Garbers-Adams v Adams

[*1] Garbers-Adams v Adams 2010 NY Slip Op 52370(U) [30 Misc 3d 1219(A)] Decided on December 7, 2010 Supreme Court, New York County Goodman, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 December 7, 2010
Supreme Court, New York County

Samantha Garbers-Adams and Lisa Walford, Plaintiffs,

against

Scott A. Adams, Robert W. Walford, and FCStone, LLC, Defendants.



118152/09

Emily Jane Goodman, J.

Defendant FCStone, LLC (FCStone) here moves, pursuant to CPLR 3211 (a) (1) and (4), to dismiss the complaint, or, alternatively, to stay the action pending the completion of a action pending in Illinois, or, to dismiss this action, pursuant to CPLR 317, on the ground of forum non conveniens.

I. Background

This action arises out of a dispute between defendants Scott A. Adams (Adams) and Robert W. Walford (Walford) (together, the Husbands), and FCStone, over a debt of $127 million unquestionably due FCStone by the Husbands, which resulted in a settlement agreement (Settlement Agreement (Walford Aff., Ex. B), entered into by these parties in March 2009. In the Settlement Agreement, the Husbands agreed, among other things, to turn over to FCStone all their rights to all tax refunds (Tax Refunds) for the years 2005 through 2009, an amount potentially amounting to millions of dollars. The Settlement Agreement, by its terms, calls for any action thereunder to be brought in Federal Court in Illinois, and to be governed by Illinois law.

Plaintiffs Samantha Garbers-Adams and Lisa Walford (together, the Wives), married, respectively, to Adams and Walford, bring this action for a judicial declaration that FCStone is not entitled to the Wives' alleged one-half interest in the Tax Refunds. Upon receipt of the complaint in the present action, which, in itself, FCStone considered a breach of the Settlement Agreement by the Husbands, FCStone commenced an action in Illinois against both the Husbands and the Wives, seeking various forms of relief, including the establishment of a constructive trust over the disputed Tax Refunds, and a declaratory judgment against the Wives, adjudging that the Tax Refunds belonged to FCStone [the Illinois Action].

In the present motion, FCStone moves, pursuant to CPLR 3211 (a) (1), to dismiss the [*2]complaint based on the documentary evidence of the forum selection clause in the Settlement Agreement, which, according to FCStone, is applicable to the Wives because, even as non-signatories, the Wives are "closely related" to the Settlement Agreement. As such, FCStone maintains that the action can only be brought in Illinois.

FCStone alternatively seeks to (1) dismiss the complaint, pursuant to CPLR 3211 (a) (4), due to the pendency of the Illinois Action; (2) stay the action, pursuant to CPLR 2201; or (3) to dismiss the action, pursuant to CPLR 327, on the ground of forum non conveniens.

FCStone contends that the present action is the product of collusion between the Husbands and Wives, and is, essentially, a sham. FCStone alleges, without opposition, that the attorneys for the Husbands reviewed the Wives' complaint before it was served on FCStone, and were otherwise involved in the commencement of the Wives' action. In fact, the Wives contend that doing so, does not convert this action into a "sham." While FCStone alleges that the complaint in the present action is a product of collusion, no allegation is made that the Settlement Agreement is similarly compromised.

FCStone originally removed the action to the United States District Court for the Southern District of New York, claiming that a "realignment" of the parties to the action would satisfy the requirements of diversity jurisdiction. The Federal Court disagreed, and remanded the action to this court.

II. Discussion

On a motion to dismiss pursuant to CPLR 3211, we must accept as true the facts as alleged in the complaint and submissions in opposition to the motion, accord plaintiffs the benefit of every possible favorable inference and determine only whether the facts as alleged fit within any cognizable legal theory.

