No. 04 Civ. 6945 (DC).
July 29, 2005
LAW OFFICES OF ROBERT J. BASIL, Robert J. Basil, Esq., New York, New York, Attorneys for Plaintiff.
BONDY SCHLOSS LLP, S. Robert Schrager, Esq., New York, New York, Attorneys for Defendant.
In this action, plaintiff ICC Industries, Inc. ("ICC") seeks a declaratory judgment that its guarantee issued to defendant Israel Discount Bank ("IDB") of financial obligations of an Israeli public company is void or limited. ICC invokes this Court's jurisdiction pursuant to 28 U.S.C. § 1332 on the grounds that it is a New York corporation and IDB is an Israeli bank. IDB now moves to dismiss this action under Fed.R.Civ.P. 12 (b) for lack of personal jurisdiction or for improper venue or, in the alternative, under the doctrine of forum non conveniens on the grounds that Israel is the more appropriate and convenient forum for this case. For the reasons set forth below, the motion to dismiss is denied on personal jurisdiction grounds but granted under the doctrine of forum non conveniens.
BACKGROUNDI. The Facts
For purposes of this motion, the facts alleged in plaintiff's complaint are assumed to be true. They are supplemented with certain apparently undisputed facts and summarized as follows:
IDB has its main branch in Tel Aviv, Israel, and maintains more than 260 branches, subsidiaries, and offices in Israel and abroad and operates an international network of banks. (Compl. ¶¶ 2-3). Electrochemical Industries Ltd. ("EIL"), an Israeli public company, borrowed funds from IDB that had not been repaid in early April 2003. (Id. ¶ 13). ICC "directly or indirectly" held a majority of EIL's shares and qualified as a controlling shareholder of EIL under Israeli law. (Id. ¶ 36). ICC agreed to provide a guarantee in favor of IDB on the condition that once ICC executed the guarantee, IDB would provide EIL with $2,300,000 in new funds to allow EIL to continue operating. (Id. ¶ 36).
IDB drafted a proposed guarantee — its standard form guarantee — and submitted it to ICC at ICC's New York offices. (Id. ¶¶ 15-16). On April 2, 2003, ICC executed the guarantee in the amount of $2,300,000 at its New York offices, without negotiating any of the terms. (Id. ¶¶ 16-17). IDB did not meet with ICC in New York, and all communication between the two parties was through electronic means and international mail. (Falick Certification ¶ 3). The guarantee was not approved by EIL's audit committee or board of directors or shareholders, and a report of the transaction was not made public prior to the signing of the guarantee, required for some transactions under Israeli law. (Compl. ¶¶ 41-43).
References to "Compl." are to the complaint filed on August 26, 2004.
The guarantee provided that it was to be interpreted according to the laws of Israel. (Id. at Ex. 2 ¶ 27). Paragraph 27, entitled "Jurisdiction," also provided that:
B) It is hereby agreed between the parties that the exclusive jurisdiction from the standpoint of local jurisdiction will be determined only in accordance with what is stated below, all the choice of the plaintiff:
(1) The competent court (from the standpoint of material and subject-matter jurisdiction) closest to the branch where the account is maintained that is the subject of that action.
The guarantee does not name a plaintiff, but seems to refer to the party — whether ICC or IDB — that brings suit.
The guarantee does not define "the account."
— or —
(2) The competent court (from the standpoint of material and subject-matter jurisdiction) in Tel Aviv-Jaffa.
C) In cases where a number of accounts are maintained in a number of branches, and they are the subject of the same action — according to the choice of the plaintiff from among all of the possibilities that arise from sub-paragraphs 1) (a) or 1) (b) above.
The guarantee does not define "branches."
It appears that the guarantee is actually referring to sub-paragraphs B) (1) and B) (2), because Paragraph 27 does not contain sub-paragraphs designated 1) (a) or 1) (b).
Despite the condition that IDB provide EIL with $2,300,000 in new funds, IDB did not provide such funds to EIL after the guarantee was executed. (Id. ¶¶ 18-19).
On July 3, 2003, IDB issued a written demand that ICC pay $2,500,000 to "Israel [D]iscount Bank of New York, New York . . . to the credit of our Account No. 50008 within 7 (seven) days of the date of this demand" pursuant to IDB's claimed rights under the guarantee. (Id. ¶ 6). Israel Discount Bank of New York ("IDB-NY"), a New York state chartered bank, is a subsidiary of IDB, and IDB uses IDB-NY to assist it when it transacts business in New York City. (Id. ¶¶ 3-4). IDB maintained at least one account at IDB-NY and directed ICC to make payments under the guarantee to that account.
