First Department Affirms Dismissal of Two Actions on Forum Non Conveniens GroundsPrint Article
- Posted on: Aug 7 2019
Forum non conveniens is a common law doctrine in which a court may dismiss an action where another forum would be better suited to adjudicate the matter.
In New York, the doctrine is codified in CPLR §327(a). Under this section, a court may stay or dismiss an action if it finds “that in the interest of substantial justice the action should be heard in another forum.” CPLR § 327(a). The party seeking dismissal bears a heavy burden of establishing that New York is not the proper forum for the action.
In considering a forum non conveniens motion, New York courts consider a number of factors, including the burden on New York courts, the potential hardship to the defendant, the unavailability of an alternative forum, whether both parties are nonresidents, whether the transaction out of which the cause of action arose occurred primarily in a foreign jurisdiction, the location of potential witnesses and documents, and the potential applicability of foreign law. No one factor is controlling.
In New York, the seminal case discussing the doctrine is Islamic Republic of Iran v. Pahlavi, 62 N.Y.2d 474 (1984), cert. denied, 469 U.S. 1108 (1985). In Pahlavi, the plaintiffs alleged that the Shah of Iran and his wife misappropriated, embezzled or converted $35 billion dollars in Iranian funds. Id. at 477. The plaintiff alleged that New York was the proper forum for the action because the funds were deposited into New York banks and there was no alternate forum to litigate the claims. The defendants moved to dismiss the complaint alleging that it raised nonjusticiable political questions, that the court lacked personal jurisdiction due to defective service of process on them and that the complaint should be dismissed on forum non conveniens grounds. Special Term granted defendants’ motion based on forum non conveniens, concluding that the parties had no connection with New York other than a claim that the Shah had deposited funds in New York banks, a claim which it found insufficient under the circumstances to justify the court in retaining jurisdiction. A divided Appellate Division, First Department, affirmed. In dissent, Justice Fein argued that jurisdiction should be assumed because no other forum was available to plaintiff. The Court of Appeals affirmed the dismissal, holding that the plaintiff failed to establish “a substantial nexus between this State and plaintiff’s cause of the action.” Id. at 483.
In so holding, the Court set forth a non-exhaustive list of factors (discussed above) that the lower courts could consider when confronted with a motion to dismiss on forum non conveniens. Id. at 479. In applying the factors, the Court said that the ruling should rest on justice, fairness and convenience. Id. Notably, however, the availability of an alternative forum, though a pertinent factor, is not a precondition to dismissal. Id. at 481.
On August 6, 2019, the Appellate Division, First Department, issued two decisions involving the forum non conveniens doctrine: Primus Pac. Partners 1, L.P. v. Goldman Sachs Grp., Inc., 2019 N.Y. Slip Op. 06052 (1st Dept. Aug. 6, 2019) (here); and Kainer v. UBS AG., 2019 N.Y. Slip Op. 06053 (1st Dept. Aug. 6, 2019) (here). In both cases, the Court unanimously affirmed the dismissal of the actions.
Primus Pacific Partners 1, L.P. v. Goldman Sachs Group., Inc.
[Ed. Note: The facts below are taken from the motion court’s decision.]
In Primus Pacific, the plaintiff, Primus Pacific Partners 1, LP (“Primus”), a private equity firm organized under the laws of the Cayman Islands and based in Hong Kong, sued the defendants, Goldman Sachs Group, Inc. (“GS Group”), a global investment banking, securities and investment management firm incorporated in Delaware and headquartered in New York, Goldman Sachs (Singapore) PTE (“GSS”), a wholly owned subsidiary of GS Group, organized under the laws of Singapore with its principal place of business in Singapore, and Tim Leissner (“Leissner”), co-President and Managing Director of GSS, for fraud and breach of fiduciary duty in connection with financial advice that GSS gave to a Malaysian company of which Primus was a shareholder.
In December 2009, Hong Leong Bank (“HLB”), a Malaysian bank, made an unsolicited bid to acquire EON Capital (“EON”), which owned EON Bank Berhard (“EON Bank”), another large Malaysian bank. Primus was the largest shareholder of EON, controlling approximately 20 percent of the shares, and had a designee on EON’s Board of Directors (“Board”).
In January 2010, GSS was retained, together with non-party Ethos & Company (“Ethos”), as a financial advisor to EON, to, among other things, evaluate and negotiate HLB’s offer. Thereafter, HLB made a second, slightly improved offer for EON.
