Electronically FILED by Superior Court of California, County of Los Angeles on 10/08/2020 06:13 PM Sherri R. Carter, Executive Officer/Clerk of Court, by N. Alvarez,Deputy Clerk 20STCV38766 Assigned for all purposes to: Stanley Mosk Courthouse, Judicial Officer: Stephanie Bowick 1 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP A Limited Liability Partnership Including Professional Corporations 2 DYLAN J. PRICE, Cal. Bar No. 258896 3 dprice@sheppardmullin.com NOLAN J. WALTER, Cal. Bar No. 325021 4 nwalter@sheppardmullin.com 1901 Avenue of the Stars, Suite 1600 5 Los Angeles, California 90067-6055 Telephone: 310.228.3700 6 Facsimile: 310.228.3701 7 Attorneys for Plaintiff WEYING GALAXY INC. 8 9 10 SUPERIOR COURT OF THE STATE OF CALIFORNIA 11 FOR THE COUNTY OF LOS ANGELES 12 13 WEYING GALAXY INC., Plaintiff, 14 15 Case No. WEYING GALAXY INC.’S COMPLAINT FOR: v. (1) FRAUD; 16 THE H COLLECTIVE ENTERTAINMENT, a Cayman Islands 17 corporation; THE H HOLDINGS LLC, a California limited liability company; THE 18 H COLLECTIVE, INC., a California corporation; SHANGHAI PUWAN 19 CULTURE COMMUNICATION CO., LTD., an entity of unknown form; 20 KENNETH JIAN HUA HUANG, an individual; JIANHUI HUANG, an 21 individual; XTREME PICTURES, a Cayman Islands corporation; and DOES 122 10, Inclusive, 23 (2) BREACH OF FIDUCIARY DUTY (DIRECT AND DERIVATIVE); (3) CONVERSION (DIRECT AND DERIVATIVE); (4) BREACH OF CONTRACT (DIRECT AND DERIVATIVE); (5) DECLARATORY RELIEF; AND (6) AN ACCOUNTING (DIRECT AND DERIVATIVE) Defendants. 24 JURY TRIAL DEMANDED 25 26 27 28 SMRH:4842-0593-5822.1 COMPLAINT 1 Plaintiff Weying Galaxy Inc. (“Weying”), directly and derivatively on behalf of 2 nominal defendant Xtreme Picture (“Xtreme”), alleges the following against The H 3 Collective Entertainment (“THC”), The H Holdings LLC (“THC Holdings”), The H 4 Collective, Inc. (“THC Corp.”), Shanghai Puwan Culture Communication Co., Ltd. 5 (“SPCC” and, collectively, with THC, THC Holdings and THC Corp., the “THC 6 Defendants”), Kenneth Jian Hua Huang, Jianhui Huang, and DOES 1 through 10. 1 NATURE OF THE ACTION 7 8 1. This action is the result of Defendants’ repeated misrepresentations and 9 concealment of material facts, willful and malicious breaches of their fiduciary duties, and 10 flagrant disregard of their contractual obligations in connection with the derivative rights 11 in and to the Vin Diesel-starring xXx film franchise. As detailed herein, Defendants 12 fraudulently induced Weying to pay over $6 million to purchase, what it was led to believe 13 was 100% of the derivative rights to the xXx franchise, and to enter a joint venture 14 relationship with THC by falsely representing to Weying that THC had the ability to 15 acquire 100% of the derivative rights and had secured all necessary consents and approvals 16 to transfer said rights to the joint venture. THC then fraudulently induced Weying to 17 continue the joint venture relationship by falsely promising that it would contribute 18 additional capital. In addition, THC has breached promise after promise made to Weying 19 and the parties’ joint venture entity – Xtreme. Among other things, THC has breached 20 numerous representations and warranties under the parties’ agreements and has failed and 21 refused to comply with its obligations to make payments required thereunder. 22 Additionally, Defendants have engaged in an extensive scheme to divert corporate 23 opportunities and funds that rightfully belong to Xtreme – in flagrant disregard of their 24 fiduciary duties to both Weying and Xtreme. Weying has had enough. By this action, 25 Weying seeks to recover for itself, and derivatively on behalf of Xtreme, the millions of 26 27 1 The THC Defendants, Kenneth Jian Hua Huang, Jianhui Huang and DOES through 28 10 are referred to herein, collectively, as “Defendants.” -2SMRH:4842-0593-5822.1 COMPLAINT 1 dollars in damages caused by Defendants’ fraud, willful and malicious breaches of 2 fiduciary duties, and material breaches of their contractual obligations. Weying also seeks 3 a declaration that, as a result of THC’s contractual breaches, Xtreme is now owned 75% by 4 Weying and 25% by THC, as well as an accounting of the revenues that Defendants have 5 unlawfully received and that rightfully belong to Xtreme. THE PARTIES 6 7 2. Plaintiff Weying is a corporation formed under the laws of the Cayman 8 Islands. Weying is owned by Chon-Hon (Johnny) Hsu. 9 3. Weying is informed and believes, and on that basis alleges, that Defendant 10 THC is a corporation formed under the laws of the Cayman Islands, with its principal place 11 of business in Los Angeles County, California. 12 4. Weying is informed and believes, and on that basis alleges, that Defendant 13 THC Holdings is a limited liability company formed under the laws of the State of 14 California, with its principal place of business in Los Angeles County, California. 