The Court assumes that the difference between the amount demanded by IDB ($2,500,000) and the original amount guaranteed by ICC ($2,300,000) is due to expenses, interest, or revaluation. (Compare Compl. Ex. 1 and id. Ex. 2 at 1).
ICC contends that IDB established a particular account at IDB-NY specifically for the payment of guarantee funds by ICC, but that fact is not alleged in the complaint. (Compare ICC Mem. of Law at 2, 11, 13, 14-15 with Compl. ¶ 4).
On July 7, 2003, EIL was granted court protection in Israel from its creditors, but it remained in full operation. (Id. ¶ 20; IDB Mem. of Law at 2). IDB and others controlled the decision concerning whether to maintain or cancel some or all of EIL's business insurance coverage, which in August 2003 included business interruption coverage that would have provided coverage to EIL in the event of fire. (Id. ¶¶ 21-23). On August 13, 2003, IDB and others cancelled the coverage. (Id. ¶ 24). In October 2003, a fire broke out at an EIL plant in Israel, destroying a major part of EIL's manufacturing operation. (Id. ¶ 31). EIL was subsequently unable to continue its operations and repay the amounts owed to IDB and, since that time, EIL has not been able to emerge from court protection. (See id. ¶¶ 32-34).
The parties do not specify where coverage had been obtained, but presumably it was obtained in Israel, as that was where EIL was located.
According to IDB, the "alleged fire at the premises of [EIL] is claimed to have occurred in Israel." (Lorch Aff. ¶ 8 n. 2).
After its initial demand for payment in July 2003 and a follow-up letter, IDB did not take steps to collect on the guarantee until August 2004 when it demanded that ICC make full immediate payment. (Id. ¶¶ 6-7).
II. Procedural History
ICC filed this action on August 26, 2004, arguing, inter alia, that IDB breached the guarantee, implied conditions of the guarantee, and implied duties of good faith and fair dealing by cancelling and failing to maintain EIL's business interruption insurance coverage; IDB breached the guarantee by failing to fully fund the guarantee in the amount promised; the guarantee can be enforced, if at all, only in the amount that IDB disbursed to EIL after April 2, 2003; and the guarantee is void because IDB knew or should have known that actions required under Israeli corporation and securities laws were not taken with respect to the guarantee. ICC seeks a declaratory judgment pursuant to 28 U.S.C. § 2201 that the guarantee is void ab initio or that it be reduced to the amount that IDB actually disbursed to EIL after April 2, 2003.
Presently before the Court is IDB's motion to dismiss under Fed.R.Civ.P. 12 (b) for lack of personal jurisdiction or for improper venue or under the doctrine of forum non conveniens.
IDB argues for dismissal for lack of personal jurisdiction under Rule 12 (b) (2), but does not specifically refer to Rule 12 (b) (3) or rely on Rule 12 (b) (3) caselaw when moving on the grounds of improper venue.
Some eleven days after this action was filed, litigation between the parties began in Israel. (Barnea Certification ¶ 3). On September 6, 2004, IDB filed a claim against ICC in the Tel Aviv District Court requesting that the court grant an order compelling payment by ICC to IDB under the guarantee. (Id.). The District Court of Tel Aviv thereafter granted IDB's motion for leave to serve pleadings upon ICC in the United States based on the guarantee. (IDB Reply Mem. at 2; Lorch Reply Aff. ¶ 15, Ex. B; Barnea Certification ¶ 4). On January 5, 2005 ICC moved to cancel IDB's leave to serve the pleadings upon ICC, which had been granted ex parte. On April 5, 2005 ICC's petition was rejected in a decision issued by Registrar Barukh Shemuel (the "April 5, 2005 Decision"). (Barnea Certification ¶ 5-6; IDB Letter of 6/7/05, at 1).
References to "Barnea Certification" are to a certification submitted with a June 21, 2005 letter sent by ICC to the Court in response to a June 7, 2005 letter submitted by IDB.
IDB wrote a letter to this Court on June 7, 2005 and attached a copy and translation of the April 5, 2005 Decision. According to the translation, Registrar Shemuel held that:
[t]he petition for cancellation of permission for service out of the jurisdiction is to be rejected.