In April 2010, based on the advice of GSS, the Board accepted the revised offer. EON’s shareholders approved HLB’s second offer in September 2010, and the cash proceeds of the sale subsequently were distributed to the shareholders.
In June 2010, Primus brought a petition in the High Court of Malaysia challenging and seeking to set aside the sale of EON’s assets to HLB. The petition alleged that the submission of the offer to shareholders for approval was rushed at the behest of certain shareholders seeking to divest their shares, and the actions of certain shareholders and Board members were illegal or in breach of their fiduciary duties. The petition was dismissed by the High Court and affirmed in 2011.
Plaintiff commenced the action in July 2016, prompted by press reports in March 2016 that Leissner and GSS were being investigated for misconduct in connection with their dealings with the Malaysian Prime Minister and the Malaysian state investment fund, 1 Malaysia Development Bhd. (“1 MBD”), established by the Malaysian Prime Minister. Plaintiff alleged that GSS, at the time it was retained by EON, was an adviser to l MBD and had a close relationship with the Malaysian Prime Minister, who had close family and business ties to 1 MBD and an interest in the success of HLB’s hid to acquire EON.
Plaintiff claimed that GSS, by concealing its relationship and dealings with the Prime Minister, fraudulently induced EON to retain it. Plaintiff also claimed that GSS’s advice to EON was influenced by its relationship with the Malaysian Prime Minister; that GSS used confidential information obtained from the EON Board to advantage HLB in its takeover bid; and that GSS sought to “curry favor” with the Malaysian Prime Minister by recommending that EON accept HLB’s second offer, knowing it was not a fair offer. Plaintiff further contended that EON would not have retained GSS if it had been aware of GSS’s conflicts of interest, and that it would not have accepted HLB’s revised offer if GSS had not recommended that EON accept it. Plaintiff sought compensatory damages of $170 million and at least $340 million in punitive damages.
Defendants moved to dismiss the complaint pursuant to CPLR § 3211(a) and CPLR § 327(a), based on lack of personal jurisdiction and forum non conveniens.
Among other things, the motion court held that New York was not a convenient forum for the action. The motion court found that “most, if not all, of the events giving rise to the alleged misconduct occurred in Malaysia.” The court explained that “[n]one of the events that allegedly gave rise to plaintiff’s fraud and breach of fiduciary claims occurred in New York, and plaintiff [did] not allege that it, or EON, had any dealings with GS Group or its employees in New York in connection with the HLB transaction.”
The court rejected plaintiff’s argument that New York was a convenient forum because the DOJ and the GS Group were investigating GSS’s dealings with the Malaysian Prime Minister and 1 MBD and the advice given by GSS in connection with EON’s acceptance of the HLB offer: “Plaintiff presents no evidence that any of the activities surrounding the EON sale occurred in New York, and its claims that subsequent investigations occurred in New York do not demonstrate a substantial nexus.”
The motion court also found that “the majority of witnesses reside outside of New York,” e.g., Hong Kong and Singapore, and that Malaysia had “a greater interest than New York in transactions involving the sale of its banks and in regulating its banking system.” Significantly, the court noted that plaintiff had already filed a case in Malaysia in which it challenged the sale of EON to HLB. Finally, the court found that “the law of Malaysia, or possibly Singapore, likely [would] apply,” a finding that was not contested by the parties.
The First Department’s Decision
The Court unanimously affirmed the dismissal “given … the balance of the forum non conveniens considerations.” Slip Op. at *1. The Court found that there was no nexus between New York and plaintiff’s causes of action for fraud and breach of fiduciary; plaintiff was not resident in New York, it was a Cayman Islands partnership; and Malaysia had “a greater interest than New York in whether one Malaysian bank (nonparty Hong Leong Bank) corruptly took over another Malaysian bank (EON).” Id. (citations omitted). In addition, the Court rejected plaintiff’s contention that there was no alternative forum to hear the dispute. Id. (“Contrary to plaintiff’s contention, New York law does not require an alternative forum to be available”) (citations omitted).
Kainer v. UBS AG
Kainer involved a dispute among purported heirs to Margaret Kainer’s estate over ownership rights to a Degas painting, “Danseuses,” which the Nazis illegally confiscated from Kainer, who died without a will or children in 1968, and which, many years later, was sold in New York at a Christie’s auction. Plaintiffs consist of Kainer’s estate and 11 heirs to the estate, according to French certificates of inheritance identifying them as such.
