Opinion
CAUSE NO. SA-05-CA-100-OG.
August 5, 2005
OPINION AND ORDER DENYING MOTION TO DISMISS
Siko Ventures brings this action to recognize and enforce a judgment of a Hong Kong court. Before the Court is defendant Argyll Equities' first amended motion to dismiss (docket no. 21). Argyll moves for Rule 12(b) dismissal on the ground that the Hong Kong judgment is not enforceable under the Texas Uniform Foreign Money-Judgments Recognition Act ("the Recognition Act"). TEX. CIV. PRAC. REM. CODE § 36.001 et seq. For the reasons set out below, the motion to dismiss will be denied.
Argyll's first amended motion to dismiss supersedes its earlier motion to dismiss. Its motion to dismiss (docket no. 2) is DENIED as moot.
When considering motions to dismiss pursuant to Rule 12, the Court will accept the well-pleaded allegations in the compliant as true, and will construe those allegations in the light most favorable to the plaintiff. Truman v. United States, 26 F.3d 592, 594 (5th Cir. 1994). The cause will not be dismissed unless it appears beyond doubt that no relief could be granted under any set of facts that could be proven consistent with the allegations. Id.
Siko is a British Virgin Islands corporation with its principal place of business in the Hong Kong Special Administrative Region of the Peoples' Republic of China. Argyll is a Texas limited liability company engaged in lending, typically by way of loans that are secured by the pledge of stock. Pursuant to a September 2003 loan agreement, Argyll agreed to lend Siko money. As security for the loan, Siko, pursuant to a pledge agreement, pledged and then transferred to Argyll's Hong Kong agent 50,000,000 shares of the common stock it owned in Kanstar Environmental Technology Holdings Ltd., a stock publically traded on the Hong Kong exchange. Siko alleges that Argyll breached the loan agreement by, among other things, failing to lend Siko any money under it and then improperly selling a portion of the pledged Kanstar stock. Siko sued Argyll in the Hong Kong court to restrain Argyll from selling additional pledged Kanstar stock and to recover the remaining pledged shares.
The following factual background is taken from Siko's first amended complaint. (Docket no. 3.)
Argyll appeared in the Hong Kong lawsuit to contest the court's jurisdiction and venue, arguing that it was not properly served with a writ of summons and that the loan and pledge agreements provided for exclusive jurisdiction and venue of any dispute in the courts of Kendall County, Texas. The Hong Kong court overruled Argyll's contest. Thereafter, on September 20, 2004, the Hong Kong court entered a final judgment that ordered Argyll to deliver to Siko the 50,000,000 pledged Kanstar shares, to pay Siko the proceeds and profits from the sale or other disposition of any pledged Kanstar shares, to pay Siko interest of 8 percent per annum from September 30, 2003, and to pay Siko its court costs.
Argyll contends that the judgment Siko seeks is not enforceable under the Recognition Act because: (1) it does not provide for a specific sum of money to be awarded to Siko; (2) the Hong Kong Court had no personal jurisdiction over Argyll; and (3) the Hong Kong proceedings were contrary to a forum selection clause provided in the loan documents. Siko concedes the judgment is not enforceable under the Recognition Act, but argues that the judgment is enforceable in Texas as an equitable decree under comity principles.
The Recognition Act governs the recognition of final foreign country judgments that grant or deny a sum of money. TEX. CIV. PRAC. REM. CODE § 36.004. Argyll is correct in its argument that the Hong Kong judgment is not a money judgment that falls within the reach of the Recognition Act. Siko's Hong Kong suit did not seek a money judgment. Rather, it sought to enjoin Argyll from selling additional shares of Kanstar stock, the return of the remaining stock, and an accounting of the profits and proceeds from the sale of the pledged stock. Where Argyll errs is in its assumption that the Recognition Act is the only means for enforcement of a foreign country judgment. The Act itself provides that it does "does not prevent the recognition of a foreign country judgment in a situation not covered by this chapter." TEX. CIV. PRAC. REM. CODE § 36.008. Because the judgment in question is not covered by the Recognition Act, Siko sought to enforce it under comity principles. Thus, the question becomes whether the present judgment is enforceable under those principles.
Section 102 of the Restatement of Conflict of Laws provides that: "A valid judgment that orders the doing of an act other than the payment of money, or than enjoins the doing of an act, may be enforced, or be subject to remedies, in other states."See also RESTATEMENT (THIRD) OF FOREIGN RELATIONS § 481(1) ("a final judgment of a court of a foreign state granting or denying recovery of a sum of money . . . or determining interests in property, is conclusive between the parties and is entitled to recognition in courts of the United States."). Comment g to section 102 specifically addresses foreign judgments that order or enjoin the doing of an act:
A valid decree rendered in a foreign nation that orders or enjoins the doing of an act will usually be recognized in the United States. . . . Existing authority does not warrant the making of any definite statement as to the enforcement of decrees that order the doing of other kinds of acts or that enjoin the doing of an act. American courts, however, have usually given the same measure of respect to judgments rendered in foreign nations, which meet the requirements stated in § 98, Comment c, that they give to judgments rendered in sister States. It can therefore be assumed that a decree rendered in a foreign nation which orders or enjoins the doing of an act will be enforced in this country provided that such enforcement is necessary to effectuate the decree and will not impose an undue burden upon the American court and provided further that in the view of the American court the decree is consistent with fundamental principles of justice and of good morals.
