DR. ENRICO BONDI, et al. v. CITIGROUP, INC., et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5960-04T35960-04T3

DR. ENRICO BONDI, AS EXTRAORDINARY

COMMISSIONER OF PARMALAT FINANZIARIA

S.p.A., PARMALAT S.p.A., AND OTHER

AFFILIATED ENTITIES, IN

EXTRAORDINARY ADMINISTRATION,

Plaintiff-Respondent,

v.

CITIGROUP, INC., CITIBANK, N.A.,

VIALATTEA LLC, BUCONERO LLC, AND

EUREKA PLC,

Defendants-Appellants.

 

Argued June 7, 2006 - Decided July 14, 2006

Before Judges Weissbard, Winkelstein and Sapp-Peterson.

On appeal from the Superior Court of New Jersey, Law Division, Bergen County, BER-L-10902-04.

Mark F. Pomerantz (Paul, Weiss, Rifkind, Wharton & Garrison) of the New York bar, admitted pro hac vice, argued the cause for appellant (Stern & Kilcullen, and Mr. Pomerantz, attorneys; Herbert J. Stern and Jeffrey Speiser, on the brief).

Kathleen M. Sullivan (Quinn Emanuel Urquhart Oliver & Hedges) of the New York bar, admitted pro hac vice, argued the cause for respondents (DeCotiis, Fitzpatrick, Cole & Wisler, and Ms. Sullivan, attorneys; Michael R. Cole and Gregory J. Bevelock, on the brief).

PER CURIAM

Plaintiff Dr. Enrico Bondi is the Extraordinary Commissioner the substantial equivalent of a trustee appointed by the Italian government to oversee the restructuring of Parmalat Finanziaria S.p.A., a public company traded on the Milan Stock Exchange. Bondi was appointed in connection with Parmalat's financial collapse after allegations that Parmalat had been doctoring its financial statements. Bondi has pursued insolvency and reorganization proceedings in Italy and in the United States. On July 29, 2004, he filed a complaint in New Jersey alleging that defendants Citigroup, Inc. and Citibank, N.A. (collectively Citigroup) aided Parmalat's subsidiaries in Parmalat's fraudulent scheme.

Defendants Vialattea LLC, Buconero LLC and Eureka PLC are corporations claimed to be affiliated in one way or another with Citigroup, and to have participated in the fraudulent scheme. Citigroup is a Delaware corporation with its principal place of business in New York. Buconero LLC and Vialattea LLC are Delaware limited liability corporations; each has its principal place of business in New York. Eureka PLC is a United Kingdom public liability company with its principal place of business in England.

On leave granted, defendants appeal from an order of the Law Division that denied Eureka's motion to dismiss the complaint for lack of personal jurisdiction and the motion of all defendants to dismiss based on forum non conveniens. We agree with the trial court that plaintiff has established personal jurisdiction over Eureka; we also conclude that the motion to dismiss based on forum non conveniens was properly denied, but we do so on the grounds that it was premature; consequently, while we affirm the Law Division's order, we do so without prejudice to defendants to move for dismissal on the grounds of forum non conveniens at an appropriate time.

Parmalat is an international company best known for its milk products that can be stored at room temperature. In this lawsuit, plaintiff alleges that Citigroup knowingly structured financing for Parmalat subsidiaries to disguise debt and artificially increase cash flow. Plaintiff's allegations against defendants are summarized in the complaint as follows:

1. Parmalat's founders, Calisto Tanzi and his family, along with a few of their cohorts in management, manipulated the company's reported financial results to cover up its true financial picture and to mask their systematic looting of the company.

2. Citigroup was an integral part of these financial manipulations by knowingly structuring financing for a number of Parmalat's North American and European subsidiaries in a series of transactions with the intentional purpose of disguising Parmalat's debt and artificially increasing its reported cash flow from operations.

3. Citigroup knew that the true nature of these transactions was not disclosed or reflected in Parmalat's financial statements or otherwise disclosed to the public. Citigroup continued to arrange for hundreds of millions of dollars in financing for Parmalat long after it had become insolvent, reaping tens of millions of dollars in fees and commissions for itself.

4. Citigroup also facilitated the Parmalat insiders' fraudulent schemes by allowing its bank accounts in the U.S. and elsewhere to be used by Parmalat's corrupt managers and consultants to move money they had misappropriated, laundering hundreds of millions of dollars and contributing to the billions of dollars in losses suffered by Parmalat.

