Opinion
CIVIL ACTION NO. 99-2332, SECTION "N"(2)
April 17, 2002
ORDER AND REASONS
Before the Court are: (1) defendant Rajeev Bhansali's Motion for Summary Judgment seeking dismissal of the plaintiffs' remaining fraud claims ( i.e., derivative claims) against him as premature; and (2) plaintiffs' Motion for Summary Judgment seeking dismissal of defendant Kalmus' and defendant Bhansali's counter claims ( i.e., derivative claims) against them as premature. Although the basis of both motions is this Court's February 15, 2002 Order Reasons dismissing plaintiffs' breach of fiduciary duty and fraud claims against Kalmus as premature, both Bhansali's Motion for Summary Judgment and plaintiffs' Motion for Summary Judgment were opposed. The matters are deemed submitted for decision on the briefs and documents of record.
See Rec. Doc. No. 232.
See Rec. Doc. No. 234.
See Rec. Doc. No. 229 [copy attached].
See Defendant Bhansali's Memorandum in Opposition to Motion for Summary Judgment on defendants' counterclaims [Rec. Doc. No. 236]; Defendant Kalmus' Memorandum in Opposition to Motion for Summary Judgment on defendants' counterclaims [Rec. Doc. No. 245]; and Plaintiffs' Memorandum in Opposition to Defendant Bhansali's Motion for Summary Judgment [Rec. Doc. No. 246].
I. Rajeev Bhansali's Motion for Summary Judgment.
Though the management of two foreign corporations, International Circuits, Limited ("ICL") (incorporated under the laws of Illinois) and International Technologies (India), Limited ("ITIL") (incorporated under the laws of India), is the theme that dominates the disputes, the plaintiffs failed to satisfy steps necessary to bring derivative claims. No genuine issue of material fact exists with respect to the plaintiffs' remaining claims ( i.e., claims against defendant Bhansali). Of the three basic categories of claims raised by the plaintiffs, RICO, breach of fiduciary duty, and fraud, only the later remains extant.
On June 23, 2000, Judge Clement issued a minute entry order dismissing plaintiffs' RICO claims, noting that the predicate acts alleged were mail fraud and wire fraud, and the plaintiffs failed to comply with Federal Rule of Civil Procedure 9(b) in pleading such claims with particularity. Plaintiffs readily admit that there are no RICO claims remaining in the captioned proceedings. On February 15, 2002, just prior to trial on the merits (which was continued) this Court granted summary judgment dismissing the plaintiffs' breach of fiduciary duty claims asserted via Second Supplemental and Amending Petition against both Kalmus and Bhansali. Bhansali's pending motion for summary judgment presently seeks dismissal of the fraud claims ( i.e., derivative claims) set forth in plaintiffs' Third Supplemental and Amended Complaint, and is predicated on prior rulings of the Court in this case dismissing claims for breach of fiduciary duty as premature, for failure to take the requisite steps of making pre-suit demand on the Board of Directors of either ICL or ITIL.
See Order Reasons, June 23, 2000 (Clement, J.) [Rec. Doc. No. 32]; and Order Reasons, February 23, 2001 (denying plaintiffs' Motion for Leave to File Fourth Supplemental and Amending Petition) [Rec. Doc. No. 82].
See Memorandum in Opposition to Rajeev Bhansali's Motion for Summary Judgment on Plaintiffs' Remaining Claims, at p. 2 n. 2 [Rec. Doc. No. 246].
See Order Reasons, February 15, 2002 (Engelhardt, J.) [Rec. Doc. No. 229] (attached).
See Bhansali's Motion for Summary Judgment, seeking dismissal of remaining fraud claims [Rec. Doc. No. 232].
See id. at p. 4; and Order and Reasons, June 23, 2000 (Clement, J.) at p. 3 [Rec. Doc. No. 82].