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 102 cmt. g (1971).
Section 98, comment c provides:
Conditions to recognition: A foreign nation judgment will not be recognized in the United States unless the American court is convinced that the foreign court had jurisdiction and that
"there has been opportunity for a full and fair trial abroad before a court of competent jurisdiction, conducting the trial upon regular proceedings, after due citation or voluntary appearance of the defendant, and under a system of jurisprudence likely to secure an impartial administration of justice between the citizens of its own country and those of other countries, and there is nothing to show either prejudice in the court, or in the system of laws under which it is sitting, or fraud in procuring the judgment. . . ." Hilton v. Guyot, 159 U.S. 113, 202 (1895).
If these conditions are met, the judgment will not be refused recognition on the ground that the rendering court made an error of law or of fact.
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 98 cmt. c (1971).
Although Siko concedes that no case has been found in which a Texas court has recognized and enforced a foreign country judgment that orders the performance of an act, Texas courts have repeatedly recognized and enforced such sister-state judgments under comity principles. See, e.g. McElreath v. McElreath, 345 S.W.2d 722, 724 (Tex. 1961) (recognizing and enforcing an Oklahoma equitable decree ordering the transfer of title to Texas land under comity principles); Allis v. Allis, 378 F.2d 721, 726-28 (5th Cir. 1967) (applying Texas law in recognizing and enforcing Nevada judgment determining ownership of Texas land);Rich v. ConStan Indus., Inc., 449 S.W.2d 323, 327 (Tex.Civ.App.-Tyler 1969, no writ) (recognizing and enforcing California decree enjoining defendant from infringing plaintiff's trademark). In addition, courts from other states have recognized foreign country judgments and orders requiring the performance of an act. See e.g. Nahar v. Nahar, 656 So.2d 225, 227 (Fla.App. 1995) (recognizing and enforcing decree of Aruban court ordering transfer of decedent's Florida bank accounts to Aruba to be disposed of according to Dutch law);Cardenas v. Solis, 570 So.2d 996, 999 (Fla.App. 1990) (recognizing and enforcing temporary injunction of Guatemalan court freezing half the funds in defendant's Florida bank accounts); Watts v. Swiss Bank Corp., 27 N.Y.2d 270, 278-79, 317 N.Y.S.2d 315, 322, 265 N.E.2d 739, 744-45 (1970) (recognizing and enforcing French judgment determining ownership of New York bank account).
Siko has demonstrated the Texas courts' willingness to recognize foreign judgments ordering the performance of an act, and Argyll has not offered any authority indicating that Texas common law does not allow for the enforcement of a judgment similar to the one at issue. Thus, the Hong Kong Judgment may be recognized under comity principles.
Argyll also argues that the judgment cannot be recognized because the Hong Kong Court lacked personal jurisdiction over it. Argyll, however, does not set forth any argument in its amended motion explaining why it believes there was a lack of jurisdiction. Further, Argyll voluntarily appeared in the Hong Kong litigation to contest that court's jurisdiction and lost. Such a determination by the Hong Kong court is conclusive in the present litigation. Sprague Rhodes Commodity Corp. v. Instituto Mexicano Del Café, 566 F.2d 861, 863 (2d Cir. 1977);Somportex Limited v. Philadelphia Chewing Gum Corp., 453 F.2d 435, 441 (3d Cir. 1971); see also RESTATEMENT (THIRD) OF FOREIGN RELATIONS § 481 cmt. i (1987) ("If the judgment debtor appeared in the rendering court for the purpose of challenging its jurisdiction and that jurisdiction was upheld, he is generally precluded from renewing the challenge in the state where recognition is sought, unless the proceeding in the foreign court was manifestly unfair or the asserted basis for jurisdiction clearly untenable."); Id., § 481, Reporter's Note 3 ("If the jurisdictional facts have been litigated or an opportunity to litigate them was not taken . . . most courts in the United States will regard the determination of jurisdiction as res judicata."). Thus for purposes of this Rule 12 motion, the issue of personal jurisdiction was conclusively decided against Argyll by the Hong Kong court.
