Rule 59(e) Motion for Reconsideration Based on Newly Discovered Evidence Is Not Proper Vehicle for Asserting Altogether New Claim

Zheng v. Soufun Holdings Ltd., 2017 U.S. App. LEXIS 16859 (6th Cir. May 18, 2017):

Xiaoguang Zheng, Fuqing Chen, Xudong Song, Zhenfen Huang, and Sunshine International, LLC ("Sunshine"), proceeding through counsel, appeal the district court's judgment dismissing their second amended complaint against SouFun Holdings, Ltd. and SouFun International, Ltd. (collectively, "the defendants"). They also appeal the district court's order denying their motion for reconsideration. The plaintiffs' second amended complaint set forth claims of fraud, deceptive trade practices, violation of the Ohio Consumer Sales Practice Act, unjust enrichment, breach of fiduciary duty, and negligent misrepresentation. The parties have waived oral argument, and this panel unanimously agrees that oral argument is not needed. See Fed. R. App. P. 34(a).

On [*2]  August 23, 2015, Zheng, Chen, and Song filed a complaint against SouFun Holdings. A subsequently filed amended complaint added Sunshine as a plaintiff and SouFun International as a defendant. SouFun Holdings moved to dismiss the complaint based in part on the doctrine of forum non conveniens. Eventually, in January 2016, the plaintiffs filed a second amended complaint, which added Huang as a plaintiff.

In the second amended complaint, Zheng, Chen, and Song identified themselves as citizens and residents of China who purchased real property located in Ohio based on representations, guarantees, and recommendations made by the defendants. Huang identified himself as a permanent resident of Missouri who also purchased real estate in Ohio based upon representations made by the defendants. The plaintiffs described Sunshine as "an Ohio limited liability company of which . . . Song is the sole member" and to which Song transferred all of the Ohio properties that he purchased. The plaintiffs alleged that SouFun Holdings was incorporated in the Cayman Islands, listed on the New York Stock Exchange, and had major operations in China. They alleged that SouFun International was incorporated in Hong [*3]  Kong and a wholly owned subsidiary of SouFun.

The second amended complaint set forth the following allegations. The defendants operated websites such as www.Fang.com, which the plaintiffs characterized as "the leading real estate website in China"; that site allowed real estate owners and developers in China, the United States, and thirty other countries to advertise, sell, and rent properties to international clientele. The plaintiffs eventually purchased properties in Ohio based on misrepresentations and false guarantees that the defendants made about the properties on their websites. They completed the real estate transactions with the assistance of SouFun International employee Xianyao "Shauna" Wu, SouFun International's representative for Ohio properties. Due to their reliance on the defendants' misrepresentations about the condition of the purchased properties and the defendants' expertise with Ohio real estate transactions, the plaintiffs now owned properties with potentially defective and void titles, received little or no income, were liable for code violations, and faced tenants' lawsuits and government actions.

SouFun International moved to dismiss the second amended complaint, [*4]  stating in part that it wished to adopt the arguments set forth in SouFun Holdings's prior motion to dismiss on forum non conveniens grounds. SouFun International stated that, if the lawsuit were dismissed based on the doctrine of forum non conveniens, it would submit to personal jurisdiction in China and consent "to toll the statute of limitations that might be applicable to such refiled actions for 120 days after a conditional dismissal." The district court granted the defendants' motions to dismiss on grounds of forum non conveniens. The plaintiffs filed a timely motion for reconsideration, which the district court denied. This appeal followed.

On appeal, the plaintiffs argue that dismissal on forum non conveniens grounds was improper for the following reasons: (1) China is not an adequate alternative forum because the statute of limitations would preclude many putative class members from obtaining relief; (2) public and private interest factors favor Ohio as the proper forum; and (3) newly discovered evidence giving rise to claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO") and the Ohio Corrupt Practices Act ("OCPA") impacts the district court's forum analysis [*5]  and favors Ohio as a forum. In a reply brief, the plaintiffs also argue that the district court erred by: (1) failing to accord adequate deference to the forum chosen by Huang, a United States resident; (2) failing to consider whether Chinese law provides a remedy for violations of Ohio's deceptive trade practices and consumer sales protection laws before concluding that China provides an adequate alternative forum; and (3) failing to consider their arguments that China's justice system is corrupt and provides no mechanism for pursuing a class action lawsuit.