This Court previously determined that Illinois law governs plaintiffs' claims relating to both ICL and ITIL, because ICL is ITIL's majority shareholder. Inasmuch as Illinois allows "double derivative" actions ( i.e., suits by shareholders of a holding corporation (ICL) for harm to a subsidiary (ITIL)), the Court applied Illinois law to determine whether plaintiffs may bring suit for injury to ITIL. The Court explained its holding that plaintiffs were not entitled to maintain a shareholder's derivative suit as follows:
Plaintiffs now state that they do not believe that they made an argument that Illinois law governs the claims against ICL and ITIL in opposing the defendants' Motion for Summary Judgment seeking dismissal of breach of fiduciary duty claims. Letting the arguments speak for themselves, the plaintiffs contended that:
Kalmus has been the President of ICL since 1995 and the Technical director of ITIL. ICL is the majority shareholder of ICL. Kalmus is a director of both corporations. . . . Obviously, as an officer, director and operator of the business, Kalmus owned a fiduciary duty to both the corporations and their shareholders, Mohnot.
* * *
His duties included those outlined in the bylaws and those required under Illinois law, i.e., fiduciary duty of loyalty, fair dealing and to inform the shareholders of facts that threaten the very existence of the corporation. Additionally, ICL was the majority shareholder of ITIL. As such, Kalmus in fulfilling his duties as President of ICL was responsible for ICL's action taken with regard to ITIL as a corporation operates through its officers.
See Plaintiffs Opposition to Kalmus' Motion for Summary Judgment on Breach of Fiduciary Duty, at pp. 8, 11 [Rec. Doc. No. 177]. Indeed, plaintiffs clearly argued Illinois law applied to their breach of fiduciary duty claims. At no point in their opposition memoranda did they argue that Indian law applied to breach of fiduciary duty insofar as ITIL is concerned. The Court correctly characterized the plaintiffs' position as to what law applied ( i.e., Illinois law).
In a double derivative suit, such as this one, where shareholders of a holding corporation assert harm to a subsidiary, "the shareholder must make a pre-suit demand upon both the holding company and the subsidiary." Alternatively, the shareholder must show why he failed to make demand on the directors . . . .
* * *
Plaintiffs have failed to produce any evidence demonstrating that, at the commencement of this action, a majority of the members of either board of directors were interested or involved in the alleged wrongdoing [or otherwise lacked independence] such that demand on them to assert the claims herein would have been futile. Indeed, the undisputed evidence shows that the plaintiffs, not the defendants, held a majority of seats of the ICL board and that the plaintiffs outnumbered the defendants on the ITIL board.
See Order Reasons, February 15, 2002, at pp. 6-7 [Rec. Doc. No. 229].
Plaintiffs now submit that Indian law applies to their fraud claims against Bhansali, and that such law does not require that the plaintiffs make demand upon the Managing Authority of ITIL before instituting or bringing the suit in the name of the corporation ITIL. Nevertheless, in its own Motion for Summary Judgment seeking dismissal of the derivative counterclaims of Kalmus and Bhansali involving ITIL, plaintiffs contend that Illinois law applies to those counterclaims, and that the defendants' counterclaims should fail for failure to make demand upon the Board of Directors as required by Illinois law, citing this Court's February 15, 2002 Order.
See Plaintiffs' Memorandum in Opposition to Rajeev Bhansali's Motion for Summary Judgment on Plaintiffs' Remaining Claims, at pp. 2-3 [Rec. Doc. No. 246].
Regarding the derivative counter claims against ITIL, plaintiffs specifically contend "that both Illinois and India law apply" and that the "counter claims for breach of fiduciary duty and breach of shareholder agreement should be dismissed without prejudice as premature" for failure to make pre-suit demand upon the Boards of ITIL and ICL. See Plaintiffs' Memorandum in Support of Summary Judgment on Kalmus' and Bhansali's Counter Claims, at pp. 4, n. 8 and 5. [Rec. Doc. No. 234].
Plaintiffs' argument as to what law applies regarding its derivative claims involving ITIL is disingenuous at best. Plaintiffs' memorandum in opposition to Bhansali's motion for summary judgment represents that "[p]laintiffs' claims against Bhansali are not subject to dismissal as their claims against Bhansali dealing with ITIL are governed by Indian, not Illinois law." Plaintiffs' unsupported argument regarding the application of Indian law does not shake the foundation of this Court's February 15, 2002 decision, concluding that Illinois law applies to both the derivative claims pertaining to ITIL and those pertaining to ICL. ICL is ITIL's majority shareholder.
Federal Rule of Civil Procedure 44.1 controls determinations of foreign law in federal court. It provides that in determining an issue of foreign-law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. A district court's determination shall be treated as a ruling on a question of law. In short, Rule 44.1 permits the Court to consider any material that is relevant to a foreign-law issue, whether submitted by counsel or unearthed by the Court's own research. In this vein, in addition to primary materials and expert testimony, a litigant may present other information concerning foreign law he believes will further his case.