Defendants UBS AG, UBS Global Asset Management (Americas), Inc. (together, “UBS”), Norbert Stiftung f/k/a Norbert Levy Stiftung (the “Foundation”) and Edgar Kircher moved to dismiss the complaint against them on various grounds, including on forum non conveniens grounds. The motion court dismissed the complaint.
The First Department affirmed the dismissal.
The First Department’s Decision
As an initial matter, the Court observed that none of the parties were New York residents.
The Foundation, another purported heir to Kainer’s estate and thus to the painting, was founded under Swiss law and is domiciled in Switzerland. UBS AG is a Swiss bank that maintains offices in New York. Its subsidiary, UBS Global Asset Management, is a Delaware corporation. UBS managed the assets of the Kainer family and allegedly created the Foundation. Edgar Kircher, a Swiss citizen and resident and UBS employee, served on the board of trustees of the Foundation, and allegedly directed all acts of the Foundation. Christie’s, a New York auction house, was incorporated in New York and has a principal place of business in New York City.
Slip Op. at *1.
In examining the factors identified in Pahlavi, the First Department held that defendants “clearly demonstrate[d] that New York [was] an inconvenient forum.”
First, the Court found that since “Plaintiffs’ rights as heirs to the painting arose in Germany and France,” the burden on New York courts weighed in favor of dismissal. Id. In fact, said the Court, that burden was “significant”. Id. (“The burden on the New York court in applying Swiss and French estate law to determine the underlying issue of the lawful heirs to Kainer’s estate is significant”). Indeed, observed the First Department, “the parties ‘not only dispute the applicable foreign law, but discuss the substance of the law . . . in a manner that is, at best, opaque.’” Id. (quoting the motion court). Thus, the “applicability of foreign law,” which the Court said was “an important consideration in determining a forum non conveniens motion . . . weigh[ed] in favor of dismissal.’” Id. (citations omitted).
Second, the Court found that the hardship of litigating the case in New York outweighed any alternative forum.
The potential hardships to the defendants of litigating in New York are clear. Kircher lives in Switzerland, the Foundation was created and is domiciled in Switzerland, UBS AG is incorporated and headquartered there, and UBS Global Asset Management has consented to jurisdiction there. Although UBS has a New York office and resources to litigate the case here, many relevant nonparty witnesses and documents are located in Switzerland and Germany, and UBS would be powerless to compel their attendance in New York.
Id. at *2
Third, the Court held that in addition to France and Germany, “Switzerland appear[ed] to be an available alternative forum” for adjudication of the action. Id. The Court based its holding on the fact that plaintiffs had asked a Swiss court to determine the heirs of the Kainer estate, “declare the Swiss certificates of inheritance null and void, and order that all assets — not just the painting at issue — originating from Kainer’s estate be returned to plaintiffs.” Id. at **2-3. The Court reasoned that the underlying merits of the action could not “be determined without reference to the underlying issue of ownership — the very issue that is already being litigated abroad.” Id. at *3, quoting Citigroup Global Mkts., Inc. v. Metals Holding Corp., 45 A.D.3d 361, 362 (1st Dept. 2007). The availability of an alternative forum and the risk of conflicting rulings, concluded the Court, favored dismissal. Id. at *3.
Finally, the Court rejected plaintiffs’ argument that Switzerland was not an alternative forum because the lawsuit could be dismissed. Id. In doing so, the Court explained “while the existence of a suitable alternative forum is an important factor, its absence does not require a New York court to retain jurisdiction.” Id., citing Pahlavi, 62 N.Y.2d at 481.
The forum non conveniens doctrine, codified in CPLR § 327, permits a court to dismiss an action when, “in the interest of substantial justice the action should be heard in another forum.” CPLR § 327(a). It is based upon “justice, fairness and convenience” (Pahlavi, 62 N.Y.2d at 479), in which the party challenging the forum bears the burden of demonstrating that the action would be best adjudicated elsewhere. It is a flexible doctrine that a court should apply in its sound discretion based upon the facts and circumstances of the case. Only “when it plainly appears that New York is an inconvenient forum and that another is available which will best serve the ends of justice and the convenience of the parties” should a case be dismissed on forum non conveniens grounds. Silver v. Great Am. Ins. Co., 29 N.Y.2d 356, 361 (1972). As shown in Primus Pacific and Kainer, the defendants were able to satisfy the burden reflected in the foregoing principles.