A Chinese Client’s Fight for Corporate Control Across Delaware, Texas and Nevada

John is joined by Christopher D. Kercher, partner in Quinn Emanuel’s New York office. They discuss a complex cross-border dispute involving a Chinese public company listed on the Shanghai Exchange. The company, which owned oil assets in Texas and was one of the largest private oil producers in the U.S., faced a governance crisis after an investor took over the company and elected a new board in China. When the new board attempted to gain control over the company’s U.S. subsidiaries, it discovered that the company’s former management had implemented mechanisms at the subsidiaries’ holding companies that blocked the election of new directors. This control deadlock posed an existential threat, as Chinese regulators warned the company it could be delisted if control was not reestablished by the end of the year. 

The urgency of the situation demanded a rapid litigation strategy across three U.S. jurisdictions: Texas, Nevada, and Delaware. The client’s initial effort, led by another firm, to resolve the matter in Texas failed because of the “internal affairs doctrine,” which required adjudication in Delaware, where the entities were incorporated. Fortunately, the other side initiated a Delaware proceeding allowing the Chinese parent to counterclaim and consolidate all issues under a highly expedited schedule. A key early win was securing a “status quo” order in Delaware, which froze major corporate actions and gave the new board veto power over decisions exceeding $100,000, effectively halting adverse moves by the former management. 

The case involved extensive discovery, much of it in Mandarin, and included WhatsApp, WeChat, and other messaging platforms. Advanced AI tools played a crucial role in accelerating document review, translating materials, and aiding strategy development. Cultural sensitivity and coordination with Chinese counsel were also essential to preparing the case. As trial approached, the opposing side sought settlement, likely due to being overwhelmed by the pace and depth of the litigation.  

Podcast Link: Law-disrupted.fm
Host: John B. Quinn
Producer: Alexis Hyde
Music and Editing by: Alexander Rossi

Transcript

Note: This transcript is generated from a recorded conversation and may contain errors or omissions. It has been edited for clarity but may not fully capture the original intent or context. For accurate interpretation, please refer to the original audio. 

JOHN QUINN: This is John Quinn, and this is Law, disrupted. Today, we're going to be talking with one of my partners, Chris Kercher, who's a partner in our New York office, about a very interesting but extremely complicated case that he litigated for a Chinese client. This is so complicated, and there are so many chapters to this book, and it unfolded over a very accelerated timeframe. It has been a real challenge for me to kind of get my head around it and to summarize it. 

Chris will help us, but it involves a Chinese public company that was our client, which had difficulty getting control of its domestic U.S. subsidiaries involved in litigation in the three principal business courts in the United States: Delaware, the New Texas Business Court, and the Nevada Business Court. It involved a necessary effort to get control of these U.S. entities on a very accelerated basis, Chinese language documents, and there is a very interesting aspect to this case about the use of artificial intelligence in prosecuting the case, which turned out to be a very big advantage for us. 

I'm not going to even attempt to summarize the case. I'm going to ask Chris, who litigated the case, to summarize it for us and set the stage for the discussion. 

CHRISTOPHER KERCHER: Thanks, John. I'm happy to, and I'll keep it at a high level because you can really get lost in the weeds on this.

It was a challenge, but at a simplified level, there was a Chinese publicly listed company on the Shanghai Exchange whose primary asset was oil assets in Texas. They had a number of oil wells. It's the ninth-largest private producer of oil in the U.S. 

A Chinese investor launched a tender offer in China on the Shanghai Exchange and obtained control earlier this year of a majority of the shares of the Chinese parent. They elected a new board of the Chinese parent company. When they went to elect the downstream directors and officers at the U.S. subs, which had the holding company at the top and the operating companies at the bottom, they learned that the prior team had effectively put in blockers at the holding stage, at the holding company level. 

That made it virtually impossible to elect new directors on any reasonable timeframe. The problem was that the Chinese securities regulators were telling the Chinese parent company that, if you do not have control by the end of the year, you face the threat of a delisting. 

So, we not only had to persuade a court to give our clients control on a very expedited basis, but we effectively had a hard stop that we had to have everything resolved by December 31. We were hired in August. 

JOHN QUINN: So, the state of affairs when you were hired is that they realized they had this problem, that they didn't have control, and there was this mechanism set up that was blocking them, and you had to solve this problem by the end of the year. 