No such evidence has been presented to the Court for consideration to date with respect to the issue of the provisions of the law of India covering the requirement of pre-suit demand. Although the Court has broad authority to conduct its own research and determine foreign law applicable to the issues raised, the law imposes no duty upon this Court to do so. The parties bear the burden of adequately proving foreign law to enable the Court to apply it to a particular case. The plaintiffs in this case bear the burden of proof and have failed to conclusively establish either the applicability or the substantive content of foreign law. This Court is entitled to look to its own forum to fill in the gaps. Plaintiffs do not dispute that application of the law of this forum ( i.e., Louisiana law) would command the same result as the application of Illinois law, i.e., dismissal of the plaintiffs' de facto derivative claims as premature.
See Carey v. Bahama Cruise Lines, 864 F.2d 201, 205 (1st Cir. 1988).
See Karim v. Finch Shipping Co, 265 F.3d 258, 271 (5th Cir. 2001); Bel-Ray Co., Inc. v. Chemrite (PTY) Ltd. 181 F.3d 435, 441 (3rd Cir. 1999); Banco de Credito Indus. v. Tesoriria General, 990 F.2ds 827, 837 (5th Cir. 1993).
Aside from their expedient assertion, plaintiffs have made no effort to convince this Court either that: (1) the law of India governs derivative claims insofar as ITIL is concerned; or (2) that India law permits suits by investors and shareholders in an individual capacity, dispensing with any requirement of pre-suit demand. In truth and in fact, plaintiffs have taken diametrically opposed positions in motions set for hearing the same day. Plaintiffs submit in one paper filed with this Court in March of 2002 that derivative claims involving the management of ITIL are governed by law of India when then they are made by the plaintiffs, but plaintiffs then again argue that the derivative claims involving ITIL made by defendant Kalmus (an investor in ITIL) and Bhansali are governed by Illinois law. Thus, according to plaintiffs, the rationale of this Court's February 15, 2002 order dictates dismissal only of adverse claims on account of prematurity for failure to make pre-suit demand.
See Plaintiffs' Memorandum in Opposition to Rajeev Bhansali's Motion for Summary Judgment on Plaintiffs' Remaining Claims, at p. 2, n. 1 [Rec. Doc. No. 246].
This Court observes that at the outset of these proceedings, in opposition to defendant Bhansali's Motion to Dismiss for Forum Non Conveniens, the plaintiffs contended that:
[A] close reading of the defendant's memorandum would lead one to believe that ITIL is the focal point of this litigation. This is simply false. When Bhansali and his cohort Kalmus came to Louisiana to solicit plaintiffs' involvement in the subject business proposal, Bhansali proposed the formation of a United States corporation, ICL, and suggested that the plaintiffs should make all of their financial contributions to ICL specifically to avoid making direct financial contribution to an Indian corporation. This is what the plaintiffs ultimately agreed to do — invest in the United States corporation which would, as an independent corporate entity, create ITIL.
See Plaintiffs' Memorandum in Opposition to Motion to Dismiss for Forum Non Conveniens, at p. 9 [Rec. Doc. No. 7].
Moreover, plaintiffs argued that Louisiana law applied to the controversy between it and Bhansali, to wit:
Both the conduct complained of and the resulting injury occurred in the State of Louisiana. Plaintiffs' allegations pertain to the defendant's violations of Louisiana law. All of the plaintiffs reside in the State of Louisiana. The defendants are residents of the State of Illinois. The defendant came to Louisiana specifically to seek out the plaintiffs to invest in the project . . . .
Although some of the evidence and witnesses may be located in India, and that fact, if true, may add to the defendant's expense and inconvenience in defending the suit, as the United States Fifth Circuit Court of Appeal held in American Rice, Inc. v. Arkansas Rice Growers Co-op. Association, "the facts are insufficient to relegate an American plaintiff to a foreign court when American law, rather than foreign law, is applicable."
See Plaintiffs' Memorandum in Opposition to Motion to Dismiss for Forum Non Conveniens, at p. 17-18 [Rec. Doc. No. 7].
