Gramercy Distressed Opportunity Fund Ltd. v Arpeni Pratama Ocean Line Inv. B.V.

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Gramercy Distressed Opportunity Fund Ltd. v Arpeni Pratama Ocean Line Inv. B.V. 2013 NY Slip Op 32218(U) September 18, 2013 Supreme Court, New York County Docket Number: 652756/12 Judge: Ellen M. Coin Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 09/19/2013 1] INDEX NO. 652756/2012 NYSCEF DOC. NO. 45 RECEIVED NYSCEF: 09/19/2013 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: HON. ELLEN M. COIN· PART £'3 Index Number: 652756/2012 GRAMERCY DISTRESSED INDEX NO. _ _ _ __ vs MOTION DATE _ _ __ ARPENI PRATAMA OCEAN LINE MOTION Sequence Number: 003 SEQ~ NO. _ __ DISMISS ACTION The following papers, numbered 1 to ~ , were read on this motion to/¥--"doL<A~·/1'I1IM.L.I!<!~_ _ _ _ _ _ _ _ _ __ I No(s)._""'I=--_ __ I No(s). _-=2____ I No(s). _ __ _ _~ Notice of Motion/Order to Show Cause - Affidavits - Exhibits Answering Affidavits - Exhibits _~_ _ _ _ _ _ _ _ _ _ _ _ _ __ Replying Affidavits _ ' - -_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Upon the foregoing papers, it is ordered that this motion is ~£t,d Uh:"U/~ ~ ~~ ~ . -Ik ttulft(w., ~ O1dU 0/ ~ ~ . tk ~~ .---rUt? ~ w o j:: II) .., ::l ~ c w a:: a:: w u.. W 0::: ¢ ¢ >-..J~ ..J Z ::l 0 u.. II) g, C> o « w W a:: I- W Z 0::: - !a W ~ ..J « o ..J Z W J: II) 0 u.. o .... j:: a:: o 0 :E u.. Dated: ~ f _Q.L-0_l-/'_O_ _ 1. CHECK ONE: ..................................................................... 2. CHECK AS APPROPRIATE: ...........................MOTION IS: 3. CHECK IF APPROPRIATE: ................................:............... _ _ _ _ _ _--::z:-::-";-:':'::----,....".,;"J.S.c. 0 0 0 CASE DISPOSED GRANTED DDONOTPOST NON-FINAL DISPOSITION o DENIED SETTLE ORDER N M. ~U'N o GRANTED IN PART 0 o SUBMIT ORDER o FIDUCIARY APPOINTMENT 0 OTHER REFERENCE [* 2] , . "" . SUPREME COURT OF THE STATE OF NEW YORK , COUNTY. OF NEW YORK: lAS PART 63 -----------------------------------------~x GRAMERCY DISTRESSED OPPORTUNITY FUND LTD. and GRAMERCY DISTRESSED DEBT MASTER FUND, Plaintiffs, . Index No. 652756/12 -againstARPENI PRATAMA OCEAN LINE INVESTMENT B.V. and PT.ARPENI PRATAMA OCEAN LINE TBK., Defendants '. ',', ---~-------------~~~---~---~~----------~~-x Coin, J.: In motion sequence 003, defendants Arpeni Pratama Ocean Line Investment B.V. (Arpeni B.V.)ianentify formed under the laws of the Netherlands, and pt Arpeni.Pratama Ocean Lirie Tbk (PT Arpeni), an entity existing under the laws of the Republic of Indonesia, move pursuant to CPLR 3211 (a)(l),. (5), di~miss the compla~nt (7), and (8) to with prejudice. Background The followingalleg~tionsare set forth in the complaint and, for the purposes of this motion,_ are accepted as true. In the pres~~t action, plai~tiffs seek to rescind a bid they made in a tendero"ffer to sell bonds issued by Arpeni B.V. and guaranteed by PT Arpeni. Plaintiffs mistakenlY,communicated the wrong bid price, leading to a ten-fold discrepancy between their intended bid price and the bid price submitted. 1 [* 3] ~- On November 18, 2011, as part of a settlement agreement in a proceeding against PT Arpeni in Indonesia,l PT Arpeni announced an offer to exchange outstanding "8.75% Guaranteed Senior Secured Notes Due 2013" (the Old Notes) foi new "Floating Rate Guaranteed Notes Due 2021" (the New Notes) (the Exchange Offer). , . Alternatively, PT Arpeni invited, the holders of the Old Notes to sell them for cashin a modified Dutch auction (the Tender Offer). Both th~ Old Notes and New Notes were issued by Arpeni B.V. and guaranteed by PTArpeni. The terms of the Exchange Offer and Tender Offer were set forth in an offering memorandum, dated November 18, 2011, as amended and supplemented on December 14, 2011 and January 11, ,2012 (the Offering Memorandum). The Offering Memorandum stated that PT Arpeni intended to make available a minimum of $27,000,000 for the purchase of the Old Notes (the Maximum Tender Amount) ... Under the terms of the Tender Offer, holders of the Old Notes could submit one or multiple bids to sell all or some of their Old Notes to Arpeni B.V.for bash in the reverse Dutch . action. The price of the bid was to be expressed in dollars per thousand of the outstanding principal amount of the Old Notes being tendered. The initial Offering Memorandum stated that Arpeni B.V. would not accept a~y bid in which the bid price exceeded $350 per $1000 of the Old Notes' principal amount. 1 The Indonesia proceeding is detailed below. 