15 5. Weying is informed and believes, and on that basis alleges, that Defendant 16 THC Corp. is a corporation formed under the laws of the State of California, with its 17 principal places of business in Los Angeles County, California. 18 6. Weying is informed and believes, and on that basis alleges, that Defendant 19 SPCC is a subsidiary of THC that was used to enter into certain of the unauthorized 20 transactions alleged herein. 21 7. Defendants Kenneth Jian Hua (Kenny) Huang and Jianhui (Kent) Huang 22 (collectively, the “Huang Defendants”) are individuals. Weying is informed and believes, 23 and on that basis alleges, that the Huang Defendants maintain residences and regularly 24 conduct business in Los Angeles County, California, including, without limitation, in 25 connection with the matters giving rise to Weying’s claims in this action. Weying is 26 informed and believes, and on that basis alleges, that the Huang Defendants own and 27 control the THC Defendants. 28 -3SMRH:4842-0593-5822.1 COMPLAINT 1 8. Defendant Xtreme is a corporation formed under the laws of the Cayman 2 Islands, with its principal place of business in Los Angeles County, California. Xtreme is 3 being sued as a nominal defendant to the extent of the derivative claims contained herein. 4 Weying is, and at all relevant times has been, a shareholder of Xtreme. 5 9. The true names and capacities, whether individual, corporate, associate, or 6 otherwise, of Defendants sued herein as DOES 1 through 10 are unknown to Weying, who 7 therefore sues such Defendants by such fictitious names. If necessary, Weying will seek 8 leave of Court to state the true names and capacities of DOES 1 through 10 when the same 9 have been ascertained. 10 10. Weying is informed and believes, and on that basis alleges, that at all 11 relevant times Defendants, and each of them, were the agents, servants, employees, or 12 employers of each other, and of the remaining Defendants, and each of them, and in doing 13 the things alleged herein, were acting within the course and scope of their authority as to 14 such agents, employees, or employers. Weying is further informed and believes, and on 15 that basis alleges, that there is an unity of interest amongst and between each of THC, THC 16 Holdings, THC Corp., SPCC and the Huang Defendants – among other things, the Huang 17 Defendants own and control the THC Defendants, commingled the funds of the THC 18 Defendant with their own funds and with the funds of each other, intentionally 19 undercapitalized the THC Entities, held themselves out as liable for the debts of the THC 20 Defendants and held the THC Defendants out as liable for the obligations of each other. 21 Additionally, as a result of the fraudulent conduct of Defendants as detailed herein, 22 recognizing the separate existence of any of the THC Defendants, or of the Huang 23 Defendants and THC Defendants, would promote injustice. 24 11. Weying brings this action both directly and derivatively on behalf of Xtreme. 25 Weying is excused from making a demand on the board of Xtreme to pursue the derivative 26 claims herein alleged because Defendant Jianhui Huang, one of the two principals of the 27 THC Defendants, claims to be one of the two members of Xtreme’s Board of Directors, 28 whose approval is necessary for Xtreme to institute litigation. At the same time, -4SMRH:4842-0593-5822.1 COMPLAINT 1 Defendant Jianhui Huang is alleged to have participated in and be liable for the wrongful 2 conduct alleged herein. Thus, a demand on Xtreme’s board of directors to pursue the 3 derivative claims alleged herein would be futile, as it would, in effect, be a request to 4 Defendant Jianhui Huang that he sue himself and the THC Defendants that he owns and 5 controls. 6 GENERAL ALLEGATIONS 7 The xXx Franchise and Defendants Proposal to Weying 8 12. The xXx motion picture franchise (the “xXx Franchise”) is made up of three 9 films starring Vin Diesel as Xander “xXx” Cage, a former extreme sports athlete that is 10 recruited by the National Security Agency to serve as a secret agent. The first film in the 11 xXx Franchise, entitled xXx, was released in 2002, followed by the squeals xXx: State of 12 the Union (2005) and xXx: Return of Xander Cage (2017) (collectively, the “xXx Films”). 13 13. In or about June 2017, THC approached Weying with a proposal to co-own 14 and exploit the derivative rights in and to the xXx Franchise – i.e., the rights to, among 15 other things, develop and exploit new xXx films based on the characters, storylines and 16 other intellectual property underlying the xXx Franchise (the “xXx Derivative Rights”) – 17 which THC stated were owned and controlled by Revolution Studios (“Revolution”), the 18 producer of the first three xXx Films. 