Argyll's last argument is that this action should be dismissed because it is inconsistent with the forum selection clauses of the loan agreements. The forum selection clauses are located at sections 8.3 and 8.14 of the Loan Agreement and sections 22 and 23 of the Pledge Agreement. Again, it must be pointed out, as set out in the amended complaint, that the Hong Kong court expressly considered this argument and rejected it. As discussed above, Argyll cannot collaterally attack the Hong Kong court's ruling in the present action.
Sections 8.3 and 8.14 of the Loan Agreement provide, in pertinent part:
8.3 Controlling Law. This Loan Agreement . . . shall be governed by and construed in accordance with the laws of the State of Texas. . . .
8.14. Consent to Jurisdiction: Venue. . . . Borrower hereby consents to the jurisdiction of the courts of the State of Texas . . . for the purpose of any suit, action, or other proceeding arising out of any of Borrower's obligations under or with respect to this Loan Agreement, and expressly waives any and all objections Borrower may have as to venue in any of such courts. . . .
Sections 22 and 23 of the Pledge Agreement provide, in pertinent part:
Section 22. Governing Law. This Agreement shall be governed by, and shall be construed in accordance with the laws, of the State of Texas. . . .
Section 23. Submission to Jurisdiction.
23.1 The Pledgor hereby expressly submits to the non-exclusive jurisdiction of all Federal and State courts sitting in Kendall County, State of Texas, in connection with any action, suit, or proceeding relating to this Agreement, any instrument or document referred to herein or related hereto, or any item of pledge collateral. . . .
23.2 The Pledgor hereby irrevocably waives any objection . . . to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, or any instrument or document referred to herein or related hereto brought in an Federal or State court sitting in Kendall County, State of Texas. . . .
In addition, none of the forum selection clauses explicitly provide for exclusive jurisdiction in Kendall County. Under Fifth Circuit precedent, when determining whether a forum selection clause in a contract will require the parties to litigate in the named forum, i.e., is mandatory and enforceable, a two-step inquiry is undertaken. See Caldas Sons, Inc. v. Willingham, 17 F.3d 123, 127 (5th Cir. 1994). First, the court looks to see whether the forum selection clause is mandatory or permissive.Id. If mandatory, then the court must determine whether it is enforceable. Id. at 127. A permissive forum selection clause, on the other hand, authorizes jurisdiction or venue in a selected forum, but does not prohibit litigation elsewhere. Id. at 127-28.
In Caldas, the Fifth Circuit found that a clause which deemed "[t]he laws and courts of Zurich are applicable" was permissive due to lack of clear language of limitation. See Caldas, 17 F.3d at 127-28. The court found that the only thing that could be conclusively determined from the clause was that the parties consented to personal jurisdiction in Zurich courts. Id. at 128. The clause did not evidence an intent that Zurich was the exclusive forum for disputes based upon the contract; thus, it was permissive rather than mandatory. Id. Similarly, in Keaty v. Freeport Indonesia, Inc., 503 F.2d 955 (5th Cir. 1974), the Fifth Circuit found that a forum selection clause providing "[t]his agreement shall be . . . enforceable according to the law of the State of New York and the parties submit to the jurisdiction of the courts of New York," was permissive. Id. at 957. The court reasoned that the clause was ambiguous because it was "subject to opposing, yet reasonable, interpretations," and determined that this ambiguity was to be construed against the drafter. Id. Like the Fifth Circuit, many courts finding forum selection clauses mandatory have done so because of express language of limitation, such as "only" or "must" bestowing exclusive jurisdiction or venue on a court of a specific locale. See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 2 (1972) ("Any dispute arising must be treated before the London court of justice.") (emphasis added); Pelleport Investors, Inc. v. Budco Quality Theatres, Inc., 741 F.2d 273, 280 (9th Cir. 1984) (holding that the language, "this Agreement shall be litigated only in the Superior Court for Los Angeles (and in no other)" was mandatory); Maley v. Design Benefits Plan, Inc., 125 F. Supp 2d 836, 838 (E.D. Tex. 2000) (finding a forum selection clause which provided that "[v]enue for any action, suit or other proceeding, including non-contract disputes, shall be exclusively in Winnebago County, Illinois" was mandatory).
The same analysis applies with equal force in the instant case. The plain language of the "Jurisdiction" clauses in the agreements at issue simply does not convey any exclusivity about the choice of Kendall County as a forum. In fact, section 23.1 of the Pledge Agreement clearly states that Siko submits to the " non-exclusive jurisdiction of all Federal and State Courts sitting in Kendall County. . . ." (emphasis added). The clauses provide only that Siko consents to the jurisdiction of the enumerated courts and waives any venue objections, but they do not expressly limit venue to those courts to the exclusion of all others. Therefore, the Court must conclude that the forum selection clauses are permissive only, permitting, but not requiring, litigation in the Kendall County courts.
For these reasons, Argyll's first amended motion to dismiss (docket no. 21) is DENIED. As indicated in the first footnote above, Argyll's motion to dismiss (docket no. 2) is DENIED as moot.