United States District Court, Southern District of New York
July 31, 1991
CASPIAN INVESTMENTS, LTD., PLAINTIFF,
VICOM HOLDINGS, LTD. AND VICOM VIDEO, INC., DEFENDANTS. CASPIAN INVESTMENTS, LTD., PLAINTIFF, V. VICOM VIDEO, INC., DEFENDANT.
The opinion of the court was delivered by: Conboy, District Judge:
MEMORANDUM AND ORDER
Defendant Vicom Video, Inc. ("Vicom Video") has moved to
dismiss or stay this breach of contract action in deference to
a previously commenced action pending in Ireland. For the
reasons set forth below, the motion is granted and the case is
On August 1, 1989, plaintiff Caspian Investments, Ltd.
("Caspian"), a British corporation, entered into a loan
agreement ("the Agreement") with defendant Vicom Video through
which it consented to loan Vicom Video $1,490,000 by way of
two separate transactions. Vicom Video, a Georgia corporation
that sells and rents video tapes, is a wholly-owned subsidiary
of Vicom Holdings, Ltd. ("Vicom Holdings"), an Irish
Vicom Video and Vicom Holdings are joint obligors under the
Agreement; Vicom Holdings pledged to guarantee and become
surety to Vicom Video for prompt payment of "all Vicom Video's
liabilities, present and future," up to $700,000. Bicks Aff.
¶ 16. Both parties agree that Vicom Holdings, as guarantor of
the loan, is responsible for any default by Vicom Video. Butler
Supp. Aff. ¶ 6; Defendants' Memo of Law in Support of Motion
for Sanctions at 3. Caspian provided $440,000, the first
installment of the loan, to Vicom Video on August 1, 1989. The
loan was to be repaid in April 1990.
In March 1990, Caspian "learned that Vicom Holdings was
being reorganized in a highly leveraged transaction."
Memo of Law in Opposition to Defendants' Motion for Sanctions
at 3. Concerned about Vicom Holdings' financial stability, on
April 9, 1990 Caspian obtained a restraining order from the
High Court of Ireland preventing Vicom Holdings from reducing
its assets below $455,000.
Vicom Video did not repay the loan on the April due date.
The restraining order was discharged on May 14th, and on May
25th Caspian filed an injunctive suit in the High Court of
Ireland "to prevent the reorganization [of Vicom Holdings]
until Caspian could be guaranteed that sufficient assets would
remain to cover the loan agreement guarantee." Plaintiff's
Memo of Law at 3.
Vicom Holdings repaid the entire loan and interest on behalf
of Vicom Video between June and September of 1990. However,
Caspian alleges that Vicom Video and Vicom Holdings did not
fulfill various additional obligations, including a commitment
to issue shares of Vicom Video stock to Caspian. Caspian
claims that, as a result, Vicom Video must pay a higher
"default" interest rate.
On January 23, 1991, the Irish High Court ordered Caspian to
furnish adequate security for Vicom Holdings' costs in the
Irish action; the Irish action has been stayed until Caspian
produces the security payment.
Meanwhile, on December 7, 1990, Caspian brought suit in the
Southern District of New York against Vicom Video and Vicom
Holdings (docket No. 90 Civ. 7848). In its complaint, Caspian
set forth claims for breach of contract and sought a
declaratory judgment requiring Vicom Video and Vicom Holdings
to fulfill their obligations under the Agreement, including
payment of $250,000 (representing the value of a disputed
"put" option), and the default interest. Caspian premised
subject matter jurisdiction over this dispute on diversity
pursuant to 28 U.S.C. § 1332. Complaint ¶ 4.
On January 29, 1991, Vicom Video and Vicom Holdings moved to
dismiss the Southern District action on procedural grounds.
First, the defendants contended that the court lacked subject
matter jurisdiction over the dispute because Caspian is a
British corporation, Vicom Holdings was incorporated in
Ireland, and the presence of aliens on both sides of an action
defeats diversity jurisdiction. Second, Vicom Video and Vicom
Holdings contended that Caspian lacked authority to maintain
the suit because Caspian is not authorized to do business in
New York and is therefore barred from maintaining a suit under
N.Y. Bus. Corp. Law § 1312.*fn1 The defendants also moved, in
the alternative, to dismiss or stay the action in deference to
the previously commenced action pending in Ireland.
Rather than file an opposition to Vicom Video and Vicom
Holdings' motion to dismiss, Caspian filed a "Response" in
which it agreed voluntarily to withdraw the complaint "in the
interest of judicial economy," although Caspian protested that
Vicom's objection was merely "technical," and supportable only
through a "quirk of subject matter jurisdiction practice."
Plaintiff's Response to Defendants' Motion to Dismiss at 1.
