Mitchell C. Shapiro, Esq., Carter Ledyard & Milburn LLP, New York, attorney for plaintiffs. Jacob Laufer, Esq., Jacob Laufer P.C., New York, attorney for defendants Elon, Silberstein, Fischberger, Michalowitz, Stern, Zelczer, Bnei Rachel, Inc., Chearland, Inc. and Homebred, Inc. Jeffrey Schreiber, Esq., Meister Seelig & Fein LLP, New York, for defendants Zwickler and American Friends of Beit Orot, Inc.
Mitchell C. Shapiro, Esq., Carter Ledyard & Milburn LLP, New York, attorney for plaintiffs.
Jacob Laufer, Esq., Jacob Laufer P.C., New York, attorney for defendants Elon, Silberstein, Fischberger, Michalowitz, Stern, Zelczer, Bnei Rachel, Inc., Chearland, Inc. and Homebred, Inc.
Jeffrey Schreiber, Esq., Meister Seelig & Fein LLP, New York, for defendants Zwickler and American Friends of Beit Orot, Inc.
CAROLYN E. DEMAREST, J.
The following papers read on this motion: NYSCEF Papers Numbered
Notice of Motion/Order to Show Cause/Petition/
Cross Motion and Affidavits (Affirmations) Annexed 20–28, 30–31, 37–39
Opposing Affidavits (Affirmations) 40
Reply Affidavits (Affirmations) 46
Other Papers (Memoranda of Law)
(Correspondence) 29, 41–45
34, 48, 51
Defendants move to dismiss the instant action, pursuant to CPLR 3211(a)(8), for lack of personal jurisdiction, pursuant to CPLR 3211(a)(1), upon a defense based upon documentary evidence, including a forum selection clause, pursuant to CPLR 327, forum non conveniens, pursuant to CPLR 3211(a)(4), the pendency of multiple litigations in Israel relating to the claims herein, and pursuant to CPLR 3211(a)(7), (10) and (5), based upon failure to state a cause of action, failure to join necessary parties, collateral estoppel and the running of the statute of limitations. Alternatively, defendants seek a stay pending arbitration in Israel, which defendants ask this court to direct. Defendants further seek an order requiring plaintiffs to pay their attorneys' fees.
Apparently in response to defendants' motion, plaintiffs have cross-moved to compel directors of Chearland, Inc. to call director and shareholder meetings.
For all of the reasons raised in defendants' motion, the motion to dismiss is granted.
The instant action concerns the agreement, by and through several inter-related entities and the individuals who manage them, to purchase real property in the West Bank of Israel in or near the town of Bethlehem. The three parcels at issue are near, or adjacent to, the tomb of Rachel, a site sacred to Judaism (the Properties). The action has been brought, both personally and derivatively on behalf of Bnei Rachel, Inc. (BR), a New Jersey corporation, Chearland, Inc. (Chearland), also a New Jersey corporation, and Homebred III, Inc. (Homebred), a Delaware corporation (the "Defendant Corporations"), by Evelyn Haies (Haies) and Rachel's Children Reclamation Foundation, Inc. (RCRF), a not-for-profit corporation, "operated and controlled" by Haies at all relevant times, organized under the laws of New York for the purpose of educating the public about the Biblical matriarch Rachel. RCRF is a shareholder in each Defendant Corporation which was to be the purchaser of a parcel of land in Bethlehem near Rachel's tomb. Haies is a director of BR, Chearland and Homebred. Defendant American Friends of Beit Orot, Inc. (AFBO) is a New York 501(c)(3) not-for-profit corporation, alleged to be the American fundraising arm of YBO, a rabbinical seminary located on the Mount of Olives in Jerusalem, Israel, founded and controlled by Defendant Elon. The individual defendants are, or have been at various times, directors or officers of one or more of the Defendant Corporations.
It is undisputed that in November 2000, knowing of Haies' interest in RCRF and its mission to promote knowledge of Rachel's legacy, Defendant Binyamin Elon (Elon) approached Plaintiff Haies at a fund-raising dinner for AFBO in New York City regarding her possible donation to the purchase of the property adjacent to Rachel's tomb. Although not interested in donating to AFBO, Haies expressed an interest in purchasing the property, to be used by RCRF for its own purposes and to be shared with a yeshiva. Haies was again approached, on or about February 28, 2001, by Defendant Chaim Silberstein (Silberstein) and a third non-party, Tzahi Mamo (Mamo), regarding the proposed purchase and Haies placed a downpayment of $5000, agreeing to a total contribution of $375,000 "from the treasury of Plaintiff RCRF" (Complaint ¶ 48) . Ultimately, on March 28, 2001, RCRF entered into a shareholders agreement with AFBO "for the purchase of the property through a corporation to be formed in the State of New Jersey [BR] in which [RCRF] shall hold 60% of the shares and [AFBO] shall hold 40% of the shares" (the Shareholder Agreement). Each shareholder would appoint one director; the signatories to the Shareholder Agreement, Defendant Silberstein for AFBO and Haies for RCRF, would be the initial directors, but Silberstein would serve as president and secretary and be responsible for the day-to-day operation of the Property. The Shareholder Agreement contained an arbitration clause by which "any dispute as to the operation of the property or any other matter between them shall be resolved by binding arbitration by Rabbi Benny Elon or in the event he is unavailable for any reason the presiding Rosh Yeshiva or Yeshiva Ateret Cohanim" (Arbitration Clause). The law "applicable in Israel" was to exclusively apply.
