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EDELSON v. CH'IEN

January 28, 2004.

HARRY EDELSON, Plaintiff,
v.
RAYMOND K.F. CH'IEN, PETER YIP HAK YUNG, ASIA PACIFIC ONLINE LTD., and CHINADOTCOM CORPORATION, Defendants



The opinion of the court was delivered by: AMY J. ST. EVE, District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Harry Edelson has moved for a preliminary injunction based on his Complaint for violations of Section 13(d) of the Securities Exchange Act (the "Act").*fn1 15 U.S.C. § 78m(d) Plaintiff has also moved for leave to amend his Complaint in response to Defendant's motion to dismiss. For the reasons set forth below, Plaintiffs motion for preliminary injunction is denied. Further, because Section 13(d) does not provide a private cause of action for a Plaintiff such as Edelson, the Court dismisses Count I of Plaintiff's Complaint and denies Plaintiffs motion to file an Amended Complaint as to Counts I and n of the proposed Amended Complaint. With regard to Count in of Plaintiff's proposed Amended Complaint, Plaintiffs motion to amend is Page 2 granted.

BACKGROUND

  Plaintiff Many Edelson is a shareholder and former director of Defendant chinadotcom corporation ("Chinadotcom").*fn2 Chinadotcom is a Cayman Islands corporation headquartered in Hong Kong. Chinadotcom is an "integrated enterprise solutions company" publicly traded through the NASDAQ stock market. Defendant Peter Yip is also a shareholder of Chinadotcom, and is the company's Vice-Chairman and Chief Executive Officer ("CEO"). Defendant Ch'ien is Executive Chairman of Chinadotcom. Defendant Asia Pacific Online Limited ("APOL") is a Cayman Islands corporation headquartered in the Cayman Islands. APOL is owned by Yip's spouse and his children's trust. In turn, APOL owns a significant amount of Chinadotcom stock.

  At least as early as 2003, Edelson openly disagreed with Yip and Ch'ien regarding the governance of Chinadotcom. In particular, Edelson alleges that he questioned the motives of management in connection with a stock repurchase program. In a series of board meetings and related email correspondence, Edelson contends that he expressed concerns that the stock repurchase represented a conflict of interest on the part of Yip and Ch'ien, who had acquired stock at prices lower than the proposed company buy-back. In an April 16, 2003, e-mail to Ch'ien, Edelson accused Chinadotcom management of "bulldozing" the board of directors and cited management's "defensive hostility" in the face of dissent.

  Meanwhile, Chinadotcom was preparing to elect three directors, as the terms of Edelson and two other directors would expire in 2003. The board and management of Chinadotcom Page 3 nominated Edelson and the two other current directors for re-election, giving notice of this nomination to the shareholders on May 22, 2003. The Board recommended to the shareholders that they vote in favor of each re-election. Edelson, however, alleges that Yip and Ch'ien were merely "lying in wait." Edelson's Complaint asserts that Yip and Ch'ien "purported to concur with the Board's recommendation. . . ." but then voted their shares against Edelson's election. (R. 18-1.Am.Compl. 1 ¶ 25.)

  On June 17, 2003, a majority of the shares represented in the election voted against Edelson. Edelson now blames his loss on the unforeseen votes of Yip and Ch'ien. According to Edelson, his requests for more detailed information about the election results have gone unheeded by Chinadotcom. On October 15, 2003, Edelson filed this lawsuit. Plaintiffs Complaint alleges that Defendants Yip and APOL violated Section 13(d) of the Act by concealing their intention to affect the control of Chinadotcom. In a separate count of the proposed Amended Complaint, Plaintiff accuses Chinadotcom of a Section 13(d) violation for improperly recognizing the votes of Yip and Ch'ien. Plaintiff also accuses Defendants of tortious interference with prospective business advantage.

  Plaintiff moved for a preliminary injunction requesting several types of relief. In response, Defendant Chinadotcom argues, among other things, that Section 13(d) does not provide a private cause of action for Plaintiff in this case. The Court agrees.

  LEGAL STANDARDS

 I. Preliminary Injunction

  To obtain a preliminary injunction, a party must first show (1) that it has a reasonable likelihood of success on the merits of its underlying claim; (2) that it has no adequate remedy at Page 4 law; and (3) that it will suffer irreparable harm without the preliminary injunction. AM General Corp. v. DaimlerChrysler Corp., 311 F.3d 796, 803-804 (7th Cir. 2002) (citing Anderson v. U.S.F. Logistics (IMC), Inc., 274 F.3d 470, 474 (7th Cir. 2001) and Re/Max North Central, Inc. v. Cook, 272 F.3d 424, 429-30 (7th Cir. 2001)). If a Plaintiff meets those burdens, the court then must consider any irreparable harm the preliminary injunction might impose upon the party against whom the injunction is sought and whether the preliminary injunction would harm or foster the public interest. Id. If the moving party cannot show a likelihood of success on the merits, a court may deny a motion for preliminary injunction without further discussion. Id. at 830 (citing Platinum Home Mortgage Corp. v. Platinum Fin. Group, Inc., 149 F.3d 722, 730 (7th Cir. 1998)).

  As discussed below, Plaintiff Edelson cannot show a likelihood of success on the merits of his claim. Accordingly, the Court need not address the other factors relevant to a preliminary injunction analysis.

 II. Motion to Amend

  Plaintiff also seeks to amend his Complaint. Courts generally address motions to amend the pleadings under a fairly liberal standard. Jones v. Hamelman, 869 F.2d 1023, 1026 (7th Cir. 1989). This standard, however, does not guarantee a right to amend. If an amended complaint would not survive a motion to dismiss or a motion for summary judgment, then the amendment would be considered futile, and the Court will not permit it for the sake of judicial efficiency. See Brunt v. Service Employees Intern. Union, 284 F.3d 715, 720-21 (7th Cir. 2002) ("Because Appellants' amended complaint would not ...


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