Plaintiff claims that Citigroup created Eureka as a special purpose entity to assist in Parmalat's scheme; he asserts that Citigroup provided credit lines and financial services to Eureka, and effectively managed the securitization program on behalf of Eureka. Plaintiff alleges that Eureka, acting on behalf of Citigroup, bought and securitized receivables of Farmland Dairies LLC (Farmland), a New Jersey corporation with headquarters in Wallington, New Jersey. Farmland is a holding of Parmalat USA Corporation, a major United States subsidiary of Parmalat. Plaintiff does not allege that Farmland's receivables were "double counted," as occurred with Parmalat's other receivables, but instead claims that Eureka's transactions with Farmland were essential links in the global scheme. Farmland is not a defendant in this lawsuit.

While defendants claim Eureka is a corporate entity distinct from Citibank that it is a subsidiary of RP Funding Limited defendants concede that Eureka "operates as a vehicle for the securitization of trade receivables" from a variety of world-wide companies, funding those commitments by issuing commercial paper through a subsidiary Delaware corporation. There is no dispute that Eureka, and its subsidiary Archimede Securitisation S.r.l. (Archimede), have entered into receivables purchase agreements with Parmalat subsidiaries and affiliates.

I. JURISDICTION

"[W]hether jurisdiction will be exercised is within the discretion of the court, the exercise of which discretion depends on the facts and circumstances present in each particular case.'" Cent. Penn Nat'l Bank v. Alten, 194 N.J. Super. 314, 318 (App. Div. 1984) (quoting Quigley Co., Inc. v. Asbestos Ltd., Inc., 134 N.J. Eq. 312, 313 (Ch.), aff'd, 135 N.J. Eq. 460 (E. & A. 1944)). Thus, we will not disturb the trial court's order unless the court abused its discretion.

New Jersey may assert long-arm "jurisdiction over foreign corporations to the outer limits permitted by due process." Corporate Dev. Specialists, Inc. v. Warren-Tedd Pharms., Inc., 102 N.J. Super. 143, 148 (App. Div.), certif. denied, 52 N.J. 535 (1968). Nevertheless, "it should be only in an exceptional case . . . that non-resident parties should be permitted to utilize our courts with regard to an underlying cause of action which did not arise here." Cent. Penn Nat'l Bank, supra, 194 N.J. Super. at 319. But see Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 779-80, 104 S. Ct. 1473, 1480-81, 79 L. Ed. 2d 790, 800-01 (1984) (plaintiff's contact with forum state, while not irrelevant, has little bearing on personal jurisdiction and minimum contacts test).

To determine whether a non-resident is subject to personal jurisdiction, the inquiry is whether the defendant has "certain minimum contacts with [the jurisdiction] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95 102 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S. Ct. 339, 343, 85 L. Ed. 278, 283 (1940)); see also Blakey v. Cont'l Airlines, Inc., 164 N.J. 38, 65-66 (2000); Reliance Nat'l Ins. Co. v. Dana Transp., Inc., 376 N.J. Super. 537, 544-45 (App. Div. 2005). While the burden is on plaintiff to establish jurisdiction, Reliance Nat'l Ins. Co., supra, 376 N.J. Super. at 546, when the motion to dismiss is made early in the litigation, a plaintiff need only demonstrate a prima facie case of personal jurisdiction, utilizing pleadings and affidavits. Jacobs v. Walt Disney World, Co., 309 N.J. Super. 443, 454 (App. Div. 1998).

The standard for determining whether a defendant's minimum contacts are sufficient to sustain personal jurisdiction depends on whether a plaintiff claims specific or general jurisdiction. Lebel v. Everglades Marina, Inc., 115 N.J. 317, 322-24 (1989); Citibank, N.A. v. Estate of Simpson, 290 N.J. Super. at 519, 526-27 (App. Div. 1996). General jurisdiction depends upon a defendant's "continuous and systematic activities" in the state. Waste Mgmt. Inc. v. Admiral Ins. Co., 138 N.J. 106, 119 (1994), cert. denied sub nom., 513 U.S. 1183, 115 S. Ct. 1175, 130 L. Ed. 2d 1128 (1995). Specific jurisdiction occurs when the claim is related to or arises from the contacts in the forum state; the test is whether defendant "purposely availed" itself of the forum state. Citibank, N.A., supra, 290 N.J. Super. at 527 (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S. Ct. 2174, 2183, 85 L. Ed. 2d 528, 542 (1985)); see also Lebel, supra, 115 N.J. at 324 (test for specific jurisdiction is "whether defendant purposely created contacts with New Jersey"). "[A] lesser standard is required to sustain the exercise of specific jurisdiction." Citibank, N.A., supra, 290 N.J. Super. at 527.

