The recent dismissal of a $30 million lawsuit brought in New York County’s Commercial Division between foreign entities for the reason that New York is an inconvenient forum is the latest sign that the New York courts are solidifying their stance towards a doctrine that’s playing an increasingly important role in litigation arising from global financial transactions, practitioners say.
Just last month, the New York Court of Appeals held in Mashreqbank PSC v. Ahmed Hamad Al Gosaibi & Brothers, 54, that funds deposited into a New York bank account by a Saudi Arabian businessman did not establish a sufficient nexus with New York to maintain a fraud action here over the alleged failed conversion of those funds into Saudi riyals.
Judge Robert Smith, calling the dispute “a classic case” for the application of forum non conveniens, wrote that while New York’s “interest in the integrity of its banks is indeed compelling,” it is “not significantly threatened every time one foreign national, effecting what is alleged to be a fraudulent transaction, moves dollars through a bank in New York.”
Just last week, moreover, Justice Charles Ramos dismissed a case brought by Hanwha Life Insurance, a Korean company, against global banking entity UBS AG based on Hanwha’s alleged $30 million loss from its investment in a synthetic collateralized debt obligation created by UBS.
In Hanwha Life Insurance v. UBS AG, 651048/2013, Ramos held that Hanwha’s claims for fraud, breach of contract and unjust enrichment arose from events and transactions that mostly took place in Korea and Hong Kong, that critical witnesses and documents are likely located in those two locales and that Korean and English law would likely govern the underlying dispute.
“While this court is capable of applying Korean law, a Korean court is more familiar with such law, and better suited to resolve the parties’ disputes,” Ramos stated in his May 16 decision.
That Ramos’s words conjure remarks made in a previous case, Viking Global Entities v. Porsche Automobil Holding, 650435/2011, is no accident. There, Ramos held that New York was an appropriate forum for a dispute between a group of global hedge funds and German automobile company Porsche arising from the purchase of VW stock shares.
“The Commercial Division of this county is fully capable, and frequently called upon, to apply another country’s laws,” Ramos wrote in his Aug. 6, 2012 decision declining to dismiss the action on forum non conveniens grounds.
The Appellate Division, First Department, in Viking Global Equities v. Porsche Automobil Holding, 101 AD3d 640, 641 [1st Dept. 2012], reversed him. As a result, Ramos relied on Viking to establish the basis for his dismissal of Hanwha’s suit on similar grounds.
The judge pointed out that in Viking, the plaintiffs evaluated Porsche’s statements, conducted due diligence and made investment decisions “entirely in their New York headquarters.” Nevertheless, he stated, the First Department held that since the defendant was a foreign corporation, that VW stock was traded only on foreign exchanges and that many of the witnesses and documents were located abroad, there was an adequate alternative forum in Germany.
“It seems pretty clear that New York courts are increasingly relying on forum non conveniens to dismiss cases that predominantly have a foreign nexus,” said Robert Giuffra, a partner at Sullivan & Cromwell, who served as defense counsel in both the Viking and Hanwha cases. “That’s shown in the recent Court of Appeals decision in Mashreqbank, it’s reflected in the Porsche decision in First Department, it’s reflected in the Hanwha decision.”
(For further commentary on the Mashreqbank decision, see “Fraud on the Court, Forum Non Conveniens, Breathalyzer,” Roy L. Reardon and William T. Russell, Jr., New York Law Journal, May 21).
The doctrine of forum non conveniens is codified in New York Civil Practice Law & Rules 327(a) and subject to the trial court’s discretion. A judge must balance such factors as the existence of an adequate alternative forum, the site of the underlying transaction, the residency of the parties, potential hardship to the defendant, the location of relevant documents and witnesses, the need to apply foreign law and the burden on New York courts.
“It’s a procedural motion. [It arises] when the court may have jurisdiction to hear the case, but shouldn’t hear the case due to these other extenuating factors,” said Tracee Davis, of counsel at Zeichner Ellman & Krause. “It considers those factors in light of where the best place for the case to be heard is.”
Carmine Boccuzzi, a partner at Cleary Gottlieb Steen & Hamilton, who served as counsel to the appellant in Mashreqbank, said while he doesn’t believe the Court of Appeals decision will “move the needle” all that much, “it should help cut back on the more extravagant arguments about connections between New York and disputes.”
“The Court of Appeals, in applying fundamental principles of forum non [conveniens] law, reached the correct conclusion of affirming what [trial judge Richard B. Lowe III] had held,” Boccuzzi said. “The decision provides a helpful corrective to parties seeking to overstate the interest of New York in cases where the connection to New York is tangential.”
The New York County Commercial Division judges have had ample opportunity to rule on such motions in recent months and disclose their thoughts on the balancing test.
In an April 7 decision dismissing an action on forum non conveniens grounds, among others, in Saul Marks v. Glenn Marks, 650777/2013, Justice Melvin Schweitzer reminded parties that, “A motion to dismiss or stay on the ground of forum non conveniens is subject to the discretion of the trial court, and no single factor is controlling.” The judge also wrote, “no real reason exists to add another case to New York’s already heavily burdened court system.”
In an April 29 decision in EnergySolutions v. Kurion, 654060/2013, Justice Shirley Kornreich cited Mashreqbank in a parenthetical to point out that the Court of Appeals held that the “trial court’s decision on forum non conveniens motion is only reviewable ‘to decide whether discretion has been abused.’ ”
Waiver of objections based on forum non conveniens grounds is included in a new Commercial Division rule which seeks to accelerate the adjudication of certain disputes.
“They’re fact-intensive,” Davis, who sits on the advisory council that recommended this proposal, said of the forum non conveniens analysis and the time it takes to decide such a motion. “It’s usually based on a fact-intensive analysis that requires a judge to delve into the underlying facts.”
Giuffra said recent decisions are “reflective of some deference to foreign legal systems.”
“New York courts are very busy,” he said. “You want the judges to focus on cases that belong in the New York courts.”