TCW Gem V. Ltd. v Grupo Iusacell Celular, S.A. De C.V.

[*1] TCW Gem V. Ltd. v Grupo Iusacell Celular, S.A. De C.V. 2004 NY Slip Op 51870(U) Decided on July 16, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 16, 2004
Supreme Court, New York County

TCW Gem V. Limited, TCW GEM LIGOS 1 LIMITED, GEM LIGOS II LIMITED, TCW GEM CAPITAL & INCOME (CAYMAN), LP, TCW GEM II, LIMITED, TCW GEM III, LIMITED, TCW GALILEO FUNDS, INC., GRAMERCY EMERGING MARKETS FUND, AND AGAVE TELECOM HOLDINGS LLC, Plaintiffs

against

Grupo Iusacell Celular, S.A. De C.V., SOS TELECOMUNICACIONES, S.A. DE C.., COMUNICACIONES CELULARES DE OCCIDENTE, S.A. DE C.., SISTEMAS TELEFONICOS PORTATILES CELULARES, S.A. DE C.. TELECOMUNICACIONES DEL GOLFO, S.A. DE C.., IUSACELL, S.A. DE C.., PORTATEL DEL SURESTE, S.A. DE C.. MEXICAN CELLULAR INVESTMENT, INC., GMD COMUNICACIONES, S.A. DE C.., HERMES TELECOMUNICACIONES, S.A. DE C.., PORTATEL COMERCIALIZADORA, S.A. DE C.., PORTATEL BIENES RAICES, S.A. DE C.., PORTATEL SERVICIOS, S.A. DE C.. PORTATEL CORPORATIVA, S.A. DE C.., CELLULAR SOLUTIONS DE MEXICO, S.A. DE C.., SISTECEL, S.A. DE C.., INMOBILIARIA MONTES URALES 460, S.A. DE C.., IUSANET, S.A. DE C.., GRUPO PORTATEL, S.A. DE C.., MARATHON ASSET MANAGEMENT, LLC, MARATHON SPECIAL OPPORTUNITY FUND, LP, MARATHON FUND, LP, AND DOES 1-50, Defendants.



600091/04

Bernard J. Fried, J.

Defendant Grupo Iusacell, S.A. de C.V. and its subsidiary corporations, also named as defendants herein (collectively "Iusacell") move to dismiss the First Cause Of Action in the Amended Complaint pursuant to CPLR 327 and 3211(a)(7).[FN1]

[*2]

Iusacell is a Mexican Company which provides cellular telephone services throughout a large area of Mexico. In 1997, Iusacell issued $150 million of 10% senior notes due in 2004 ("Notes") pursuant to the terms of an Indenture Agreement dated July 25, 1997. The Indenture Agreement, which was written in English, provides that the parties consent to New York jurisdiction, waive any forum non conveniens objections, and select New York Law to govern the Agreement.[FN2] Plaintiffs, the successors-in-interest to purchasers of approximately $45 million of the Notes, acquired their Notes between 2001 and 2003. It is undisputed that in July 2003, defendant Iusacell defaulted with respect to payments due under the Notes.

Defendant Iusacell also entered into a credit agreement ("bank debt") with certain bank lenders ("bank lenders"). The bank debt was secured by a first mortgage ("mortgage") on all real and personal property of defendant Iusacell, and these assets are located in Mexico. The mortgage was dated July 25, 1997, although it was not notarized and recorded until December 1997. The mortgage was written in Spanish, and provides that it is to be construed under Mexican law.

The Indenture Agreement provides that the Note Holders are entitled to "equal and ratable" liens (i.e., pari passu) with any liens granted in the assets of the Iusacell defendants after July 25, [*3]1997. The exceptions to this "equal and ratable" right are detailed in the Indenture agreement as "Permitted Liens", and includes liens that existed as of July 25, 1997.

The plaintiffs argue that the mortgage to the bank lenders, dated July 25, 1997, was not an "existing" mortgage under Mexican law as of July 25, 1997, since it was not notarized and recorded until December 1997. Thus, plaintiffs contend that the Indenture Agreement requires them to have been provided equal and ratable liens to the bank lenders. In response, the defendants assert that under Mexican law the bank lenders lien existed as of July 25, 1997, when it was executed, because it was properly recorded in December 1997.