The Complaint is verified by Haies, but virtually all of the allegations are made upon information and belief.
According to Haies, the original Shareholder Agreement related to an initial purchase of one property to be purchased and owned by BR and, notwithstanding the language of the Shareholder Agreement vesting day-to-day operation in Silberstein, and the payment by AFBO of "any additional capital investments that may be required to develop, improve and maintain the BR Property", "the BR Property would be utilized under the direction and control of Plaintiff RCRF" (Complaint ¶¶ 53–55).
Subsequently, additional parcels were deemed necessary to achieve the intended purpose and, on July 18, 2001, additional funds (totaling $100,000) were supplied by RCRF for the formation of Chearland and the purchase of a second parcel, and, in June 2002, Silberstein solicited additional funds from RCRF for the purchase of a third parcel. In September 2002, RCRF provided an additional $120,000 for the formation of Homebred and its purchase of a third parcel. No written agreements were created to reflect the terms of the Chearland and Homebred purchases. Plaintiff RCRF invested a total of $545,000 in the three Defendant Corporations. RCRF alleges it has 60% equity in BR, 30% equity in Chearland and 35.8% equity in Homebred, though stock certificates for only 33% of Homebred have been received. Plaintiffs complain that, despite Haies' requests, no documentation has been provided showing ownership of the three Properties. The Complaint alleges that, from May 2001 until June 2003, Silberstein diverted funds provided by RCRF to the control of non-party "Self–Dealing Trustees" Mamo and Jerry Saltzman (Saltzman), who own Bnei Rachel, Ltd. (BR LTD), the registered owner of Lot 36, which was to have been owned by BR. Haies claims Lot 37, which apparently was to have been owned by either Chearland or Homebred, or both, has never been registered because the purchase could not be completed. It is alleged that plaintiffs and the Defendant Corporations became aware of BR LTD's ownership of the "Combined Properties" on December 4, 2004, and began their efforts to have title transferred to the correct American corporation. According to the complaint, to this date, none of the Defendant Corporations holds title to any of the Properties. The present title-holder, BR LTD, is not a party to this action.
On September 14, 2006, an arbitration among representatives of BR, Homebred and Chearland (characterized as the "overseas companies" in the agreement) and, on the opposing side, BR LTD, Settle Zion Non Profit organization, Space Real Estate Company (Space), "Zahi Memo" and Saltzman, resulted in an Agreement to Settle Disputes and Differences of Opinion "in everything pertaining to the project of acquiring real estate alongside Rachel's Tomb, developing it, renovating it and administering it as well as pertaining to financial matters related to activities which were carried out for the purpose of acquiring the property and administering it and everything related thereto" (Settlement Agreement). Shmuel Becker served as the arbitrator and is designated as the "trustee" of the parties with respect to future performance, as well as "sole arbitrator" as to any future dispute, in which his decision would "bind" the parties. Silverstein and Haies executed the Settlement Agreement on behalf of the companies and Yitzhak Memo and Saltzman signed for themselves and for Settle Zion . Defendants Elon and Shlomo Zwicker (spelled "Tzvikler" in the Settlement Agreement) (Zwickler) also participated in the arbitration. As relevant here, the Settlement Agreement provided that "Zahi" was to deliver to the trustee an irrevocable power of attorney satisfactory to permit the transfer of "parcel 36 as well as parcel 37 [from BR LTD] into the name of anyone whom the Companies shall instruct" (¶ 8). Reference is also made to several pending legal proceedings. Plaintiffs complain that the transfers have never taken place, nor have defendants provided the accounting anticipated under the terms of the Settlement Agreement.
The document is dated September 14, 2006, but appears to be referenced as the Award of 18 September, 2006, in the Judgment of Judge Greenberg of January 1, 2015 and in other documents, including arguments of counsel.
The Settlement Agreement lists "Zahi Memo" but appears to identify him as "Yitzhak Memo". Given his juxtaposition to Saltzman, who is apparently his co-owner of BR LTD, the Court infers that "Zahi" is actually Mamo.
The complaint further alleges, on information and belief, that "on or about September 29, 2009," RCRF and Elon agreed that Elon could create a small men's rabbinical seminary (yeshiva) upon the Properties, to be overseen by Elon as dean, in return for which, Elon was to remove the Self–Dealing Trustees (Mamo and Saltzman) from any participation in the Properties and to effect the previously-agreed transfer of title (Complaint ¶ 132). This agreement appears to be referenced in a memorandum on the letterhead of RCRF, dated September 24, 2009, signed by Haies as president, but without the detail specified in the Complaint. However, plaintiffs also allege that, without plaintiffs' knowledge or participation, Elon entered into an agreement with Arbitrator Becker, on November 29, 2009, characterized as an "Arbitration Award in the Arbitration Case In Re Rachel's Tomb", by which Elon became the "sole authorized representative to maintain contact with the other shareholders in the U.S. Companies" and the "delegated agent of the Companies" and a newly formed non-profit organization, in charge of implementing the Arbitrator's decision (2009 Award). Plaintiffs contend that Arbitrator Becker was prejudiced in favor of Elon and had conflicts of interest that should have prevented him from serving as the arbitrator in this matter. In fact, plaintiffs have brought a legal proceeding in Israel to vacate Becker's authority (Complaint ¶ 139), which has been decided during the pendency of the instant case.
