Chinese e-commerce giant Dangdang must face class arbitration of claims that it grossly shortchanged minority shareholders when it went private in 2016, after a judge in New York ruled that the tribunal did not exceed its power despite the underlying arbitration clause not mentioning class arbitration.

U.S. District Judge Katherine Polk Failla on Friday rejected E-Commerce China Dangdang Inc.'s motion to vacate the award interpreting the parties' arbitration clause, saying the tribunal had not found that the arbitration clause in underlying stock documents was "silent" or "ambiguous" on the issue of class arbitration. Rather, the tribunal determined that the "plain meaning" and "unambiguous language" of the pact reflected that the parties had agreed to class arbitration, she wrote.

The arbitrators concluded that a deposit agreement signed by Dangdang and the minority shareholders was "of a more encompassing nature" than a bilateral contract between an individual shareholder and Dangdang, based, in part, on another part of the pact stating that a dispute, controversy or cause of action may involve "more than two parties," according to the order.

"Defendants take issue with the tribunal's broad interpretation of the phrases '[a]ny controversy, claim or cause of action,' 'any party,' and 'arising out of or relating to.' They protest that because the arbitration clause tracks the language recommended by the [American Arbitration Association] and JAMS, if the tribunal is correct, then every contract incorporating this standard language would authorize class arbitration, contrary to a default presumption against class arbitration," Judge Failla wrote. "Such prudential concerns are not before the court."

"The tribunal was acting within its delegated authority when it interpreted the plain language of the arbitration agreement broadly, regardless of whether the language it interpreted was standard," she continued.

The judge noted that the arbitrators looked to Second Circuit precedent established in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp. and U.S. Supreme Court precedent in Lamps Plus Inc. v. Varela in their findings.

In the award at issue, the tribunal ruled 2-1 that the long-running dispute could be conducted as a class arbitration. The litigation, launched nearly a decade ago by former minority shareholders of the company, contended that the company and others should be on the hook for at least $100 million.

Joe Fasano, Altimeo Optimum Fund and Altimeo Asset Management sued Dangdang and its top brass nearly a decade ago after the company went private, saying their misconduct caused the company's shares to be sold at artificially deflated prices. The plaintiffs — an individual and resident of New York, a French investment fund and its French investment manager — are all former minority Dangdang shareholders.

They have accused Dangdang's controlling shareholders of misconduct during the going-private process, which they say enabled Dangdang co-founders Guoqing Li and his wife, Peggy Yu Yu, to buy the company at a "woefully low" $556 million valuation, only to then turn around and promptly resell it to a third party for more than double the price.

In particular, the plaintiffs alleged that Li, Yu Yu and other Dangdang executives misrepresented that a "special committee" had independent control over consideration of the mechanism by which the company was privatized since this committee employed counsel who were controlled by Li and Yu Yu.

They have said that Li and Yu Yu "coercively dominated" the negotiations by rejecting conditions that a majority of minority stockholders approve the merger and that Dangdang present the final offer to third parties to confirm it was a fair deal price.

Counsel for the plaintiffs, Sadis & Goldberg LLP partner Sam Lieberman, told Law360 on Monday that "the court made the right decision. We will continue to vigorously pursue a large class-wide recovery in arbitration."

Counsel for Dangdang could not immediately be reached for comment.

The litigation, first filed in 2016, has already had a lengthy procedural history. The case has gone to the Second Circuit twice. In a 2019 opinion, the appeals court concluded that the district court abused its discretion by failing to consider an underlying forum selection clause.

Three years later, the appeals court again reversed the district court's jurisdictional findings, concluding that the lower court principally misinterpreted the scope of the forum selection clause, thereby undercounting the number of defendants covered by that clause. The lower court also attributed undue weight to a Cayman Islands interest in deciding plaintiffsʹ claims, an appellate panel found.

The common law claims in the case — in which the defendants are accused of negligent misrepresentation, breach of fiduciary duty, and aiding and abetting the breach of fiduciary duty in connection with the privatization — were sent to arbitration in 2023 by Judge Failla.

E-Commerce China Dangdang is represented by Scott D. Musoff, Timothy G. Nelson, Bradley A. Klein and Christopher R. Fredmonski of Skadden Arps Slate Meagher & Flom LLP.

Fasano, Altimeo Optimum Fund and Altimeo Asset Management are represented by Samuel J. Lieberman and Ben Hutman of Sadis & Goldberg LLP.

The case is Fasano et al. v. Li et al., case number 1:16-cv-08759, in the U.S. District Court for the Southern District of New York.