Each party, in connection with plaintiffs' motion for preliminary injunction has submitted affidavits from experts in the area of Mexican Law that supports their respective contentions. Plaintiffs submitted an affidavit from Miguel Angel Hernandez Romo, the Dean of what is alleged to be the leading law school in Mexico, who avers that the mortgage did not create a lien on Iusacell's property until "such writing was transcribed as a public writing before a Mexican notary on December 1, 1997". To the contrary, defendant Iusacell submitted an affidavit from Ignacio Morales Lechuga, the former Attorney General of Mexico, who avers that when the 1997 mortgage was notarized, "the perfection 'relates back' to July 1997". In addition, these experts differ in opinion as to whether New York is a proper forum for an action that pertains to mortgages on assets in Mexico.

Plaintiffs' Amended Complaint alleges three causes of action against the Iusacell defendants that arise from the default of the Indenture agreement and the failure to grant plaintiffs equal and ratable liens in the mortgages purportedly granted after July 25, 1997, as required under the Indenture Agreement. These Causes of Action are: First Breach of contract and specific performance; Second Breach of the Indenture Agreement; and Third Breach of the 2004 Notes.[FN3] The First Cause of Action alleges that defendants Iusacell granted liens in its assets to other creditors without granting plaintiffs an equal and ratable lien, allegedly in breach of the Indenture Agreement. The Second and Third Causes of Action allege claims against the Iusacell defendants for breach of the Indenture Agreement and the 2004 Notes by failing to make certain interest and principal payments due under the Indenture Agreement. The Iusacell defendants move to dismiss only the First Cause of Action contending that a New York court should not decide the issues relating to the mortgage; rather it should be decided by a Mexican court. Alternatively the Iusacell defendants argue that the First Cause of Action should be dismissed because this claim seeks specific performance when there is an adequate remedy at law.

On a motion for dismissal on forum non conveniens grounds, the party challenging the forum must demonstrate "relevant private or public interest factors which militate against accepting the litigation". (E.g., Islamic Republic of Iran v. Pahlavi, 62 NY2d 474, 479 [1984]). Among the factors to be considered are the burden on the New York courts, the potential hardship to the [*4]defendant, and the unavailability of an alternative forum, the residency of the parties, the availability of another forum, as well as anything else that is relevant. Also, it must be recognized that New York courts have an interest, sitting in one of the financial capitals of the world, in adjudicating actions where the parties have chosen New York as the forum to resolve disputes. (Cf. Ehrlich-Bober & Co., Inc. v. University of Houston, 49 NY2d 574, 581 [1980]; Gen. Obl. Law § 5-1402). Indeed, it has been noted that when the parties to an agreement select a particular forum to resolve their disputes, their forum-selection is "prima facie valid and should be enforced unless unreasonable under the circumstances". (Credit Francais Intern., S.A. v. Sociedad Financiera De Comercio, C.A., 128 Misc2d 564, 568 [NY Sup. Ct., 1985] citing, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 [1972]).

To support the motion for dismissal, the Iusacell defendants correctly assert that in order to resolve the First Cause of Action, a threshold issue is when the mortgage dated, July 25, 1997, was deemed to "exist" under Mexican law, i.e., was the mortgage in effect as of July 25, 1997, or not until it was recorded in December. Certainly this Spanish language mortgage is governed by Mexican law and the instrument itself selects Mexico as the forum to adjudicate any disputes arising from it.[FN4] Moreover, the Iusacell defendants argue, that even if the plaintiffs were successful in their New York action for equal and ratable liens, a subsequent Mexican action may be necessary. Therefore, the Iusacell defendants assert that Mexico is the proper forum for the interpretation of this mortgage and the Cause of Action should be dismissed.

On the other hand, plaintiffs contend that the First Cause of Action arises out of the English language Indenture Agreement in which the Iusacell defendants consented to a New York selection, waived any forum non conveniens arguments, and agreed that New York law controls. This argument relies on the Indenture agreement which provides that the Iusacell defendants have "irrevocably consent[ed] and submit[ted] to the jurisdiction" of "any federal or state court in the State of New York, County of New York ... and to the courts of its own corporate domicile in respect of actions brought against it as a defendant generally and unconditionally in respect of any suit or proceeding". It further provides that it "shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of Conflicts of Law..." Finally, the Indenture agreement provides that the Iusacell defendants "irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum".