It is further alleged, and not disputed, that in 2010, AFBO transfered all its shares in the Defendant Corporations to Elon, who, at a joint shareholder meeting for Chearland and Homebred held in Brooklyn on December 29, 2011, voted those shares and the proxies of various other shareholders to elect himself a director of the Defendant Corporations. It is apparently this event, occurring in the State of New York, upon which plaintiffs base their claims of jurisdiction over the several non-domiciliary defendants. Plaintiffs repeatedly argue that this action concerns, not the title to the Properties in Israel, but corporate governance of the Defendant Corporations, specifically, actions taken by Elon in nominating Saltzman, a "Self–Dealing Trustee", to be a director of the Defendant Corporations, and appointing Saltzman's son-in-law "rosh yeshiva" (understood to be an authority within the yeshiva), in contravention of the interests of those corporations.
The Affirmation of Israeli attorney Sean David Casper (Casper), submitted in support of defendants' motion to dismiss, documents six lawsuits in Israel between plaintiffs and various defendants herein relating to the property adjacent to the Tomb of Rachel, three of which are currently pending. Casper represented and continues to represent Chearland and Homebred in some of these actions. One case was stayed pending arbitration in deference to the Settlement Agreement of 2006 (Haies v. Beni Rachel Ltd, Jerusalem District Court CC 25304–04–11 [July 2, 2012] ). Casper also annexes the letter dated September 24, 2009, on the letterhead of RCRF, signed by Haies, endorsing Elon as head of the Yeshiva and his reorganization of the project "in accordance with our recent discussions", as evidence that Haies had agreed to the 2009 Award by Becker.
At oral argument, defense counsel handed up the decision rendered January 1, 2015, in one of the pending cases by Judge Ben–Zion Greenberger of the Jerusalem District Court in a matter captioned Rachel's Children's Reclamation Foundation Inc, et al v. Bnei Rachel Ltd, et al., seeking rescission of the awards of Shmuel Becker of November 29, 2006 and September 18, 2006 (the Settlement Agreement). The parties included RCRF, BR, Chearland and Homebred (represented by Casper) as applicants, and BR LTD, Mamo, Saltzman, AFBO, Space and Meyashvey Zion Non Profit Organization (presumably the same entity which had participated in the earlier arbitration), as respondents. After reciting the facts at issue, which precisely parallel those set forth herein, Judge Greenberg found the Application to Rescind untimely under the applicable statutory provisions of Israeli law and dismissed the Application to Rescind. Judge Greenberg did, however, address the merits of the arguments to rescind, rejecting each claim on the merits, and confirming both awards by Arbitrator/Trustee Becker. Judge Greenberg also removed RCRF as an applicant, finding it was not a party to the earlier arbitrations, nor was respondent AFBO, which was summarily removed from the proceeding. Based upon his finding that Chearland and Homebred, as represented by Casper, did not wish to pursue the Application to Rescind, those parties were also removed. Meyashvey Zion Non Profit Organization and Space were also removed as respondents as lacking interest or in liquidation. Judge Greenberg noted that Haies, whose signatures on powers of attorney he found to be unauthorized by the Chearland and Homebred corporations, was not a party to any of the proceedings in her personal capacity.
As alleged in the Complaint, the individual defendants, as officers and directors of the "Defendant Corporations" (BR, Chearland and Homebred), "conspired to prevent Plaintiff RCRF from using the Combined Properties for its organizational functions, as it is entitled to do as a shareholder in all three of the Defendant Corporations and as the primary funder" and "engaged in deliberate mismanagement, waste of corporate assets, self-dealing of corporate assets and receipt of improper personal benefits over the course of the Defendant Corporations' efforts to acquire the Combined Properties" (Complaint ¶ 2). Specifically, plaintiffs claim that Elon agreed with the Self–Dealing Trustees Mamo and Saltzman, who are not parties, to manage the Properties in such a manner as to deprive RCRF of its own use of the Properties. The complaint further alleges that "beginning in or about the summer of 2010", students of the yeshiva, under the direction of Elon, began harassing and intimidating participants in RCRF's programs, destroying property of RCRF at the Properties and slandering Haies and RCRF (Complaint ¶¶ 145–149). The complaint accuses the individual directors of improperly acceding to Elon's usurpation of control at the joint shareholder meeting of Chearland and Homebred held on December 29, 2011 in Brooklyn, New York and permitting the diversion of assets to the yeshiva through an unduly generous lease. Finally, plaintiffs allege that Defendant Silberstein has improperly retained possession and control of the books and records of the various corporations and has refused plaintiffs access to inspect and copy the records of the Defendant Corporations. It is alleged that plaintiffs have not demanded that the boards of directors of Chearland and Homebred bring an action on their behalf because such demand would be futile in light of the fact that the individual defendants constitute a majority of such boards.
