Hunter Douglas N.V. v Wotan Maquinas Ltda.

[*1] Hunter Douglas N.V. v Wotan Maquinas Ltda. 2004 NY Slip Op 51651(U) Decided on October 7, 2004 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 7, 2004
Supreme Court, New York County

HUNTER DOUGLAS N.V. as Subrogee of ABN AMRO BANK N.., Plaintiff,

against

WOTAN MAQUINAS LTDA., Defendant.



603668/03

Bernard Fried, J.

Motion sequence numbers 001 and 002 are herewith consolidated for disposition.

These motions present the question of whether comity should be extended to a Brazilian bankruptcy proceeding and a declaratory judgment action, also pending in Brazil. Also at issue is whether there is personal jurisdiction over defendant, a Brazilian corporation.

In motion sequence number 001, defendant Wotan Maquinas Ltda moves, pursuant to CPLR 2004, to extend the time in which to file an answer or pre-answer motion to plaintiff Hunter Douglas N.V.'s complaint, which seeks a judgment against defendant relating to its alleged failure to meet its obligations under a contract. Plaintiff Hunter Douglas N.V., cross-moves for an order determining that service was properly made upon defendant and that this court has proper jurisdiction over this action, or alternatively, if service is not deemed proper, for leave to serve the complaint upon defendant's counsel.

In motion sequence number 002, defendant moves to dismiss the complaint for lack of jurisdiction and/or under principles of international comity. Plaintiff cross-moves for summary judgment. For the reasons set forth herein, defendant's motion to dismiss is granted and plaintiff's cross-motions are denied.

Plaintiff is a corporation organized under the laws of the Dutch Antilles, with its principal place of business in Rotterdam, The Netherlands. Defendant is a Brazilian limited liability corporation that was formed on April 7, 1999. Plaintiff seeks approximately $4 million from defendant allegedly owed to it as a result of defendant's default on certain contractual obligations, which plaintiff guaranteed.

Plaintiff alleges, as set forth in the complaint and the Affidavit of Christopher King, Esq. sworn to on March 25, 2004 (the King Affidavit), that jurisdiction stems from defendant's assumption of two agreements which contained choice of law clauses, forum selection clauses, and service provisions (collectively, the selection clauses) (See King Aff. ¶ 8; Complaint ¶¶ 3-5).

The first agreement allegedly assumed by defendant, was executed on April 24, 1997 (the April 1997 Agreement) between non-party Wotan Maquinas Operatrizes, Ltda (WMO), plaintiff's wholly-owned subsidiary in the machine tool business, and ABN AMRO Bank N.V. [*2](the Bank). The second agreement, dated July 14, 1997 (the July 1997 Agreement, collectively with the April 1997 Agreement, the 1997 Agreements), is signed by WMO, but not by the Bank.[FN1] In the 1997 Agreements, the Bank agreed to provide WMO with an export credit facility of $10 million[FN2], payment of which was secured by plaintiff's guarantee (Complaint, Exhs. 1 & 2).

The 1997 Agreements state that they should be governed by the law of New York and jurisdiction is conferred on the federal and state courts of New York and the July 1997 Agreement contains a clause specifying the proper method of service (Complaint, Exhs. 1, 2).

Plaintiff claims that pursuant to subsequent agreements between the plaintiff and defendant, defendant assumed the 1997 Agreements, and is therefore bound by selection clauses contained therein. Defendant denies that it assumed the 1997 Agreements, and contends that therefore service of the complaint was improper and that there is no basis for this court's jurisdiction over this matter.

