Opinion
CASE NO. C16-5706RBL
02-14-2017
CERNER MIDDLE EAST LIMITED, Plaintiff, v. BELBADI ENTERPRISES LLC, and VANDEVCO LIMITED, Defendants.
ORDER ON MOTIONS TO REMAND AND DISMISS [Dkt. #s 7, 10, 13 & 21]
THIS MATTER is before the Court on Plaintiff Cerner's Motion to Remand the case to Clark County Superior Court [Dkt. #13], and on Defendant Belbadi's Motion to Dismiss [Dkt. #10]. Cerner (a citizen of Missouri and the Cayman Islands) claims the defendants' removal was improper because this Court does not have subject matter jurisdiction over. Belbadi (a United Arab Emirates company with a principal place of business in Abu Dhabi) argues that the Court lacks quasi in rem and in personam jurisdiction over it.
This is one of at least six U.S. lawsuits Cerner filed in the wake of a foreign arbitration award that Cerner obtained against two non-parties, iCapital and Ahmed Saeed Mahmoud Al-Badie Al-Dhaheri ("Dhaheri," an individual). Cerner contracted with iCapital's predecessor to provide medical services software and technology services in the U.A.E. A dispute arose and the Cerner and iCapital engaged in a foreign arbitration, consistent with their agreement. The arbitration resulted in a substantial award in Cerner's favor. It also apparently determined that Dhaheri was iCapital's alter ego, despite the fact he was not a party to the agreement and was not a part of the arbitration. Defendants argue that this determination was made without jurisdiction and is wrong, and that it is necessarily implicated in Cerner's collection efforts here.
The award was entered by the International Chamber of Commerce International Court of Arbitration, seated in Paris.
As part of the parties' subsequent settlement of that dispute, another Dhaheri-owned entity, Belbadi, unconditionally guaranteed iCapital's debts to Cerner. Cerner claims it settled in reliance on Belbadi's agreement to "back" its guarantees with its global assets, including specifically Vandevco's Vancouver Center real estate development in Vancouver, Washington. Cerner claims iCapital soon "bounced" a check for some of the debt, breaching the settlement agreement and triggering Belbaldi's liability on its Guarantees. Cerner claims Belbadi owes it $63,000,000, and this suit is an effort to simultaneously enforce the guarantees and collect the debt from Belbadi's (and Dhaheri's) forum assets, Vandevco and its development, the Vancouver Center.
Dhaheri is the sole shareholder of Belbadi and iCapital. Cerner alleges that Belbadi in turn owns Defendant Vandevco, a Washington corporation. Vandevco's (and the Vancouver Center's) presence in Washington is Cerner's jurisdictional "hook" for suing Belbadi and Vandevco in Clark County.
Defendants claim Vandevco is owned by Willamette Enterprises, a Cayman Islands corporation. They do not address Cerner's allegation that Dhaheri owns Belbadi, which in turn is Vandevco's "titular" owner.
Cerner alleges that Vandevco is Belbaldi's alter ego, and that Dhaheri is the alter ego of Belbadi, Vandevco, and Vandevco's various subsidiaries (the "VanSubs," all of which appear to be Washington LLCs related to the Vancouver Center). It asserts quasi in rem jurisdiction over Belbadi on the basis of its ownership of Vandevco and/or the VanSubs, claiming that Vandevco's shares, as Belbadi's assets, can be attached in satisfaction of Belbaldi's guarantee obligations to Cerner.
It also asserts in personam jurisdiction over Belbadi, based on its claim that Vandevco (and one of the VanSubs, VanRes) are Belbadi's alter egos. This claim is based on the allegation that a VanSub and others involved in the Vancouver Center have made "Subsidiary Payments" of $3.2 million that was rightfully Vandevco's, directly to Belbadi over the years.
Belbadi and Vandevco timely removed the Clark County action here, alleging both that the court has diversity jurisdiction and that the Court has original jurisdiction over Cerner's claim relating to an arbitration award falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. See 9 U.S.C. §205.
Cerner seeks remand to Clark County. It argues that there is no diversity jurisdiction because a foreign citizen (Cerner) cannot sue a foreign citizen (Belbadi) in this Court, and that the removal was improper because Defendant Vandevco is the resident party, and the forum defendant rule precludes removal in that instance. Cerner also argues that its effort to enforce Belbadi's guarantees do not "relate to an arbitration agreement or award falling under the Convention"—it claims to seek judgment on unconditional guarantees that are "independently enforceable under state law" regardless of the "effect and validity of any arbitration award."