According to Casper, some of the pending cases in Israel address the alleged physical assaults on the persons using the Properties and the right to control the site.
It is alleged that on July 26, 2011, plaintiff RCRF dismissed Elon from his position based upon his breach of duties under the 2009 Agreement, but that he refused to leave the Properties (Complaint ¶¶ 154–155).
The 280 paragraph complaint contains fourteen causes of action. The first four causes of action are brought by Haies personally against Elon and Silberstein and the other individual defendants for breach of fiduciary duty and corporate waste and mismanagement. The fifth and sixth causes of action allege breach of fiduciary duty and conversion, relating to the corporate books and records, on behalf of both plaintiffs, against Silberstein. The seventh, eighth, ninth, tenth and eleventh causes of action are brought on behalf of RCRF against Elon for breach of contract based upon the 2009 agreement, breach of the covenant of good faith and fair dealing, also based upon the failure to perform under the 2009 agreement and therefore redundant, breach of fiduciary duty, promissory estoppel with respect to unspecified "promises to work together" with RCRF in good faith, and unjust enrichment based upon benefits he derived from the 2009 agreement, particularly with respect to the operation of his yeshiva on the Properties. The twelfth, thirteenth and fourteenth claims are brought by RCRF against AFBO for breach of contract under the Bnei Rachel Shareholder Agreement of 2001, breach of the covenant of good faith and fair dealing also arising from the Bnei Rachel Shareholder Agreement and promissory estoppel based upon promises to work together with plaintiff as reflected in the Shareholder Agreement.
Although the controversy at the bottom of this action is the ownership and control over the real property located in Israel, as plaintiffs repeatedly aver, the action concerns corporate governance of the Defendant Corporations, none of which is a New York entity, having been incorporated in New Jersey and Delaware.
Plaintiffs repeatedly and adamantly insist that this action is not about the real property in Israel, but is exclusively about corporate governance of the Defendant Corporations, particularly Chearland and Homebred. The allegations, while purportedly complaining about the failure to act for the benefit of the Corporate Defendants and the diversion of their assets, actually complain of the negative effects of the decisions of corporate directors upon the rights of RCRF as a shareholder, and Haies as RCRF's controlling shareholder, based upon plaintiffs' purpose, in funding the acquisition of the Properties in Israel, to assure that RCRF would have control of the site for its charitable and educational activities. The gravamen of plaintiffs' action is expressed at page 22 of their Memorandum of Law in Opposition to the Motion to Dismiss, citing to the complaint: "In derogation of Plaintiff RCRF's rights as the intended beneficiary of the Combined Properties, the director Defendants ceded unhindered decision and operational power to Defendant Elon, who used the lack of accountability to lease out the Combined Properties to his yeshiva.... The director Defendants have committed gross negligence by approving of the management of Defendant Elon, despite his animosity to Plaintiff RCRF, failing to supervise Elon from locking Plaintiff RCRF out of the Combined Properties and exceeding their authority as directors in granting an exclusive lease to Defendant Elon's yeshiva and removing Plaintiff RCRF". Plaintiffs further assert that "the director Defendants' continued failure to finally cause the transfer of title in the Combined Properties to the Defendant Corporations and to settle external disputes with the [non-party] Self–Dealing Trustees constitutes actionable corporate waste". The later allegation has been the subject of several lawsuits prosecuted in Israel, some of which are on-going. The complaints on behalf of RCRF are not claims seeking recovery for the benefit of the Defendant Corporations, on whose behalf this derivative suit has been brought, but are the individual grievances of plaintiffs. "A complaint the allegations of which confuse a shareholder's derivative and individual rights will ... be dismissed" (Abrams v. Donati, 66 N.Y.2d 951, 953 ).
In seeking dismissal of this action, defendants raise several grounds: lack of jurisdiction; that plaintiffs have agreed to arbitrate, and are bound to arbitrate, in Israel; the pendency of numerous other actions in Israel; forum non conveniens; failure to state a claim; failure to join necessary parties; the lapse of the statute of limitations; and collateral estoppel.
In seeking to litigate this case derivatively on behalf of the Defendant Corporations, none of which is a New York corporation, plaintiffs, as director and shareholder, seek to avail themselves of Business Corporation Law (BCL) § 626, which permits such suit by a shareholder "in the right of a domestic or foreign corporation to procure a judgment in its favor" (BCL § 626(a) ), and BCL § 720, providing for an action against directors and officers for misconduct under § 626 (BCL § 720(b) ). Plaintiff RCRF, as a substantial shareholder in each corporation, clearly has standing to bring this derivative suit on behalf of the Defendant Corporations. It is noted, however, that plaintiffs' complaint, apart from what appear to be fairly arbitrary demands for monetary damages against the individual defendants, primarily seeks, e.g., an order directing the Individual Defendants "to protect Plaintiff RCRF's use and access of the Combined Properties, including instructing the Yeshiva to leave the Combined Properties, forcibly removing the Yeshiva from the Combined Properties, and causing title of each of the Combined Properties to be transferred [to Defendant Corporations]" and removing Elon and nullifying all actions taken by the Defendant Corporations at Elon's behest (Wherefore Clause of Complaint). Much of such relief, apart from being entirely for the benefit of plaintiffs, and not for the benefit of the Defendant Corporations, has been, or is, the subject of pending litigation in Israel and would not be enforceable by this court since it involves actions to be taken within the territory of the State of Israel.
