Opinion
60336402
Decided July 8, 2004.
Motions bearing sequence numbers 006 through 014 are consolidated for disposition.
In this action for fraud, negligent misrepresentation and RICO violations, plaintiff Wyser-Pratte Management Co., Inc. (Wyser-Pratte) alleges that it was "tricked" into investing in defendant Babcock Borsig AG (Babcock) as the result of a conspiracy among the various defendants to misrepresent Babcock's financial condition. In motions 006 through 013, defendants move to dismiss the Amended Complaint on the grounds of forum non conveniens, failure to state a claim and/or lack of personal jurisdiction. In motion sequence 014, defendants all move for a stay of discovery or a protective order in response to plaintiff's request for the production of documents. For the reasons stated below, this action is dismissed on the grounds of forum non conveniens.
1. Parties
Wyser-Pratte is an investment management firm located in New York City. Guy Wyser-Pratte is the President and CEO.
Defendant Babcock is a German public corporation which operates an international technology group that is involved in engineering and shipbuilding. Defendant Lederer is a citizen of Germany and until June of 2002 was the CEO of Babcock and Chairman of its Management Board.
Defendant TUI is a German corporation comprised of more than 500 companies. It was known as Preussag AG until June 26, 2002. Defendant Neuber is Chairman of TUI's Supervisory Board and also the Chairman of Babcock's Supervisory Board. He was also the CEO of Westdeutsche Landesbank (WestLB) from 1981 to 2001. The complaint states that WestLB is a substantial lender to Babcock and formerly its largest shareholder.
Defendants PwC Deutsche and PricewaterhouseCoopers, LLP are partners with defendant PricewaterhouseCoopers, International. PwC Deutsche was Babcock's auditor from 1998 through 2001 and was also TUI's auditor.
Defendant OEP is a Delaware investment manager with offices in New York. Defendant Cashin is the Chairman of OEP.
2. Background
The Amended Complaint alleges that in early 1999, TUI, Neuber, Lederer and Babcock conceived of a plan to rid TUI of certain unprofitable subsidiaries and to "dump" them on Babcock and its shareholders. The parties allegedly selected Babcock because Neuber was Chairman of its Supervisory Board and Chairman of TUI's Supervisory Board and controlled Babcock's largest shareholder, WestLB.
Wyser-Pratte alleges that in return for Babcock common stock, TUI sold Babcock two unprofitable subsidiaries, Preussag Noell Group (Noell) and Preussag Wasser und Rohrtechnik (Wasser). TUI also sold Babcock fifty percent, plus one share, of another subsidiary, Howaldtswerke Deutsche Werft AG (HDW), which was one of the premier European manufacturers of military submarines. The sale of HDW was the key to the plan because it was a highly profitable company and produced large amounts of cash. Thus, Babcock would be able to use that cash to cover shortfalls in its other businesses through the use of a German accounting technique known as "cash pooling". Plaintiff states that this method was available only as long as Babcock controlled HDW. However, plaintiff alleges that, in fact, Babcock did not have actual control over HDW because it had entered into a secret consortium agreement with TUI which allowed TUI to unilaterally remove Babcock from control over HDW.
The Amended Complaint states that by the Fall of 2001, Babcock's senior management knew that the company was in financial trouble and could not acquire full control of HDW. Babcock's lenders were allegedly so concerned about the company's reliance on cash-pooling with HDW that at some point in January of 2002, the Board of Babcock decided to convert the HDW cash to loans from HDW to Babcock, with the first installment due that September.
In the meantime, on January 8, 2002, Guy Wyser-Pratte met with Lederer and Darya Nassehi, a Babcock Senior Vice President, at the Four Seasons in New York City. Lederer allegedly provided a written presentation that set forth a highly favorable picture of Babcock's present and future financial status. Lederer allegedly stated that Babcock controlled HDW and intended to acquire sole ownership of the company and make it the focus of Babcock's future business. Plaintiff alleges that on that same day, Lederer and Nassehi met with non-party Lazard Asset Management in New York City and made a similar presentation.