CHRISTOPHER KERCHER: That's right.

Their initial attempt with other lawyers that we came to work with was to go in Texas. They thought the company was in Texas, the people were sitting in Texas, and everything that mattered was in Texas from a human and asset point of view.

Let's try to get the Texas court to order these people to transfer control. But corporate governance matters, and the internal affairs doctrine is taken seriously. 

When we pitched it in August, we were concerned that unless you deal with the corporate governance issue itself in Delaware, you'd have a problem. Fortunately, our firm has a ton of experience doing expedited cases in Delaware, busted deal cases and all of these others, where the Delaware courts really do understand how to run these cases quickly and get final enforceable relief on a timeframe like we gave the court. 

So we pitched that, we were hired to do that, and we did. 

JOHN QUINN: Right. So when you got involved, there had already been another law firm involved who had started proceedings in Texas. 

CHRISTOPHER KERCHER: That's correct. The law firm that advised the client on the underlying deal and had been a longstanding corporate counsel also had a group of Texas litigators who were very strong, but they weren't going to get all the relief they needed in Texas. That was clear to us. 

So we were brought in and eventually coordinated all three actions. There was a Nevada action, too, that the other side brought. 

JOHN QUINN: How did you get the ball rolling in Delaware? 

CHRISTOPHER KERCHER: Interestingly, the other side filed first in Delaware. I think they were nervous that we would get somewhere in Texas.

So they jumped the gun and tried to file a very narrow Delaware proceeding that would've litigated the issues they cared about. 

We immediately answered and counterclaimed, and we sought to join the issues and bring everything on an expedited basis. So that was the major day. It made our day because it walked right into our plan. 

I honestly spent a lot of time wondering, “Am I missing something? Is there something that they have up their sleeve?” Without seeing it, we continued to press. 

We launched discovery very quickly. We got an early status quo order, which really shaped the litigation, and we were able to stay the other actions in Texas and Nevada pending Delaware's outcome because Delaware could move the fastest. 

JOHN QUINN: Yeah. Every once in a while, in litigation, your adversaries give you a gift. It doesn't happen often enough, but it sounds like this was one of those instances.

What is the Delaware status quo order? 

CHRISTOPHER KERCHER: Given this really challenging problem where you have a parent company that clearly is controlled by one set of directors and the subsidiary that is pretty obviously controlled by the former team, which is resisting the past team, but they're relying on the corporate governance mechanics. They were relying on due process, assuming “we'll go to the courts, American courts take a long time, we'll ride this out. And on the other side, our clients will have to cave at some point.” 

We wanted a highly expedited case, and we didn't want them to use their control to abscond with assets, change the sort of shape of the company or use their control to harm us in other ways. 

So we sought a status quo order, basically saying that, until we have that trial, let's freeze everything. That way, we won't be on the board, and our clients won't be on the board, but they'll effectively have a veto over anything, the company, an oil company or a capital-intensive company, needs to do that exceeds $100,000. That gave our clients a lot of leverage on the day-to-day and and protected them from the other side taking adverse actions. 

JOHN QUINN: For those who don't know, a status quo order is a well-known or interim relief order that's available in Delaware.

CHRISTOPHER KERCHER: That's right. 

Delaware has developed this very sophisticated practice of giving litigants who can make the case that they need relief by a date certain, and not just preliminary injunction relief, but final relief. It can accommodate this through various tools, including the status quo order that allows everything to freeze and some amount of litigation to take place.

JOHN QUINN: Yeah. And so I assume you launched the discovery program. 

CHRISTOPHER KERCHER: We did, we had to seek the documents and testimony. What was interesting for me was that almost everything was in Mandarin because the other side were Chinese Americans and Chinese board members. 

We had to get all of these documents in Mandarin. We had to produce our own documents. We had to go through the whole privilege process, which in Delaware, you have to run very carefully. You have to do very careful privilege logs, or you risk a waiver if you're trying to hide bad documents, for example.

We have a team, or a number of teams, that have a lot of experience in doing these expedited Delaware cases, so they know the drill. They know where to start, where to triage, and how to move quickly. 

And so we were able to do that and immediately get our document requests out and meet and confer promptly so that we could start to create live issues if we weren't going to get the discovery we wanted. Eventually, we actually got a discovery facilitator appointed relatively quickly, which gave us the ability to not have to wait weeks that we didn't have on a motion to compel.