Moreover, BCL § 1317, making actions against the directors and officers of foreign corporations maintainable pursuant to § 720, and BCL § 1319, governing litigation related to foreign corporations and specifically applicable to § 626, apply only to corporations "doing business in this state, its directors, officers and shareholders" (BCL § 1317(a) ; BCL § 1319(a) ; see Culligan Soft Water Co v. Clayton Dubilier & Rice LLC, 118 AD3d 422, 423 [1st Dept 2014] ).
The Corporate Defendants argue that they should not be subjected to litigation in New York courts because none of them does business in New York and all three corporations are foreign corporations formed under the laws of New Jersey and Delaware and therefore subject to the laws of those states. It is well-settled that issues of corporate governance, including the alleged breach of fiduciary duty by officers and directors, are to be determined, pursuant to the internal affairs doctrine, according to the laws of the state of incorporation (Edgar v. MITE Corp., 457 U.S. 624, 645  ; Culligan Soft Water Co. v. Clayton Dubilier & Rice LLC, 118 A.D.2d 422 [1st Dept 2014] ; O'Donnell v. Ferro, 303 A.D.2d 567 [2d Dept 2003] ; Stevenson v. AMP Solar Group, Inc., 2015 N.Y. Slip Op 30771(U), at *10–11 [Sup Ct, N.Y. County, 2015] ). Although it has been held that the internal affairs doctrine does not apply to actions brought pursuant to BCL §§ 1317 and 1319 (Culligan, 118 AD3d at 422 ), those statutes do require that the corporation be doing business in the State of New York in order to render it and its directors and officers subject to New York jurisdiction for the purposes of a shareholder derivative suit.
It appears to be undisputed that the primary office of each of the Corporate Defendants is in Jerusalem and that all business functions of the Defendant Corporations are performed in Jerusalem where the Properties are located. Because none of the Defendant Corporations is registered to do business in New York, or even has a substantial presence in the State, notwithstanding that they have frequently held director and shareholder meetings here, they are not "at home" here and there is no evidence, or even allegation, that they do business in this State or are availing themselves of the benefits and protections of the laws of New York. Thus, neither CPLR 301, providing for general jurisdiction, nor CPLR 302(a)(1), the long-arm statute, would confer jurisdiction over these corporations (see Daimler AG v. Bauman, 134 S.Ct. 746  ; Paterno v. Laser Spine Institute, 24 NY3d 370  ; Semenetz v. Sherling & Walden, Inc., 21 AD3d 1138, 1139 [3d Dept 2005] ; Stevenson v. AMP Solar Group, Inc., 2015 N.Y. Slip Op 30771(U) [Sup Ct, N.Y. County, 2015] at * *7) or warrant this Court's intervention in the decisions of their duly-elected directors (see Bansbach v. Zinn, 1 NY3d 1, 9  ("management of the corporation is entrusted to its board of directors, who have primary responsibility for acting in the name of the corporation and who are often in a position to correct alleged abuses without resort to the courts' ", quoting Barr v. Wackman, 36 N.Y.2d 371, 378  ).
Moreover, BCL § 626(c) requires the complaint in a shareholder derivative suit to "set forth with particularity the efforts of the plaintiff to secure the initiation of such action by the board or the reasons for not making such effort". Plaintiffs have acknowledged that no demand was made upon the boards of Chearland and Homebred "because the Individual Defendants make up the majority of the directors" of those corporations (Complaint ¶ 186). This allegation is insufficient to establish futility of demand. "Simply naming a majority of the board as defendants with conclusory allegations of wrongdoing or control is insufficient to circumvent the requirement of demand [under BCL § 626(c) ]". (Bansbach v. Zinn, 1 NY3d at 11).
This is particularly true here where plaintiff Haies herself participated in board meetings and, in some cases, actually approved some of the actions of which she now complains. It is noted that plaintiff Haies was present at the meeting of January 19, 2012, during which the decisions challenged in the complaint were taken, including the disavowal of two unauthorized lawsuits commenced in 2011 by plaintiffs and/or the Defendant Corporations. The minutes of that meeting are attached to plaintiffs' cross-motion. In light of the presumption that such actions were taken upon the exercise of good faith business judgment, the failure to allege, with particularity, any specific basis to question the independence of the board members, is significant (see id. at 8–9). It is also clear that some of the relief sought, specifically, the transfer of title to the Defendant Corporations of the Properties in Israel, has already been undertaken in litigation in Israel. It is further noted, in light of the discussion in Culligan (118 AD3d at 423 ), that the law of both New Jersey and Delaware is similar to that of New York with respect to demand futility. Under Delaware law, to satisfy Delaware Chancery Rule 23.1 providing for futility of demand, the pleading must set forth, with respect to each director, the reason that such demand would be futile under the standards set forth in Aronson v. Lewis (473 A.2d 805, 814[Del 1984] ) or in Rales v. Blasband (634 A.2d 927, 934 [Del 1993] )(see David Shaev Profit Sharing Plan v. Bank of America Corporation, 2014 WL 7503654, at 3–5[Sup Ct, N.Y. County, 2014] ; see also Wilson v. Tully, 243 A.D.2d 229 [1st Dept 1998] ). As plaintiffs have failed to meet this standard, the derivative claims with respect to Homebred must be dismissed. The law in New Jersey, which governs the prosecution of a derivative suit on behalf of BR and Chearland, regarding demand futility is similar to that of Delaware (see Johnson v. Glassman, 950 A.2d 215,218, n 2 [Sup Ct of NJ, App. Div.2008] ; N.J. Court Rules, R. 4:32–3 ) and also requires dismissal of the derivative claims with respect to those corporations.
