Basile v CAI Master Allocation Fund, Ltd.

[*1] Basile v CAI Master Allocation Fund, Ltd. 2013 NY Slip Op 50649(U) Decided on April 17, 2013 Supreme Court, Kings County Schmidt, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 April 17, 2013
Supreme Court, Kings County

Christopher Basile, Plaintiff,

against

CAI Master Allocation Fund, Ltd., a Bermuda exempted company, Vicki Steele, in her personal capacity and as an employee of Deloitte & Touche, Mark Smith, in his personal capacity and as an employee of Deloitte & Touche, and Deloitte & Touche, Ltd., an entity organized and existing under the laws of the island of Bermuda, Defendants.



502313/12



Plaintiff Attorney (Pro Se): Christopher Basile, 110 Prospect Park West, Brooklyn, NY 11215

Defendant Attorney: Susheel Kirpalani, Scott C. Shelley, Christopher D. Kercher, Quinn Emanuel Urquhart & Sullivan, LLP, 51 Madison Avenue, 22nd Floor, New York, NY 10010

David I. Schmidt, J.

The following papers numbered 1 to 4 read herein:

Papers Numbered

Notice of Motion/Order to Show Cause/

Petition/Cross Motion and

Affidavits (Affirmations) Annexed1-2

Opposing Affidavits (Affirmations)3

Reply Affidavits (Affirmations)4

Affidavit (Affirmation)

Other Papers Memoranda of Law

Upon the foregoing papers, defendants CAI Master Allocation Fund, Ltd. (CAI), Vicki Steele (Steele), Mark Smith (Smith) and Deloitte & Touche, Ltd. (Deloitte) (collectively, defendants) move, pursuant to CPLR 3211, to dismiss this action brought by Christopher Basile (plaintiff).

[*2]Background

(1)

Plaintiff made two agreements on March 24, 2008 with CAI, a segregated accounts company organized under Bermudian law, (1) a contract to serve as officer, general counsel and senior vice president of business development (the Employment Agreement) and (2) a contract to provide consulting services (the Consulting Agreement). The Employment Agreement, a short letter, designated plaintiff's title, set his pay at $150,000 annually, with additional income under a performance algorithm, and stated explicitly that it represented "an obligation of CAI Master Allocation Fund, Ltd." The Employment Agreement contained no duration or termination provision.

The Consulting Agreement, an eight-page contract that defined its term as March 24, 2008 through March 24, 2009, stated that plaintiff agreed to provide consulting and advisory services to CAI for $12,500 monthly. The Consulting Agreement stipulated, in paragraph 11.3, that it would be "governed by, and construed in accordance with, the laws of the State of New York without reference to its principles of conflicts of law." It additionally contained a clause (the Forum Selection Clause) that noted:

"The parties each consent to personal jurisdiction in New York City and agree that the exclusive venue and place of trial for the resolution of any disputes arising in connection with the interpretation or enforcement of this Agreement which cannot otherwise reasonably and expeditiously be resolved shall be the Supreme Court of New York in the Borough of Brooklyn."

Plaintiff presented a March 24, 2009 letter that purportedly extended the Consulting Agreement through March 24, 2014. This letter, however, also stated that plaintiff would receive compensation only under the Employment Agreement and would not receive compensation for consulting other than out-of-pocket expenses. A separate April 3, 2010 document purportedly assigned plaintiff's rights for all payments due under the Employment Agreement to Ametrine Consulting, Inc. (Ametrine).

CAI's two Bermudian independent directors resigned on or around November 9, 2010 and accused CAI's management of financial improprieties. Consequently, the Bermuda Monetary Authority petitioned on November 16, 2010 in the Supreme Court of Bermuda for a winding-up proceeding, and that court appointed Smith and another Deloitte employee as CAI's joint provisional liquidators.

Plaintiff filed two affidavits in the winding-up proceeding and also appeared in person at a hearing, where he contested the circumstances and alleged impropriety of certain CAI actions and expenditures. Plaintiff, in response to a solicitation for claims, submitted a proof of debt form for $150,000 purportedly due under the Consulting Agreement, and Ametrine also submitted a proof of debt form for $150,000 purportedly due under the Employment Agreement. Each proof of debt form prominently featured the winding-up proceeding's caption, including the name of the court, index number, name of [*3]the action and the winding-

up order date. Smith notified plaintiff, by two July 3, 2012 letters, (1) that his Consulting Agreement claim was rejected in full, as documents indicated that plaintiff had previously received deferred payment for all services rendered in 2008 and 2009 and (2) that Ametrine's claim was rejected except for $6164 (the Claim Rejections). Both Claim Rejections stated that "no application to reverse or vary [the] decision will be entertained after the expiration of 21 (twenty-one) days from this date." Plaintiff makes no allegation that he took any action in the Bermudian courts to challenge these findings.