19 14. Specifically, during the course of numerous oral communications in June 20 2017, THC, through the Huang Defendants, represented to Weying’s Johnny Hsu that 21 THC had entered into an option agreement (the “Option Agreement”) with Revolution, 22 pursuant to which THC had the opportunity to acquire 100% of the xXx Derivative Rights 23 in and to the xXx Franchise (with certain limited carve-outs) from Revolution. The Huang 24 Defendants proposed that THC and Weying form a joint venture to acquire, develop and 25 exploit the xXx Derivative Rights, including the production of the fourth motion picture in 26 the xXx Franchise – tentatively entitled xXx 4. The Huang Defendants further represented 27 to Mr. Hsu in multiple oral communications in June 2017 and beyond that THC had 28 obtained all of the necessary approvals and consents in order to acquire the xXx Derivative -5SMRH:4842-0593-5822.1 COMPLAINT 1 Rights and assign those rights to a joint venture entity to be formed by the parties. As 2 Weying would later discover, aforementioned representations of THC and the Huang 3 Defendants were false. 4 5 The 2017 JV Agreement And 2018 Amendment 15. In reliance on the aforesaid representations, Weying was induced to, and did, 6 enter into a joint venture agreement (the “2017 JV Agreement”) with THC, dated August 7 3, 2017, as well as a related LLC operating agreement (the “LLC Operating 8 Agreement”), pursuant to which the parties agreed to establish a joint venture to own, 9 develop and exploit all of the xXx Derivative Rights. Pursuant to the 2017 JV Agreement, 10 THC agreed to make capital contributions to the joint venture in the amount of $4,845,000 11 and Weying agreed to contribute capital in the amount of $4,655,000, resulting THC 12 owning 51% of the joint venture and Weying owning 49%. The parties agreed that the 13 capital contributions would be used to fund the purchase of the xXx Derivative Rights by 14 THC, which THC agreed to then transfer to the parties’ joint venture entity. The parties 15 further agreed to jointly develop and make decisions with respect to the xXx Derivative 16 Rights and that Weying’s consent would be required for, among other things, all matters 17 regarding the transfer, licensing, pledge or other disposal of the xXx Derivative Rights, as 18 well as for issues concerning joint ventures, partnerships and foreign investment. 19 16. Thereafter, despite THC’s financial obligations under the 2017 JV 20 Agreement, the Huang Defendants approached Weying in or about April 16, 2018, stating 21 to Mr. Hsu that THC did not have sufficient funds to purchase the xXx Derivative Rights 22 from Revolution and giving Weying a mere twenty-four hours to contribute additional 23 capital towards the purchase of the xXx Derivative Rights. Weying ultimately agreed to 24 contribute additional funding towards the xXx Derivative Rights, but demanded a 25 controlling interest in the parties’ joint venture in return. 26 17. As a result, Weying, on the one hand, and THC, on the other hand, entered 27 into an amendment to the 2017 JV Agreement and LLC Operating Agreement, dated as of 28 April 17, 2018 (the “2018 Amendments”), pursuant to which Weying agreed to increase -6SMRH:4842-0593-5822.1 COMPLAINT 1 its capital contribution in the parties’ joint venture by $1.5 million to a total of $6,155,000, 2 in exchange for an increase in its ownership interest in the joint venture (and, by extension, 3 the xXx Derivative Rights) from 49% to 51% (with a corresponding reduction in THC 4 ownership interest from 51% to to 49%). The parties further agreed that Weying would 5 manage the joint venture entity. 6 18. Pursuant to the 2017 JV Agreement, as amended by the 2018 Amendment, 7 on or about April 16, 2018, Weying contributed a total of USD $6,155,000 to the parties’ 8 joint venture to be used to purchase what the Defendants represented to Weying was a 9 100% interest in the xXx Derivative Rights. Although the 2017 JV Agreement required 10 THC to contribute $4,845,000 to the joint venture, THC failed to do so. Instead, THC 11 contributed only $2,045,000, representing the balance of the purchase price for the xXx 12 Derivative Rights. Using the $6,155,000 contributed by Weying and the $2,045,000 13 contributed by THC, on or about April 18, 2018, THC exercised its option under the 14 Option Agreement to purchase what THC represented was 100% of the xXx Derivative 15 Rights. 16 17 Weying Uncovers Defendants’ Fraudulent Conduct 19. Following THC’s acquisition of the xXx Derivative Rights, Weying made 18 repeated demands on THC to transfer the rights to the parties’ joint venture, as required by 19 the 2017 JV Agreement, as amended. THC, however, failed to do so. 20 20. Then, in or about late 2018, Weying made a shocking discovery. 