Defendants Elon, Silberstein, Fischberger, Michalowitz and Zwickler move for dismissal as non-residents of the State of New York, arguing that they are not subject to either general personal jurisdiction pursuant to CPLR 301 or to long arm jurisdiction pursuant to CPLR 302. The complaint acknowledges that all of these defendants are residents and/or citizens of the State of Israel. While plaintiffs attempt to establish jurisdiction based upon their participation in board meetings in New York on behalf of the defendant American corporations, such participation does not establish personal jurisdiction over these individuals under CPLR 301 (see Brinkmann v. Adrian Carriers, Inc., 29 AD3d 615, 617 [2d Dept 2006] ("An individual cannot be subject to jurisdiction under CPLR 301 unless he is doing business in New York as an individual rather than on behalf of a corporation".); see also, United Computer Capital Corp v. Secure Prods., L.P., 218 F Supp 2d 273, 278 [NDNY 2002] ). The allegations that Elon, Silberstein and Fischberger are subject to general jurisdiction in New York because they regularly enter the jurisdiction for various business purposes not directly related to the matters at issue in this action are conclusory and insufficient to establish jurisdiction over them (Stanley Agency, 23 Misc.3d 1107[A] ). Even more compelling is the recent ruling of the Appellate Division, Second Department in Pichardo v. Zayas, in which the Court held "[s]ince the enactment of CPLR 301 did not expand the scope of the existing jurisdictional authority of the courts of the State of New York, that section does not permit the application of the doing business' test to individual defendants" (122 AD3d 699, 703 [2d Dept 2014] ).
It is not disputed that this court has jurisdiction over defendants Frederick Stern (Stern) and Howard Zelczer, who are residents of Kings County, and AFBO, which is a New York corporation.
While plaintiffs seek to rely on six or seven corporate board and shareholder meetings held in New York over an eleven year period between 2001 and 2011 to establish jurisdiction over the individual non-resident defendants, it is clear that plaintiffs' grievances, though articulated as related to the corporate governance' of the Defendant Corporations, actually relate to decisions the individual defendants were to effectuate in Israel or actions taken in Israel and that none of the meetings was essential to the formation of a relationship with plaintiffs or sufficiently substantive to create a basis for jurisdiction in this State pursuant to CPLR 301 or 302(a) (see Id. at 700–702 ; SNS Bank, N.V. v. Citibank, N.A., 7 AD3d 352, 353–354 [1st Dept 2004] ; Greco v. Ulmer & Berne LLP, 23 Misc.3d 875 [Sup Ct, Kings Co 2009] ).
Plaintiffs argue that CPLR 302(a)(1) offers an alternative basis for this Court's jurisdiction over defendants Elon and Silberstein based upon the allegations that they regularly enter the State of New York, not only to attend board and shareholder meetings of the Defendant Corporations, but also to solicit funds in support of AFBO, a New York Corporation. Pursuant to CPLR 302(a), New York's "long arm statute", a non-domiciliary becomes subject to the jurisdiction of New York courts where, inter alia, such person, "in person or through an agent transacts any business within the state", commits a tortious act within the state, or commits a tortious act outside the state which causes injury within the state and such person regularly does or solicits business or engages in a persistent course of conduct within the state. " CPLR 302(a)(1) jurisdiction is proper even though the defendant never enters New York, so long as the defendant's activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted' " (Fischbarg v. Doucet, 9 NY3d 375,380 , quoting Deutsche Bank Sec., Inc v. Montana Board of Investors, 7 NY3d 65, 71 ). "Purposeful activities are those with which a defendant, through volitional acts, avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws' " (Id., quoting McKee Elec. Co. v. Rauland–Borg Corp., 20 N.Y.2d 377, 382  ).
