiver or cure that govern other such procedural defects. See 5A Wright & Miller, § 1295.

         There is similarly no jurisdictional wall to scale here. Just as in Rideau, it is undisputed that the named plaintiff - i.e., Yueh-Lan - had standing to bring her spousal-related claims. After all, “economic harm” is the “bread-and-butter injury for private-law causes of action in which constitutional standing is rarely an issue.” Rideau, 819 F.3d at 163. Defendants do not even bother to argue otherwise. They instead hope to muddy the waters of this standing analysis, as did the school district in Rideau, by focusing on whether Winston had his own standing to bring claims. As the Fifth Circuit explained, however, that is a matter of capacity to bring suit on Yueh-Lan's behalf, not one of standing to do so. Winston, after all, is not a party. This Court will not turn that legal issue into a matter of jurisdictional proportions when it could at best be one of prudential standing. Cf. United States v. Kwai Fun Wong, 135 S.Ct. 1625, 1632 (2015) (collecting recent cases “repeatedly” holding “high bar” exists to establish procedural rules as jurisdictional); Montes v. Janitorial Partners, Inc, 859 F.3d 1079, 1083-84 (D.C. Cir. 2017) (holding individual's procedural failure to opt in to collective action was non-jurisdictional).

         Defendants, moreover, point to no case holding that a defective power-of-attorney creates an incurable jurisdictional problem when the plaintiff, who indisputably did have standing, later ratified the action. Rather, even where a case has been brought in the name of a corporate debtor without proper authorization, federal bankruptcy courts routinely deny efforts by these debtors to dismiss such suits where the person with proper authorization has later taken actions to ratify it. See, e.g., Hager v. Gibson, 108 F.3d 35, 40 (4th Cir. 1997) (“[T]he unauthorized filing of a voluntary petition in bankruptcy [o]n behalf of a corporation might be ratified in appropriate circumstances by ensuing conduct of persons with power to have authorized it originally.”). Instead, they often force those plaintiffs to prosecute the action, despite such initial defects. Id. If Defendants were correct that courts lacked jurisdiction over these cases or the ability to revive them, this common federal-court practice could not stand.

         Defendants, rather, rely on cases readily distinguishable from the scenario presented by this case. See, e.g., Opp. at 16 (citing Zurich Ins. Co. v. Logitrans, Inc., 297 F.3d 528, 531 (6th Cir. 2002) (holding named plaintiff who “had no standing to bring th[e] action” also lacked “standing to make a motion to substitute the real party in interest”)). For example, they cite Meredith v. Ionian Trader, 279 F.2d 471 (2d Cir. 1960), to establish that “[a] suit initiated without authority from the party named as plaintiff is a nullity and any judgment obtained in such a suit is void.” Opp. at 13. But that case made no mention of standing at all and involved an insurance underwriter's bringing the claim, without the insured's permission or later ratification, in the name of the insured. See id. (also incorrectly citing Cortlandt St. Recovery Corp. v. Hellas Telecomms., 790 F.3d 411, 423 (2d Cir. 2015), which declined to “resolve” the alleged “standing deficiency”).

         More critically, the D.C. Circuit eschewed Ionian Trader's overly rigid approach three years later in Link Aviation, 325 F.2d at 615 (adopting Tenth Circuit's approach to substitution under Federal Rules of Civil Procedure). That holding is still binding law in this Circuit. See Empire Lofts Condo. Ass'n v. A.C.&R. Foam Insulators, LLC, No. 15-792, 2016 WL 81222, at *1 (D.D.C. Jan. 7, 2016) (citing Link Aviation favorably). Three years after Link Aviation, Rule 17(a)(3), too, was amended to reflect this modern lenient approach. See 6A Wright & Miller § 1555; see also 5A Wright & Miller § 1295 (“Although there is a nexus between capacity, authority, or legal existence and subject matter jurisdiction in some contexts, that is not always the case as some early cases had suggested. In the majority of cases the party status issue is not significant.”) (footnote omitted). Even the Second Circuit, in fact, has been reluctant to transform substitution issues into standing ones. See Cortlandt St., 790 F.3d at 423; id. at 425-27 (Sack, J., concurring) (approving of Link Aviation's pragmatic approach). Put simply, the Court finds no support for Defendants' contention that any of the issues they identify with Winston's POA caused this case to be a legal nullity, which defect could not later be cured.

         Assured, then, of its jurisdiction, this Court is also satisfied that Plaintiff Executors should now be allowed to ratify this action. Under Rule 17(a)(3), a court “may not dismiss an action for failure to prosecute in the name of the real party in interest until, after an objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be substituted into the action.” This Rule “reflects the general policy of the drafters of the federal rules that the choice of a party at the pleading stage ought not have to be made at the risk of a final dismissal of the action should it later appear that there had been an error.” 6A Wright & Miller, § 1555. Ratification by the correct party is thus justified where necessary “as the result of an understandable mistake.” Wieburg v. GTE Sw. Inc., 272 F.3d 302, 308 (5th Cir. 2001) (collecting cases). Classic examples include situations where complex legal issues hinder the identification of the correct person with the capacity to sue or there exists a mistaken “belief, not wholly unfounded” about a party's competency at the commencement of the suit. See Magallon v. Livingston, 453 F.3d 268, 273 (5th Cir. 2006) (holding district court abused its discretion in refusing substitution where Consul General of Mexico had believed named plaintiff was incompetent); Rideau, 819 F.3d at 166 (finding district court abused its discretion by not allowing trustee to ratify where determining the “property party to sue is difficult” and when there had been a “good-faith, nonfrivolous mistake of law”).

         This case falls squarely within these exemplars. Both parties provide lengthy affidavits by prominent Taiwanese law experts opining on the validity or invalidity of Winston's POA. See ECF No. 38-25 (Declaration of Yeong-Chin Su); ECF No. 39-1 (Declaration of Tsung-Fu Chen). This Court, after reviewing these, would be hard pressed to choose a clear winner in that debate. Likewise, there was no court ruling that Yueh-Lan was incompetent in 2010 when this case was brought or that Winston's POA was thus no longer valid.

         Allowing ratification by her Executors now that the statute of limitations has run on these claims, as a result, amply serves “Rule 17(a)(3)'s intended purpose: the avoid[ance of] forfeiture and injustice when an understandable mistake has been made.” Rideau, 819 F.3d at 165-66 (quoting 6A Wright & Miller, § 1555). The Court further finds no evidence that Winston's reasonable mistake as to the scope of the POA - assuming one was even made - was not an honest one. See Scheuffler v. Gen. Host Corp., 126 F.3d 1261, 1270 (10th Cir. 1997) (permitting joinder when failure to include real parties in interest “was the result of a mistake as to the legal effectiveness of documents”); Link Aviation, 325 F.2d at 615 (rejecting reading of Rule 17(a) that is “highly technical without meaningful purpose”). Nor does it find any reason to believe that Defendants are prejudiced by this swapping in of the Executors, as the essential nature of the claims and their posture remain unchanged. Adv. Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 21 (2d Cir. 1997) (indicating prejudice to defendants should be considered).

         The Court will therefore deny Defendants' effort to vitiate the filing of the SAC on the ground that the original suit was a legal nullity.

         2. ...


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