2 This [* 4] amount was later amended and reduced from $350 per $1000 to $250 per $1000. The Tender Offer closed on January 19, 2012, and following the close, Bondholder Communications Group (the Auction Agent), as auction agent, ranked all valid bids and bid prices received from lowest to highest to be presented to PT Arpeni. PT Arpeni then accepted the bids starting at· the lowest bid prices for purchase until the aggregate value of the accepted bids equaled the Maximum Tender Amount. of the bids accepted. Plaintiffs' bid and bid price was one Howev~r~ there was an error with their bid price. In the months leading up the tender Offer, the Old. Notes were trading in the market between.$210 and $250 per $1000, or between 21%-25% of par. When the Tender Offer was announced, plaintiff Gramercy Distressed Opportunity Fund Ltd. owned $15,905,000 of the principal amount of the Old Notes, and plaintiff Gramercy Distressed Debt Master Fund owned $250,000. Plaintiffs decided they would participate in the Tender Offer and submit a bid and bid price. Plaintiffs' investment manager, Gramercy Funds Management, L.L.C., determined to tender the Old Notes at 25% of par, based on the previous day's trading market of 23% of par. the Tender Offer. 25% of par was the maximum bid price under Plaintiffs' portfolio managers directed their back office to tender $7,952,000 of principal amount of the Old 3 [* 5] Notes held by Gramercy Distressed O~portunity Fund Ltd., and $125,000 held by Gramercy Distressed Debt Master Fund, as a bid of "25.00.". They also directed that the balance of the principal amount of plaintiffs' Old Notes be tendered in the Exchange Offer. During the process of communicating the plaintiffs' bids to the plaintiffs' custodian, Citigroup Global Markets .Inc. (Citigroup), the bid price was mistakenly communicated as $25.00 rather than 25.00% of par. On January 10, 2012, Citigroup submitted plaintif£s' bid at a bid price of $25.00 per $1000, instead of 25% of par,or $250;00 per $1000. On January 25, 2012, plaintiffs were notified that their bid had been accepted in the Tender Offer, and the balance of their Old Notes had been accepted and exchanged for the Ne~ Notes in the Exchange Offer. On February 1, 2012, Citigroup credited plaintiffs' accounts $201,925 in consideration for their·bid.Plaintiffs informed Citigroup of the discrepancy in monies received with what they believed they were going to re¢eiye with their bid price of $250.00 per $1000 .. In turn, Citigroup contacted the Auction Agent, who advised that the bid was accepted at $25 per $1000, and not $250.00 per $1000. On March 30, 2012, plaintiffs' investment manager, Gramercy Funds Management, L.L.C., contactedPT Arpeni's financial advisor to advise it of the mistaken bid in an attempt to have the bid 4 [* 6] rescinded or corrected, or in the alte;native, .to accept the New Notes in exchange for the Old Notes tendered at the erroneous bid price. PT Arpeni's financial advisor advised that. it was unable to rectify the error. On August 8, 2012, plaint~ffs brought ·this action seeking to rescind the bid'on the grounds of unilateral mistake and for unjust e~richment.Defendants now m6ve to dismiss the complaint . on the grounds of lack persohil service, lack of ~ubject jur~sdiction, lack of proper matter jurisdiction, and failure to state a claim. I I I I I Foreign and Bankruptcy Proceedings As the issueo! ~hether th~i co~rt has personal jurisdiction over the defendants hinges mainly on a bankruptcy proceeding brought in the Southern District of Ne~ York,the c6urt will discuss the backgrou~d of that'proteeding in detail here. On August 5, 2011, one of PT Arpeni's creditors, in this action, filed a Indone$ia, after proce~ding' PT.A~peni ~ nonparty agai.nst PT Arpeni in defatiltedon certain payment obligations, including interest payments' due on the Old Notes (the Foreign Proceeding) '6). (affirmation ?fMark D. Kotwick, ex 3, In the Foreign Proceeding, PTArpeni.obtained the approval of a composition plan from the requisite number of its creditors pursuant to Indonesian bankruptcy law (id., '7) plan was ratified and declared~ ~ The composition legally valid and binding j 5. J I I j i i [* 7] settlement agreeme,nt in the Foreign Proceedi!1g (Kotwick Aff, ex 3, '7). The Exchange Offer and Tend~r Offer were part of this settlement agreement (id., '8). On December 12, 2011, PT Arpeni commenced a Chapter 15 proceeding in the United States_ ~ankruptcy Court for