Belbadi and Vandevco now concede that there is no diversity jurisdiction, but continue to argue that Cerner's claims (and their own affirmative defenses, raised in the Removal Notice) necessarily relate to the underlying foreign arbitration award. They argue that Cerner's "alter ego" theories are intended to—and if successful, would—enforce that award against them. They point out that the allegedly unrelated Award is attached to Cerner's complaint.
Defendants also argue that it would have the effect of enforcing the award against a non-party alter ego, Dhaheri, who did not sign the agreement to arbitrate. One of their affirmative defenses to this action is that the ICC arbitrator did not have authority to determine that Dhaheri was bound to arbitrate under an alter ego theory, because under the applicable Missouri law, that determination should have been made by a court in the first instance.
The defendants also seek dismissal for lack of jurisdiction, and urge the Court to address this simpler, threshold question first. The motions are not unrelated. Defendants argue that Cerner's assertion of quasi in rem jurisdiction over Belbadi's forum assets is flawed—Cerner seeks to obtain a judgment against Belbadi (on its guarantees) and to enforce that judgment against the assets of its alleged alter ego, Vandevco, in one proceeding. It argues that the required nexus between the forum, the defendant and the litigation is not met simply because Vandevco's assets are located here and Cerner seeks to obtain them. It also argues that Cerner's assertion of personal jurisdiction over Belbadi on an alter ego theory is flawed, as it has not and cannot show that the failure to disregard the separate entities would result in fraud or injustice to Cerner.
A. Motion to Remand
The party asserting federal jurisdiction has the burden of proof on a motion to remand to state court. See Conrad Associates v. Hartford Accident & Indemnity Co., 994 F. Supp. 1196 (N.D. Cal. 1998). The removal statute is strictly construed against removal jurisdiction, and the strong presumption against removal jurisdiction means that the defendant always has the burden of establishing removal is proper. Id. at 1198. It is obligated to do so by a preponderance of the evidence. Id. at 1199; see also Gaus v. Miles, 980 F.2d 564, 567 (9th Cir. 1992). Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance. Id. at 566.
Defendants concede that there is no diversity jurisdiction in this case. But they claim that §205 of the Arbitration Act makes the case removable, because Cerner's claims necessarily "relate to" an arbitration agreement or award falling under the Convention.
The relevant statute and the cases construing it set a low bar for removability where the claims (or defenses) relate to an international arbitration award:
[W]here the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention. . . . The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal.9 U.S.C. §2015 (emphasis added). The Ninth Circuit has held that this language is "plainly broad" and noted that similar language in other statutes conveys "sweeping removal jurisdiction." See Infuturia Global Ltd. v. Sequus Pharmaceuticals, Inc., 631 F.3d 1133, 1138 (9th Cir. 2011). It agreed with the Fifth Circuit that "whenever an arbitration agreement falling under the convention could conceivably affect the outcome of the plaintiff's case, the agreement 'relates to' the plaintiff's suit." Id., citing Beiser v. Weyler, 284 F.3d 665, 669 (5th Cir. 2002) (emphasis added).
Cerner claims it seeks only to enforce the Belbadi Guarantees, and not an order enforcing, interpreting or otherwise relating to the underlying foreign arbitration award. But that is an over-simplification. Cerner must concede that the Belbadi Guarantees called for interpretation and litigation in the U.A.E., even if they were "unconditional" and whether or not they included a waiver of defenses. Cerner has not yet obtained a judgment on those guarantees, and the defendants claim that one of their defenses relates directly to the underlying arbitration—they claim that the arbitrator did not have the authority to determine that Dhaheri was iCaptial's alter ego, or to make Dhaheri liable for the award on that basis.
If this really were a straight-forward effort "solely" to sue Belbadi to enforce its guarantees of iCaptial's debt under the settlement agreement that resulted from the arbitration, Cerner's claim that the award is unrelated might be more persuasive. And if it were seeking to enforce an already-obtained judgment against Belbadi's Clark County assets, the "unrelated" claim might prevail. But (as will be discussed below) these are not Cerner's claims. Cerner's only colorable basis for suing Belbadi in Clark County (rather than the agreed-upon U.A.E. forum) is its claim that Vandevco and Belbadi are alter egos, that Belbadi (and iCapital) are Dhaheri's alter egos, and that, as a result, it is entitled to attach and execute on Vandevco's assets.
It is plainly "conceivable" that the international arbitration award relates to or will have some impact on Cerner's claims or defendants' affirmative defenses in this case. The Court's removal jurisdiction under these circumstances is broad and the Motion to Remand is DENIED.
B. Motion to Dismiss
Belbadi argues that it is a U.A.E. corporation that agreed to litigate its obligations to Cerner in the U.A.E., under U.A.E. law. It denies any connection to Washington, and argues that Cerner's quasi in rem and in personam efforts to sue it here are both flawed.
