LibertyView Special v Jerusalem High Tech Ltd.

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LibertyView Special v Jerusalem High Tech Ltd. 2017 NY Slip Op 30132(U) January 23, 2017 Supreme Court, New York County Docket Number: 650766/2015 Judge: Saliann Scarpulla 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. [* 1] i SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY :1 DECISION AND ORDER LIBERTYVIEW SPECIAL INDEX NO. 650766/2015 MOTION DATE - V - Ii JERUSALEM HIGH TECH LIMITED and SAMUEL HACOHEN 'i MOTION SEQ. NO. Plaintiff LibertyView Special Opportunities Fund, LP ("LibertyView" or "plaintiff') commenced this action against Jerusalem High Tech Limited ("JHT") and Samuel HaCohen ("HaCohen") (collectively, "defendants") to collect on a secured promissory note, asserting causes !~ I of action for ( 1) breach of contract '(on the Promissory Note against JHT, (2) breach of contract on the Pledge Agreement against JHT, (3) alter ego liability against HaCohen, (4) fraudulent conveyance pursuant to DCL § 273 against defendants, (5) fraudulent conveyance pursuant to DCL § 275 against defendants, (6) fraudulent conveyance pursuant to DCL § 276 against defendants, and (7) unjust enrichment against HaCohen. Plaintiff seeks an excess of $1.9 million in damages, as 11 well as interest, costs, and attorneys' fees. HaCohen moves to dismiss the complaint against him 'I individually pursuant to CPLR § 3211 (a)(8) for lack of personal jurisdiction. I Background LibertyView is an investmel}t fund registered in the Cayman Islands. JHT is an Israeli ~! limited liability company that is in the business of investing in and managing various technology 1· compames. In early 2008, Libertyyiew and JHT entered into three relevant agreements - a Stock :I I l 2 of 11 P:ano 1nf1n [* 2] Purchase Agreement ("SPA"), a Promissory Note ("note") and a Pledge Agreement ("pledge agreement") (collectively, "relevant agreements"). As chair of JHT, HaCohen ~egotiated and executed the SPA, in which JHT agreed to purchase shares of non-party ViryaNet, Ltd. ("ViryaNet shares") from LibertyView. 1 The SPA and 1; note provided that JHT would pay i 0% of the agreed upon purchase price in cash and enter into the note in favor ofLibertyView for th~ remaining amount. The note matured on January 7, 2013, and 1; carried an annual interim interest rate of 5 per cent. The SPA also provided that Liberty View and I I 11 JHT would enter into the pledge agreement to secure JHT's obligation under the note. Pursuant to ,1 'I the pledge agreement JHT granted LibertyView a security interest in the purchased ViryaNet 11 shares. . 'I ! The SPA's and the note's fJrum selection provisions designate New York as the exclusive jurisdiction for resolving disputes lder those agreements. The pledge agreement, however, I designates Tel-Aviv-Jaffa, Israel a~ the exclusive jurisdiction for resolution of disputes thereunder. JHT never made interest or principal payments on the note. HaCohen claims that LibertyView never demanded annual interim interest or principal payment on the note until August 27, 2014, approximately six and half years after entering the note and approximately a year and half after the maturity date. Today, JHT remains in existence, but it is no longer active or operating. LibertyView claims that JHT is cm7ently an empty shell, after selling its assets to Jerusalem ,; Technology Investment (J.T.I.), Ltd. ("JTI") and the secured ViryaNet shares to an unrelated third party. 1 At the time, JHT' s ownership wa equally split among five shareholders, including HaCohen, who claims that all shareholders participated in the company's major decisions and approval process. However, shortly after JHT and LibertyView entered into the relevant agreements, HaCohen became a controlling shareholder, and the others remained minority shareholders to varying degrees at different times. 