This is an action on the Indenture Agreement, and as such the forum selection of the Mortgage is inapplicable; rather, it is the selection of the Indenture Agreement that controls. In the Indenture agreement the parties agreed that an action under it would be brought in New York, and [*5]the case was indeed commenced in New York. The Iusacell defendants have only moved to dismiss the First Cause of Action on the grounds of forum non conveniens, while the remaining Causes of Action are pending before me. If this Cause of Action was dismissed in favor of a Mexican venue, and a Mexican court found that the mortgage "existed" as of July 25, 1997, the parties rights would still need to be determined under New York law pursuant to the Indenture Agreement, either in Mexico, or in a New York court. It is undisputed that the "existing" date of the mortgage will need to be determined under Mexican law, it is clear that the New York courts are competent to determine issues of Mexican Law. See, Harris S.A. De C.V. v. Grupo Sistemas Integrales De Telecomunicacion S.A. De C.V., 279 AD2d 263, 264 (1st Dept.) lv. denied 96 NY2d 709 (2001). While a determination under Mexican law may require witnesses from Mexico, these commercially sophisticated parties agreed to litigate in New York, which would likely require Mexican witnesses. And any hardship to the parties by having to bring witnesses and documents from Mexico would be minimal to the parties and thus, not unduly burdensome. (See, Mionis v. Bank Julius Baer & Co., Ltd., -AD3d -, 2004 WL 1516479, 1 [1st Dept., 2004]).

This action is distinguishable from Shin-Etsu Chemical Co., Ltd. v. 3033 ICICI Bank Ltd., 777 NYS2d 69 [1st Dept., 2004] cited by the Iusacell defendants in support of this motion. The First Department held that a forum non conveniens dismissal should have been granted in an action against the issuer of a letter of credit for payment, where neither party was a New York resident and the law of India would determine the meaning of the Letter's terms. It is significant that, in Shin there was there was no choice of New York as a forum, nor an express waiver of the right to claim forum non conveniens. Rather, in contrast to Shin, the Indenture Agreement contains an express consent to New York jurisdiction, a waiver of any forum non conveniens objections, and chooses New York as the governing law. Therefore, the Iusacell defendants have not met their burden of establishing that the First Cause of Action warrants a dismissal on the grounds of forum non conveniens.

Additionally, the Iusacell defendants contend that the First Cause of Action should be dismissed, since it seeks specific performance when there is an adequate remedy at law. However, plaintiffs allege breaches of the Indenture Agreement, which they claim denied them security interests, as to which there is no adequate remedy at law. Because "[t]he damage resulting from the failure to give security is not ascertainable, and the legal remedy is therefore inadequate". (National Sur. Corp. v. Titan Const. Corp., 26 NYS2d 227, 230 [Sup. Ct.], aff'd, 260 A.D. 911[1st Dept., 1940]). Plaintiffs may, by this cause of action, seek specific performance.

Accordingly, the Iusacell defendants motion dismiss the First Cause Of Action in the Amended Complaint pursuant to CPLR 327 and 3211(a)(7) is DENIED.

Dated: July 16, 2004

ENTER:

__________________________

J.S.C. [*6]

Footnotes

Footnote 1: A brief statement of facts is set forth. For a more detailed statement of facts, see my decision on the Defendants Motion for Preliminary Injunction, dated June 29, 2004.

Footnote 2: Section 13.09 of the Indenture Agreement provides: Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 13.11 of the Indenture Agreement provides in part: Consent to Jurisdiction: Appointment of Agent for Service of Process; Judgment Currency. (a) The Company [Iusacell] and the Subsidiary Guarantors, by the execution and delivery of this Agreement, irrevocably agree that service of process may be made upon CT Corporation Services ("CT Corporation"), with offices at 1633 Broadway, 23rd Floor, New York, New York 10019 (or its successors as agent for service of process), in the County, City and State of New York, United States of America, in any suit or proceeding against the Company or the Subsidiary Guarantors instituted by the Trustee, based on or arising under this Agreement and the transactions contemplated hereby in any federal or state court in the State of New York, County of New York, and each of the Company, the Subsidiary Guarantors and the Trustee hereby irrevocably consents and submits to the jurisdiction of any such court and to the courts of its own corporate domicile in respect of actions brought against it as a defendant generally and unconditionally in respect of any such suit or proceeding. Each of the Company and the Subsidiary Guarantors hereby irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any of the aforesaid actions, suits or proceedings arising out of or in connection with this Agreement brought in federal or state court in the State of New York, County of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

Footnote 3:In addition, plaintiffs alleges two Causes of Action (the Fourth and Fifth Causes of action) against the "Marathon" defendants, who do not seek dismissal on forum non conveniens grounds.

Footnote 4:The Iusacell defendants submit a certified translation of the mortgage's forum selection clause: Applicable Legislation and Jurisdiction. The agreement shall be governed by and interpreted in accordance with the laws of the United States of Mexico. Each of the parties to this deed is irrevocably subject to the jurisdiction of the competent courts of Mexico, Federal District, regarding any action or legal proceeding in connection with this agreement, thereby renouncing any other jurisdiction which might apply to them for reason of domicile, currently or in the future.