Sokoloff v Harriman Estates Development Corp., 96 NY2d 409, 414 (2001); see also Leon v Martinez, 84 NY2d 83 (1994). A motion brought pursuant to CPLR 3211 (a) (1) "may be granted where documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law.'" Held v Kaufman, 91 NY2d 425, 430-431 (1998), quoting Leon v Martinez, 84 NY2d at 88; Foster v Kovner, 44 AD3d 23, 28 (1st Dept 2007)("[t]he documentary evidence must resolve all factual issues and dispose of the plaintiff's claim as a matter of law").

A. CPLR 3211 (a) (1)

According to FCStone, the forum selection clause in the Settlement Agreement binds the Wives, along with the Husbands, even though the wives are non-signatories to the Settlement Agreement.

Forum selection clauses are "prima facie valid and enforceable unless shown by the resisting party to be unreasonable." Brooke Group Ltd. v JCH Syndicate 488, 87 NY2d 530, 534 (1996). " Forum selection clauses are enforced because they provide certainty and predictability in the resolution of disputes.'" Boss v American Express Financial Advisors, Inc., 6 NY3d 242, 247 (2006),quoting, Brooke Group Ltd. v JCH Syndicate 488, 87 NY2d at 534); see also Globe Surgical Supply v GEICO Insurance Co., 59 AD3d 129 (2d Dept 2008); accord Calanca v D & S Manufacturing Company, 157 Ill App 3d 85 (Ill App 1 Dist 1987); IFC Credit Corp. v Burton Industries, Inc., 2005 WL 1243404, 2005 US Dist LEXIS 10471 (ND Ill 2005). [*3]

The Wives argue that they are not bound by the forum selection clause in the Settlement Agreement because they are non-signatories to that agreement. Non-signatories to a forum selection clause may nevertheless be bound by that clause "if the non-signatory is closely related to the dispute such that it becomes foreseeable that it will be bound [interior quotation marks and citation omitted]." Taylor Devices, Inc. v Walbridge Aldinger Company, 538 F Supp 2d 560, 582 (WD NY 2008); see also Hugel v Corporation of Lloyd's, 999 F2d 206 (7th Cir 1993); Wendt v Handler, Thayer & Duggan, LLC, 613 F Supp 2d 1021 (ND Ill, 2009). "Closely related parties should benefit from and be subject to the forum selection clauses.'" Frietsch v Refco, Inc., 1994 WL 494945, *4, 1994 US Dist LEXIS 12642 (ND ILL 1994), affd 56 F3d 825 (7th Cir 1995), quoting Clinton v Janger, 583 F Supp 284, 290 (ND Ill 1984).

FCStone maintains that the Wives are "closely related" to the dispute, as, initially, they are married to the Husbands, and further, the Wives are bound "in light of the Wives' repeated citation to, quotation of, and invocation of the Settlement Agreement as the basis for their claim." FCStone Memorandum of Law, at 4. FCStone insists that the Wives "seek a benefit under the Settlement Agreement," making their claims "subject to its forum selection clause." Id. at 5.

For purposes of binding the Wives to the forum selection clause, it is irrelevant that the Wives and Husbands are married, as the question is whether the Wives are closely related to "the dispute," not to the Husbands. See Taylor Devices, Inc. v Walbridge Aldinger Company, 538 F Supp 2d at 582. Further, it is irrelevant that the Wives refer to the Settlement Agreement in their complaint, as there is no other way to explain the dispute. Naming the Settlement Agreement in the Wives' complaint is not the same as bringing a suit seeking "a benefit under" that writing, as FCStone would have it. FCStone Memorandum of Law, at 5. The Wives do not seek any benefit under the Settlement Agreement. As the Wives point out, their action arises out of the question of their rights to the money in a joint Tax Refund under the appropriate tax code, not any rights under the Settlement Agreement.