(2)

Defendants assert that, in the wake of the Claim Rejections, plaintiff sent them a number of communications threatening to commence a lawsuit in the United States. They subsequently sought and were granted an order by the Supreme Court of Bermuda enjoining plaintiff or Ametrine from bringing any proceeding in American state or federal court against them based upon plaintiff's or Ametrine's proofs of debt or upon the Consulting or Employment Agreements (the Injunction).

In addition, plaintiff asserts that Smith notified him, by a July 18, 2012 e-mail, that his employment was considered terminated on November 17, 2010, the winding-up proceeding's commencement date. Plaintiff responded to Smith, in a July 30, 2012 letter transmitted by facsimile and e-mail, that he had never received payment under the Consulting Agreement and that Smith lacked the power to terminate his employment retroactively. Plaintiff's response also referenced a "pending lawsuit for breach of contract and fraud." Smith, via Steele, e-mailed a letter to plaintiff on August 6, 2012, which warned plaintiff that he would violate the Injunction if he commenced a related action in a United States court and notified plaintiff that his time to appeal the Claim Rejections had expired.

(3)

Plaintiff nonetheless commenced this action on August 10, 2012. The first cause of action alleged breach of contract for defendants' failure to have fully compensated plaintiff under either the Employment or Consulting Agreements. Plaintiff alleged in a second cause of action, for fraud, that defendants' solicitation for proofs of debt had included an implied promise of payment that had fraudulently induced plaintiff to rely on that process. He also alleged that the Claim Rejections had fraudulently induced him to forgo further efforts to collect his purported debts through the winding-up proceeding.

(4)

Defendants now move, pursuant to CPLR 3211, to dismiss this action and urge a ruling granting comity to the winding-up proceeding in the Supreme Court of Bermuda, finding the Injunction and Claim Rejections valid and holding Bermuda as the proper forum for plaintiff's claims concerning the Employment and Consulting Agreements. They argue that New York generally grants comity to the proceedings of foreign courts and that American courts recognize a "particular need" to defer to foreign bankruptcy [*4]proceedings, especially those in other common-law jurisdictions. Granting comity to the winding-up proceeding, claim defendants, would not violate any New York public policy, nor would it prejudice plaintiff, as he had full and fair opportunity to, and in fact did, participate in that action. Defendants further contend that allowing plaintiff to maintain an independent action in this court would undermine the Bermudian court's ability to effectively wind up CAI and that the Forum Selection Clause should not obstruct a grant of comity in these circumstances.

Alternatively, defendants argue that plaintiff's complaint failed to state a cause of action for fraud as it failed to allege that the solicitation for proofs of debt constituted a material misrepresentation of fact. Defendants characterize as implausible plaintiff's purported reliance on the Claim Rejections, plaintiff's contention that defendants intended that sort of inducement and plaintiff's claimed resulting damages. Finally, defendants argue for dismissing the breach-of-contract claim as to Steele, Smith and Deloitte (the Deloitte Defendants) as they were not party to either the Consulting or Employment Agreement.

(5)

Plaintiff, in opposition, labels defendants' reliance on bankruptcy law and comity for bankruptcy proceedings as misplaced because CAI remains technically solvent. Plaintiff thus rejects considering the winding-up proceeding a bankruptcy proceeding. He asserts that his submitted proof of debt forms fail to constitute a waiver of rights or submission to jurisdiction and that he has not participated in the winding-up proceeding. Plaintiff claims that he appeared as a creditor in the winding-up proceeding merely as a "professional accommodation" so that he could represent CAI even though not admitted to practice law in Bermuda. The Injunction should be considered invalid, asserts plaintiff, because he is not subject to the jurisdiction of the Bermudian courts and received no notice of the injunction motion.

Plaintiff concurrently urges enforcing the Forum Selection Clause as most of CAI's business occurred in New York and employment of the independent Bermudian directors functioned merely as "a tax for using the otherwise tax free jurisdiction of Bermuda for a country of incorporation." The Deloitte Defendants, asserts plaintiff, impliedly promised to pay claims when they solicited proofs of debt from CAI's creditors, and plaintiff relied on this implied promise in submitting his proofs. Plaintiff further alleges that the Deloitte Defendants knowingly misrepresented that CAI had previously paid plaintiff the amount due on his Consulting Agreement and that this misrepresentation was intended to and did induce plaintiff's reliance. Finally, plaintiff alleges that the Deloitte Defendants are liable for CAI's purported breach of the Employment Agreement because they took over management and administration of CAI.