If someone acted in bad faith in this instance, it was not [IDB]. It is apparent, that the parties conducted intensive contact in an attempt to attain a settlement, and when it transpired to [ICC] that [IDB] is on the verge of filing a suit against it, [ICC] sped to file the suit in the court in the USA, in an attempt to obtain jurisdiction. . . .
Beyond that, [ICC] is currently signed on the guarantee, which stipulates a string of Israeli contracts which bind it, and at the end of which (Section 27) it is expressly stated that it will be construed in accordance with Israeli contracts. It is therefore clear — that the provisions of Regulation 500 (4) apply and I agree with [IDB's] attorney that it would appear that Regulation 500 (5) applies too, this in light of the place stipulated as the place of fulfillment of the obligation — Israel (the creditor's place of business). Beyond that, the parties agreed to the local jurisdiction of the Tel Aviv-Jaffa court in an explicit contractual provision.
[IDB] is correct, that [ICC] did not state any substantive reason for Israel to be a forum non conveniens for the proceedings in the suit.
In respect of [a] stay of proceedings, it seems to be that my above conclusion, regarding [ICC's] lack of good faith, suffices to justify a rejection of the claim. [ICC] signed a letter of guarantee to an Israeli company for an Israeli bank and applied, contractually, the laws of the State of Israel and the jurisdiction of the Israeli courts to the relationship between the parties. Once it transpired to [ICC] that [IDB] is on the verge of suing it on account of its guarantee, it quickly submitted a suit to the American court, in a deliberate attempt to obtain jurisdiction in the foreign court and to prevent substantive proceedings in the appropriate place, Israel, which the parties intended when they signed [their] agreement.
It appears that ICC argued before the Israeli court that Israel was an inconvenient forum.
(T.A.) 1350/05, ICC Industries Inc. v. Discount Bank, Israel, Apr. 5, 2005 (attached to IDB Letter of 6/7/05).
Although the copy of the April 5, 2005 Decision received by the Court is not signed, ICC does not dispute the authenticity of the document or its translation. Instead, in its June 21, 2005 letter, ICC disagrees with the Israeli Registrar's findings and IDB's interpretation of them.
I. Personal Jurisdiction A. Applicable Law
On a motion to dismiss pursuant to Fed.R.Civ.P. 12 (b) (2), a plaintiff bears the burden of establishing the court's jurisdiction over defendants. Bank Brussels Lambert v. Fiddler Gonzalez Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999). The court must assume all the factual allegations in the complaint are true, and resolve all doubts in plaintiff's favor "notwithstanding a controverted presentation by the moving party." A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993). Where the parties have not engaged in substantial discovery, plaintiff need only assert "facts constituting a prima facie showing of personal jurisdiction" to defeat a motion to dismiss. PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997). The court may consider plaintiff's affidavits and supporting materials on a motion to dismiss. Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981).
I conclude that ICC has asserted sufficient facts to make a prima facie showing of personal jurisdiction.
Although Paragraph 27 is entitled "Jurisdiction," it appears to be more of a forum selection clause, as it allows for a suit in the "competent court . . . closest to the branch where the account is maintained that is the subject of that action" or a court in Israel. ICC argues, in essence, that Paragraph 27 is a consent to jurisdiction clause, whereby the parties agreed to submit to the jurisdiction of either the court closest to the branch where "the account" is maintained or the court in Israel. As IDB maintained an account in New York into which it demanded payment under the guarantee, and as ICC has sued to contest the demand, it would appear that "the account" that is the subject of this action is located in New York.
IDB does not dispute that "the forum selection clause in the guaranty is reasonable and enforceable," but claims that the account that is the subject of the action is EIL's account in Israel. (See IDB Mem. of Law at 12). The guarantee does not, however, define "branch" or "the account" and as a result does not so limit the parties' forum options. Accordingly, and because of IDB's New York account, New York has jurisdiction over the suit. ICC's Israeli legal expert supported this conclusion (Confino-Sher Certification ¶¶ 15-17), and ICC's showing here is sufficient to defeat a motion to dismiss under Rule 12(b)(2).See Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990) (explaining that prior to discovery, plaintiff's prima facie showing of personal jurisdiction may be established solely by allegation).