21 Specifically, after Weying was induced to enter into the 2017 JV Agreement and 2018 22 Amendment and contribute $6,155,000 towards the purchase of what it was led to believe 23 was 100% of the xXx Derivative Rights, Weying discovered that, contrary to Defendants’ 24 representations, THC did not, in fact, acquire 100% of the xXx Derivative Rights and, 25 indeed, never had the ability to do so. To the contrary, Weying discovered that 26 Defendants had concealed the fact that Revolution did not own 100% of the xXx 27 Derivative Rights, but, rather, only a 50% interest (with the other 50% interest owned by 28 an entity controlled by Vin Diesel (the “Diesel Entity”)) and that, as a result, THC had the -7SMRH:4842-0593-5822.1 COMPLAINT 1 option to purchase only the 50% share of the xXx Derivative Rights owned by Revolution. 2 In other words, based on Defendants’ representations and concealment, Weying was 3 deceived into believing that it was paying $6,155,000 to acquire a 50% interest in 100% of 4 the xXx Derivative Rights (i.e., a 50% interest) when, in reality, it was only acquiring a 5 50% interest in 50% of the rights (i.e., a 25% interest). 6 21. Weying also discovered that Defendants further concealed the fact that the 7 Diesel Entity had a right to approve any transfer of the 50% share of the xXx Derivative 8 Rights acquired by THC – including the transfer to the parties’ joint venture entity – and 9 that such approval had not been obtained. 10 11 The January 2019 JV Agreement 22. In an attempt to mitigate its damages stemming from Defendants’ 12 misrepresentations, concealments and contractual breaches, and finally obtain its long13 promised ownership interest in the xXx Derivative Rights, Weying entered into a series of 14 agreements with THC in January 2019, including, without limitation, a JV Company 15 Members Cooperation Agreement, Deed of Assignment, Contribution Agreement and side 16 letter agreement, all dated January 23, 2019 (collectively, the “2019 JV Agreements”). In 17 various oral discussions between the Huang Defendants and Weying’s Johnny Hsu leading 18 up to 2019 JV Agreements, the Huang Defendants represented to Mr. Hsu that they had at 19 last obtained the consent of the Diesel Entity to the transfer of the xXx Derivative Rights 20 to the parties’ joint venture. 21 23. Pursuant to the 2019 JV Agreements, THC and Weying agreed to form 22 Xtreme to own, develop and exploit the xXx Derivative Rights. To that end, THC agreed 23 to transfer to Weying an allocable portion of the xXx Derivative Rights corresponding to 24 Weying’s $6,155,000 capital contribution and Weying, in turn, agreed to assign said rights 25 to Xtreme. THC, for its part, agreed to transfer its allocable portion of the xXx Derivative 26 Rights (corresponding to its $2,045,000 investment) to Xtreme. THC also irrevocably 27 assigned to Xtreme, among other things, all income and royalties payable in connection 28 with the xXx Derivative Rights. The parties further agreed that, as a result of their -8SMRH:4842-0593-5822.1 COMPLAINT 1 respective capital and other contributions to be made by THC, Weying would own 51% of 2 Xtreme, with THC owning the remaining 49%. As with the 2017 JV Agreement, the 3 parties agreed to jointly develop and make decisions with respect to the xXx Derivative 4 Rights and that Weying’s consent would be required for, among other things: (a) all 5 matters regarding the transfer, licensing, pledge or other disposal of the xXx Derivative 6 Rights; (b) commercial and creative decisions, including casting, product placement and 7 the determination of co-production partners; and (c) entering into joint ventures, 8 partnerships, or investment agreements. 9 24. After the parties entered into the 2019 JV Agreement, Weying made 10 numerous demands on THC to perform its obligations thereunder – including, most 11 notably, to transfer to Weying its portion of the xXx Derivative rights and to transfer the 12 remaining portion of the xXx Derivative Rights to Xtreme. THC, however, repeatedly 13 failed to do so. Weying ultimately discovered that THC was unable to transfer the xXx 14 Derivative Rights to Xtreme because, despite repeatedly reassuring Weying that it had 15 obtained any and all necessary consents and approvals from the Diesel Entity – 16 representations on which Weying relied in entering into the 2019 JV Agreements – such 17 approvals had not been given. In fact, it was not until April 2020 – two years after 18 Weying paid over $6 million for its share of the xXx Derivative Rights – that THC finally 19 obtained the necessary consent of the Diesel Entity approving the transfer of the xXx 20 Derivative Rights to Xtreme. Moreover, in order to obtain the Diesel Entity’s consent after 21 the fact, Weying was forced to agree to give the Diesel Entity additional controls and 22 approvals over the xXx Derivative Rights, which have further devalued the xXx Derivative 23 Rights and the parties’ joint venture and contributed to Weying’s and Xtreme’s damages. 