(6)

Defendants, in reply, highlight that plaintiff neither objects to dismissing the action if the Injunction is recognized as valid, nor identifies any exceptional circumstances that [*5]warrant disregarding the Injunction. Defendants contend that plaintiff should be estopped from asserting that he appeared before the Supreme Court of Bermuda only in a representative capacity regardless of whether he intended to participate in the proceeding when he filed his affidavits and made arguments in person. Plaintiff was afforded due process for the Injunction, claim defendants, because he received notice and could have sought to have it set aside or modified. Defendants contend that CAI's technical solvency at the winding-up proceeding's beginning presents no bar to this proceeding's functional equivalency to an American bankruptcy action and that a winding-up proceeding warrants the same deference as any other bankruptcy proceeding. Defendants continue to argue that plaintiff's fraud allegations are implausible and unworthy of belief and that plaintiff's breach-of-contract cause of action must fail as managers bear no personal liability for their employers' contractual breaches.

Defendants present the affidavit of Narinder K. Hargun (Hargun), a Bermudian attorney who has represented the liquidators in the winding-up proceeding. Hargun states that, under Bermudian law, a winding-up order implements a statutory scheme under which the creditors of the company being liquidated are prohibited from commencing or continuing a separate legal action against the company. This scheme converts a normal contractual right into a statutory right to share in a fund administered by the joint provisional liquidators, who perform the quasi-judicial function of determining, in the first instance, whether to admit or reject proofs of debt. Hargun explains that a creditor dissatisfied with the decision of the liquidators may apply within 21 days for de novo review of the decision by a judge with the accompanying opportunity to submit new evidence. Hargun also opines that, as plaintiff had notice of the Injunction, his commencement of this action places him in contempt of the Supreme Court of Bermuda.

Discussion

Defendants' Motion To Dismiss For Failure To State A Cause of Action

(1)

A defendant's dismissal motion under CPLR 3211 (a) (7) requires determining whether the plaintiff has stated a cause of action, but "[i]f the court considers evidentiary material, the criterion then becomes whether the proponent of the pleading has a cause of action'" (Sokol v Leader, 74 AD3d 1180, 1181-82 [2010] [emphasis added], quoting Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]). Dismissal results only if the movant demonstrates conclusively that the plaintiff has no cause of action or that "a material fact as claimed by the pleader to be one is not a fact at all" (Sokol, 74 AD3d at 1182, quoting Guggenheimer, 43 NY2d at 275; see also Lawrence v Graubard Miller, 11 NY3d 588, 595 [2008]). A court considering a dismissal motion on the basis of failing to state a claim generally must accept the facts alleged in the complaint as true and make any possible favorable inferences for the plaintiff (Sokol, 74 AD3d at 1181). Nevertheless, legal conclusions and factual claims flatly contradicted by the evidence will not be presumed true (Sweeney v Sweeney, 71 AD3d 989, 991 [2010]; Meyer v Guinta, 262 [*6]AD2d 463, 464 [1999]).

(2)

A plaintiff bringing a breach-of-contract cause of action must show a contract with defendant, that the plaintiff performed under the contract's terms, that the defendant did not perform and that damages resulted to the plaintiff (Brualdi v IBERIA, Lineas Aereas de España, S.A., 79 AD3d 959, 960 [2010]). A plaintiff generally may not maintain a breach-of-contract action against a defendant who had no contractual relation or privity with the plaintiff (Lawrence v Kennedy, 95 AD3d 955, 958-59 [2012] [holding company's managing member not personally liable for contract signed on behalf of company]). The Deloitte Defendants were not party to either the Employment Agreement or the Consulting Agreement. Plaintiff's first cause of action must therefore be dismissed to the extent it alleges an action against the Deloitte Defendants in their personal capacities.

(3)

A fraud cause of action must allege that the defendant materially misrepresented a fact, knew about the representation's falsity, intended to induce reliance on the misrepresentation and that plaintiff justifiably relied on the misrepresentation to plaintiff's detriment (Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]). A pleading alleging fraud must also contain facts sufficient to permit a reasonable inference of the alleged misconduct (Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486, 492 [2008]). Alleging facts that fail to permit an inference that the elements for fraud existed warrants dismissing the cause of action for failure to state a claim (see Eurycleia Partners, LP, 12 NY3d at 558-61).