The defendants have moved to strike the reply brief based solely upon the plaintiffs' attempt to raise new arguments for the first time in that brief. While striking the reply brief is not an appropriate remedy, we decline to consider the arguments that the plaintiffs raise for the first time in their reply brief. See Anton v. Nat'l Union Fire Ins. Co. of Pittsburgh, 634 F.3d 364, 368 n.2 (6th Cir. 2011); Priddy v. Edelman, 883 F.2d 438, 446 (6th Cir. 1989).

I. Forum Non Conveniens Dismissal -- Standard of Review

We review a district court's dismissal of a case under the doctrine of forum non conveniens for an abuse of discretion. Hefferan v. Ethicon Endo-Surgery Inc., 828 F.3d 488, 493 (6th Cir. 2016). An abuse of discretion occurs only if we have "a definite and firm conviction that the trial court committed a clear error of judgment." [*6]  Id. (quoting Logan v. Dayton Hudson Corp., 865 F.2d 789, 790 (6th Cir. 1989)). "In forum non conveniens cases, the district court's decision deserves substantial deference when the court has considered all relevant public-and private-interest factors, and has balanced those factors reasonably." Id.

When deciding whether to dismiss a case on forum non conveniens grounds, courts should conduct the following three-step inquiry: "After the court determines the degree of deference owed the plaintiff's forum choice, the defendant carries the burden of establishing an adequate alternative forum and showing that the plaintiff's chosen forum is unnecessarily burdensome based on public and private interests." Id. at 492.

A. Deference to Plaintiffs' Choice of Forum

The plaintiffs argue for the first time in their reply brief that the district court failed to give appropriate deference to the forum choice of Huang, who is a permanent resident of the United States. Regardless of the merits of this argument, the plaintiffs, who have been represented by counsel throughout the district court and appellate proceedings, did not raise it in their initial appellate brief. As a result, we decline to consider it. See Anton, 634 F.3d at 368 n.2; Priddy, 883 F.2d at 446.

B. China as an Adequate Alternative Forum

In their initial appellate [*7]  brief, the plaintiffs argue that China is not an adequate alternative forum solely because the Chinese statute of limitations that would apply to their claims is two years. They contend that, because they filed their original complaint on August 23, 2015, all claims arising before August 23, 2013 would be barred. Although the plaintiffs' reply brief raises additional arguments regarding the inability to pursue various claims in China, alleged corruption in the Chinese justice system, and the inability to pursue a class action lawsuit, those arguments are not properly before us because they were not raised in the plaintiffs' initial appellate brief. See Anton, 634 F.3d at 368 n.2; Priddy, 883 F.2d at 446.

In the second amended complaint, the plaintiffs alleged that Song purchased properties in Ohio from November 4, 2013 through August 26, 2014. Deeds and other documents attached to the second amended complaint show that Chen purchased four Ohio properties from the defendants with the first sale occurring, at the earliest, on October 30, 2013. Zheng purchased one property from the defendants, and a purchase agreement attached to the second amended complaint was signed on March 17, 2014. The plaintiffs did not state when Huang purchased [*8]  properties from the defendants, and there are no exhibits attached to the second amended complaint to indicate when such purchases occurred. Because the plaintiffs did not submit any evidence showing that they purchased properties from the defendants before August 23, 2013, and because the defendants agreed to toll the limitations period for 120 days following dismissal, the plaintiffs have not shown that their claims would be barred by China's two-year statute of limitations.