24 25 The First Amendment And True-Up Contributions 25. As a result of THC’s repeated breaches of the 2019 JV Agreement, including 26 its failure to timely transfer the xXx Derivative Rights to Xtreme and its breach of its 27 representations and warranties concerning the approval of the Diesel Entity to the transfer, 28 -9SMRH:4842-0593-5822.1 COMPLAINT 1 THC, Weying and Xtreme entered into a First Amendment to the 2019 JV Agreements, 2 dated as of July 30, 2019 (the “First Amendment”). 3 26. Pursuant to the First Amendment, THC agreed to contribute additional 4 capital to Xtreme in the amount of $3,868,627 in order to bring its capital contribution in 5 line with its contemplated 49% ownership interest in Xtreme. Specifically, THC agreed to 6 make a $500,000 capital contribution to Xtreme upon execution of the First Amendment 7 (which occurred on August 6, 2019), an additional $500,000 capital contribution to Xtreme 8 on or before January 31, 2020 and a final capital contribution of $2,868,627 to Xtreme by 9 July 31, 2020 (collectively, the “True-Up Contribution”). The First Amendment further 10 provides that, without waiver of any of Weying’s other rights and remedies, in the event 11 THC fails to make the True-Up Contribution, in full, by July 31, 2020, Weying shall have 12 the right to revise the percentage of ownership in Xtreme to reflect the amount of capital 13 contributed to Xtreme by each of Weying and THC (which, based on parties contributions 14 of $6,155,000 and $2,045,000, respectively, would result in Weying owning 75% of 15 Xtreme and THC owning the remaining 25%). THC also agreed to provide Weying with 16 any and all contracts and transaction documents involving the xXx Derivative Rights 17 within ten days after execution of the First Amendment. 18 27. THC failed to make the first $500,000 true-up payment upon execution of 19 the First Amendment and failed to make the second $500,000 true-up payment by January 20 31, 2020. THC also failed to provide Weying with the required documentation concerning 21 transactions involving the xXx Derivative Rights within ten days from the execution of the 22 First Amendment. And, while THC did ultimately provide Weying with limited 23 documentation regarding certain transactions involving the xXx Derivative Rights, those 24 documents led to Weying’s discovery of additional disturbing conduct by Defendants. 25 28. Specifically, the documentation provided by THC reveals that the Huang 26 Defendants, through the THC Defendants, have engaged in numerous unauthorized 27 investment transactions concerning the xXx Derivative Rights and the production of xXx 4 28 without the knowledge or consent of Weying (or the Diesel Entity, for that matter). -10SMRH:4842-0593-5822.1 COMPLAINT 1 Moreover, these unauthorized investment transactions were entered into, not on behalf of 2 Xtreme, but, rather, on behalf of THC and purport to entitle THC to various producer and 3 overhead fees in connection with the xXx 4. Weying is informed and believes, and on that 4 basis alleges, that, pursuant to these unauthorized and unapproved investment transactions, 5 THC (and, on information and belief, THC Holdings, THC Corp., SPCC and the Huang 6 Defendants) have received and converted funds of over forty-million dollars that rightfully 7 belong to Xtreme and are needed for Xtreme to carry out its business. Weying is informed 8 and believes, and on that basis alleges, that the Huang Defendants and THC Defendants 9 have also entered into unauthorized product placement deals relating to xXx 4, pursuant to 10 which they have received an unknown amount of funds that rightfully belong to Xtreme. 11 Still more, Weying in informed and believes, and on that basis alleges, that the Huang 12 Defendants and THC Defendants have purported to enter into joint venture agreements 13 with other parties concerning the xXx Derivative Rights based on misrepresentations that 14 they control the rights to the xXx Derivative Rights and have received and converted 15 compensation, benefits and business opportunities under said joint venture agreements that 16 rightfully belong to Xtreme. 17 29. To date, despite Weying’s repeated demands, THC has refused to provide an 18 official accounting of the investment funds, fees and other revenues it and its related 19 entities have received and unlawfully converted in connection with the unauthorized 20 transactions or to transfer said amounts to Xtreme. 21 22 THC Fails to Make The Required True-Up Contributions by July 31, 2020 30. On May 12, 2020, following THC’s failure to make the required true-up 23 payments of $500,000 upon execution and $500,000 on or before January 31, 2020, 24 counsel for Weying sent THC a letter demanding that it make the $1 million in overdue 25 true-up payments, acknowledge and confirm its obligation to make the remaining true up 26 payment of $2,868,627 by July 31, 2020, provide all of the documentation concerning the 27 unauthorized transactions it entered into vis-à-vis the xXx Derivative Rights, cease and 28 -11SMRH:4842-0593-5822.1 COMPLAINT 1 desist any further unauthorized activities, and disgorge any revenues received by it as a 2 result of the unauthorized transactions. 