Plaintiff alleges that Lederer's statements about Babcock's ownership and plans for HDW were intended to induce him to retain his existing shares in Babcock and to purchase additional shares. However, the statements were allegedly false because, as set forth above, Babcock did not have control over HDW because of the secret consortium agreement with TUI which allowed TUI to unilaterally recover control of HDW.
Plaintiff alleges that on March 11, 2002, less than two months after the meeting in New York with Guy Wyser-Pratte, Babcock announced that it would not be purchasing any more shares of HDW and planned to sell half of its existing shares in the company to defendant OEP. Lederer also announced that he was leaving Babcock to become CEO of HDW.
Plaintiff states that the loss of majority ownership in HDW meant that Babcock could no longer take advantage of cash-pooling and loans from HDW. Plaintiff alleges that this eliminated Babcock's ability to conceal its precarious financial position and eventually caused it to file for bankruptcy protection in Germany.
Wyser-Pratte commenced an action in Germany seeking to enjoin Babcock from selling its interest in HDW to OEP. On May 29, 2002, a regional court in Duisburg, Germany issued an injunction prohibiting Babcock from selling its HDW holdings to OEP. Despite this, on June 7, 2002, Babcock sold its shares in HDW to OEP for 300 million Euros. On that same day, Babcock filed papers in the Duisberg regional court in response to the Wyser-Pratte action. According to plaintiff, Babcock's papers set forth the details of the consortium agreement pursuant to which TUI was able to buy back the HDW shares from Babcock.
Plaintiff commenced this New York action in 2002, asserting claims for fraud, negligent misrepresentation and RICO violations. Plaintiff alleges that Babcock made numerous misrepresentations that induced it to invest nearly $20 million in Babcock stock, which plaintiff alleges is now nearly worthless.
The Amended Complaint sets forth three types of misrepresentations by Babcock and the various other defendants. First, it alleges that defendants misrepresented Babcock's financial condition both publicly and privately. Specifically, plaintiff alleges that from 1999 through February of 2002, Babcock issued annual reports and interim reports indicating that the company was in good financial condition and likely to improve. Plaintiff alleges that, in fact, Babcock's liabilities exceeded its assets by approximately EUR 1.4 billion. Plaintiff also alleges that, as described above, Babcock's representatives met privately with investors, such as Guy Wyser-Pratte and misrepresented the company's financial condition in order to induce investment.
Second, it alleges that Babcock failed to disclose that its ostensible control over HDW really belonged to TUI. Plaintiff concedes that certain disclosure was made about the consortium agreement in a prospectus filed with a German stock exchange. However, the prospectus allegedly did not disclose certain terms that subsequently were revealed in the bankruptcy filing or indicate that the cash-pooling procedure would be ended. Finally, Babcock and Lederer misrepresented that they intended to purchase 100% of HDW and make it the centerpiece of Babcock's business.
The Amended Complaint alleges that the various PwC defendants participated in the conspiracy by, among other things, certifying Babcock's financial statements for the years 1998 through 2001, despite knowing that the statements were false. Defendants Cashin and OEP allegedly aided and abetted the conspiracy by negotiating to purchase HDW and performing due diligence, and by ultimately purchasing HDW despite knowing that investors had relied on the misrepresentations of Babcock and Lederer.
3. Forum Non Conveniens
"The common-law doctrine of forum non conveniens, also articulated in CPLR 327, permits a court to stay or dismiss such actions where it is determined that the action, although jurisdictionally sound, would be better adjudicated elsewhere." Islamic Republic of Iran v. Pahlavi, 62 NY2d 474, 478-479. "The burden rests upon the defendant challenging the forum to demonstrate relevant private or public interest factors which militate against accepting the litigation and the court, after considering and balancing the various competing factors, must determine in the exercise of its sound discretion whether to retain jurisdiction or not." Id. at 479, citations omitted.
The statute states: "When the court finds that in the interest of substantial justice the action should be heard in another forum, the court, on the motion of any party, may stay or dismiss the action in whole or in part on any conditions that may be just. The domicile or residence in this state of any party to the action shall not preclude the court from staying or dismissing the action."