Defendant's assumption of the 1997 Agreements allegedly stems from its purchase of WMO's machine tool business from plaintiff in exchange "partially for cash, partially for a contingent payment relating to the sale of certain inventory and partially in return for the assumption of the $6 million export financing credit" (Complaint ¶ 8; King Aff. ¶ 19). Plaintiff submits the Affidavit of James B. Glucksman, Esq., sworn to on March 29, 2004 (the Glucksman Affidavit), to introduce a Quota Purchase Agreement dated June 30, 1999, executed by plaintiff, defendant, WMO, and non-party Wotan Automation International, LLC (WAI), as part of the closing of the purchase of the machine tool business (Glucksman Aff. ¶ 3). Plaintiff claims that defendant agreed to assume certain of WMO's liabilities, as a result of the sale, including the selection clauses. (id. at ¶ 5).

Paragraph 4 of the Quota Purchase Agreement sets forth the liabilities assumed by defendant as follows: 4.1.2. ... [A]ny Liability arising after the Closing Date under the Assigned Contracts (including the Employment Agreements) (other than any Liability arising out of or in relation to a breach of the Assigned Contracts on or prior to the Closing Date);4.1.3. The Acquisition Indebtedness

Paragraph 3.1.m defines the Assigned Contracts as: ... all of the purchase orders, customer orders-on-hand, leases, insurance policies, [*3]sales agency agreements and other agreements of WMO set forth on Schedule 3.1.m or arising in the ordinary course of business since the date of the Schedules, except (i) any contracts or WMO sales orders related to Hyundai machines and (ii), except for such contracts after the date of the Disclosure Schedule which were required to be, but were not approved by William J. Fife, Jr. under Section 7 of the Term Sheet (the "Assigned Contracts"), provided, however, that such approval shall not apply to the sales of machines in the ordinary course of business, including machines costing more than US$25,0000.

Paragraph 4.3 of the Quota Purchase Agreement defines Acquisition Indebtedness as follows:

The principal amount of the Acquisition Indebtedness shall consist of the following: 4.3.a$3,000,000 representing the value of the Real Property, including the Buildings; and4.3.b$3,000,000 representing the value of the Equipment.The Acquisition Indebtedness will be evidenced by the documents in the form of Schedule 4.3 as the Loan Documents (the "Loan Documents") and shall be secured by the Encumbrances on the Assets in the form of Schedule 4.3.

The Quota Purchase Agreement also provides that WMO shall retain every "Liability", other than the Assumed Liabilities. Notably, the Quota Purchase Agreement is unsigned and the 1997 Agreements are not mentioned in the Quota Purchase Agreement. Also, the Loan Documents referred to in paragraph 4.3 and Schedule 3.1.m, which apparently set forth agreements assigned to defendant by WMO, are not in the record.

In further support of its contention that defendant assumed the selection clauses, plaintiff submits a Reimbursement Agreement dated June 30, 1999 between defendant and WAI in favor of plaintiff (Complaint ¶ 9, Exh. 4; King Aff. ¶ 20). The Reimbursement Agreement states, in relevant part: WHEREAS, [defendant] has assumed certain indebtedness owning to [the Bank] in connection with acquisition of the business and the principal assets of [WMO];WHEREAS, the Bank was only willing to provide this financing on the condition that [plaintiff] provided an independent First Demand Corporate Guaranty to the Bank, dated the date hereof, on a form which the parties have reviewed (the "Guaranty")

(Complaint, Exh. 4). The Reimbursement Agreement provided that defendant was to reimburse and indemnify plaintiff "on demand for any expense or cost, including all amount of principal, interest, costs of the Bank or other amounts, paid by [plaintiff] in connection with the Guaranty" (id. at ¶ 1). The Reimbursement Agreement is not signed by defendant and also does not refer to the 1997 Agreements or the selection clauses. In fact, the Reimbursement Agreement states that it shall be governed by the laws of the State of Delaware. [*4]

Plaintiff further claims that, as a result of defendant's purchase of the machine tool business, the 1997 Agreements were rescheduled and changed by the Bank to reflect the revised financing agreement between the Bank and defendant (id.). Plaintiff has not produced any documentation in support of this claim.