Plaintiffs allege that Elon and Silberstein entered New York State in 2001 to solicit funding from RCRF for their project regarding the purchase of property in Israel adjacent to Rachel's tomb, out of which the instant controversy arose. Plaintiffs have alleged tortious activity constituting breach of fiduciary duty arising out of these defendants' alleged diversion of assets of the American Defendant Corporations, which were created as vehicles to implement the proposed purchases using the donations of American, and specifically New York State residents, including plaintiff RCRF, and conversion of the books and records of such corporations . In addition, plaintiffs have alleged the breach of a 2009 agreement between RCRF and Elon. Thus, plaintiffs have attempted to allege facts sufficient to establish a basis for CPLR 302 long arm jurisdiction over Elon and Silberstein (see Fischbarg at 381, footnote 5); however, all of the activity alleged to have taken place in New York by Elon and Silberstein was on behalf of AFBO or the Corporate Defendants or related to action to be performed in Israel and cannot supply the basis for long-arm jurisdiction over these individual defendants (see Laufer v. Ostrow, 55 N.Y.2d 305, 313  (where business within state is exclusively on behalf of another as principal and not in individual's own behalf, individual is not subject to jurisdiction; accord, Brinkmann v. Adrian Carriers, Inc., 29 AD3d 615, 617 [2d Dept 2006] ). Although plaintiffs' complaint seeks relief from the individual defendants' alleged malfeasance, misfeasance and nonfeasance with respect to their fiduciary obligations of corporate governance, as distinct from the outright transfer of title to the Properties in Israel, plaintiffs' claims nonetheless relate to the failure to effect such transfer and the alleged diversion of funds supplied for such purpose to persons and entities which are Israeli residents and are not parties to this action, as well as the use of such Properties in alleged violation of plaintiffs' rights. Thus, the situs of the alleged injury is Israel, and the damages caused by defendants' behavior are unrelated to New York (see Paterno, at 378, 384 ("In order to satisfy the overriding criterion' necessary to establish a transaction of business within the meaning of CPLR 302(a)(1), a non-domiciliary must commit an act by which it "purposefully avails itself of the privilege of conducting activities within [New York]' " quoting Ehrenfeld, 9 NY3d 501, 508  ); see also, Richbell Information Services, Inc. v. Jupiter Partners, L.P., 309 A.D.2d 288, 308 [1st Dept 2003] ). The Individual Defendants are not, therefore, within the long-arm jurisdiction of this Court for the purposes of adjudicating the derivative claims brought by plaintiffs regarding alleged failures of "corporate governance" and breach of fiduciary duty.
It appears that the books and records of the Defendant Corporations are located in Jerusalem where these corporations maintain their offices.
As to Fischberger, in seeking to acquire jurisdiction over him, plaintiffs claim he is the owner of a business located in New York and frequently enters New York State on business. However, there is no indication that his business dealings have any nexus with plaintiffs' causes of action. Thus, the nexus of injury in New York has not been established sufficient for the exercise of CPLR 302 long-arm jurisdiction over any of these defendants personally (Laufer at 314; Fantis Foods, Inc v. Standard Importing Co, Inc., 49 N.Y.2d 317, 326  ; Pichardo v. Zayas, 122 AD3d 699, 701[2d Dept 2014] ). Accordingly, the motion to dismiss against Elon, Silberstein, Fischberger, Michalowitz, and Zwickler is granted for lack of jurisdiction.In accordance with the foregoing analysis, the first through eleventh causes of action must be dismissed for lack of jurisdiction over the defendants. The first through sixth causes of action, alleging breach of fiduciary duty and conversion of books and records, derivatively on behalf of the Defendant Corporations, must also be dismissed for failure to state a cause of action.
The first through fourth causes of action have been brought, according to the complaint, by plaintiff Haies personally against Elon and her fellow directors for breaches of duty that would necessarily run to the Defendant Corporations and thus improperly co-mingle claims personal to plaintiffs with derivative claims. The Court deems these claims to have been intended as derivative claims brought by Haies through RCRF as a shareholder, or personally in her capacity as a director of the Defendant Corporations.
Defendants argue that the 2001 Shareholder Agreement containing an arbitration clause and the 2006 and 2009 Awards require the "unconditional" dismissal of this action in favor of arbitration in Israel, which this Court should order upon the authority of Lischinskaya v. Carnival Corp. (56 AD3d 116 [2d Dept 2008] ). This Court does not find that Lischinskaya compels the direction to arbitrate the matters raised in this case in Israel. As here, that case concerned a contractual forum selection clause that the Court found to be enforceable and required dismissal of the New York action, but the dismissal based upon contract prevented the award of discretionary equitable relief such as that available under CPLR 327 (56 AD3d at 123 ).
The 2001 Shareholder Agreement is between two New York entities, AFBO and RCRF, but provides for "binding arbitration" of any dispute between them by Defendant Elon or the presiding "Rosh Yeshiva of Yeshiva Ateret Cohanim" if Elon is unavailable. Although "the law applicable in Israel shall apply exclusively", there is no mention of the site of the required arbitration, though given the location of the yeshiva and the residency of Elon, it appears to have been contemplated that the arbitration would occur in Israel and plaintiffs have initiated arbitration in Israel against some of the defendants herein, including AFBO (see Rachel's Children Reclamation Foundation, Inc v. Bnei Rachel Ltd [Jerusalem Dist Ct, Arbitration Motion No. 22868–05–11] ). While the Courts of New York are quite competent to apply the applicable Israeli law, the designated forum for resolution of any dispute regarding the subject relationship is arbitration. It is noted that plaintiffs' complaints of AFBO's breach of the Shareholder Agreement, if brought within the statute of limitations, could be properly adjudicated by a New York court, were it not for the arbitration clause. Thus, dismissal of the complaint as to AFBO, the twelfth, thirteenth and fourteenth causes of action, must be granted. Plaintiffs may, if so advised, seek arbitration in New York and/or confirmation of any arbitration award obtained against AFBO in this Court.