Nor is there any language in the Settlement Agreement giving the Wives any benefit thereunder, such as might be the case if the Wives were third-party beneficiaries of the Settlement Agreement. See Burrows Paper Corporation v Moore & Associates, 2007 WL 2089682, 2007 US Dist LEXIS 52800 (ND NY 2007); Continental Casualty Company v American National Insurance Company, 417 F3d 727 (7th Cir 2005)(binding non-signatory to arbitration clause as third-party beneficiary). In fact, it has been said that, for a non-party to be closely related to a dispute, "its interests [must be] completely derivative of and directly related to, if not predicated upon the signatory party's interests or conduct [internal quotation marks and citations omitted]." Great Northern Insurance Company v Constab Polymer-Chemie GmbH & Co., 2007 WL 2891981, *8, 2007 US Dist LEXIS 72873 (ND NY 2007). Clearly, the interests of the Wives can in no way be said to be "completely derivative and directly related to" the Husbands' interests in settling their own, completely unrelated, dispute with FCStone.[FN1] The Wives are not making a claim for breach of the Settlement Agreement, but for a declaration of their alleged rights as half-owners of the joint income Tax Refunds. As such, there is no ground to dismiss under CPLR 3211 (a) (1). [*4]

Nor is there ground to dismiss under CPLR 3211 (a) (4). Dismissal is warranted under CPLR 3211 (a) (4) when "there is another action pending between the same parties for the same cause of action in a court of any state or the United States; the court need not dismiss on this ground but may make such order as justice requires ... ." "Pursuant to CPLR 3211 (a) (4), a court has broad discretion in determining whether an action should be dismissed on the ground that there is another action pending between the same parties for the same cause of action." Cherico, Cherico & Associates v Midollo, 67 AD3d 622, 622 (2d Dept 2009), citing Whitney v Whitney, 57 NY2d 731, 732 (1982).

Dismissal under CPLR 3211 (a) (4) may follow if there is "a substantial identity of the parties and causes of action." Cherico, Cherico & Associates v Midollo, 67 AD3d at 622; see also Montalvo v Air Dock Systems, 37 AD3d 567 (2d Dept 2007). The "precise legal theories" need not be present in both actions (id.), as long as the two actions are " sufficiently similar'" (Cherico, Cherico & Associates v Midollo, 67 AD3d at 622, quoting Montalvo v Air Dock Systems, 37 AD3d at 567), and that the relief sought is "the same or substantially the same." Liebert v TIAA-CREF, 34 AD3d 756, 757 (2d Dept 2006). "The critical element is that both suits arise out of the same subject matter or series of alleged wrongs [interior quotation marks and citations omitted]." Cherico, Cherico & Associates v Midollo, 67 AD3d at 622; see also White Light Productions v On The Scene Productions, 231 AD2d 90 (1st Dept 1997).

According to FCStone, although not brought first-in-time, the Illinois Action, unlike the present action, has progressed through considerable discovery, including depositions of the Wives, and that several substantive motions have been made, and await resolution. FCStone argues that the Wives' depositions reveal in full the alleged collusion between the Husbands' and Wives' attorneys showing "a concerted, shared interest and strategy" in bringing the present action. FCStone Memorandum of Law, at 11. Therefore, despite the date of its inception, FCStone maintains that the Illinois Action is the better forum for the present dispute.

According to the Wives' Memorandum of Law, the Wives are fighting jurisdiction in the Illinois Action, and that the discovery to date in that action involves nothing more than that question. Wives' Memorandum of Law, at 6. They claim that they "had no choice but to file the New York action if they wanted to avoid an adjudication of their rights under an Agreement to which they were not parties and to which they had never consented in a forum in which they are not subject to personal jurisdiction." Id. at 7. Whether the jurisdiction motion has been resolved is unknown to this court.

FCStone has failed to show that the present action is one based on the Settlement Agreement; rather, it is one based on the Wives status as joint owners with rights in joint Tax Refunds, claimed by another party, under an agreement in which the Wives are not parties. FCStone's attempt, made in its reply papers, to prove that the Wives' interest in the Tax Refunds may be less than one-half, based on a variety of case law involving tax law, bankruptcy and marital distribution law (FCStone Reply Memorandum of Law, at 5-10), only raises questions of fact as to what the Wives may be entitled to recover. It does not alter the fact that the Wives may have an interest in the Tax Refunds, over which they are entitled to sue in the present action.