Subsequently, defendant defaulted on its payment obligations to the Bank and, by letter dated July 12, 2001, the Bank informed plaintiff of defendant's default and requested that plaintiff fulfill its guarantee obligations to the Bank under the terms of the Independent Corporate Guarantee (Complaint ¶ 12, Exh. 5). The July 12, 2001 letter states: We make reference to the Independent Corporate Guarantee and Indemnity dated as of July 29, 1999, as well as to Export Prepayment Agreement in the principal amount of USD 10,000,00.00 signed by [WMO] and the Bank on July 14, 1997 and Amendment to the Export Prepayment Agreement, reducing the principal amount of USD 10,000,000.00 to USD 6,000,000.00 ... signed by [defendant], as successor of WMO ... in the Export Prepayment Agreement, and [the Bank] on July 6, 1999

(Complaint, Exh. 5). The July 6, 1999 Amendment to the Export Prepayment Agreement referred to in this letter is not in the record before this court.

Plaintiff claims that as a result of the Bank's exercise of its rights under the Independent Corporate Guarantee and plaintiff's subsequent payment to the Bank under the Independent Corporate Guarantee, the Bank transferred all of its creditor rights to plaintiff on or about July 12, 2001 (Complaint ¶ 13).

In a document entitled Amendment No. 1 to Reimbursement Agreement, dated November 12, 2001 (the November 2001 Amendment), plaintiff modified defendant and WAI's obligations under the Reimbursement Agreement by, inter alia, reducing the amount of debt to $4 million (Complaint ¶ 14, Exh. 7). The November 2001 Amendment states that except for certain listed exceptions, "[t]he parties agree that the terms of the reimbursement obligation shall from this date be governed by the original loan documentation between the Bank (without giving effect to the defaults which occurred) and [defendant], with [plaintiff] assuming the rights of the Bank ... ." (Complaint ¶ 2, at Exh. 7). The "original loan documentation" referred to in the November 2001 Amendment, is not before this court.

Plaintiff claims that defendant defaulted on its obligations under the November 2001 Amendment by filing a preventative concordata proceeding (the Concordata Action) in Brazil on August 28, 2002, and by failing to pay the installments due and owing under the November 2001 Amendment (Complaint ¶¶ 15-18).

After WAI sold its shares of defendant's capital to a non-party entity, plaintiff claims that it entered into an agreement with defendant to restructure its payment obligations to plaintiff (the Restructuring Agreement), which required approval of the Brazilian court administering the concordata (the Concordata Court) (Complaint ¶ 20). Attached as an Exhibit to the King Affidavit (Ex F) is documentation establishing that the Concordata Court did not approve this restructuring agreement (id.).

On July 23, 2003, defendant filed a lawsuit in Brazil against plaintiff seeking a judgment [*5]declaring as void any remaining obligation of defendant to plaintiff arising from the purchase of the machine tool business (the Brazilian Declaratory Action). Plaintiff has not participated in the Brazilian Declaratory Action and filed the present complaint, dated November 18, 2003, against defendant seeking: (1) a judgment against defendant in the amount of $4 million plus interest and costs; and (2) a declaration pursuant to CPLR 3017 that defendant may not assert defenses or counterclaims in this action.

In motion sequence No.002, defendant argues, inter alia, that the complaint should be dismissed because comity should be extended to the courts of the Federative Republic of Brazil in the Concordata Action and/or in the Brazilian Declaratory Action.

The concept of international comity has been described by the United States Supreme Court as "the recognition which one nation allows within its territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws" (Hilton v Guyot, 159 US 113, 163-164 [1895]). The decision whether or not to extend comity is generally a matter of discretion (JP Morgan Chase Bank v Altos Hornos De Mexico, S.A. DE C.V., 2004 WL 42268, *3 [US Dist Ct, SD NY 2004]). However, as a general rule, comity may be extended to a foreign court upon a showing that "the foreign court is a court of competent jurisdiction, and that the laws and public policy of the forum state and the rights of its residents will not be violated" (Cunard S.S. Co. Ltd. v Salen Reefer Services AB, 773 F2d 452, 457 [2d Cir 1985] [citations omitted]).