Plaintiffs did not argue or even suggest that the law of India was applicable to claims involving ITIL in memoranda filed just prior to the issuance of the February 15, 2002 Order. Plaintiffs now resurrect an argument made in Opposition to Defendants' Rule 12(b)(6) Motion to Dismiss [Rec. Doc. No. 48], which also was unsupported when it was originally first made, to wit:
Should the court find that Mohnot possesses the status of shareholders in ITIL, Indian law does not require that shareholders make demand on the company prior to filing suit for mismanagement. See The Companies Act, 1956. Indeed, under Indian law a "shareholder" or those persons promised shares who do not receive certificates may file suit reporting mismanagement of the Company or its officers directly to a court. Because demand is not necessary under Indian law, Mohnot was not required to make such demand under the laws of the "state." See Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991). Regardless, if demand were required, it would be excused due to the defendants' exercise of complete control over the corporations.
See Plaintiffs' Memorandum in Opposition to Defendants' 12(b)(6) Motion to Dismiss, at p. 12 (emphasis added) [Rec. Doc. No. 48].
Plaintiffs make precisely the same unsupported argument now. Plaintiffs' claims do not meet the procedural requirements of Federal Rule 23.1, to wit: (1) failing to allege with particularity their pre-suit demand upon the directors; and (2) failing to assert a valid reason for not satisfying the federal prerequisite. Nor do plaintiffs supply a submission regarding the substantive law in conformity with Federal Rule of Civil Procedure 44.1.
Plaintiffs' unsupported argument that Indian law applies only to their claims involving ITIL does not excuse the demand requirement, and is rejected by this Court. The Supreme Court's decision in Kamen, supra, lends no support to the plaintiffs' position. As noted by Judge Clement in her decision signed on June 23, 2000, "[t]o bring a derivative claim, plaintiffs must make demand on the board of directors unless demand is excused under state law."
See Order Reasons, June 23, 2000, at p. 4 (citing Kamen supra).
Accordingly, defendant Bhansali's Motion for Summary Judgment seeking dismissal of the remaining claims against him as premature is GRANTED.
II. Plaintiffs' Motion for Summary Judgment to Dismiss Counterclaims.
For precisely the same reasons? that the plaintiffs' claims were dismissed as premature, defendants' counter claims for breach of fiduciary duty and breach of shareholder's agreements ( i.e., derivative claims) should be dismissed without prejudice. Neither defendant has made demand upon the Board of Directors of either ICL or ITIL. Bhansali has made no demand whatsoever.
Turning to Kalmus' counterclaim for alleged unpaid salary in connection with his involvement with either ICL and ITIL, there is not a scintilla of evidence suggesting the plaintiffs are personally liable to him for any such claims. Defendants' claims of alleged breach of an alleged verbal agreement to raise second generation financing, which allegedly resulted in damages to the business venture, are derivative claims, and should be similarly dismissed as premature. Alternatively, Kalmus counterclaim for breach of contract between himself and the plaintiffs in their individual capacity fails in the absence of proof, and that is assuming that such claim would not fail on account of prematurity.
See Order Reasons, February 15, 2002, at p. 7-9 [Rec. Doc. No. 229].
Accordingly and for all of the above and foregoing reasons,
IT IS ORDERED that the defendant Rajeev Bhansali's Motion for Summary Judgment seeking dismissal of the plaintiffs' remaining claims as premature is GRANTED.
IT IS FURTHER ORDERED that the plaintiffs' Motion for Summary Judgment. seeking dismissal of the defendants' counterclaims as premature is GRANTED.
IT IS FURTHER ORDERED that the parties' respective claims for sanctions are DISMISSED and shall not be considered by this Court. Almost every claim made herein was derivative and dismissed for failure to make the requisite pre-suit demand on the Board of Directors of the corporations ( i.e., ICL or ITIL). Plaintiffs should not take heart in this pronouncement, as they were the instigators, the prime movers and shakers, responsible for breathing life into this war of attrition.
IT IS FURTHER ORDERED that the preliminary conference via telephone scheduled in this matter for this date with this Court's deputy is hereby CANCELLED.
The Clerk of Court is directed to enter judgment in accordance herewith and in accordance with the prior orders of the Court, dismissing the plaintiffs' RICO claims with prejudice, plaintiffs' claims of breach of fiduciary duty and fraud without prejudice as premature, and the defendants' counter claims without prejudice as premature, plaintiffs to pay all costs associated with the captioned proceedings.