the Southern District of New York (the New York Barikruptcy Proceeding) to stay any proceedings by creditors in the United States, as PT Arpeni believed that creditors in the United States were seeking to commence actions here to disrupt its efforts to restructure by circumventing the Foreign Pr6ceeding Bank~uptcy Court~ranted (id~,ex4, '21). The the relief sought and entered an "Order -Granting Recognition of Foreigri Ma~n Proceeding and Certain Related Relief" (the Recog~ition Order} (id., ex 7). The Recognition Order granted comity and_ gave full force and effect to the composition plan, settlement ~greement, and transactions consummated thereunder, including the Exchange Offer and Tender Offer (id., '5). Analysis Personal Jurisdiction Defendants argue that the complaj,nt must-be dismissed because plaintiffs have failed to demonstrate personal jurisdiction over them. Defendant~ aigue that they are foreign entities not subject to New _York's_ long-arm jurisdiction, because they are not trans~cting business in New York. 6 Further, they [* 8] argue that they are also not subject to personal jurisdiction under the Due Process Clause of the UnitedState~ Constitution. "[T]he burden of proving jurisdiction is upon the party who asserts it;" thus, plaintiffs bear.the burden of demonstrating that jurisdiction over defendants is proPer (Lamarr v Klein, 35 AD2d 248, 250 [pt Dept 1970], affd 30 NY2d 757 [1972]). Long-Arm Jurisdiction - CPLR 302(a) (1) CPLR 302(a) (1) pro~ides long-arm jurisdiction over a "non- domiciliary ... who in person or through an agent: 1. transacts any business within the state or contracts anywhere to supply goods or services in the state." "Although CPLR 302(a) (1) i~ a 'single act statute,' whereby physical presence is not required and one New York transaction is sufficient for personal jurisdiction, it is only applicable where the defendant's New York activities were purposeful and substantially related to the claim" (D&R Global Selections, S.L. v Bodega Olegario Falc6n Pifleiro, 90 AD3d 403, 404 [1 st Dept 2011], citing Deutsche Bank Sec., Inc. v Montana Bd. of Invs., 7 NY3d 65, cert denied 549 US 1095 [2006]). Plaintiffs argue that the New York Bankruptcy Proceeding provides a basis for ~xercising personal jurisdiction over the defendants pursuant to CPLR 302(a) (1), and the court agrees. "Use of the New York courts is a traditional justification for the exercise of personal jurisdiction over a nonresident" , r I 7 [* 9] --------------------------------------------------------~------ --- (Matter of Sayeh R., 91 NY2d 306, 319 [1997]). Further, it has been held that the retainer of attorneys for the ~urpose of legal representation in New York by a nondomiciliary is sufficient to confer jurisdiction pursuant to CPLR 302(a) (1) (Otterbourg, Steindler, Houston & Rosen, P.C. v Shreve City Apts., 147 AD2d 327, 332 [1 st Dept 1989], citing Elman v Belson, Dept 1969]). 32 AD2d 422 [2d The New York Bankruptcy Proceeding and the retaining of counsel for representation, in that proceeding are enough to satisfy the requir~me~ts that defendants must have engaged in purposeful activity in Ne~ York. Next, it must be determined whether plaintiffs' claims arise from defendants' 302[a]). 'purpo~eful activity ih New York (see CPLR A claim arises from a particular transaction or activity when there is "some articulable nexus between the business transacted and the cause of action sued upon" (McGowan v Smith, 52 NY2d 268, 272 [1981]), or where "there is a substantial relationship between the transaction and the claim asserted" (Deutsche Bank Sec., Inc., 7- NY3d at 71, quoting Kreutter v McFadden Oil Corp., 71 NY2d 460, 467 [1988]). Defendants argue that plaintiffs' causes of action for unilateral mistake and unjust enrichment are not connected with the New York Bankruptcy Proceeding .. The court disagrees. The Recognition Order granted comity and gave full force and effect to the composition plan, settlement agreement, and transactions 8 [* 10] consummated thereunder, including the Exchange Offer and Tender Offer. , The New York Bankruptcy Proceeding protected the Exchange and Tender Offers from any challenges by note holders in the United States, which might have forced defendants into liquidation. This protection pro~ided defendants with the benefit of going forth with the Exchange and Tender Offers without interruption or challenge. 