Thereafter, Caspian filed a notice of voluntary dismissal
without prejudice pursuant to Fed.R.Civ.P. 41(a)(1). This
order was never signed by the Court, and the file for No. 90
Civ. 7848 has not been closed. On the same day it filed its
Rule 41(a)(1) notice, Caspian filed a new action against Vicom
Video alone (docket No. 91 Civ. 1004), alleging the same
causes of action as it had asserted in its original Southern
District complaint.*fn2 On March 7, 1991, Vicom Video
submitted an additional Memo of
Law in support of its motion to dismiss, in which it
reiterates and incorporates by reference some of the defenses
it had put forth in response to Caspian's first complaint.
Vicom Video contends that Caspian's continued violation of
N.Y.Bus.Corp. Law § 1312*fn3 is now particularly egregious
because Caspian was on notice of this defect prior to filing
the second action, and moves again that the action be
conditionally dismissed or stayed. Alternatively, Vicom Video
moves that the New York action be dismissed or stayed pending
the resolution of the previously commenced Irish lawsuit.
Caspian responds that a stay would be inappropriate because
Vicom Video is not a defendant in the Irish action and because
the defendants had agreed to a New York forum.
Finally, Vicom Video moves for the imposition on Caspian of
sanctions pursuant to Fed.R.Civ.P. 11 based on Caspian's
complaint in No. 90 Civ. 7848, which asserted a facially
invalid basis for diversity jurisdiction.
A. Violation of N.Y. Bus. Corp. Law § 1312
We first address the consequences of Caspian's conceded
failure to apply for authority to do business in New York
pursuant to § 1312 before commencing its present action against
Vicom Video. Both parties now agree that the statute does not
prohibit an unlicensed corporation from commencing an action,
only from continuing, or "maintaining," the suit. Defendants'
Reply Memo of Law at 6-7, n. 5.*fn4 The court need not dismiss
an action for failure of a party to register under § 1312
provided that the noncomplying party cures the violation before
judgment. S & K Sales Co. v. Nike, Inc., 816 F.2d 843, 853 (2d
Cir. 1987) (citing Grand Bahama Petroleum Co. v. Asiatic
Petroleum Corp., 550 F.2d 1320, 1326 (2d Cir. 1977)); Beer v.
F.W. Myers & Company, Inc., 159 A.D.2d 943, 552 N.Y.S.2d 796
(4th Dept. 1990); Hot Roll Manufacturing Co. v. Cerone
Equipment Co., 38 A.D.2d 339, 329 N.Y.S.2d 466 (3d Dept. 1972).
Vicom Video has asked the court to conditionally dismiss or
stay the action until Caspian has cured its lack of capacity.
Indeed, a conditional dismissal or stay is ordinarily an
appropriate response to a violation of § 1312. S & K Sales, 816
F.2d at 853 (citing Tri-Terminal Corp. v. CITC Industries,
Inc., 78 A.D.2d 609, 432 N.Y.S.2d 184, 185 (1st Dept. 1980));
Netherlands Shipmortgage Corp. v. Madias, 717 F.2d 731 (2d Cir.
1983) (affirming the district court's order of conditional
dismissal that provided that plaintiff's actions would be
dismissed unless it qualified to do business in New York within
sixty days). Because we are convinced that we must dismiss the
case before us in deference to the Irish action, however, we
need not determine whether a conditional dismissal on grounds
of failure to register pursuant to § 1312 is warranted in this
B. Action Pending in Ireland
Vicom Video has also sought to have the present case
dismissed in favor of the pending Irish action; in the
alternative, it has urged the court to stay this action
pending the outcome of the earlier case. Considerations of
judicial efficiency and fairness to the parties indicate that
the present action should be dismissed. Dismissal is also
consistent with the principle of international comity, which
the Supreme Court has described as "the recognition which one
nation allows within its territory to the legislative,
executive, or judicial acts of another nation, having due
regard both to international
duty and convenience, and to the rights of its own citizens or
of other persons who are under the protection of its laws."
Cunard S.S. Co. v. Salen Reefer Services AB, 773 F.2d 452
(2d Cir. 1985) (quoting Hilton v. Guyot, 159 U.S. 113
, 164, 16
S.Ct. 139, 143, 40 L.Ed. 95 (1895)).
We recognize that federal courts have traditionally been
reluctant to decline jurisdiction in view of the "virtually
unflagging obligation of the federal courts to exercise the
jurisdiction given to them." Colorado River Water Conservation
Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 1246,
47 L.Ed.2d 483 (1976). This obligation is not absolute,
however. Although the Supreme Court has not defined the
standard for dismissing a diversity case in favor of a parallel
suit pending in a foreign forum, it has recognized that a
federal court may under certain circumstances dismiss a case in
deference to another suit pending in a state or federal court,
noting that courts should consider issues of "wise judicial
administration, . . . conservation of judicial resources, and
comprehensive disposition of litigation," and that "as between
federal district courts . . . the general principle is to avoid
duplicative litigation." Colorado River, 424 U.S. at 817, 96
S.Ct. at 1246. Similar considerations must guide our analysis
The relevant factors in determining whether to grant a stay
or a dismissal because of litigation in an overseas forum
include the similarity of parties and issues involved,
promotion of judicial efficiency, adequacy of relief available
in the alternative forum, considerations of fairness to all
parties and possible prejudice to any of them, and the
temporal sequence of filing for each action. Ronar, Inc. v.