1. Quasi in rem jurisdiction
Cerner's quasi in rem jurisdictional theory is that Belbadi owes it money on the guarantees and its property is located here. It seeks to attach Belbadi's forum property, establish Belbadi's liability on the guarantees, and execute the anticipated judgment against the property, simultaneously, in this action. It claims that the property is therefore both the "subject" of the litigation and is "related to" its claims against Belbadi under the guarantees. It also claims that the property's presence here is not fortuitous, but is instead the product of Belbadi's "conscious and purposeful availment" of this forum, by developing, owning and operating the Vancouver Center.
The parties agree that quasi in rem jurisdiction is measured against Shaffer:
The case for applying to jurisdiction in rem the same test of "fair play and substantial justice" as governs assertions of jurisdiction in personam is simple and straightforward. It is premised on recognition that "(t)he phrase, 'judicial jurisdiction over a thing', is a customary elliptical way of referring to jurisdiction over the interests of persons in a thing." ...This recognition leads to the conclusion that in order to justify an exercise of jurisdiction in rem, the basis for jurisdiction must be sufficient to justify exercising "jurisdiction over the interests of persons in a thing." The standard for determining whether an exercise of jurisdiction over the interests of persons is consistent with the Due Process Clause is the minimum-contacts standard elucidated in International Shoe.Shaffer v. Heitner, 433 U.S. 186, 207-10 (1977).
Belbadi argues that Cerner is asserting quasi in rem jurisdiction by attachment, in a dispute that does not otherwise relate to the property to be attached—it is instead a suit to enforce Belbadi's guarantees of iCapital's debt, which arose from the arbitration award and the subsequent settlement. Thus, it claims, Cerner must demonstrate some nexus between Belbadi, the forum, and the litigation, beyond Belbadi's mere ownership of property here. See Shaffer at 204 (1977) (the relationship between the defendant, the litigation and the forum, are the central concern of the due process inquiry); see also Office Depot. Inc. v. Zuccarini, 596 F.3d 696 (9th Cir. 2010). Belbadi argues that while an action to execute an existing judgment might satisfy these concerns, the mere presence of a defendant's assets in the forum does not confer jurisdiction in a lawsuit that seeks to determine the defendants liability as an original matter. See H. Ray Baker, Inc., v. Associated Banking Corp., 592 F.2d 550, 552 (9th Cir. 1979) (presence of assets in a state is a relevant, but not sufficient, contact). Belbadi claims that the bare fact of its passive ownership of Vandevco's shares cannot establish the required nexus.
Belbadi points out that Vandevco is actually "the property" Cerner seeks to attach and execute upon, and that the guarantees made no mention of Vandevco or the Vancouver Center.
Cerner claims these requirements are satisfied because the defendant's property (the Vancouver Center) is in fact the "subject of the litigation" and is "directly related to" its claims under the Belbadi Guarantees.
It also argues that the property's presence here is hardly fortuitous; it claims Belbadi developed, owns and operates the Vancouver Center. It relies on Feder v Turkish Airlines, 441 F.Supp. 1273 (S.D.N.Y. 1977), where the defendant's act of maintaining a bank account in New York to further its business operations there was not "fortuitous," and the forum court could exercise quasi in rem jurisdiction over that account—a distinction from Shaffer that even Cerner recognizes, where the defendant had "never set foot in or otherwise did business in" the forum.
Factually, Cerner points to a letter Belbadi wrote to Vancouver's mayor in 2015, describing its 17-year, one hundred million dollar investment in the Vancouver Center.
The Court does not agree that the Vancouver Center is the subject of Cerner's claim against Belbadi in the way that these authorities contemplate. It is true that Cerner literally seeks to obtain Vandevco's shares, or the Vancouver Center's revenue, at the end of this case as a mechanism for enforcing Belbadi's guarantee to pay iCapital's debt. But the "subject" of the litigation is its breach of contract (guarantee) claim against Belbadi. Vandevco and the Vancouver Center are instead the means for collecting a judgment, which it has not yet obtained. For the same reason, the forum assets are not "directly related" to, the core, guarantee enforcement claim; they are instead a subset of apparently global assets that could be used to enforce a judgment, once obtained.
Belbadi points out that while it agreed to securitize its guarantee obligations with its global assets, there is no evidence or claim that Cerner actually took a security interest in the forum assets. Instead, Cerner seeks different remedy: pre-judgment attachment of assets, which requires it to demonstrate the probable validity of its underlying claim.
Finally, Cerner's claim that Belbadi's indirect ownership of Vandevco amounts to the constitutionally-required purposeful availment of the forum necessarily implicates its alter ego theory, discussed below. Absent that, there is no discernable connection at all between the Vandevco, the Vancouver Center and the guarantees.