JOHN QUINN: Did the discovery develop some powerful evidence? And by the way, did you have a trial date set? 

CHRISTOPHER KERCHER: We did have a trial date set. It was actually supposed to be next week. We resolved it. I'll get to that, but we had a tight window to get the trial, get a decision and actually have to go resolve Texas and Nevada in that time too.

So we pursued discovery. We saw it. You know, I always say, “Alright, the emails are great, but you know, tell me, do they have signal? Do they have WhatsApp? Do in this case WeChat? That's where the interesting things will be. Text messages, so let's make sure we get those.” And one of the things that, you know, we followed closely is, “Will the other side give us their texts?” Their WhatsApps. Their WeChats? Sure. They'll give the emails. Everybody gives the emails, but they were supposed to. And we were keeping a close eye on whether there were deficiencies or whether they were obviously holding back. 

And we ended up bringing the case right to the precipice of depositions. Our clients had all flown in from China to prepare for the deposition. We had about 10 days to take and defend a couple dozen depositions, and we were ready to go. 

We had a series of motions lined up when the other side initiated a settlement discussion. 

JOHN QUINN: Before we get to that, you've mentioned a couple of times that there were Nevada proceedings as well. We understand there were Texas proceedings already happening. They started the Delaware proceedings; they made your day, that's where you wanted to be, but there was also a case in Nevada. 

CHRISTOPHER KERCHER: Yeah, so there was one subsidiary in this, you know, complicated corporate structure that was a Nevada entity. The other side filed pretty late in the process, once we already had a Delaware trial and had the status quo order. 

They still filed in Nevada and pursued a separate action there involving one entity. To me, that seemed like that was their safety valve. That if they lost in Delaware and they lost in Texas, they maybe would have one more shot to hold onto control to keep us away, to slow things down.

But we were able to persuade the court that the action should be stayed because Delaware was giving us an expedited schedule, and that could resolve everything. And the parties agreed that the status quo order would apply in Nevada and Texas as well. 

JOHN QUINN: But there came a point where your adversaries indicated an interest in pursuing settlement discussions.

CHRISTOPHER KERCHER: Yeah, without going too much into it, we developed a lot of momentum. 

We, you know, really having these expedited cases down, understanding the rhythms of them and how the discovery process has to go. You really don't have a day to give. And so you don't have a day to put your team together to educate them about the case, to start looking at documents. You have to get right into it. We used AI technology. 

JOHN QUINN: You know, I'm a big fan of AI, and I know you are. Tell us about that. How was AI used in this case? 

CHRISTOPHER KERCHER: Yeah, it was really interesting, and I think, you know, people who aren't using AI much in litigation may have an impression that you push a button that does the law and it does the job for you.

That isn't our experience. My experience is that it makes everything, call it 20% better and 20% faster. I think it's actually more than that, but to be conservative, if you compound that over everything you're doing, it's really amazing how much better everything is. So, everything from how we develop our theories for the opening pitch? How do we polish that memo that the client's looking for? How do we take all this information that we know about the case and use AI to help us think of other discovery angles, other discovery responses? How can we use it to quickly get through the discovery and identify deficiencies so we can turn around and follow motion immediately before they can drag it out? 

All sorts of things, really, kind of everything in the case. We can use AI in some way to help us do it faster, do it better, and think of more ideas. For me, a huge edge was the ability to take the documents that the team was surfacing, which were in Mandarin and that I don't read, and throw them into an AI model that they could give me.

A really good summary contextualized, picked up on the nuances, so I wouldn't have to wait 48 hours for a translation. I could have it right away for my purposes. Another interesting feature that I think I enjoyed was dealing with Chinese clients and their corporate counsel, who were wonderful people from several law firms.

Really, really great lawyers, and we developed a good bond. But I wanted to make sure that I had the cultural sensitivities right, that when, you know, questioning came in, and it was clearly approaching it from a more traditional Chinese approach to law and litigation. I wanted to make sure that my response was appropriate and sensitive and all that.

The AI models did a great job helping me think through that, so I didn't stumble over my words and offend someone or confuse them further. There were a number of uses that helped us run a more efficient machine. 

JOHN QUINN: I mean, you must have had a pretty good-sized team on these cases. You have to, yeah. How many people were involved at its peak? 