Wallace, 649 F. Supp. 310, 318 (S.D.N.Y. 1986); Continental Time
Corp. v. Swiss Credit Bank, 543 F. Supp. 408, 410 (S.D.N.Y.
1982) (dismissing a New York action regarding a letter of
credit agreement in favor of Swiss litigation which had been
commenced six months earlier and which presented the same
claims and issues); I.J.A., Inc. v. Marine Holdings, Ltd.,
Inc., 524 F. Supp. 197 (E.D.Pa. 1981). See also Colorado River,
424 U.S. at 818, 96 S.Ct. at 1247 (listing factors a federal
court should consider before dismissing a case because of a
parallel suit in a state court); Landis v. North American Co.,
299 U.S. 248, 57 S.Ct. 163, 81 L.Ed. 153 (1936) (federal courts
have inherent power to stay litigation in deference to pending
Although the defendants in the two actions are different
corporations, parties and claims need not be identical in
order for one action to be stayed or dismissed in deference to
an earlier action. Landis, 299 U.S. at 254, 57 S.Ct. at 165-66
(court may stay proceedings in deference to foreign action even
if parties and issues are not identical); Herbstein v.
Bruetman, 743 F. Supp. 184, 188 (S.D.N.Y. 1990) (comity requires
that the parties and issues in both cases must be sufficiently
similar that doctrine of res judicata would apply); Continental
Time Corp., 543 F. Supp. at 410 (New York action dismissed even
though it included parties and claims different from those in
the foreign suit).
In the present case, the two defendants are closely linked:
one defendant is a wholly-owned subsidiary of the other, and
the two are jointly liable under the terms of the agreement.
In all other respects the two actions are virtually identical.
Both actions involve interpretation of the same loan
agreements; in both actions Caspian alleges the same
violations by both defendants of identical contractual
obligations and seeks the same relief. The actions are
sufficiently similar to allow a stay or dismissal in deference
to the Irish action. Most importantly, Vicom Holdings has
agreed to submit to the jurisdiction of the Irish court and to
be bound by any determination by that court. Bicks Aff. ¶ 8;
Defendants' Memo of Law at 3; Defendants' Reply Memo of Law at
10; Butler Supp. Aff. ¶ 9.
The temporal sequence of the actions is also relevant.
Caspian commenced the Irish action eight months before it
filed suit in New York. Under the principles of comity,
priority is generally given to the suit first filed.
Ronar, 649 F. Supp. at 318
(an action should be dismissed or stayed when a prior action
has been filed in a foreign country among similar parties,
particularly when the foreign action has progressed beyond an
initial stage). See also Herbstein, 743 F. Supp. at 190 (action
not dismissed in favor of foreign litigation because foreign
action was "still in its preliminary stages"); Continental Time
Corp., 543 F. Supp. at 409 (action dismissed because, inter
alia, it was instituted six months after foreign action
brought); Brinco Mining Ltd. v. Federal Insurance Co., 552
F. Supp. 1233, 1241-42 (D.D.C. 1982) (court deferred to foreign
proceedings which had "progressed beyond 'incipiency'" through
filing of answer). Deference to the suit first filed is
particularly appropriate where, as here, the plaintiff itself
commenced the original suit. The Irish suit, brought sixteen
months ago, has proceeded beyond an initial stage. The
equivalents of a complaint and answer have been filed,
extensive discovery has been completed, and the attorney
representing Vicom in Ireland attests that a trial is imminent.
Butler Aff. ¶ 13.
A stay or dismissal would also serve the goals of judicial
efficiency, judicial consistency, and fairness to the parties.
In the pending Irish case, the foreign court will be required
to interpret the contractual obligations of Vicom Video.
Compelling Vicom Video and Vicom Holdings to defend against
identical claims in New York and Ireland would be unfair to
the parties as well as an unwise use of judicial resources,
and would raise the possibility of inconsistent
interpretations of the same document.
There is no indication that Caspian or either defendant will
be prejudiced or treated unjustly if the entire dispute is
resolved in the Irish courts. Vicom Video states that the
Irish Court is willing to consider the claims against both
defendants. Butler Supp.Aff. ¶¶ 8, 9. Vicom Video also asserts
that Vicom Holdings has supplied, or will supply, to the Irish
court all documents and witnesses needed to ascertain Vicom
Video's rights and obligations. Butler Aff. ¶ 7; Butler Aff.