"Congress explicitly recognized comity as an important principle in transnational insolvency situations when it revised the bankruptcy laws" (In re Board of Directors of Hopewell Intl. Ins. Ltd., 238 BR 25, 66 [Bankr SD NY 1999], affd 275 BR 699 [SD NY 2002], citing In re Maxwell Communication Corp. plc, 93 F3d 1036, 1048 [2d Cir 1996]). "And, when the foreign proceeding is in a 'sister common law jurisdiction with procedures akin to our own,' comity should be extended with less hesitation, there being fewer concerns over the procedural safeguards employed in those foreign proceedings" (id., quoting Clarkson Co., Ltd. v Shaheen, 544 F2d 624, 630 [1976]).

In support of its contention that comity should be extended to the Concordata Action, defendant argues that: (1) the Concordata Action is equivalent to a Chapter 11 proceeding in the United States; (2) that plaintiff is subject to an automatic stay as a result of the Concordata Action; and (3) that plaintiff submitted to the jurisdiction of the Concordata Court by submitting the Restructing Agreement to the Concordata Court. In opposition, plaintiff argues, among other things, that this action should proceed and would not violate principles of comity, because the Concordata Action does not stay the rights of plaintiff, a secured creditor.

In support of its contention that a New York Court should defer to the Concordata Action, defendant relies upon the language contained in In re Minpeco, USA, Inc. (237 BR 12, 18 [Bankr SD NY 1997]), which states: "[a] concordata, which bears some resemblance to a Chapter 11 reorganization in the United States, imposes a one-to two-year moratorium on all of the debtor's recognized debts." Defendant contends that as such, an automatic stay imposed by the Concordata Action, precludes plaintiff from pursing its debt outside the Concordata Action.

This latter argument requires explanation of a preventative concordata which is a [*6]mechanism established by Brazilian law to allow a troubled company to obtain partial debt forgiveness (Mendes, A Brief Incursion Into Bankruptcy and the Enforcement of Creditor's Rights in Brazil, 16 Nw. J. Int'l L. & Bus. 107, 100 [Fall 1995], Federal Decree Law No 7661, arts. 156-176, June 21, 1945, as amended). "A preventative concordata is intended to give a Brazilian company the opportunity to avoid the loss of its ongoing business which results from a liquidation of its assets in bankruptcy" (id.). Although such a proceeding appears to resemble a Chapter 11 reorganization proceeding in the United States, it is not similar in one major respect: once granted, the concordata binds only general unsecured creditors (id. at 110, citing Federal Decree Law No 7661, art. 139, June 21, 1945, as amended). "Secured creditors will not be subject to the [concordata] proceedings and will be able to separately foreclose on their collateral or sue the debtor to collect their claims" (id.); see also Cantu, Reforming Brazilian Insolvency Law, 17 Conn. J. Int'l L. 49, 53 [Fall 2001] ["secured creditors are not affected by the proceeding and remain free to foreclose on their collateral or otherwise pursue their claims against the company"]). Moreover, a secured creditor, such as plaintiff, is not subject to the "automatic stay" imposed by a concordata proceeding as against a debtor's unsecured creditors. (see Flaschen, Smits, and Plank, Foreign Representatives in U.S. Chapter 11 Cases: Filling the Void in the Law of Multinational Insolvencies, 17 Conn. J. Int'l L. 3, 22 [Fall 2001]). Research has not disclosed any decision discussing a preventative Concordata in this context. Therefore, reliance of necessity, is upon the Law Review articles cited.

Therefore, under Brazilian law governing concordata proceedings, a plaintiff is free to pursue its rights and remedies without regard to the Concordata Action. Moreover, Plaintiff did not subject itself to the jurisdiction of the Concordata Court when it submitted the Restructuring Agreement for approval. Thus, deference to the Concordata Action is not warranted and comity will not be extended to the Concordata Action.