3 of 11 650766/2015 LIBERTYVIEW SPECIAL VS. JERUSALEM HIGH TECH LIMITED Page 2of10 [* 3] :~ HaCohen now moves to disrhiss the complaint, arguing that Liberty View failed sufficiently 'I to allege personal jurisdiction over him. In an October 23, 2015 decision on LibertyView's previous order to show cause for a prejudgment attachment, I found that, pursuant to the forum selection provision contained in th~ note, Liberty View and JHT have agreed to submit to the " ' exclusive jurisdiction of this Court :In connection with the order of attachment. 2 Accordingly, personal jurisdiction over the defendant HaCohen remains at issue. In his motion HaCohen argues that he has no contacts with New York - either in his " personal capacity or in his capacity: as chair of JHT - and that HaCohen is not a party to the note and therefore not bound by the note's forum selection clause. It is undisputed that HaCohen is a dual citizen oflsrael and the Unitei States. When he is in the United States, HaCohen resides in Massachusetts and has no personal contacts with New York. ·I In opposition, LibertyView .~rgues that at all relevant times HaCohen was the alter ego of JHT; therefore, HaCohen is equally a party to the note as JHT, subjecting him to its forum selection I provision. To support this argumedt, LibertyView alleges the following: (1) that in 2008, HaCohen I entered into the note to purchase the ViryaNet shares on behalf of JHT to protect his position as chairperson at ViryaNet; (2) that shortly after JHT purchased the ViryaNet shares, HaCohen restructured JHT's ownership in his favor as a result of repeatedly telling JHT's shareholders that he personally financed and guarantf ed the SPA and note; (3) that in 2013, JHT transferred virtually I ' all of its assets, except the secured ViryaNet shares, to JTI with no consideration paid directly to JHT; (4) that in 2014, JHT sold th~ secured ViryaNet shares to an unrelated third party with the ; . proceeds paid out personally to HaCohen; and (5) that HaCohen made false statements about JHT Ii 1r 2 jurisdi~~tional Plaintiff misconstrued this finding as the Court's conclusive determination of jurisdiction for all claims against JHT. In tum, the parties fail to argue in this motion whether the relevant agreements are one contract with conflicting forum selection provisions or separate. I address the issue sua sponte in the analysis below in order to decide this motion. ; 650766/2015 LIBERTYVIEW SPECIAL VS. JERUSALEM HIGH TECH LIMITED 4 of 11 Page 3of10 [* 4] " and his position there when Liberty View contacted HaCohen regarding the note in August 2014 1 all of which HaCohen orchestrated L thwart LibertyView from collecting on the note. ! Discussion Upon a motion to dismiss p~rsuant to·CPLR § 321 l(a)(8), the plaintiff, "[a]s the party 11 seeking to assert personal jurisdiction ... bears the ultimate burden of proof on this issue." Doe v. McCormack, 100 A.D.3d 684, 684{2d Dep't 2012); see also Copp v. Ramirez, 62 A.D.3d 23, 28 II 'I (1st Dep't 2009). "[I]n deciding whether the plaintiffl:] ha[s] met [its] burden, the court must ,f construe the pleadings and affidavits in the light most favorable to [it] and resolve all doubts in [its] favor." Brandt v. Toraby, 273 A.D.2d 429, 430 (2d Dep't 2000); Wilson v. Dantas, 128 A.D.3d 176, 182 (lstDep't2015). In opposing the motion, the plaintiff is not required to make a prima facie showing of jurisdiction, but only a "sufficient start" in demonstrating a basis for personal jurisdiction over the i'1 defendant "to warrant further disco:very." HBK Master Fund L.P. v. Troika Dialog USA, Inc., 85 A.D.3d 665, 666 (1st Dep't 2011) .. I. Forum Selection Provision As to this motion, neither pa.rty raises the issue of conflicting forum selection provisions in the note and the pledge agreement,'' specifically whether the relevant agreements should be read I together with one forum provision :~iven effect over the other, or whether the relevant agreements !I should remain separate. I resolve this issue sua sponte and then address the issue of personal jurisdiction over HaCohen raised op this motion to dismiss. See Cooper Vision, Inc. v Intek ,, Integration Tech., Inc., 7 Misc. 3d ,~92, 596 (Sup. Ct. 2005) (stating that the court must "first [] " determine[] whether the disputed c~ause was a part of the parties' contract" before addressing 1i ·i whether the forum selection provis!