In considering the issue of forum non conveniens, the court may consider several factors, including the burden on the New York courts, the potential hardship to the defendant, and the availability of an alternative forum in which plaintiff may bring suit. Islamic Republic of Iran v. Pahlavi, supra at 479; Banco Ambrosiano, SPA v. Artoc Bank Trust, 62 NY2d 65; Intertec Contracting A/S v. Turner Steiner Intern, SA, 6 AD3d 1 [1st Dept 2004]. The court may also consider whether the parties are residents of New York and whether the transactions out of which the cause of action arose occurred primarily in a foreign jurisdiction. Islamic Republic of Iran v. Pahlavi, supra at 479, citing Silver v. Great Amer. Ins. Co., 29 NY2d 356, 361; see, Harleysville Ins. Co. v. Ermar Painting and Contracting, Inc., ___ AD2d ___, 777 NYS2d 661 [2nd Dept 2004]. No single factor is controlling. Islamic Republic of Iran v. Pahlavi, supra at 479, citations omitted; Intertec Contracting A/S v. Turner Steiner Intern, SA, 6 AD3d 1 [1st Dept 2004]. Here, the court finds that this action must be dismissed on the grounds of forum non conveniens.
A. New York Nexus/Burden on New York Courts
The Court of Appeals has stated that New York courts "should not be under any compulsion to add to their heavy burdens by accepting jurisdiction of a cause of action having no substantial nexus with New York." Silver v. Great Am Ins Co, 29 NY2d 356. Moreover, "where a foreign forum has a substantial interest in adjudicating an action, such interest is a factor weighing in favor of dismissal." Shin-Etsu Chemical Co, Ltd v. 3033 ICICI Bank Ltd, ___ AD2d ___, 777 NYS2d 69 [1st Dept 2004], citing Europe and Overseas Commodity Traders, SA v. Banque Paribas London, 940 FSupp 528, 539 [SDNY 1996], affd 147 F3d 118 [2d Cir 1998], cert denied 525 US 1139.
New York courts have regularly dismissed actions on the grounds that they have an insufficient nexus with New York and would thus place an undue burden on the courts by adjudicating them here. For example, in Neuter, Ltd v. Citibank, NA, 239 AD2d 213 [1st Dept 1997], the court dismissed an action in which the defendant's headquarters were located in New York but the trades at issue were executed in Switzerland and only one witness had a residence in New York. Moreover, the action was governed by Swiss law, expert testimony was required as to that law and the defendant had already consented to the jurisdiction of the Swiss courts.
Similarly, in Deutsche Anlagen-Leasing GMBH v. Kuehl, 111 AD2d 69 [1st Dept 1985], the court found that New York was an inappropriate forum where the parties and potential witnesses were German, the actions complained of took place primarily in Germany, German law applied and the parties had already engaged in litigation in Germany. See, Stockacre Ltd v. PepsiCo, Inc, 265 AD2d 398 [2nd Dept 1999] (plaintiff had already commenced an action in Denmark on same underlying facts).
In Millicom Int'l Cellular SA v. Simon, 247 AD2d 223 [1st Dept 1998], the court found the Philippines to be a more viable and convenient forum in an action involving a one-time dissemination in New York of a report that was part of an alleged worldwide "smear campaign" against the plaintiff. The court found that this single act did not warrant keeping the case in New York because the crucial events underlying the action had occurred in the Philippines and a majority of witnesses were in the Philippines. The court stated that "[c]learly, the undue burden that would be placed upon the New York courts if jurisdiction were to be retained would be entirely unjustified given the extremely tenuous nexus between the claim asserted and this forum, notwithstanding the allegation that such nexus was deliberately created by defendants." Id. See, Blueye Navigation, Inc v. Den Norske Bank, 239 AD2d 192 [1st Dept 1997] (action dismissed where majority of witnesses and evidence were located in England and the action was governed by English law); Continental Ins Co v. Polaris Industries Partners, LP, 199 AD2d 222, [1st Dept 1993] (witnesses and evidence located in Minnesota and Minnesota law governed).
In the Millicom case, unlike here, none of the parties were New York residents. However, as set forth below, this factor is not dispositive in a forum non conveniens analysis.