Here, in his written decision on February 28, 2005, the trial judge found personal jurisdiction over Eureka, stating:

I conclude, based upon the pleadings and the certifications submitted by Eureka, that minimum contacts exist to warrant the exercise of personal jurisdiction over it. Although it remains to be seen what the extent of Eureka's Farmland activities played in the bigger picture of Parmalat's collapse and injuries, it is quite apparent that Eureka was no stranger to the tangled matrix of intra-corporate interconnections being maintained by Parmalat managers with the tacit encouragement of Eureka operatives. For instance, it is unlikely that its subsidiary Archimede's activities were wholly unconnected with other of Eureka financing facilities to render a fair conclusion that Farmland's factoring was merely an attenuated appendage to the financial schemata. This is not to say that Bondi has authoritatively demonstrated alter ego status between Archimede and Eureka, or even that Eureka was a willing participant in the perpetuation of Parmalat's opaque appearance to the world. However, the linkage between all of the financing endeavors on behalf of Parmalat's affiliates and subsidiaries cannot be gainsaid on this record, leaving Eureka subject to having this dispute resolved here.

Though the trial judge did not indicate whether he found general or specific jurisdiction, the record before him at the time he rendered his decision established a prima facie case of specific jurisdiction. In the complaint, plaintiff alleges that as part of a global scheme Citigroup designed fraudulent transactions for Parmalat, which were described as equity investments, but were in fact loans, the effect of which was to give the impression of removing debt from Parmalat's balance sheet so as to alter its financial statements. The complaint claims that Eureka, acting on behalf of Citigroup, bought and securitized receivables, including receivables of Farmland, a Parmalat holding, headquartered in New Jersey. The complaint alleges that the interactions between Eureka and Farmland were essential links in the global fraud. What is more, James Fairrie, a director of SPV Management Ltd., which Citigroup acknowledges is a director of Eureka, concedes that Eureka has entered into agreements to purchase receivables from Parmalat both directly and through its subsidiary Archimede. This evidence constitutes sufficient contacts by Eureka with this State to establish a prima facie case of personal jurisdiction.

This conclusion is buttressed by evidence that as part of the securitization transactions between Eureka and Farmland, Citigroup representatives conducted due diligence in New Jersey at Farmland's offices. Cf. Rodin Props. Shore Mall, N.V. v. Cushman & Wakefield of Penn., Inc., 49 F. Supp. 2d 709, 722-23 (D.N.J. 1999) (specific personal jurisdiction in New Jersey over Dutch investors found where agents of investors visited this State to conduct due diligence and to negotiate directly with New Jersey limited partnership); Avdel Corp. v. Mecure, 58 N.J. 264, 272 (1971) (personal jurisdiction over defendant established when defendant ordered rivets from New Jersey corporation knowing that rivets would be manufactured in New Jersey, and defendant entered New Jersey to discuss contract with plaintiff).

Consequently, Eureka's purchase and securitization of receivables and Citigroup's conduct of due diligence in this State in furtherance of the securitization agreement are sufficient to meet the criteria to establish personal jurisdiction over Eureka. The minimum contacts requirement is satisfied by this purposeful conduct. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297-98, 100 S. Ct. 559, 567-68, 62 L. Ed. 2d 490, 501-02 (1980). Under all of these circumstances, granting personal jurisdiction over Eureka does not offend "traditional notions of fair play and substantial justice."

II. FORUM NON CONVENIENS

Having found personal jurisdiction, we turn to defendants' forum non conveniens argument. In denying defendants' motion to dismiss for forum non conveniens, the trial court found that Citigroup has a significant operational presence in the State, and notwithstanding that Farmland may not be the source of wrongdoing, plaintiff still may prove that the interaction with Farmland was used to cover the wrongful behavior.

Under the forum non conveniens doctrine, "a court may decline jurisdiction whenever the ends of justice indicate a trial in the forum selected by the plaintiff would be inappropriate." D'Agostino v. Johnson & Johnson, Inc., 225 N.J. Super. 250, 259 (App. Div. 1988), aff'd, 115 N.J. 491 (1989) (D'Agostino I). It is an equitable doctrine, and we will not disturb the decision of a trial judge in the absence of a clear abuse of discretion. Kurzke v. Nissan Motor Corp. in U.S.A., 164 N.J. 159, 165 (2000). "[T]o dismiss [a complaint] on the basis of forum non conveniens, the choice of forum must be 'demonstrably inappropriate.'" Id. at 171-72 (quoting D'Agostino, supra, 225 N.J. Super. at 262).

The United States Supreme Court has established factors to be analyzed to review a motion to dismiss based upon forum non conveniens. See Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09, 67 S. Ct. 839, 843, 91 L. Ed. 1055, 1062-63 (1947). The New Jersey Supreme Court adopted the Gulf Oil analysis in Kurzke, supra, 164 N.J. at 165.