°n was enforceable). 650766/2015 LIBERTYVIEW SPECIAL VS. JERUSALEM HIGH TECH LIMITED 5 of 11 Page 4of10 [* 5] 1i 11 I~ "As a general rule, contracts;remain 'separate unless the history and subject matter shows ii " them to be unified' " National Unibn Fire Ins. Co. of Pittsburgh, Pa. v. Williams, 223 A.D.2d 395, ,, II r; 396 (1st Dep't 1996) (citation omitted). "'In determining whether contracts are separable or entire, :I the primary standard is the intent manifested, viewing the surrounding circumstances." Id. (citation ii •i I omitted). However, even when multiple agreements are read and interpreted together, that" 'does II not require that the two separate in~truments must be deemed consolidated and one for all purposes ,, i! or that a separate and independent provision of one, such as a jurisdictional paragraph ... is to ,, ij [be] incorporated in the other' " Cooper Vision, Inc. v Intek Integration Tech., Inc., 7 Misc. 3d 592, 598 (Sup. Ct. 2005) (quoting Kent~- Universal Film Mfg. Co., 193 N.Y.S. 838, (1st Dep't 1922)) ., ' (emphasis added) (changes in origipal). !! Here, there are three separate agreements that each form a part of the same overall transaction. In reference to the pledge agreement, the SP A provides in Section 2.3 that JHT "has i d granted a security interest to [LibertyView] in all of the [ViryaNet shares], subject to the terms and II iJ conditions ofsuch Pledge Agreem~nt" (emphasis added). Accordingly, "the designation of a ,I 11 different forum for the litigation of disputes arising out of [the pledge agreement's] performance II i indicate that the respective agreements are intended to be separate [for jurisdictional purposes] ... [otherwise,] the contradictory provisions ... would be rendered mere surplusage, a result that I' ;I i offends a fundamental principle o~jcontract interpretation" National Union Fire Ins. Co. of ,, ; Pittsburgh, Pa. v. Williams, 223 AJD.2d 395, 396 - 97 (1st Dep't 1996) (citation omitted). II " i Because plaintiff has advanfed no arguments upon which this Court might disregard the II forum designation contained in th~: pledge agreement, I find that the appropriate forum in which to !f commence an action related to the ,pledge agreement is the one designated in the pledge agreement, " ii i.e., Tel-Aviv-Jaffa, Israel, and not'the note. See Cooper Vision, Inc. v Intek Integration Tech., Inc., !i 7 Misc. 3d 592, 596 - 97 (Sup. Ct. 2005) ("Forum selection clauses are 'primafacie valid and " 650766/2015 LIBERTYVIEW SPECIAL VS. JERUSALEM HIGH TECH LIMITED ~ 6 of 11 Page 5of10 [* 6] 11 II should be enforced unless enforcement is shown by the resisting party to be 'unreasonable' under the circumstances.") (italics added}'. In accordance with this finding, I will now address whether this Court has personal jurisdiction lover HaCohen as to each claim against him. II. Personal Jurisdiction HaCohen has no personal cdntacts with New York sufficient to establish personal ! jurisdiction over him pursuant to either CPLR §§ 301 or CPLR 302. Thus, Liberty View alleges personal jurisdiction over HaCohen solely on the basis that he is the alter ego of the corporate ,1 I defendant JHT. "Where personal jurisdiction exists over a defendant, jurisdiction over his alter-ego I is proper as well." Transasia Com'!lodities Ltd. v. Newlead JMEG, LLC, 45 Misc.3d 1217 (Sup. Ct. N.Y. County 2014) (citation omitt~d). "It is also well established that the exercise of personal 11 jurisdiction over an alter ego corporation does not offend due process." See id. (citing Trans.field ER Cap Ltd. v. Indus. Carriers. Inc., 571F.3d221, 224 (2d Cir. 2009)). "In order to state a claim foi; alter-ego liability plaintiff is generally required to allege 1) 'complete domination of the corporation ... in respect to the transaction attacked' and 'that such domination was used to commit a fraud or wrong against plaintiff which resulted in plaintiffs injury."' Baby Phat Holding Co., fLC v. Kellwood Co., 123 A.D.3d 405, 407 (1st Dep't 2014) (quoting Morris v. New York State Dep't. of Taxation & Fin., 82 N.Y.2d 135, 141 (1993)). Because a decision to pierce the corporate v.eil in any given instance will necessarily depend on the attendant facts and equities, there are no de~bitive rules governing the varying circumstances when this power may be exercised." Id. (citation omitted). To show an alter ego relationship, LibertyView makes three primary allegations, discussed in more detail below. 