CHRISTOPHER KERCHER: Oh, we had well over 20 people by the time that we were rolling into depositions because you have to multi-track everything. It's not like I do one deposition, then I'll do another one next week. Depositions are multi-tracked every day, and so you have some redundancies in there because there's no way to avoid it.

Right, but it was a really talented team - a number of senior associates, John Feder and JJ Ye, and Heather Christenson, among them, who sort of divided responsibilities in ConEd. 

JOHN QUINN: Yeah. I mean, people in our firm know that you're a real expert on AI and a thought leader at our firm on AI. Did your facility with AI understand its capabilities, and the use of AI trickle down to the team? Did you find that everybody was using it and getting value from it?

CHRISTOPHER KERCHER: Yeah. You know, one of the things that I found really interesting is that the associates know that I'm a fan. They're more willing, I see, to try it themselves. And so another associate, Peter Collins, who is on the team, really understands how AI works. John Feder and JJ Ye, Heather, all have their uses. They can see me using it. They see me encouraging them. They understand the risks, too. They understand deeply, and this is so important that we have people lined up to verify everything so that nothing goes to the court, nothing goes to a client, nothing goes out. That's to be relied on without that verification by a human, a smart lawyer who can actually put eyes on it and push back and all that.

And so they understand these nuances about how you use it, that it's not a magic button, but you build it into your workflow. You maybe have the senior people doing a first draft, you sort of invert the workflow, or it's not the junior working from a blank page. It's the senior person who has more experience; they can quickly generate a detailed outline or a first draft that you can then pass off to the junior associates and say, “Okay, let's work it up from here. Let's verify it. Let's polish it.” But this is the direction I think of going in. And so we can use it. And we did use it. The team used it to generate just more theories, more.

What else can we ask for? What is our best thing to move on to? We don't wanna waste the judge's time. What will the judge look at and say, “This is a waste of time. Why am I hearing this discovery dispute? Let's focus on the highest-value uses, and by working through it, I think we've come to a better place.

JOHN QUINN: What do you think led the other side, and what got them to the point that they raised the topic of settlement? What do you think it was? 

CHRISTOPHER KERCHER: I think the timing was driven by expectations. I do think that the business folks on the other side thought that American litigation takes a long time, and they wouldn't actually see the inside of a courtroom this year.

As we were about to get to depositions, we were about to inquire as to whether there were missing text messages, missing evidence and things like that. We got there a lot faster than they anticipated. And what we were sensing is that they were overwhelmed. They were behind on discovery, and they were behind on their prep.

We had already had our clients here, flown in from China, to deal with the time change, to spend time with them, and to work them over and get them ready for deposition. And I don't think the other side had done any of that. And so they were facing a situation where we're ready to go. The game basically starts tomorrow. It's a mad dash to finish from there. And they basically said no MAs in Mandarin. 

JOHN QUINN: Yeah. I think that not enough attention is sometimes paid to the importance of blocking and tackling, and perseverance in discovery, the following up on the deficiencies and the answers.

CHRISTOPHER KERCHER: The answers come in the next day. They get a letter about deficiencies, and then you're following up, you're drafting a motion, and it's happening on multiple fronts and multiple discovery rounds. 

JOHN QUINN: That, in my experience, is very powerful. And, there aren't that many firms that aggressively stay on top of it, and that could be a real difference maker.

Sounds like it was here. 

CHRISTOPHER KERCHER: Huge. And it is, you have to get comfortable. What is the right pace? When is it appropriate to raise this with the court? I think many lawyers who haven't been in these expedited situations and are used to a more conventional 18-month discovery schedule just can't imagine filing a discovery motion a week after getting the documents.

But you don't have a choice in these. And you know there is both because you're moving fast. Mistakes happen; people don't produce documents. This is something that the Delaware courts are hip to. You may think, “Okay, if we can just slide this document through the privilege log or just come up with a justification for not producing this category of documents, they may never have time to notice, ask care.”

And we know that that's the dynamic. So that's what we're looking for. That's where we're starting. What are the games they're playing, what are they hiding? Where are the pressure points? Because that's what we want to see. See the documents they don't want us to see, and we have to be like bulldogs to chase those, but do it in a way that the Delaware Court will think that we abided by all of our good faith obligations.

We have to meet and confer. We have to really go about the process in the right way. To do that, you have to start thinking and planning early and then execute, just as you said, blocking and tackling. 