3 31. On May 18, 2020, THC, through counsel, responded to Weying’s demand 4 letter, acknowledging and confirming its obligation to make the True-Up Contributions 5 under the First Amendment and reassuring Weying that payment of the True-Up 6 Contributions would be made. On May 26, 2020, THC, through counsel, again 7 acknowledged and confirmed its obligation to make the True-Up Contributions. 8 32. To date, THC has failed to make any of the True Up Contributions to Xtreme 9 required under the First Amendment. Nor has THC accounted for any of the monies it has 10 received as a result of the unauthorized investment, product placement and other 11 transactions that it has entered into. Nor has THC transferred any and all revenues 12 received in connection with those unauthorized transactions to Xtreme. 13 FIRST CAUSE OF ACTION 14 (Fraud) 15 (Against all Defendants) 16 33. Weying repeats and incorporates herein by this reference the allegations 17 contained in Paragraphs 1 through 32 above, as though set forth herein. 18 34. As set forth above in Paragraph 14-15, during the course of oral and written 19 communications in June 2017, THC, through the Huang Defendants, represented to 20 Weying’s Johnny Hsu that THC had the opportunity to acquire 100% of the xXx 21 Derivative Rights (with certain limited carve-outs) from Revolution and that THC had 22 obtained all of the necessary approvals and consents in order to acquire the xXx Derivative 23 Rights and assign those rights to a joint venture entity to be formed by the parties. 24 35. Weying is informed and believes, and on that basis alleges, that the 25 foregoing representations made by Defendants were false when they were made and that, 26 in reality, THC knew (and concealed from Weying) that: (a) it had the opportunity to 27 acquire only the 50% of the xXx Derivative Rights controlled by Revolution; and (b) THC 28 had not obtained the necessary approvals for the transfer of the xXx Derivative Rights. -12SMRH:4842-0593-5822.1 COMPLAINT 1 36. As set forth above in Paragraphs 22-23, during the course of the parties’ 2 negotiations of the 2019 JV Agreement, THC, through the Huang Defendants, represented 3 to Weying’s Johnny Hsu that THC had obtained the consent of the Diesel Entity to the 4 transfer of the xXx Derivative Rights to the parties’ joint venture. 5 37. Weying is informed and believes, and on that basis alleges, that the 6 foregoing representations made by Defendants were false when they were made and that, 7 in reality, THC knew (and concealed from Weying) that it had not obtained the consent of 8 the Diesel Entity to the transfer of the xXx Derivative Rights to the parties’ joint venture. 9 38. Weying is informed and believes, and on that basis alleges, that Defendants 10 made the aforesaid representations to Weying with the intent of inducing Weying to enter 11 into the 2017 and 2019 JV Agreements, respectively, and to contribute $6,155,000 to the 12 parties’ joint venture on the terms contained therein. 13 39. Weying reasonably relied on Defendants’ representations by, among other 14 things, entering into the 2017 and 2019 JV Agreements and agreeing to contribute 15 $6,155,000 towards the purchase of the xXx Derivative Rights. If Weying had known the 16 true facts, it would not have agreed to enter into the 2017 or 2019 JV Agreements and/or 17 contribute $6,155,000 towards the purchase of the xXx Derivative Rights on the terms 18 contained therein. 19 40. As a direct and proximate result of the misrepresentations made by 20 Defendants and Weying’s reasonable reliance thereon, Weying has suffered damages, the 21 precise amount of which will be proven at the time of trial. 22 41. Weying is informed and believes, and on that basis alleges, that the above- 23 described conduct of Defendants was willful and intentional and done with malice, fraud 24 or oppression, was in conscious and wanton disregard of the rights of Weying and was 25 engaged in for the purpose of benefiting Defendants and injuring Weying, such that the 26 conduct warrants the imposition of exemplary or punitive damages in an amount according 27 to proof at trial. 28 -13SMRH:4842-0593-5822.1 COMPLAINT 1 SECOND CAUSE OF ACTION 2 (Breach of Fiduciary Duty – Direct and Derivative) 3 (Against All Defendants) 4 42. Weying repeats and incorporates herein by this reference the allegations 5 contained in Paragraphs 1 through 32 above, as though set forth herein. 6 43. Weying, one the one hand, and THC, on the other hand, are parties to 2017 7 JV Agreement, as amended, and the 2019 JV Agreements, as amended, pursuant to which 8 THC owes fiduciary duties to Weying as its joint adventurer. Further, Defendant Jianhui 9 Huang, as a member of the board of directors of Xtreme, owes fiduciary duties to Xtreme. 