11 A. HaCohen's Alleged Ulterior Motive 650766/2015 LIBERTYVIEW SPECIAL VS. JERUSALEM HIGH TECH LIMITED 7 of 11 Page 6of10 [* 7] LibertyView alleges that HaCohen exercised complete dominion over JHT when it entered into the note to purchase ViryaNet shares because HaCohen simultaneously needed to protect his position as chairperson at ViryaNet. Yet, JHT's execution of the note has the objective earmarks of a properly taken corporate transaction. HaCohen submits an affidavit and corporate minutes that show relevant materials were presented to the board and shareholders, the board and shareholders then met to discuss the transaction, and finally the board unanimously resolved to approve the transaction at the meeting. 3 To support liability based upon an alter ego theory, New York courts require "a corporation [to] ha[ve] been so dominated by an individual ... and its separate entity so ignored that it primarily transacts the dominator's business instead of its own ... " Is. Seafood Co., Inc. v Golub Corp., 303 A.D.2d 892, 893 (3d Dep't 2003) (citation omitted). Here, the documentary evidence submitted by HaCohen shows that JHT' s separate corporate structure was respected in connection with execution of the note, thus HaCohen has sufficiently disproven LibertyView's bare allegation that HaCohen exercised complete dominion over JHT in respect to the note. That HaCohen may have individually benefited from the transaction does not alone show that he exercised a sufficient degree of control over JHT's decision to proceed to warrant piercing the corporate veil. See In re Lyondell Chem. Co., 543 B.R. 127, 146 (Bankr. S.D.N.Y. 2016) (finding insufficient allegations where "it [was] alleged that [the transaction] was' initiated by [the individual shareholder],' " because "it is not alleged that [Corporation] ever failed to exercise its business discretion in connection with the December Distribution, the Merger or otherwise.") (emphasis added). 3 At the time JHT entered into the note, HaCohen only owned 20% of JHT shares and was one of two directors. See Is. Seafood Co., Inc. v Golub Corp., 303 A.D.2d 892, 895 (3d Dep't 2003) (finding that "[w]hile [defendant] may be the sole stockholder, director and officer of both corporations and seems to exhibit disregard of corporate formalities, this, in and of itself, constitutes insufficient proof of complete domination and control ... ") 650766/2015 LIBERTYVIEW SPECIAL VS. JERUSALEM HIGH TECH LIMITED 8 of 11 Page 7of10 [* 8] B. HaCohen's Alleged Misrepresentations to Restructure JHT LibertyView further alleges lhat after JHT executed the relevant agreements, HaCohen misrepresented his personal contrib.ution and guarantee to JHT shareholders to induce them to ,. Ii restructure JHT in his favor, evincing HaCohen's actual control over JHT. This allegation of alleged misconduct relates to diffJent, subsequent transactions, i.e., the various agreements between JHT's shareholders and JHT that restructured the respective shareholders' JHT ownership I I· ("JHT Restructuring Agreements).1 While this allegation may indicate HaCohen's misconduct after JHT executed the note, it does not indicate HaCohen's" 'complete domination of the corporation in respect to the transaction attacked [here, execution of the note].'" Baby Phat Holding Co., LLC v 1 i 'I Kellwood Co., 123 A.D.3d 405, 40j7 (1st Dep't 2014) (citation omitted) (emphasis added). C. JHT's Alleged Fraudulent Transfers ,, Finally, LibertyView alleges that, in 2013-2014, HaCohen caused JHT to fraudulently Ii I transfer virtually all of its assets to JTI and sell its secured ViryaNet asset to an unrelated third party as part of a scheme to thwart LiberfyView from collecting on the note. LibertyView alleges