Nevertheless, in the district court and on appeal, the plaintiffs argued that claims by various class members would be barred by China's two-year statute of limitations, because the class period began on July 1, 2012, more than two years before the plaintiffs initially filed their complaint on August 23, 2015. In their motion for reconsideration, the plaintiffs identified Rui He and Xuelei Wu as two potential class members whose claims would be barred by China's two-year statute of limitations. Some courts have held that "an adequate forum does not exist if a statute of limitations bars the bringing of the case in that forum." Bank of Credit & Commerce Int'l (Overseas) Ltd. v. State Bank of Pakistan, 273 F.3d 241, 246 (2d Cir. 2001); see also DiFederico v. Marriott Int'l., Inc., 714 F.3d 796, 801 (4th Cir. 2013); Chang v. Baxter Healthcare Corp., 599 F.3d 728, 736 (7th Cir. 2010). But the plaintiffs first argued in their motion for reconsideration that [*9]  He and Wu's claims would be barred by the statute of limitations. "[A]bsent a legitimate excuse, an argument raised for the first time in a motion for reconsideration at the district court generally will be forfeited." United States v. Huntington Nat'l Bank, 574 F.3d 329, 331-32 (6th Cir. 2009). Moreover, this court has previously affirmed a dismissal for forum non conveniens when it was stipulated that a defendant "agree to waive any statute of limitations defense that did not exist prior to the institution" of the dismissed action. Watson v. Merrell Dow Pharm., Inc., 769 F.2d 354, 356 (6th Cir. 1985). Accordingly, the district court did not clearly err in rejecting the plaintiffs' arguments that China was not an adequate forum due to statute-of-limitations concerns.

C. Private-and Public-Interest Factors

The plaintiffs next argue that the defendants failed to show that litigating the case in Ohio would be unduly burdensome in light of relevant public-and private-interest factors.

The district court's ultimate decision to dismiss a case on grounds of forum non conveniens "deserves substantial deference when the court has considered all relevant public-and private-interest factors, and has balanced those factors reasonably." Hefferan, 828 F.3d at 493. The defendants bear the burden of showing that the plaintiffs' choice of forum is unnecessarily burdensome based [*10]  on the consideration of relevant public-and private-interest factors. Id. at 498.

i. Private-Interest Factors

Private-interest factors that the district court should consider include the following:

   the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive.

Id. at 498 (quoting Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S. Ct. 839, 91 L. Ed. 1055 (1947)).

The plaintiffs first argue that the district court improperly balanced the private-interest factors because it unduly emphasized that a single witness, Shauna Wu, was located in China. They also contend that the district court erred in finding that Wu was an unwilling witness.

The district court found that, while Wu could be compelled to testify in a Chinese court, she could not be compelled to testify in the United States. We have held that the availability of compulsory process "is properly considered when witnesses are unwilling," but "is less weighty when it has not been alleged or shown that any witness would be unwilling to testify." Duha v. Agrium, Inc., 448 F.3d 867, 877 (6th Cir. 2006). As the plaintiffs [*11]  contend, the defendants bear the burden of showing that compulsory process is necessary because a witness is unwilling to testify. Id. The plaintiffs persuasively argue that the defendants did not meet their burden of showing that Wu was unwilling to testify. Nevertheless, this did not bar the district court from considering the availability of compulsory process; it simply diminished the weight to which that factor was entitled. See id. And contrary to the plaintiffs' contention, the district court did not unduly emphasize the compulsory process factor, but rather considered that factor in conjunction with the other relevant private-interest factors.

The plaintiffs also argue that the district court "ignor[ed] large amounts of crucial evidence located in Ohio." The district court did not ignore this evidence, but instead determined that the plaintiffs failed to identify any specific non-party witnesses located in Ohio and that any such witnesses "appear[ed] immaterial to Plaintiffs' claims." This finding is not clearly erroneous. A witness's relevance must be "established by record evidence," not merely alleged in pleadings submitted to the district and appellate courts. Id. at 878-79. Even on appeal, the plaintiffs [*12]  have not even identified by name any non-party witness residing in the United States. And as the district court noted, the one key witness identified by both parties--Shauna Wu--resides in China.

With respect to the documentary evidence cited by the plaintiffs in their appellate brief, the plaintiffs have not explained how evidence such as internal documents of the escrow/closing agent would be necessary to prove their claims of fraud, deceptive trade practices, violations of consumer sales practice laws, unjust enrichment, breach of fiduciary duty, or negligent misrepresentation. Although the conditions of the properties themselves may be relevant to prove fraud, the defendants correctly point out that the condition of the properties only at the time of purchase would be relevant and that such conditions would be more appropriately proven through photographic evidence rather than numerous site visits, which would only establish the properties' conditions at the time of trial. Moreover, the district court properly concluded that the evidence most relevant to the plaintiffs' underlying claims is the alleged misrepresentations made by the defendants on their website. Exhibits submitted [*13]  by the plaintiffs themselves show that SouFun's website targets Chinese customers, as it is billed as "the leading real estate Internet portal in China." And the listings themselves, upon which the plaintiffs purportedly relied, are written in Chinese. As we have held, "[t]he location and language of relevant documents . . . are also germane." Hefferan, 828 F.3d at 499.