2. In personam jurisdiction
Cerner claims that Belbadi is subject to in personam jurisdiction as Vandevco's alter ego. The factual basis for this claim is a series of payments by a VanSub (VanRes) and others totaling something over $3 million to Belbadi, which Cerner claims was instead owed to Vandevco. The legal basis is Cerner's claim that these payments are prima facie evidence that Vandevco is Belbadi's alter ego.
Cerner also makes conclusory allegations that Dhaheri, Belbadi, Vandevco and the VanSubs are actually a single business enterprise dominated by Dhaheri and that "Belbadi, through the use of various bank accounts in the United States, has essentially served as Dhaheri's personal piggy bank." --------
The parties generally agree on the showing Cerner must make on its alter ego claim. Cerner emphasizes that the showing required for jurisdiction purposes is less stringent than it is for liability:
Under Ninth Circuit law, a plaintiff makes a prima facie case of alter ego over a defendant by alleging "(1) that there is such unity of interest and ownership that the separate personalities [of the two entities] no longer exist and (2) that failure to disregard [their separate identities] would result in fraud or injustice." Doe v. Unocal Corp., 248 F.3d at 926. The alter ego showing for jurisdictional purposes is less stringent than for liability purposes. See Stuart v. Spademan, 772 F.2d 1185, 1198, n. 12 (5th Cir. 1985) (noting that "the alter ego test for attribution of contacts, i.e., personal jurisdiction, is less stringent than that for liability").[Dkt. #36 at 16]. Belbadi emphasizes that Cerner must demonstrate that the alleged lack of corporate formalities resulted or would result in fraud, wrong or injury to Cerner: "In exceptional circumstances, the corporate entity will be disregarded where its recognition would aid in perpetrating a fraud or result in manifest injustice." [Dkt. #10 at 11, citing Truckweld Equipment Co., Inc. v. Olson, 26 Wash. App. 638, 644-45, 618 P.2d 1017 (1980) ]. But it argues that the alleged corporate informality is not enough where the plaintiff cannot tie it to any resulting fraud misrepresentation to the plaintiff. "Typically, the injustice which dictates a piercing of the corporate veil is one involving fraud, misrepresentation, or some form of manipulation of the corporation to the stockholder's benefit and creditor's detriment." Id. at 644-45 (emphasis added).
Cerner's claim that the Subsidiary Payments should have been made to Vandevco, rather than Belbadi, does not support any inference that Belbadi used Vandevco to defraud or prejudice Cerner; Cerner contracted with Belbadi, not Vandevco. Belbadi is not attempting to "hide" behind Vandevco's corporate form, which is the typical situation in which veil-piercing is used to avoid fraud or injustice. See, for example Curtis v Illumination Arts, Inc., 2013 WL 6173799 (W.D. Wash. 2013), cited by Cerner:
To satisfy the first element, the court must find an abuse of the corporate form, which typically involves fraud, misrepresentation, or some form of manipulation of the corporate to the stockholder's benefit and the creditor's detriment. . . . To satisfy the second element, the wrongful corporate activities must actually harm the party seeking relief so that disregard is necessary.Id. at *8-8, citing Meisel v. M & N Modern Hydraulic Press Co, 97 Wash.2d 403 (1982) (emphasis added). There is no claim and no evidence that Vandevco's corporate informalities harmed Cerner.
Furthermore, Vandevco's formation and some of the payments pre-dated the guarantees, the guarantees make no reference to Vandevco, and there is simply no viable claim that any informality (or even shenanigans) regarding Vandevco's corporate form had any effect on Cerner's conduct or its ability to enforce Belbadi's guarantees. And, as Belbadi points out in Reply, Cerner does not really address the fraud or injustice prong of the veil-piercing test. Neither iCapital's bounced check nor Belbadi's apparent refusal to pay on its guarantees implicate Vandevco or show that its corporate form's alleged misuse amounts to fraud against Cerner.
Cerner has not made out a prima facie case for piercing Vandevco's corporate veil to avoid fraud or injustice, and its claim of personal jurisdiction over Belbadi based on that theory is insufficient as a matter of law. Belbadi's Motion to Dismiss on that basis is GRANTED.
Belbadi's argument that the case cannot proceed against Vandevco in Belbadi's absence under Rule 19 is unrebutted and is clearly correct. This matter is therefore DISMISSED. The Pending Motion for Contempt [Dkt. #7] is DENIED, and the Motion to Vacate the TRO entered by the Superior Court [Dkt. #21] is GRANTED.
IT IS SO ORDERED.
Dated this 14th day of February, 2017.
/s/_________
Ronald B. Leighton
United States District Judge