Chinese Telescope Execs Fight Contempt Bid After $50M Loss

Law360 (June 11, 2020, 6:53 PM EDT) -- A Chinese telescope company's top brass urged a California federal judge Thursday to reject a rival's contempt bid for flouting an order to return $4.2 million the company smuggled out of the U.S. following a $50 million antitrust judgment, arguing the court doesn't have jurisdictional authority over the foreigners.

During a hearing held via Zoom, Goodwin Procter LLP attorneys argued on behalf of Ningbo Sunny Electronic Co. Ltd. chairman Peter Ni and two board members who recently resigned that the Chinese nationals weren't properly served and were not put on notice of U.S. District Judge Edward Davila's court orders against Ningbo Sunny.

Therefore, the foreigners can't be held in civil contempt for Ningbo Sunny's violations of the orders, the attorneys argued, while noting that they were appearing on behalf of the Chinese executives solely for the purpose of the hearing.

The civil contempt fight is the latest in a hotly contested antitrust lawsuit that California-based Optronic Technologies Inc., known as Orion, filed against Ningbo Sunny and other telescope makers in 2016, alleging they conspired to fix prices in the consumer telescope market.

After a six-week trial, a jury in November hit Ningbo Sunny with $16.8 million in antitrust damages, which were later trebled and slightly reduced for a total judgment of $47 million, payable to Orion.

But earlier this year, the district judge found that Ningbo Sunny and Ni acted in bad faith and committed fraud on the court by smuggling $4 million out of the U.S. to China in January, even though Ni had sworn he would not transfer any funds to avoid paying the judgment.

Shortly afterward, Orion filed a sanctions motion against Ningbo Sunny and its then-counsel Sheppard Mullin Richter & Hampton LLP, which a magistrate judge eventually granted. Orion also lobbed a motion with Judge Davila seeking to hold Ni, who owns 51% of the company, and two of Ningbo Sunny's board members, Dong Yong Xue and Yin Yiping, in contempt for flouting the court's order.

During a hearing on the contempt motion Thursday, Orion's counsel, Matthew Borden and Ronald J. Fisher of BraunHagey & Borden LLP, argued that three executives should have to cough up the entire judgment, or at a minimum the $4.2 million, because they control and own the company.

Borden said there's no dispute that the company hasn't obeyed the court's order to pay back the money and it hasn't complied with the judge's order requiring the company to identify any other potential telescope sellers so that Orion can collect the judgment.

Borden argued that the executives were given notice of the judge's order when the company's counsel at Sheppard Mullin, which has since withdrawn from the case, notified the company's counsel in China of Judge Davila's rulings. Borden pointed out that Sheppard Mullin even submitted sworn declarations stating that he put the company on notice of the orders.

He added that the Ninth Circuit held in its 1977 ruling in N.L.R.B. v. Sequoia District Council of Carpenters that such a notice is sufficient to find contempt liability against officers and directors of a disobedient entity.

Borden noted that if officers in different jurisdictions could avoid court orders it would create "all kinds of mischief." He also pointed out that Ningbo Sunny continues to file briefs in the case pending before the appeals court and it is essentially choosing which parts of the judicial proceedings it wants to participate in, which isn't fair to Orion.

He added that the attorneys already had a "go-around with Mr. Ni" about coming to the U.S. to testify at trial, "so this is not a new theme in this case."

But David Callaway of Goodwin Procter, who made a special appearance on behalf of Ni, argued that Ni wasn't properly served and that the Ninth Circuit's NLRB precedent doesn't apply, because the officers in that case didn't involve foreign nationals.

Callaway said it's "a stretch" to impose quasi-criminal sanctions on a nonparty when the party is not a U.S. citizen or resident, and he also pointed out that Ningbo Sunny has paid Orion's attorney fees and "progress is being made."

Callaway's comment prompted Judge Davila to ask him whether he was suggesting that Ningbo Sunny is planning on returning the $4.2 million. Callaway replied that he couldn't answer the question.

"I simply don't know one way or another," he said.

Grant P. Fondo of Goodwin Procter, who was appearing on behalf of Dong and Yin solely for the purposes of the hearing, also argued that they weren't properly served and can't be brought into court, particularly since they have since resigned from the board and are currently only minority stakeholders in the company.

Fondo argued that there's no evidence that they participated in transferring the money at issue and Orion has a high "clear and convincing" standard to meet to warrant a contempt order .

Fondo also noted that the two former executives haven't submitted declarations in the case, because they don't want the court to consider their filings as a concession that the court has jurisdictional authority over them.

At the end of the hearing, the judge took the arguments under submission, while noting that the case presents "a fascinating issue." He told the attorneys to let him know "immediately" if Ningbo Sunny hands over the $4.2 million.

Orion is represented by Matthew Borden and Ronald J. Fisher of BraunHagey & Borden LLP. Peter Ni was represented during the hearing by David Callaway of Goodwin Procter LLP.

Dong Yong Xue and Yin Yiping were represented during the hearing by Grant P. Fondo of Goodwin Procter.

Ningbo Sunny is represented by Kevin J. Cole of KJC Law Group.

The case is Optronic Technologies Inc. v. Ningbo Sunny Electronic Co. Ltd. et al., case number 5:16-cv-06370, in the U.S. District Court for the Northern District of California.