Here, plaintiff alleges that the Deloitte Defendants' solicitation for proofs of debt in the winding-up proceeding was a material misrepresentation made with the intent to induce his reliance and that plaintiff relied on such solicitation to his detriment. Plaintiff claims that the solicitation contained an implied promise that his claims would be paid and that the Deloitte Defendants in fact had no intent to pay his claims. The facts plaintiff introduces, however, do not support such conclusions. The solicitation for proofs of debt cannot reasonbly be interpreted as a promise that all claims will be paid, nor does it suggest that the Deloitte Defendants knew whether they would admit or reject plaintiff's claim before receiving it. Even accepting plaintiff's assumptions regarding defendants' intent in making the solicitation, its language and context render its interpretation as a promise of payment unreasonable.

Plaintiff also alleges that the Deloitte Defendants' statement that plaintiff had been fully remunerated under the Consulting Agreement induced him to abstain from pursuing further efforts to collect through the winding-up proceeding. Plaintiff, however, is actively contesting the issue of whether he has been compensated under this contract, which clearly indicates that he has not relied on the Deloitte Defendants' representation, regardless of its accuracy. Consequently, plaintiff's second cause of action must be dismissed for failure to state a claim.

[*7]Defendants' Motion To Dismiss On Comity Grounds

An action may be dismissed, pursuant to CPLR 3211, when the claim brought has already been discharged in a bankruptcy proceeding (CPLR 3211 [a] [5]; see also Lebron v St. Vincent Med. Ctr., 21 Misc 3d 1147[A], 2008 NY Slip Op 52542[U], *7 [Sup Ct, Bronx County 2008]). Furthermore, CPLR article 53 establishes the conclusiveness of a foreign court's final order granting or denying recovery of a sum of money and the availability of such order as a claim or an affirmative defense in New York (CPLR 5302-5303). A court is not bound to consider such a foreign order conclusive if the proceeding in the foreign jurisdiction is "contrary to an agreement between the parties under which the dispute in question was to be settled otherwise than by proceedings in that court" (CPLR 5304 [b] [6]), but article 53 also makes clear that a court generally has broad discretion to recognize foreign judgments, even when not mandated (CPLR 5307). Such discretion necessitates examining the common-law doctrines of comity in determining whether to recognize the Supreme Court of Bermuda's determinations in this instance.

Generally, New York courts will accord comity to a foreign judgment unless it is shown that it was procured by fraud or that its recognition would violate strong public policy (see Sung Hwan Co., Ltd. v Rite Aid Corp., 7 NY3d 78, 82 [2006]; Greschler v Greschler, 51 NY2d 368, 376 [1980]). Comity stands as a rule of practice intended to promote uniform decisions and deter repeated litigation of the same issue (Johnston v Compagnie Generale Transatlantique, 242 NY 381, 387 [1926], rearg denied 243 NY 541 [1926]; see also Mast, Foos, & Co. v Stover Mfg. Co., 177 US 485, 488 [1900]). Comity should not be denied where the policy of the foreign law sought to be enforced parallels the analogous laws that would apply in this jurisdiction (see Oppenheimer v Dresdner Bank A. G., 50 AD2d 434, 441 [1975], affd 41 NY2d 949 [1977]). New York courts have also observed a "particular need to extend comity to foreign bankruptcy proceedings" (Bertisch v Drory, 4 Misc 3d 1023[A], 2004 NY Slip Op 51005[U], *2 [Sup Ct, NY County 2004], quoting Victrix S.S. Co., S.A. v Salen Dry Cargo A.B., 825 F2d 709, 713 [2d Cir 1987]). A New York court should generally recognize a foreign bankruptcy proceeding unless the foreign court lacks jurisdiction over the debtor or the proceeding will cause injustice to New York citizens or prejudice New York creditors' rights (see id. at *2-3).

New York courts also generally defer to contractual forum selection clauses (see Creative Mobile Tech., LLC v Smart Modular Tech., Inc., 97 AD3d 626, 626 [2012] ["[a] contractual forum selection clause is prima facie valid and enforceable unless it is shown by the challenging party to be unreasonable, unjust, in contravention of public policy, [or] invalid due to fraud or overreaching"]). Few cases address direct conflicts between principles of comity and the deference due forum selection clauses, but some cases suggest that public policy favoring a forum selection clause is sufficient to overcome the general practice of according comity (see Elliott Intl. L.P. v Vitro, S.A.B. de C.V., 95 AD3d 565, 565-66 [2012] [denying deference to ongoing Mexican reorganization action [*8]in view of forum selection clause, defendant's failure to pursue the comity argument and Mexican court's refusal to enjoin the New York action]; Indosuez Intl. Fin. v National Reserve Bank, 304 AD2d 429, 430-31 [2003] [issuing anti-suit injunction against ongoing Russian court action in light of forum selection clause, but also noting "clear evidence of defendant's harassing and bad faith foreign litigation"]). A party's active participation in a court action, however, estops the party from later asserting that a forum selection clause mandates dismissal of the action (see CDR Créances S.A.S. v Cohen, 77 AD3d 489, 490-91 [2010]; Leasecomm Corp. v Long Is. Cellular Ltd., 16 Misc 3d 1, 2 [App Term, 2d Dept 2007]; Superior Tech. Resources, Inc. v Lawson Software, Inc., 17 Misc 3d 1137[A], 2007 NY Slip Op 52319[U], *15 [Sup Ct, Erie County 2007]).