A clause in which parties consent to a given jurisdiction "satisfies constitutional requirements of due process, and will be enforced unless it would be unreasonable or unjust to do so."Nat'l Union Fire Ins. Co. of Pittsburgh v. Frasch, 751 F. Supp. 1075, 1078 (S.D.N.Y. 1990) (citations omitted) (referring to a permissive forum selection provision); see also Koninklijke Philips Elecs. v. Digital Works, Inc., 358 F. Supp. 2d 328, 333-34 n. 5 (S.D.N.Y. 2005) (finding that where defendant consented to jurisdiction in a forum selection clause, analysis under New York's long-arm statute not necessary). I find the parties' jurisdictional clause sufficient to support a prima facie showing that IDB consented to jurisdiction in New York and, accordingly, deny IDB's motion to dismiss pursuant to Rule 12(b)(2).
II. The Forum Non Conveniens Doctrine A. Applicable Law
Under the common law doctrine of forum non conveniens, a court with proper jurisdiction and venue over a matter may refrain from hearing the case if another significantly more appropriate forum exists. See Nationsbank of Florida v. Banco Exterior de Espana, 867 F. Supp. 167, 169 (S.D.N.Y. 1994).
IDB seeks to dismiss this action under Fed.R.Civ.P. 12(b) on the grounds of improper venue or pursuant to 28 U.S.C. § 1404(a) on the grounds of forum non conveniens. I instead consider these arguments under the common law doctrine of forum non conveniens, which governs cases where the alternative forum is a state court or the court of a foreign country. See 11 Charles A. Wright et al., Federal Practice Procedure § 1352, at 328 (3d ed. 2004).
"An evaluation of a motion to dismiss on the grounds of forum non conveniens proceeds in several stages." Pollux Holding Ltd. v. The Chase Manhattan Bank, 329 F.3d 64, 70 (2d Cir. 2003). The first requires a determination of the degree of deference to be accorded to a plaintiff's choice of forum. Iragorri v. United Techs. Corp., 274 F.3d 65, 73 (2d Cir. 2001) (en banc). Next, the Court determines whether an adequate alternative forum is available. Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 506-07 (1947). Finally, if an alternative forum is available, the Court must then weigh private and public considerations to determine whether adjudication in the alternative forum is more appropriate. Id.; see also Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241, 254 n. 22 (1981). While the moving party bears the burden of showing that an alternative forum is clearly more appropriate, Oil Basins Ltd. v. Broken Hill Proprietary Co., 613 F. Supp. 483, 489 (S.D.N.Y. 1985), the decision to grant or deny the motion is within the Court's discretion. Piper Aircraft Co., 454 U.S. at 257.
The relevant factors support dismissing this case on forum non conveniens grounds. For the reasons set forth below, the claim is dismissed so that it may be litigated in the more appropriate forum, an Israeli court.
1. Deference to ICC's Choice of Forum
A plaintiff's choice of forum is generally entitled to great deference when the plaintiff has sued in the plaintiff's home forum. Iragorri, 274 F.3d at 71 (citing Koster v. (American) Lumbermens Mut. Cas. Co., 330 U.S. 518, 524 (1947)). Still, "the degree of deference . . . moves on a sliding scale depending on several relevant considerations." Iragorri, 274 F.3d at 71. The Second Circuit has interpreted Supreme Court guidance to mean that "the greater the plaintiff's or the lawsuit's bona fide connection to the United States and to the forum of choice and the more it appears that considerations of convenience favor the conduct of the lawsuit in the United States, the more difficult it will be for the defendant to gain dismissal for forum non conveniens." Id. at 72 (footnotes omitted). In determining the amount of deference to give a plaintiff's choice of forum, a court should consider factors including, inter alia, the availability of evidence, the defendant's amenability to suit in the forum, and whether the plaintiff chose the forum for forum-shopping reasons. See id.
In this case, ICC's choice of forum is entitled to little deference. First, although it is located in New York, ICC chose to invest in EIL in Israel. Second, as discussed more fully below, the most significant contacts to the parties' transactions and the instant dispute are in Israel, and the connections to New York are minimal. Third, also discussed below, the claims raised by ICC are rooted in Israeli law. Finally, as the Israeli court held, ICC raced to court in a clear effort to forum shop. The Israeli court found that Israel is the "appropriate place" for substantive proceedings between ICC and IDB. In sum, the "balance of conveniences" are in favor of IDB's chosen forum, Israel, and ICC's choice is granted little deference.