10 44. Defendants breached their fiduciary duties of loyalty and care to Weying and 11 Xtreme by, among other things, misrepresenting the nature of the xXx Derivative Rights, 12 falsely representing that they had obtained the Diesel Entity’s consent for the transfer of 13 those rights to the parties’ joint venture entity, and purporting to enter into agreements, 14 including investment and product placement agreements, relating to the xXx Derivative 15 rights without the consent of Weying. Moreover, THC has entered into multiple 16 investment and product placement agreements in its own name and in the name of its alter 17 egos THC Holdings and THC Corp. and SPCC – not on behalf of the parties’ joint venture 18 – thereby diverting to itself and its related entities the corporate opportunities and related 19 financial benefits that rightfully belong to the parties’ joint venture, Xtreme. Defendant 20 Jianhui Huang has directly participated in these unauthorized transactions on behalf of the 21 THC Defendants and in flagrant disregard of the fiduciary duties he owes to Xtreme. 22 Further, Defendant Kenneth Jian Hua Huang aided and abetted and conspired with 23 Defendant Jianhui Huang and the THC Defendants, and otherwise acted in furtherance of 24 the wrongs alleged herein, and, therefore, is also responsible for the damages suffered by 25 Xtreme. 26 45. As a direct and proximate result of the actions of Defendants, Weying and 27 Xtreme have suffered damages, including, without limitation, the loss of their interest in 28 the funding and other benefits that would have been realized by Weying and Xtreme had -14SMRH:4842-0593-5822.1 COMPLAINT 1 Xtreme’s opportunities and related benefits not been diverted and/or misappropriated, in an 2 amount to be proven at trial. Additionally, Defendants’ actions have caused confusion in 3 the marketplace as to the ownership of the xXx Derivative Rights, thereby impairing 4 Weying’s and Xtreme’s ability to raise money to exploit the xXx Derivative Rights. 5 46. Weying is informed and believes, and on that basis alleges, that the above- 6 described conduct of Defendants was willful and intentional and done with malice, fraud 7 or oppression, was in conscious and wanton disregard of the rights of Weying and Xtreme 8 and was engaged in for the purpose of benefiting Defendants and injuring Weying and 9 Xtreme, such that the conduct warrants the imposition of exemplary or punitive damages 10 in an amount according to proof at trial. 11 THIRD CAUSE OF ACTION 12 (Conversion – Direct and Derivative) 13 (Against All Defendants) 14 47. Weying repeats and incorporates herein by this reference the allegations 15 contained in Paragraphs 1 through 32 above, as though set forth herein. 16 48. As alleged herein, pursuant to the 2017 JV Agreement and 2019 JV 17 Agreements, as amended, the parties agreed to form a joint venture for the purpose of 18 owning, developing and exploiting the xXx Derivative Rights, which joint venture (i.e., 19 Xtreme) has a right to possession of any financing and other monies received on account 20 of the xXx Derivative Rights. 21 49. Defendants, and each of them, have intentionally and substantially interfered 22 with Xtreme’s right to possession of financing and other monies received on account of the 23 xXx Derivative right by purporting to enter into a number of unauthorized investment, 24 product placement and joint venture transactions in their own name, and not on behalf of 25 Xtreme, and converting for themselves the funding, fees and other payments provided for 26 thereunder. 27 50. Neither Weying nor Xtreme has consented to Defendants’ conduct. 28 -15SMRH:4842-0593-5822.1 COMPLAINT 1 51. As a direct and proximate result of the actions of Defendants, Weying and 2 Xtreme have suffered damages, including, without limitation, the loss of their interests in 3 the funding and other monies that Defendants have unlawfully converted, in an amount to 4 be proven at trial. 5 52. Weying is informed and believes, and on that basis alleges, that the above- 6 described conduct of Defendants was willful and intentional and done with malice, fraud 7 or oppression, was in conscious and wanton disregard of the rights of Weying and Xtreme 8 and was engaged in for the purpose of benefiting Defendants and injuring Weying and 9 Xtreme, such that the conduct warrants the imposition of exemplary or punitive damages 10 in an amount according to proof at trial. 11 FOURTH CAUSE OF ACTION 12 (Breach of Contract – 2019 JV Agreements – Direct and Derivative) 13 (Against All Defendants) 14 53. Weying repeats and incorporates herein by this reference the allegations 15 contained in Paragraphs 1 through 32 above, as though set forth herein. 16 54. Weying, THC and Xtreme are parties to the 2019 JV Agreements, as 17 amended by that certain First Amendment. 