JOHN QUINN: Yeah. And at the same time, you have to make sure your own house is in order, that you're responding, that you, as you mentioned, that your PRI logs are in order. Delaware courts have some pretty draconian measures they'll apply if you have privilege logs, which are not adequately detailed and don't adequately explain the basis for the privilege and the like. 

CHRISTOPHER KERCHER: Yeah, that's exactly right. It's so important to keep your own house in order.

I learned this from our partner Mike Kalinsky. If you do the research on cases where a court has ordered the waiver of a privilege because of an inadequate privilege lock, and you look at the list of cases, I think about at least more than half of them, many more than half were Mike's cases. He really made the law in this area. 

The folks who work with him know exactly what we need to do to protect ourselves, even though we know we're the good guys. We have nothing to hide. We did everything right. If you have a mistake, if you trip over yourself and your own privilege log or your own production is deficient, it's really hard to go after the other side, no matter how bad their omissions are. 

So we've got great folks who really understand how they have to protect our own clients and our own arguments, so that we can focus on the other side. 

JOHN QUINN: I know you're sensitive to cultural issues in dealing with foreign clients, with Chinese clients, and you talked about how you use AI to help understand how you should relate to them, how you should address them, and cultural sensitivities.

What did you learn about working with Chinese clients? 

CHRISTOPHER KERCHER: It’s interesting. We also had the benefit, we have so many great Chinese lawyers at our firm. We had wonderful teams in China, in our offices, helping us overnight. I felt like it was Santa's elves, where I'd wake up, and it would have fully baked, beautiful briefs that were done overnight.

We've got a great team of Chinese lawyers in the New York office and in other U.S. offices who all came together. JJ Ye, who’s a senior associate, is a terrific guy I've worked with a bunch of cases, was excellent at this. And it was really interesting because the client's general counsel knew of JJ; they had gone to the same law school, they were different years, but apparently, JJ had won every award at this law school. He's sort of a legend. I think he commanded a lot of respect with the clients early on. 

So sure, I was using Claude or Judge Media to help me think through the cultural elements, but I would run it by JJ and say, “You know, this is how I'm thinking about it. This is what I think we should respond” and I got that advice. 

The most interesting one, I think, was how much more engineering-like the process was. It really asked us for all these step plans, literally step-by-step, of what we're going to do. And I thought litigation's a dynamic thing. I'll give you the next couple of steps, but from there it's a treat.

Early on, as you're developing the relationship and trying to build confidence, I'm not going to tell them they’re running their cases wrong. We had teams putting together step plans every night. Eventually, when we developed that trust and the client understood that I wasn’t trying to pull one over on them, we came up with other approaches to make sure that everybody in China understood what we were doing while keeping it more realistic for the needs of U.S. litigation. So that was, that was interesting. 

JOHN QUINN: Yeah. Well, any other takeaways from this really interesting case? 

CHRISTOPHER KERCHER: There's no firm like ours.

The ability to pull together in August, a team that was ready to go on such short notice, that had all of the expertise. We didn't have to go and figure out how to do a Delaware case. We have the great Mike Barlow and his team who could help us through, and we just knew what to do. 

You never know, every day, every night you go to bed, and you're thinking, God, there's gotta be like 12 things that could come back to bite us. They're going to argue that we might be missing something, but having that really strong foundation and the ability to pull people from all over the world, if there was nothing better.

So, it was great. Great clients, loved working with the Chinese lawyers. I actually had them over to my house late in the process to talk through strategy, and we spent a lot of time together. They were in the U.S. a lot. And so I think from an international perspective, there's so much we can do, and it was thrilling to help the good guys in this.

JOHN QUINN: How's your Mandarin now? 

CHRISTOPHER KERCHER: It's still lousy. I won't even try. The language has never been my strong suit. So I'll leave that to others. 

JOHN QUINN: Well, thanks, Chris. Fascinating case. We've been talking with my partner Chris Kercher about a fascinating case where we represented a Chinese public company that had to regain control of its U.S. subsidiaries.

This is John Quinn, and this has been Law, disrupted.

Thank you for listening to Law, disrupted with me, John Quinn. If you enjoyed the show, please subscribe and leave a rating and review on your chosen podcast app to stay up to date with the latest episodes. You can sign up for email alerts at our website, Law-disrupted FM, or follow me on X at JB Q Law, or at Quinn Emanuel. Thank you for tuning in.