Alternatively, defendant contends that, based on the principle of international comity, deference should be given to the Declaratory Action. In opposition, plaintiff argues that considerations of comity are trumped by the selection clauses contained in the 1997 Agreements, which were allegedly assumed by defendant and confer jurisdiction on this court.

Before determining whether to extend comity to the Declaratory Action, the scope of jurisdiction over this matter must be reviewed. The parties do not dispute that there is no personal or long arm jurisdiction over defendant, a Brazilian corporation that does no business in the state of New York. The dispute relating to jurisdiction arises solely over whether defendant assumed the selection clauses, thereby submitting itself to jurisdiction in New York. While defendant admits that it assumed a portion of WMO's debt to the Bank, it denies that it ever accepted the assignment of WMO's various obligations to the loan agreement, including the selection clauses.

After reviewing the documents produced by plaintiff in support of its claim that defendant assumed the selection clauses, I find, for the reasons discussed below, that plaintiff failed to prove that defendant assumed the selection clauses and, therefore, jurisdiction is lacking.

It is undisputed that defendant is not a party to either of the 1997 Agreements, and in fact, did not even exist at the time of their execution. None of the documents relied upon by plaintiff, through which defendant allegedly assumed the selection clauses, refer to the 1997 Agreements or the selection clauses. Indeed, the Reimbursement Agreement actually states that it will be [*7]governed by the laws of the State of Delaware. Also, the Restructuring Agreement, which was never fully executed, does not demonstrate that defendant assumed the selection clauses.

Moreover, there are documents, conspicuously absent from the record, that might have shed some light on the scope of defendant's assumption of the 1997 Agreements (or lack thereof). For example, the Quota Purchase Agreement refers to "assumed liabilities" and contracts, but the attachments containing the list of these assumed liabilities and contracts were not submitted to the court. Also, the Bank, in its July 12, 2001 letter to plaintiff, refers to an Amendment to the Export Prepayment Agreement between the Bank and defendant, which is not before this court. Presumably, this Amendment to the Export Prepayment Agreement rescheduled the debt set forth in the 1997 Agreements. This Amendment to the Export Prepayment Agreement was also apparently referred to in the November 2001 Amendment, which states that it is governed by the "original loan documentation" between the Bank and defendant.

Not only has the plaintiff failed to submit documents that demonstrate that defendant assumed the selection clauses, but it has not requested additional discovery, thereby eliminating any expectation that documents exist which would conclusively prove that defendant did, in fact, assume the selection clauses. Thus, although one alternative might have been to issue a stay pending discovery, such a stay is not warranted here.

Consequently, I conclude that the plaintiff has not met its burden of establishing the jurisdiction of this court (see Lamarr v Klein, 35 AD2d 248 [1st Dept 1970], affd 30 NY2d 757 [1972]) and plaintiff has not demonstrated why comity should not be extended in the Brazilian Declaratory Action. This conclusion requires granting the defendant's motion to dismiss the complaint.

Therefore, the relief requested in motion sequence number 001 is moot and it is unnecessary to discuss the parties' remaining arguments.

CONCLUSION

Accordingly, it is

ORDERED that defendant's motion to dismiss the complaint (motion sequence number 002) is granted, and the complaint is dismissed with costs and disbursements to defendant, as taxed by the Clerk of the Court upon the submission of an appropriate bill of costs; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly; and it is further

ORDERED that plaintiff's cross-motion for summary judgment is denied in all respects; and it is further

ORDERED that motion sequence number 001 is denied as moot.

Dated: ENTER:

______________________

J.S.C. Footnotes

Footnote 1:The 1997 Agreements contain various handwritten alterations, which appear, among other things, to change the name of the parties and the amount of the credit facility. However, because the record does not reflect the timing or the validity of these markings, these handwritten alterations to the 1997 Agreements have not been considered.

Footnote 2:The 1997 Agreements state that the original credit facility between WMO and the Bank was for $10 million, not $6 million as stated by plaintiff.