Annexed to Plaintiffs' Cross–Motion is a letter addressed to this Court dated January 30, 2015, upon the letterhead of Yeshivat Ateret Yerushalayim, from Shlomo Aviner, presumed to be the "Presiding Rosh Yeshiva" designated to arbitrate, indicating his unavailability to conduct arbitration between RCRF and AFBO.
The 2006 Agreement reached in arbitration between the Defendant Corporations and several non-parties to this action, though it contains an arbitration clause with respect to any future disputes, does not, however, establish the obligation to arbitrate the instant grievances. Nor does the subsequent November 2009 Award of Schmuel Becker, following an arbitration among the same entities, create a binding obligation to arbitrate the instant controversy. An agreement to arbitrate must be in writing and must be "clear, explicit and unequivocal" (Matter of Waldron (Goddess), 61 N.Y.2d 181, 183  ; CPLR § 7501 ). Though defendants attempt to shoehorn the parties here into such a commitment, it is clear that there is no written agreement committing plaintiffs to arbitrate this dispute (see Decision of Judge Greenberger in Rachel's Children's Reclamation finding that neither RCRF nor Haies was a party to the earlier arbitration). Accordingly, defendants' motion to dismiss as to all defendants other than AFBO based upon their obligation to arbitrate must be denied.
Forum Non Conveniens
Alternatively, inter alia, defendants move for dismissal of the action in its entirety pursuant to CPLR 327, arguing that New York is an inconvenient forum for the parties and non-party witnesses, that the subject events took place in Israel and evidence relating thereto is located in that country, much of which is in the Hebrew language which would require extensive translation, as well as interpreters at trial, that the Shareholder Agreement of 2001 provides for the application of Israeli law and that retaining the claims in this court would impose an unreasonable burden on the courts of New York, citing Wild v. University of Pennsylvania (115 AD3d 944 [2d Dept 2014] ). Much of defendants' argument raises the same concerns applicable to the jurisdictional issues, i.e., that the events at issue have no real nexus with New York, all relevant events having occurred in Israel, and, further, that Israel, which has the greatest interest in the outcome of the litigation, also provides an adequate forum for the adjudication of the dispute, which is currently engaged in determining several related litigations and arbitrations.
Given the multiple related suits and arbitrations which have been adjudicated or are pending in Israel, and the fact that virtually all of the evidence, including witnesses and various documents, are located in Israel, and that the parties are all also located in Israel, it is appropriate to dismiss this case on forum non conveniens grounds in favor of an Israeli tribunal. As noted, all of the Defendant Corporations, in whose behalf plaintiffs are acting, are based in Jerusalem where the Properties are located. Even plaintiff RCRF has an office in Jerusalem and operates its programs out of the apartment of Haies. It is undisputed that Haies has a home in Israel and, in fact, her Affirmation in Opposition to Defendants' Motion to Dismiss was notarized in Jerusalem. Most of the individual defendants are Israeli citizens or residents. Numerous cases are pending in Israeli courts that address some of the same issues raised in the instant complaint, particularly the alleged violent attacks and malicious acts perpetrated upon RCRF interests. Seeking to distinguish this case from those pending in Israel, plaintiffs insist their claims are related solely to "corporate governance" of the Corporate Defendants, however, as noted, New York is not the proper forum to address such concerns, having no nexus with the business of these foreign corporations.
CPLR 327(a) provides:
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.
The factors to be considered in evaluating the propriety of such dismissal include the residency of the parties and convenience of potential witnesses, the situs of the actionable events, the location of evidence, the availability of an alternative forum and the burden on the New York court if the case is retained (Wild v. University of Pennsylvania, 115 AD3d 944, 945–46 [2d Dept 2014] ). Defendants have more than met their burden to establish that each of these factors mitigates in favor of dismissal. In Islamic Republic of Iran v. Pahlavi (62 N.Y.2d 474, 479  ), the Court of Appeals noted that the rule regarding forum non conveniens is flexible and rests upon considerations of justice, fairness and convenience. The circumstances of the instant litigation unequivocally compel the granting of defendants' motion to dismiss. The court declines to direct removal to an alternative forum or the commencement of another action in light of the current pendency of multiple related matters in Israel which may well provide an appropriate forum for resolution of the dispute.
In light of this disposition, it is unnecessary to consider the various other grounds set forth in support of defendants' motion. It is noted, however, that several necessary parties are missing in light of the requested transfer of title to real property from the existing title holders who are not parties to this action. As there is no basis upon which to award attorneys' fees, that motion is denied.
Although this court is sympathetic to plaintiffs' frustration in seeking, through their cross-motion, to compel defendants to call an annual shareholder and directors' meeting for Chearland, in light of the dismissal of the instant action, that motion is denied. While the cross-motion seeks relief under CPLR § 7803(1), which would provide relief with respect to a New York corporation's board or officer, the internal affairs doctrine precludes recovery with respect to a New Jersey corporation. Such relief may properly be obtained by application to a New Jersey court.
Defendants' motion to dismiss this action is granted for the foregoing reasons. This Court declines to direct arbitration in the foreign jurisdiction. The cross-motion is denied.
This constitutes the decision and order of the court.