Exh. I at 4-23. Indeed, as Caspian invoked the jurisdiction of
the Irish court in the initial action, Caspian cannot assert
that the Irish court will not afford substantial justice to its
Having decided that the Southern District action should not
proceed while a nearly identical action is underway before a
foreign court, we must determine whether the New York action
should be stayed or dismissed. The court has the power to
impose either remedy, at its discretion, in deference to
parallel proceedings pending in a foreign forum.
Continental Time Corp., 543 F. Supp. at 410 (dismissing later
New York suit where earlier foreign action would resolve issues
in the New York dispute); Kenner Products Co. v. Societe
Fonciere et Financiere Agache-Willot, 532 F. Supp. 478, 479 n. 2
(S.D.N.Y. 1982) (staying New York action in deference to
similar French proceeding, but stating that the New York action
would be dismissed if the plaintiff preferred). See also
Herbstein, 743 F. Supp. at 188. As the Irish court is expected
to resolve all issues presented in this dispute, we see no
reason to prolong the proceedings further by granting a stay of
the New York action instead of a dismissal.
Therefore, in the interest of fairness, judicial efficiency,
and comity, and in reliance on Vicom Video's repeated
representations that it agrees to submit to the jurisdiction
of the Irish court and agrees to be bound by any determination
by that court, we dismiss the case before us in favor of the
previously commenced Irish action.
Finally, we turn to the defendants' motion that Rule 11
sanctions be imposed
against counsel for Caspian.*fn6 In light of Caspian's
assertions in its original complaint that this court had
subject matter jurisdiction, despite the clear dictates of the
rules of diversity and alienage, we find it necessary to
impose Rule 11 sanctions.
It is a fundamental principle of federal civil procedure
that no diversity exists in a suit between two aliens. 28
U.S.C. § 1332(a)(2). Even if a corporation organized under the
laws of a foreign nation maintains its principal place of
business in a State, and is considered a citizen of that State,
diversity is nonetheless defeated if another alien party is
present on the other side of the litigation. International
Shipping Co., S.A. v. Hydra Offshore Inc., 875 F.2d 388, 391
(2d Cir. 1989); Corporacion Venezolana de Fomento v. Vintero
Sales Corp., 629 F.2d 786, 790 (2d Cir. 1980).
Rule 11 "explicitly and unambiguously imposes an affirmative
duty on each attorney to conduct a reasonable inquiry into the
viability of a pleading before it is signed." Eastway
Construction Corp. v. City of New York, 762 F.2d 243, 253 (2d
Cir. 1985). Caspian concedes that it had improperly invoked the
court's subject matter jurisdiction in its original complaint,
and that it became aware of this error only after reading
Vicom's motion to dismiss. Plaintiff's Memo of Law in
Opposition to Defendants' Motion for Sanctions at 4; Bicks Aff.
Caspian argues that Rule 11 sanctions arising from Caspian's
choice of forum are inappropriate because Vicom Video and
Holdings agreed to a New York forum through a forum selection
clause in the Agreement. This contention is without merit.
Because parties cannot create federal subject matter
jurisdiction by consent where it does not lie, the existence
of the forum selection clause is irrelevant. The principle
that subject matter jurisdiction cannot be created by consent
is even more basic than the alien diversity rule, and
counsel's misapprehension regarding this principle does not
excuse the filing of the complaint where no subject matter
We find that counsel for Caspian failed to exercise
reasonable efforts to ascertain, before filing the original
complaint, whether the court had subject matter jurisdiction,
and therefore sanctions are warranted. We direct Vicom
Holdings and Vicom Video to submit within fifteen days bills
detailing reasonable attorney's fees and other expenses
incurred in responding to the original complaint.*fn7
Vicom Video's motion to dismiss the action in deference to
the previously commenced action pending in Ireland is granted,
in reliance on Vicom Video's representations to this Court
that it agrees to submit to the jurisdiction of the Irish
court and to be bound by any determination by that court. Rule
11 sanctions will be imposed on Caspian's original counsel,
John Colangelo, as a result of Caspian's improper invocation
of this court's subject matter jurisdiction in its original
amount of the sanctions will be determined in a future order.
The Clerk of the Court is directed to close the file in No.
91 Civ. 1004 and transfer the papers filed in this action to
the file in No. 90 Civ. 7848. The complaint in No. 91 Civ.
1004 is deemed to be an amended complaint in No. 90 Civ. 7848.
The amended complaint is dismissed with prejudice. We retain
jurisdiction over No. 90 Civ. 7848 for the purpose of
determining the appropriate sanction for plaintiff's violation
of Rule 11.