The district court also noted the burden that an Ohio forum would place on the plaintiffs themselves. Three of the four individual plaintiffs reside in China and, as the district court noted, the plaintiffs previously moved to excuse their attendance at a scheduling conference because traveling to the United States would cause them "undue hardship."

In sum, we defer to the district court's conclusion that the relevant private-interest factors weigh heavily in favor of selecting China as a forum, because the plaintiffs have not shown that the district court failed to consider a relevant factor or that it unreasonably balanced the relevant factors. Id. at 493.

ii. Public-Interest Factors

Next, the plaintiffs argue that the public-interest factors favor trying the case in Ohio. Specifically, they argue that Ohio has a compelling interest in regulating local real [*14]  estate and protecting its residents; the defendants' actions injured the tenants, neighbors, and communities of the properties that they purchased; and, although written in Chinese, the defendants' misrepresentations were promoted on a "global platform" and lured victims from around the world.

The public-interest factors that a district court should consider in determining whether to dismiss on forum non conveniens grounds include the following:

   administrative difficulties flowing from court congestion; the local interest in having localized controversies decided at home; the interest in having the trial of a diversity case in a forum that is at home with the law that must govern the action; the avoidance of unnecessary problems in conflict of laws, or in the application of foreign law; and the unfairness of burdening citizens in an unrelated forum with jury duty.

Hefferan, 828 F.3d at 500 (quoting Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241 n.6, 102 S. Ct. 252, 70 L. Ed. 2d 419 (1981)).

The claims set forth by the plaintiffs in their complaint--fraud, deceptive trade practices, violations of consumer sales practice laws, unjust enrichment, breach of fiduciary duty, or negligent misrepresentation--seek to remedy injuries suffered by the plaintiffs, most of whom reside in China, based on purchases that [*15]  they made through a China-based, Chinese-language website. As the defendants point out, although the plaintiffs express concern that the properties they purchased may violate various provisions of Ohio code, the plaintiffs are not suing to remedy such violations, and there is no guarantee that the plaintiffs will use any potential funds that they recover through their lawsuit to improve the properties. The district court also reasonably concluded that Chinese jurors, who "are familiar with the [Chinese] language and nuances of that language," would be more capable of deciding a case based upon alleged misrepresentations that were made in Chinese. Under these circumstances, the plaintiffs have not shown that the district court abused its discretion in concluding that the public and private interest strongly favor litigating this case in China.

II. Additional Claim

Finally, plaintiffs argue that they discovered in April 2016--shortly after the district court entered its order dismissing the case on forum non conveniens grounds--that the defendants were involved in conduct that violates RICO and the OCPA. They argue that the newly discovered claims alter the district court's forum non conveniens [*16]  analysis, because all of the individuals involved in the RICO conspiracy and all relevant evidence is located in Ohio.

The plaintiffs first raised this claim in their motion for reconsideration. Although a motion to alter or amend a judgment filed under Federal Rule of Civil Procedure 59(e) may be granted based on "newly discovered evidence," Intera Corp. v. Henderson, 428 F.3d 605, 620 (6th Cir. 2005), the plaintiffs did not contend that their newly discovered evidence relates to a claim that was raised in their second amended complaint. Rather, they argued that their newly discovered evidence supports an entirely new claim under RICO or the OCPA. "A motion for reconsideration based on Rule 59(e) or [Federal Rule of Civil Procedure] 60(b) is not the proper vehicle for asserting a new claim for the first time." Dean v. Bay City, 239 F. App'x 107, 111 (6th Cir. 2007). The district court therefore did not abuse its discretion by denying the motion for reconsideration.

For the foregoing reasons, we DENY the defendants' motion to strike the plaintiffs' reply brief and AFFIRM the district court's judgment.

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