2 Plaintiffs' claims arise out of their bid in the Exchange and Tender Offers. Therefore, there is a substantial relationship between the New York Bankruptcy Proceeding and plaintiffs' causes of action arising out of the transaction that was a subject of the New York Bankruptcy Proceeding. Due Process Once it is determined that CPLR 302 confers jurisdiction, it must be determined that the exerc~se of such jurisdiction comports with the Due Process Clause of the United States Constitution (LaMarca v Pak-Mor [2000]). Mf~. Co., 95 NY2d 210, 214 Under the Due Process Clause, a state may exercise jurisdiction over a riondomiciliary defendant if the defendant had minimum contacts within the state, and maintaining a lawsuit 2Thus, while PT Arpeni was the foreign debtor in the New York Bankruptcy Proceeding, Arpeni BV was a direct beneficiary of that proceeding. The order entered there enjoined the commencement of any actions within .the United States that would interfere with or impede the Exchange and Tender Offer of the Arpeni BV notes. . . 9 [* 11] against the defendant would not offend the notions of fair play and substantial justice (LaMarca v Pak-Mor Mfg. Co., 95 NY2d at 216) . The minimum contacts requirement is satisfied if "detendant's 'conduct and connection with th~ forum State' are such that it 'should reasonably anticipate being haled into court there'" (id., quoting World-Wide Volkswagen· Corp. v Woodson, US 286,297 [1980]). 444 Here defendants voluntarily came into the Bankruptcy Court in the Southern District of New York to shield themselves from claims by note holders in the United States, specifically protecting the Exchange and Tender Offers. By commencing the New York Bankruptcy Proceeding, defendants cannot reasonably argue that they did not foresee a possibility 6f defending a lawsuit in New York. "Minimum contacts alone do not satisfy due process. The prospect of defending a suit in the forum State must also comport with traditional notions of fair play and substantial justice" (id. at 217 [internal quotation marks and citations omitted]). It is not unfair to subject defendants to the jurisdiction of the New York courts. Defendarits were aware that they had creditors in the United States, and came to New York t~ prevent such creditors from disturbing the settlement agreement reached in the Foreign Proceeding, which included the Exchange and Tender Offers. It seems only fair to extend the reach of New York's 10 [* 12] jurisdictional long-arm to these defendants (id. at 219). Defendants argue that the finalt~ansmittal letter setting forth the terms of the Tender Offer provided that the contract would be governed by Indonesian law. However, a choice of law provision is not jurisdictionally rel~va-nt (see M.· Fabrikant Sons v Adrianne Kahh, Inc., & 144 AD2d 264,266 [pt Dept 1988]). Defendants also argue that pursuarit to the final transmittal ) t I - I letter, plaintiffs agreed to subject themselves to the 1 nonexclusive jurisdiction of the Irtdonesiaq courts and waive any objection on the basis of venue or incoriv~nientforum. Again, this does not affect whether the defendants are subject to the jurisdiction 6f the New York courts. _Instead, the letter provides that by participating in the Tendei Offer, plaintiffs were subjecting themselves to that jurisdiction should suit be brought there, ~nd that ihey could not object on the grounds of venue or inconvenient forum. .I I Proper Service Defendants assert that the complaint should be dismissed for lack or proper service on the grounds that plaintiffs' service, pursuant to B_usiness Corporation Law § 307, was ineffective, because the court lacks personal jurisdiction. foregoing, th~s argument is without merit. Based on the Defendants do not otherwise .challenge service of the summons and complaints. 11 j [* 13] Subject Matter Jurisdiction The court finds no reason why it should not accept jurisdiction over this matter. Failure to State a Claim As jurisdiction and proper service have been established, the court turns to defendants' motion to dismiss the complaint for failure to state a claim. "In the posture of defendants' CPLR 3211 motion to dismiss, our task is to determine whether plaintiffs' pleadings state a cause of actiori. The motion must be denied if from the pleadings' four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law. In furtherance of this task, we liber~lly construe the complaint, and accept as true the facts alleged in the complaint and any submissions in opposition to the dismissal motion. We also accord plaintiffs the benefit of every possible favorable inference H 511 W. 232nd Owners Corp. v Jennifer Realty Co., 151~152 [2002] 98 NY2d 144, [internal quotation marks and citations omitted]). Rescission Due to Unilateral Mistake "A bid is a binding offer to make a contract. 