The public interest factors are:

(1) the administrative difficulties which follow from having litigation pile up in congested centers rather than being handled at its origin, (2) the imposition of jury duty on members of a community having no relation to the litigation, (3) the local interest in the subject matter such that affected members of the community may wish to view the trial and (4) the local interest in having localized controversies decided at home.

The private-interest factors are:

(1) the relative ease of access to sources of proof, (2) the availability of compulsory process for attendance of unwilling witnesses and the cost of obtaining the attendance of willing witnesses, (3) whether a view of the premises is appropriate to the action and (4) all other practical problems that make trial of a case easy, expeditious and inexpensive, including the enforceability of the ultimate judgment.

[Id. at 165-66 (internal quotations omitted).]

"[U]nless the balance is strongly in favor of the defendant, the plaintiff's choice of forum should rarely be disturbed." Gulf Oil, supra, 330 U.S. at 508, 67 S. Ct. at 843, 91 L. Ed. at 1062.

Defendants argue here that New Jersey lacks an interest in the litigation, witnesses and documents are not located in this State, and application of Italian law will make it inconvenient to pursue the case in New Jersey. While defendants make compelling arguments, we conclude that the motion to dismiss based on forum non conveniens is premature. As the New Jersey Supreme Court set forth in Kurzke, supra,

As a general rule, a motion for dismissal due to forum non conveniens should not be heard unless the movant has made a good faith effort to obtain discovery and can provide the court with a record verifying that discovery is unreasonably inadequate for litigating in the forum chosen by the plaintiff.

[164 N.J. at 168.]

"Mere speculation" about the potential difficulty in adjudicating a claim in plaintiff's chosen forum is insufficient. Ibid. Only in a limited number of cases, in which "the burden to a defendant will be so grossly unfair and obvious on the face of the pleadings," can a defendant move pre-discovery on these grounds. Ibid.

Here, defendant made its motion before discovery was conducted. While a nonresident's choice of forum is entitled to substantially less deference than that of a resident, that choice is entitled to some deference. D'Agostino, supra, 225 N.J. Super. at 262. "[O]nly in those exceptional cases where a weighing of all of the many relevant factors, of which residence is but part, decisively establishes that there is available another forum where trial will best serve the convenience of the parties and the ends of justice, . . . is [the doctrine of forum non conveniens] ever invoked." Id. at 262-63 (quoting Gore v. United States Steel Corp., 15 N.J. 301, 311 (1954), cert. denied, 348 U.S. 861, 75 S. Ct. 84, 99 L. Ed. 678 (1954)).

Here, questions remain at this point in the proceedings as to a number of the Gulf Oil factors. Defendants claim Italian law will necessarily be applied in the New Jersey court, while plaintiff argues that New Jersey common-law fraud would be applied. The determination as to choice of law has not yet been made in the Law Division.

Nor have defendants shown that they will not have access to sources of proof, or that witnesses will be unavailable such that it would be unreasonable for the lawsuit to proceed in this State. It is too early in the process to resolve these issues, which bear directly on the factors to be analyzed under the Gulf Oil model. A "forum non conveniens analysis favors retention of jurisdiction, unless the forum is manifestly inappropriate." Am. Home Prods. Corp. v. Adriatic Ins. Co., 286 N.J. Super. 24, 35 (App. Div. 1995). The record before us is insufficient to meet that test without speculating.

Consequently, we affirm the trial court's decision not to dismiss based on forum non conveniens without prejudice. Defendants may again move for dismissal on this basis after they have "made a good faith effort to obtain discovery" necessary to defend the action and can provide the court with a record showing that "plaintiff's choice of forum is truly inappropriate." Kurzke, supra, 164 N.J. at 168.

Affirmed.

 

Parmalat S.p.A. is a subsidiary of Parmalat Finanziaria S.p.A. Both companies are collectively referred to as Parmalat in this opinion.

All actions filed in the United States except this case have been consolidated in the United States District Court for the Southern District of New York.

This court denied leave to appeal. The New Jersey Supreme Court remanded the case to us to consider the appeal on its merits.

At the time the Law Division denied defendants' motions, no discovery had taken place. While the appeal has been pending, defendants have filed answers and counterclaims and the court has authorized defendants' attorneys to take the depositions of witnesses from Italy. As of September 14, 2005, discovery had produced approximately 5.7 million pages of documents. Because the record on appeal shall consist of all papers that are on file with the court below, we do not consider this information in arriving at our decision. See R. 2:5-4(a); State v. Golotta, 178 N.J. 205, 211-12 (2003); Pressler, Current N.J. Court Rules, comment 1 on R. 2:5-4 (2006).

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A-5960-04T3

July 14, 2006