As FCStone notes, the fact that the Illinois Action is not, strictly speaking, a "prior pending action," having been brought second-in-time to the present action, is not controlling. See White Light Productions v On The Scene Products, 231 AD2d at 97 (rule regarding priority [*5]of actions should not "be applied in a mechanical way"). However, this court finds that the similarities in the two actions does not require the dismissal of this, more narrowly tailored, action in favor of the broader Illinois Action, which contains issues unrelated to the Wives' complaint, having to do with the Husbands' alleged breach of the Settlement Agreement. This is especially so where, as in the Illinois Action, jurisdiction over the Wives appears to be in question. Dismissal is not warranted under CPLR 3211 (a) (4). Nor does this court find that a stay is warranted under CPLR 2201.

The action is also not dismissible based on forum non conveniens, as codified in CPLR 327. The doctrine of forum non conveniens "permits a court to stay or dismiss an action where the action, although jurisdictionally sound, would be better adjudicated elsewhere." Rabinowitz v Devereux Connecticut Glenholme, 69 AD3d 485, 485 (1st Dept 2010); see Islamic Republic of Iran v Pahlavi, 62 NY2d 474 (1984), cert denied 469 US 1108 (1985); Salzstein v Salzstein, 70 AD3d 806 (2d Dept 2010). Among the factors to be considered are the burden on the New York courts; the potential hardship to the defendant; the availability of an alternate forum in which the plaintiff may bring suit; the residency of the parties; the forum in which the transaction from which the cause of action arose; and the extent to which the plaintiff's interests may otherwise be properly served by pursuing the claim in this state.

Rabinowitz v Devereux Connecticut Glenholme, 69 AD3d at 485. The burden of showing that "considerations relevant to private or public interest militate against accepting or retaining litigation" in this state is on the defendant. Matter of Oxycontin II, 76 AD3d 1019, 1021 (2d Dept 2010.

In the present action, the factors do not militate against retaining the present action before this court. Both the Husbands and the Wives are residents of New York, and FCStone apparently has a presence here, or, at least, does business here. FCStone has not established that the non-signatory Wives are bound by the forum selection clause in the Settlement Agreement, and most of the witnesses and documentation, which may be located in Illinois regarding the Settlement Agreement, will not necessarily involve the Wives, who had nothing to do with the underlying transactions upon which the Settlement Agreement was based, nor with the negotiations which led to that agreement.[FN2] FCStone does not deny that the trades in the trading accounts upon which the Settlement Agreement was based occurred in New York. Finally, there will be little burden [*6]on this court in handling this matter. Dismissal is not warranted on this basis.

III. Conclusion

FCStone has not established that this action should be dismissed or stayed under any section of the CPLR. The motion is denied.[FN3]

Accordingly, it is

ORDERED that the motion to dismiss the complaint brought by defendant FCStone, LLC is denied; and it is further

ORDERED that this defendant is directed to serve an answer to this complaint within 10 days of receipt of a copy of this order with notice of entry.

Dated: December 7, 2010

This Constitutes the Decision and Order of the Court.

ENTER:

_______________________________

J.S.C. Footnotes

Footnote 1:No one alleges that the Wives had any part in the transaction which lead up to the Settlement Agreement, or that they participated in the execution of that agreement.

Footnote 2:It is not clear why the Wives were not asked to sign the Settlement Agreement, even if their signatures were required in the abundance of caution. Although FCStone maintains, in Reply, that the Wives' consent was not needed in order for the Husbands to convey both the Husbands' interests, and the Wives' interests in the Tax Refunds, citing Mahoney-Buntzman v Buntzman (12 NY3d 413 [2009]), that case is inapposite. It is of no import here that the wife in that case was denied a credit for payments made during the marriage from marital assets, in the form of an adjustment to equitable distribution, where doing so would result in every couple seeking review of every debit and credit made during the marriage, and where equity did not compel such a result.

Footnote 3:The recent post motion submission by FCStone, referencing the Husband's Answer, does not alter the Court's determination as to the proper forum to adjudicate the issues raised herein.