2. Adequate Alternative Forum
After determining whether a plaintiff's choice of forum is entitled to more or less deference, a court must still consider whether an adequate alternative forum exists and balance public and private factors to determine where a case should be adjudicated. See Iragorri, 274 F.3d at 73. Here, it is clear that the District Court of Tel Aviv-Jaffa is an adequate alternative forum for this action.
3. Balancing Private and Public Interest Factors i. The Private Interests of the Parties
The private interests of the parties to be weighed in considering a forum non conveniens motion include the relative ease of access to sources of proof, the availability of compulsory process for attendance of unwilling witnesses, the cost of obtaining attendance of willing witnesses, and all other practical problems that make trial of a case easy, expeditious, and inexpensive. Piper Aircraft Co, 454 U.S. at 241 n. 6. Here, these factors favor an Israeli forum.
ICC contends that an action in Israel would be "inconvenient, expensive, and disruptive" for it. (Falick Certification ¶ 6). This argument is unavailing. First, by executing the guarantee, ICC accepted the risk of inconvenience and expense related to a suit in Israel. Under the parties' jurisdictional clause, a suit could have been brought by the plaintiff — whether ICC or IDB — in Israel. (Compl. Ex. 2 ¶ 27(B)(2)). Similarly, ICC accepted such a risk by investing in an Israeli company.
Second, ICC's claims in this action are closely linked to occurrences in Israel, including transactions between EIL and IDB, both Israeli entities. For example, any amount that may have been owed to EIC by IDB, or owed to IDB by EIC, would likely have been paid into EIC's IDB account in Israel. It appears that EIC was under court protection in Israel and the fire at EIC's plant was in Israel. ICC argues that all of the ICC executives with knowledge of the instant action are in New York, but the vast majority of the sources of proof in the case, including IDB and EIC witnesses, are in Israel. According to IDB, the documentary evidence in the case is in Hebrew and, in fact, many documents received by this Court in relation to this motion were translated from Hebrew. Citing these and other reasons, IDB strongly objects to New York as a possible forum for the action.
In sum, the availability of witnesses and evidence favors Israel as the appropriate forum, and I find that an action in New York under the guarantee would be far more inconvenient for the parties than one in Israel.
ii. Public Interest Factors
The public interest factors to be weighed in considering aforum non conveniens motion are: the administrative difficulties associated with court congestion; the unfairness of imposing jury duty on a community with no relation to the litigation; the "local interest in having localized controversies decided at home"; and avoiding difficult problems in conflict of laws and the application of foreign law. Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09 (1947). Here, the first two public interest factors do not favor either party, but the last two strongly favor Israel as the appropriate forum.
Despite ICC's connection to New York, this is really an Israeli controversy — ICC had a controlling interest in an Israeli public company and entered into an agreement to guarantee the company's financial obligations to an Israeli bank. The parties never met in New York, as all communication between them was via electronic means or international mail.
Moreover, to resolve the parties' dispute, this Court would have to interpret and apply Israeli law. All of ICC's claims require the application of Israeli law — the guarantee itself provides that it is to be interpreted under Israeli law — and, in addition, the fourth claim alleges violations of Israeli corporation and securities laws. An Israeli court could address such issues with greater ease and expediency than this Court. Accordingly, Israel's public interest in this litigation far outweighs that of New York.
The April 5, 2005 Decision, rendered by an Israeli court after the parties had an opportunity to be heard, lends support to these findings. The Israeli Registrar concluded that ICC acted with "lack of good faith," supporting the conclusion that ICC chose New York to gain a tactical advantage. (See April 5, 2005 Decision ¶ 5). He found that ICC "sped to file the suit in the court in the USA" in a "deliberate attempt to obtain jurisdiction in the foreign court and to prevent substantive proceedings in the appropriate place, Israel, which the parties intended when they signed [their] agreement." The Israeli Registrar explained that ICC "signed a letter of guarantee to an Israeli company for an Israeli bank and applied, contractually, the laws of the State of Israel and the jurisdiction of the Israeli courts to the relationship between the parties." Finally, he declined to stay the proceedings in the Israeli case, finding that Israel was the correct forum to hear the dispute between the parties.
In light of the above, the motion to dismiss is granted on the grounds of forum non conveniens.
CONCLUSIONIDB's motion to dismiss ICC's claims under Rule 12(b) is denied, but the motion to dismiss is granted on the grounds offorum non conveniens. The complaint is hereby dismissed without prejudice to proceedings in the appropriate court in Israel, and the Clerk of the Court shall enter judgment accordingly.