Here, plaintiff's claims do not have a substantial nexus with New York. The causes of action set forth in the Amended Complaint arise nearly entirely from transactions and events that took place outside of New York and mainly in Germany.
First, it is undisputed that Babcock is a German company which is traded solely on German stock exchanges, and that plaintiff invested in the company through those exchanges. Second, the vast majority of misrepresentations complained of by plaintiff took place in Germany. These include, but are not limited to, Babcock's Annual Reports and other financial statements, as well as press releases and statements to newspapers, all of which were issued in Germany. Further, the accounting practices complained of took place predominantly in Germany.
It is also undisputed that many, and probably most, of the transactions and accounting procedures at issue here will be governed by German law and accounting rules. This court is capable of applying German law. However, it cannot be disputed that a German court is more familiar with such law and thus better equipped to apply that law. See, Deutsche Anlagen-Leasing GMBH v. Kuehl, 111 AD2d 69 [1st Dept 1985]; Neuter, Ltd v. Citibank, NA, 239 AD2d 213 [1st Dept 1997] (applying Swiss law); see, also, Leetsch v. Freedman, 260 F3d 1100 [9th Cir 2001]; Bybee v. Oper der Stadt Bonn, 899 FSupp 1217, 1223-1224 [SDNY 1995]. Moreover, most of the documents at issue here were drafted in Germany, are written in German and will require extensive translation. See, Troni v. Banca Popolare Di Milano, 129 AD2d 502 [1st Dept 1987]. Further, most of the potential witnesses identified by the parties are residents of Germany.
Plaintiff contends that this action has a substantial New York nexus because of the meeting at the Four Seasons on January 8, 2002. However, this single meeting is the only event set forth in the Amended Complaint that connects this action to New York. Moreover, plaintiff does not dispute defendants' assertion that plaintiff had already purchased the majority of its Babcock stock before the meeting at the Four Seasons took place. Therefore, this single meeting is insufficient to establish a sufficient New York nexus, particularly when compared to the overwhelming nexus with Germany.
Plaintiff further contends that a New York nexus exists because of the meeting between Lederer and Lazard on that same day. However, plaintiff was not at that meeting and did not rely on anything set forth in that meeting. Therefore, that meeting does not contribute to demonstrating that a New York nexus exists here. For the same reasons, plaintiff's assertion that Lazard is a necessary witness located in New York is unpersuasive.
Based on the factors set forth above, it is clear that maintaining this action in New York would place a significant burden on the New York courts. Such a burden is not warranted given the slim nexus that this action has with New York. Moreover, it cannot be disputed that Germany has a significant interest in adjudicating this action given the substantial nexus with that country.
B. Availability of Alternate Forum
"The availability of an adequate alternative forum is an important consideration, but it is not a precondition to dismissal on forum non conveniens grounds." Shin-Etsu Chemical Co, Ltd v. 3033 ICICI Bank Ltd, ___ AD2d ___, 777 NYS2d 69 [1st Dept 2004], citing, Islamic Republic of Iran v. Pahlavi, supra at 481. To require otherwise, "would place an undue burden on New York courts forcing them to accept foreign-based actions unrelated to this State merely because a more appropriate forum is unwilling or unable to accept jurisdiction." Islamic Republic of Iran v. Pahlavi, supra at 481. Generally, an adequate alternative forum is available when the defendant is amenable to process in that jurisdiction. Shin-Etsu Chemical Co, Ltd v. 3033 ICICI Bank Ltd, ___ AD2d ___, 777 NYS2d 69 [1st Dept 2004]. In conducting a forum non conveniens analysis, courts in New York and elsewhere have routinely dismissed cases on the grounds that Germany was an adequate and more appropriate forum. See, eg, Deutsche Anlagen-Leasing GMBH v. Kuehl, 111 AD2d 69 [1st Dept 1985]; Adriana Dev Corp v. Gaspar, 81 AD2d 235, 239 [1st Dept 1981]; see, also Carey v. Bayerische Hypo-Und Vereinsbank AG, 370 F3d 234 [2d Cir 2004]; Leetsch v. Freedman, 260 F3d 1100 [9th Cir 2001]. Baumgart v. Fairchild Aircraft Corp, 981 F2d 824 [5th Cir], cert denied, 508 US 973.