18 55. THC breached its obligations under the 2019 JV Agreements, as amended, 19 by, among other things, failing to timely transfer the xXx Derivative Rights to Xtreme, 20 failing to make the agreed-upon True-Up Contributions to Xtreme and entering into 21 various agreements relating to the xXx Derivative Rights without Weying’s consent. 22 56. Weying and Xtreme have performed all covenants, conditions and/or 23 promises required to be performed in accordance with the terms and conditions of the 2019 24 JV Agreement, as amended, except those that were prevented, excused or relieved by 25 THC. 26 57. As a direct and proximate result of THC’s breaches of the 2019 JV 27 Agreements, as amended, Weying and Xtreme have suffered damages in an amount to be 28 proven at trial. -16SMRH:4842-0593-5822.1 COMPLAINT 1 FIFTH CAUSE OF ACTION 2 (Declaratory Relief) 3 (Against THC) 4 58. Weying repeats and incorporates herein by this reference the allegations 5 contained in Paragraphs 1 through 32 above, as though set forth herein. 6 59. An actual controversy exists between the parties regarding the 2019 JV 7 Agreement, as amended by the First Amendment, and, in particular, whether Weying has 8 validly exercised its option to reduce THC’s ownership interest in Xtreme (and, as a result, 9 the xXx Derivative Rights) as a result of THC’s failure to make the True-Up Contributions 10 as required under the First Amendment. Weying contends that it has validly exercised its 11 option and that, as a result, Xtreme is now owned 75% by Weying and 25% by THC. 12 THC contends otherwise. 13 60. A declaratory judgment, therefore, is needed to clarify the legal relationship 14 between the parties and, in particular, to resolve the aforementioned controversy 15 concerning the parties respective ownership interests in Xtreme and the xXx Derivative 16 Rights. 17 SIXTH CAUSE OF ACTION 18 (Accounting – Direct and Derivative) 19 (Against All Defendants) 20 61. Weying repeats and incorporates herein by this reference the allegations 21 contained in Paragraphs 1 through 32 above, as though set forth herein. 22 62. As alleged herein, pursuant to the 2017 JV Agreement and 2019 JV 23 Agreements, as amended, the parties agreed to form a joint venture for the purpose of 24 owning, developing and exploiting the xXx Derivative Rights. As further alleged, 25 Defendants have entered into a number of unauthorized investment, product placement and 26 joint venture transactions in their own names and, pursuant thereto, Defendants have 27 received and converted funding, fees and other payments that, under the 2017 JV 28 -17SMRH:4842-0593-5822.1 COMPLAINT 1 Agreement and 2019 JV Agreements, as amended, rightfully belong to the parties’ joint 2 venture. 3 63. Defendants have failed to fully and accurately account to Weying and 4 Xtreme for the revenues they have received under the unauthorized transactions they have 5 entered into vis-à-vis the xXx Derivative Rights. 6 64. The exact amount of funding, fees and other payments improperly received 7 by Defendants is currently unknown and cannot be ascertained without a full and complete 8 accounting of all such revenues. 9 65. Weying hereby demands an accounting of all funding, fees, payments and 10 other benefits that Defendants have received as a result of the unauthorized transactions 11 they have entered into vis-à-vis the xXx Derivative Rights. 12 WHEREFORE, Weying prays for an award against Defendants as follows: 13 1. For general, special, compensatory and consequential damages in an amount 14 to be proven at trial; 15 2. For punitive damages in an amount to be proven at trial; 16 3. For a declaration that, as a result of THC’s failure to make the True-Up 17 Contributions, in full, by July 31, 2020 and Weying’s subsequent election to adjust the 18 ownership percentage of Xtreme under the First Amendment, Xtreme is owned 75% by 19 Weying and 25% by THC; 20 4. For an accounting of all sums due and owing to Weying and/or Xtreme as a 21 result of the unauthorized transactions entered into by Defendants relating to the xXx 22 Derivative Rights; 23 5. For an award of its attorneys’ fees; 24 6. For an award of prejudgment interest; 25 7. For its costs of suit; and 26 8. For such other and further relief as the Court may deem just and proper. 27 28 -18SMRH:4842-0593-5822.1 COMPLAINT 1 Dated: October 8, 2020 2 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP 3 By 4 /s/ Dylan J. Price DYLAN J. PRICE NOLAN J. WALTER Attorneys for Plaintiff WEYING GALAXY INC. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -19SMRH:4842-0593-5822.1 COMPLAINT JURY DEMAND 1 2 Plaintiff Weying Galaxy Inc. hereby requests a trial by jury. 3 4 Dated: October 8, 2020 5 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP 6 By 7 /s/ Dylan J. Price DYLAN J. PRICE NOLAN J. WALTER Attorneys for Plaintiff WEYING GALAXY INC. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -20SMRH:4842-0593-5822.1 COMPLAINT