that '1 HaCohen first fraudulently transferred virtually all of JHT's assets to JTI, a new corporation I . HaCohen formed, and the consideration exchanged in that transaction was allocated directly to JHT ' ., shareholders, not JHT itself. HaCohen does not deny that JHT received no consideration from that transaction, and even proffers corp:brate minutes whereby the sole director, HaCohen, and the 1 remaining three shareholders discuss selling JHT's assets in exchange for JTI shares distributed directly to them. .! The JHT Restructuring Agreem~nts' forum selection provisions designate Tel-Aviv, Israel as the exclusive jurisdiction. Zalayet Aff1 Ex. 1-4. · 4 Ii 650766/2015 LIBERTYVIEW SPECIAL VS. JERUSALEM HIGH TECH LIMITED 9 of 11 Page 8of10 [* 9] The alleged fraudulent transfer of JHT' s assets to JTI, years after the execution of the relevant agreements, does not supplrt an alter ego relationship between HaCohen and JHT in connection with JHT' s execution of the note sufficient to hold Ha Cohen to the note's forum selection clause. Instead, these all~gations may support a claim against JHT for fraudulent transfer. Whether HaCohen later caused JHT to fraudulently transfer assets to avoid payment of the note is a different issue from whether HaCohen sufficiently controlled and abused JHT to perpetuate fraud in I connection with execution and perf:ormance under the note. I ! LibertyView's second fraudulent transfer allegation also fails to support an alter ego relationship between HaCohen and JHT in connection with the note, even when considering HaCohen's alleged misrepresentations to LibertyView regarding this transaction. LibertyView alleges that HaCohen fraudulently transferred the secured ViryaNet shares to an unrelated third ,'~ party and that HaCohen personally:received the sale proceeds. The secured interest LibertyView has in the sale proceeds, however, Lates to the pledge agreement, not the note. Therefore, even if ' this fraudulent transfer allegation were to support an alter ego relationship between defendants, it ties HaCohen to the wrong agreement, i.e., the pledge agreement, which requires resolution of ji disputes thereunder in Israel, not New York, as discussed above. II LibertyView argues that the alleged fraudulent transfers alone provide a sufficient basis for personal jurisdiction over HaCohel and cites Corpuel v. Galasso, 268 A.D.2d 202 (1st Dep't 2000) I I as support. Corpuel, however, is distinguishable because the fraudulent transfers in that case themselves established long-arm j~risdiction over the out-of-state defendants, and it is undisputed that the alleged fraudulent transfers here did not occur in New York, have no connection to New Ii York, and do not in and of themsel,ves give rise to long-arm jurisdiction over HaCohen. ,i Because the allegations, ev1n when collectively taken, fail to make a sufficient start to support an alter ego theory tying HaCohen to the note, this Court does not have personal 650766/2015 LIBERTYVIEW SPECIAL VS. JERUSALEM HIGH TECH LIMITED 10 of 11 Page 9of10 [* 10] jurisdiction over HaCohen. Accord~ngly, defendant's motion to dismiss is granted, and the Court dismisses the following causes of a,ction with leave to commence in the appropriate forum: ( 1) :J plaintiffs third cause of action for ~lter ego liability against HaCohen; (2) plaintiffs fourth cause of action for fraudulent conveyance pursuant to DCL § 273 against HaCohen only, (3) plaintiffs fifth cause of action for fraudulent conveyance pursuant to DCL § 27 5 against HaCohen only, (4) plaintiffs sixth cause of action for 'fraudulent conveyance pursuant to DCL § 276 against HaCohen only, and (5) plaintiffs seventh cause of action for unjust enrichment against HaCohen. :I . I In accordance with the foregoing, it is hereby 'I 'I ORDERED that Samuel Hapohen's motion to dismiss the complaint is granted as to all · · causes of action asserte d agamst h.:I 1m. This constitutes the decisioj and order of the Court. DATE: 650766/2015 LIBERTYVIEW SPECIAL VS. JERUSALEM HIGH TECH LIMITED 11 of 11 Page 10of10

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