'It may be withdrawn in the case of unilateral mistake by the bidder where the mistake is known to the other party to the transaction and (1) the bid is of such consequence that enforcement would be unconscionable, (2) the mistake is material, (3) the mistake occurred despite the exercise of ordinary care by the bidder and (4) it is possible to place the other party in status quo'" (Dalto v Incorporated Vii. of Mineola, 256 AD2d 301, 302 [2d Dept 1998], quoting Balaban-Gordon Co. v Brighton Sewer Dist. No.2, 41 AD2d 246, 247 [4 th Dept 1973]). At this pleading stage plaintiffs have sufficiently alleged that defendants knew that 12 [* 14] '~ plaintiffs' bid price was a mistake; that the bid was of such consequence that enforcement would be unconscionable; it is possible to place the othei party in status quo; and that their mistake was material and occurred despite their exercise of ordinary' care. Further, while plaintiffs have fully performed under the contract, it is not an automatic b~r to rescission of the contract, especially where they did not discover the mistake until after their performance under the contract. The remedy to rescind is available even after performance, if "invoked within a reasonable time after discovery of the.misrepr~sentationH (Soviero Bros. Contr. [pt Dept 1955], Corp. v Cityof New York, affd 2 NY2d 924 [1957]). 286 AD 435, 439 The inquiry as to whether this remedy was invoked within a reasonable time after plaintiffs' discovery of their mistake is one not suited for this motion. Defendants also argue that pla~ntiffs have fail~d fraud, relying on Barclay Arms v Barclay Arms Assoc. [1989]). However, this argument is misplaced, to plead (74 NY2d 644 In Barclay Arms, the plaintiff failed to plead a cause of action for reformation, not rescission. Defendants also assert that plaintiffs actually demand reformation. However, this argument is contradicted by the allegations in the complaint. The.complaint seeks to restore the 13 [* 15] parties to their positions ex ante, and is not asking the cou~t to change the consequences of a -fully perform~d contract. plaintiffs are successful on their claim ~or If rescission, they will be limited_ to voiding the contract and. seeking damages that restore them to their position before the contract was entered into. Whether the parties can return to the status quo that existed before the contract-is an issue not appropriate for determination on this motion to dismiss. Defendants~ remaining argumerits are premature. to dismiss for failure to state i determine whet~er cl~im, plaintiffs' pleadings On a motion the court's task is to stat~ a cause of action, not whether such claims are factually supported. Unjust Enrichment "[W]here rescission of a contract is warranted, a party may timely rescind and seek recov~ry on the theory of quasi coritract. It is impermissible, however, to seek damages in an action sounding in quasi contract where the suing party has fully performed on a valid written agreement, the existence of which ~s undisputed, and the scope ot which clearly covers the dispute between the parties" (Clark-Fitzpatrick, Inc. v Long Is. R.-R. Co., 7.0 NY2d 382, 389 [1987] [internal citation omitted]) -. of action can go forward. _If it is At this stage, this cause d~termined that plaintiffs invoked the remedy of rescission within a reasonable time after discovery of their mistake, and plaintiffs are successful on the merits of their rescission claim, they may be able to recover on an unjust enrichment claim (Basis Yield Alpha Fund (Master) 14 v [* 16] Goldman Sachs Group, Inc., 37 Mise 3d 1212 [A], *10, [Sup Ct, NY County 2012]) . Accordingly, it is ORDERED that the motion to dismiss of defendants Arpeni Pratama Ocean Line Investment B.V. and PT Arpeni Pratama Ocean Line Tbk is denied; and it is further ORDERED that defendants are directed to serve their answer to the complaint within 20 days after service of a copy of this order with notice of entry; and it is further ORDERED that counsel ar~ directed to appear for a preliminary conference in Room 311, 71 Thoma~ Street, on December 4, 2013 at 2:00 p.m. Dated: September 18, 2013 ENTER: Ellen M. Coin A.J.S.C. 15

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