Defendants have submitted expert evidence demonstrating that plaintiff's fraud claims can be pursued under German law, and plaintiff does not dispute this assertion. Instead, plaintiff argues that Germany is an inadequate forum because it does not recognize RICO claims or ones for punitive damages. However, a given forum is not inadequate merely because it does not recognize certain claims, including claims for punitive damages and RICO violations. See, Hingis v. Tacchini, 303 AD2d 275 [1st Dept 2003](punitive damages); Flores v. Southern Peru Copper Corp, 253 FSupp2d 510, 534, n 26 [SDNY 2002], aff'd 343 F3d 140 [2d Cir 2003](punitive damages); PT United Can Co Ltd v. Crown Cork Seal Co, Inc, 138 F3d 65, 74 [2d Cir 1998](RICO claims). Moreover, plaintiff has already demonstrated that it considers Germany to be an adequate forum by commencing an action in Germany based on at least some of the events underlying the current action.
Plaintiff also argues that Germany is an inadequate forum because of various procedural differences from New York. However, the presence of procedural differences between New York courts and those in another forum does not automatically render that forum inadequate. Edelman v. Taittinger, SA, 298 AD2d 301, 303 [1st Dept 2002], citing, Islamic Republic of Iran v. Pahlavi, supra at 481. As set forth above, courts have routinely found Germany to be an adequate forum despite any procedural differences from New York.
Therefore, the court finds that Germany is an adequate forum and this factor supports dismissal of this action on forum non conveniens grounds.
C. Hardship to Parties
Plaintiff argues that it will incur expenses by having to litigate in Germany. However, these potential expenses must be balanced against the expenses which would be incurred by defendants in having to transport witnesses and documents to New York. See, Wentzel v. Allen Machine, Inc, 277 AD2d 446 [2nd Dept 2000]; Neuter, Ltd v. Citibank, NA, 239 AD2d 213 [1st Dept 1997]. As set forth above, the locus of this action is Germany. Most of the documents and witnesses are located in Germany and most of the documents are written in German. Therefore, the court finds, on balance, that it would a greater hardship for defendants to litigate in New York than for plaintiff to litigate in Germany, particularly since plaintiff has already availed itself of the German court system in relation to this action.
D. Residency of Parties
CPLR 327(a) states that the domicile or residence in New York of any party does not preclude the court from staying or dismissing the action. See, Holness v. Maritime Overseas Corp, 251 AD2d 220 [1st Dept 1998]; Blueye Navigation, Inc v. Den Norske Bank, 239 AD2d 192 [1st Dept 1997]. Here, plaintiff is a resident of New York. However, five of the nine defendants are residents of Germany, namely Babcock, TUI, Lederer, Neuber and PwC Deutsche. Notably, these five defendants are the ones whose actions gave rise to most of the allegations in the Amended Complaint. On balance, this lends support to dismissing this action on forum non conveniens grounds.
E. Conclusion
This action clearly arises from alleged events and transactions that took place almost entirely outside of New York. Plaintiff alleges that it was induced to invest in a German company that was traded solely on German stock exchanges as the result of misrepresentations made by German individuals or German entities. These misrepresentations were largely made in financial statements and other documents published in Germany concerning transactions among various German companies. The sole connection to New York was a meeting that took place after plaintiff had made the bulk of its investment. Moreover, plaintiff has already availed itself of the German judicial system in connection with the transactions at issue here. Therefore, it is clear that Germany is the proper forum for this action.
However, plaintiff should not be deprived of a forum for this action in the event that any of the defendants should not prove amenable to jurisdiction in Germany. Therefore, plaintiff may renew this action with respect to any defendant that proves to be not amenable to jurisdiction in Germany. Accordingly, it is
ORDERED that the motion by defendant Babcock Borsig, AG to dismiss the complaint on the grounds of forum non conveniens is granted and, pursuant to CPLR 327, the entire action is dismissed on those grounds; and it is further
ORDERED that the remaining motions to dismiss this action and for a protective order are denied as moot.
Dated: July 8, 2004