Here, plaintiff and CAI agreed upon a contractual forum selection clause and, depending on the construction of the March 24, 2009 purported contractual amendment, the courts of this selected forum could have considered plaintiff's allegations in this action. Plaintiff, however, chose to affirmatively participate in the Bermudian proceeding by submitting affidavits, appearing in person and submitting proofs of debt. Plaintiff cannot viably claim that his affidavits and appearance as a party in that action were a nullity because he appeared in a quasi-representative capacity. No role exists, intermediate between party and counsel, that would allow plaintiff to appear in a representative capacity without being an attorney and appear in a personal capacity without submitting to the court's jurisdiction. Plaintiff must therefore be estopped from asserting that his appearances in the Bermudian action were anything but active and voluntary participation.

Furthermore, plaintiff's filing of proofs of debt alone would have subjected him to the Bermudian court's jurisdiction. Both proofs of debt filed by plaintiff and his corporate alter ego were clearly identified as instruments of the Supreme Court of Bermuda in the winding-up proceeding against CAI. The proofs of debt were solicited by the Deloitte Defendants, but they had been appointed as liquidators, and as such acted as quasi-judicial officials. If plaintiff had desired the protection of the Forum Selection Clause, he should have filed an action here initially rather than submitting proofs of debt to the Supreme Court of Bermuda and invoking the Forum Selection Clause only after being disappointed by the result. Indeed, plaintiff's choosing, of his own volition, to file proofs of debt in the Bermudian court constitutes the only affirmative act potentially violating the Forum Selection Clause. Consequently, plaintiff is estopped from asserting that the Forum Selection Clause precludes that jurisdiction from considering his claims.

United States Bankruptcy Code § 362 automatically stays other litigation against a debtor upon commencement of a bankruptcy proceeding (see 11 USC § 362 [a]). "The automatic stay is mandatory and applicable to all entities, including state and federal courts" (Emigrant Sav. Bank v Rappaport, 20 AD3d 502, 503 [2005] [internal citation and quotation marks omitted]). This broad prohibition against contingent actions in other courts prevents interference with the jurisdiction of the Bankruptcy Court or with the [*9]debtor's property during the course of the proceeding (see Teledyne Indus., Inc. v Eon Corp., 373 F Supp 191, 203 [SD NY 1974]). A bankruptcy proceeding in a foreign nation cannot, of course, automatically stay related actions in United States courts, but Bankruptcy Code chapter 15 allows commencing an ancillary proceeding in federal court for an order recognizing the foreign proceeding, which can result in a stay against related actions comparable to that automatically issued under § 362 (see 11 USC §§ 1501 et seq.).

Here, it may well have been more proper for defendants to have filed a petition with a federal court for an order recognizing the winding-up proceeding and staying conflicting proceedings within the United States. Nonetheless, their failure in this regard does not alter the policy underlying the Bankruptcy Code provisions, nor does it interfere with this court's ability to accord comity to foreign judicial proceedings. Plaintiff's failure to contest the rejection of his claims in the winding-up proceeding in a timely manner precludes plaintiff from taking further action premised on the same grounds in Bermudian courts. Plaintiff demonstrates no basis for interfering with the statutory scheme implemented by the Bermudian legal system, especially as plaintiff has already voluntarily participated in that proceeding. Were the court to maintain this case and grant plaintiff judgment, such claim on CAI's assets would directly conflict with the jurisdiction and discretion of the Supreme Court of Bermuda. Affording the Bermudian courts proper recognition and avoiding undue interference with their jurisdiction thus requires dismissing plaintiff's action. Accordingly, it is

ORDERED that defendants' dismissal motion is granted in its entirety, and the action is dismissed.

This constitutes the decision, order and judgment of the court.

E N T E R,

J. S. C.