The opinion of the court was delivered by: ROBERT P. PATTERSON, JR.
ROBERT P. PATTERSON, JR., U.S.D.J.
This is an action for damages alleging violations of the federal securities laws. Four of the defendant banks move individually to dismiss the Complaint for lack of personal jurisdiction pursuant to Fed. R. Civ. P. 12 (b)(2), and all of the defendant banks move jointly to dismiss the Complaint on grounds of forum non conveniens pursuant to Fed. R. Civ. P. 12(b). For the reasons set forth below, all of the motions are denied.
Plaintiffs are: Allstate Life Insurance Company, an Illinois corporation with its principal place of business in Illinois; Ariel Capital II L.P., a Delaware corporation with its principal place of business in New York; Ariel Fund Limited, a Cayman Island exempt corporation with its principal place of business in New York; Carmel Fund Limited, a Cayman Island exempt corporation with its principal place of business in New York; Carmel Partners L.P., a Delaware corporation with its principal place of business in New York; Colonial Diversified Income Fund, a Massachusetts corporation with its principal place of business in Massachusetts; D & P CBO Partners L.P., a Delaware limited partnership with its principal place of business in Illinois; Executive Life Insurance Company, a California corporation with its principal place of business in California; Ithaca Partners L.P., a Delaware Limited Partnership with its principal place of business in New York; Life Insurance Company of the Southwest, a Texas corporation with its principal place of business in Texas; Mt. Tavor Partners L.P., a Delaware limited partnership with its principal place of business in New York; Prospect Street High Income Portfolio Inc., a Massachusetts corporation with its principal place of business in Massachusetts; Prospect International High Income Portfolio N.V., a Netherlands Antilles corporation with its principal place of business in Massachusetts; United High Income Fund Inc., a Maryland corporation with its principal place of business in Kansas; and United High Income Fund II Inc, a Maryland corporation with its principal place of business in Kansas.
Defendant Linter Group Limited ("Linter Group") is a limited company incorporated under the laws of New South Wales, Australia. Defendant Linter Textiles Corporation Limited ("Linter Textiles"), a wholly-owned subsidiary of Linter Group, is a limited company incorporated under the laws of New South Wales, Australia. At all relevant times, Linter Textiles was a holding company whose subsidiaries were engaged in various aspects of textile and apparel manufacturing business. Defendants Lindsay Phillip Maxsted and John Beresford Harkness were appointed on January 26, 1990 by the Supreme Court of Victoria at Melbourne as receivers and managers of Linter Group and Linter Textiles. Defendant Abraham Goldberg at all relevant times prior to 1990 served as a director and chief executive officer of Linter Group and Linter Textiles. Complaint para. 4.
The following banks (collectively referred to as the "Bank Defendants") are also defendants in this action: Commonwealth Bank of Australia, Bank of New Zealand, Sumitomo International Finance Australia Limited ("Sumitomo"), Chase AMP Bank Limited ("Chase AMP"), Barclays Bank Australia Limited ("Barclays Australia"), State Bank of South Australia, Security Pacific Australia Limited ("Security Pacific"), Australia and New Zealand Banking Group, and Westpac Banking Corporation.
Plaintiffs seek recovery for injuries allegedly sustained as a result of fraud committed in connection with the sale of Linter Textiles subordinated debentures by Drexel Burnham Lambert, Inc. ("Drexel") as underwriter. The Complaint alleges the following facts.
On October 7, 1988 Linter Textiles filed an amended registration statement with the Securities and Exchange Commission ("SEC") regarding the issuance of approximately $ 200 million principal amount of its 13 3/4% Senior Subordinated Debentures, due October 1, 2000 (the "Debentures"). A prospectus dated October 6, 1988 (the "Prospectus") was included in the registration statement and disseminated to the public. The Debentures were delivered against payment on or about October 13, 1988 and bore interest from that date. Complaint para. 6. Plaintiffs or their predecessors in interest purchased Debentures in reliance on the representations contained in the Prospectus. Complaint para. 8.
The Prospectus represented that following the public offering, aside from the Debentures, Linter Textiles and its subsidiaries would be relatively free of long-term debt. The Prospectus stated that Linter Textiles would use the proceeds of the sale of the Debentures to retire $ A239 million
of the then existing $ A606 million of long-term debt and to convert $ A353 million of the long-term debt into equity, leaving Linter Textiles with only $ A14 million of long-term debt. The Prospectus also stated that Linter Textiles expected to arrange $ A50 million of bank credit for working capital and $ A75 million bank facilities for capital expenditures, and if such funds were provided by Linter Group, Linter Textiles might guarantee the debt incurred by Linter Group to obtain those funds. Complaint para. 6.
Plaintiffs allege that the representations in the Prospectus were materially false and misleading in that the Prospectus failed to disclose the following material facts. As of October 6, 1988, pursuant to various agreements (the "Original Guaranties"), several subsidiaries of Linter Textiles (the "Subsidiaries")
had guaranteed hundreds of millions of dollars of Linter Group's debt to the Bank Defendants (the "Linter Group Debt"). On October 12, 1988, the day before the delivery of the Debentures, Linter Group, the Subsidiaries, and each of the Bank Defendants executed identical agreements which released the Subsidiaries from the Original Guaranties (the "Releases"). However, at the time the Releases were executed, it was agreed that shortly thereafter Linter Textiles would guaranty the Linter Group Debt to the Bank Defendants under agreements among Linter Group, Linter Textiles, and each of the Bank Defendants. These agreements (the "Linter Textiles Guaranties") are alleged to have been executed between October 26 and November 4, 1988. Complaint para. 7.
Plaintiffs also allege that at the time the Releases were executed, it was agreed that between October 27 and November 18, 1988, the Subsidiaries would execute identical agreements which guaranteed the Linter Group Debt. These identical agreements (the "Subsidiaries New Guaranties") are alleged to have been executed between October 27 and November 18, 1988. Complaint para. 7.
Plaintiffs allege that the foregoing facts constitute a fraudulent scheme by the various defendants to induce the purchase of the Debentures. Complaint para. 10. They charge that the Bank Defendants knew that the Debentures could not be sold if the Prospectus disclosed the Original Guaranties, and that the Bank Defendants agreed to execute the Releases the day before the Debentures were delivered so the Prospectus might omit reference to the Original Guaranties. Complaint para. 11.
Plaintiffs charge Defendants with conspiracy to violate, aiding and abetting the violation of, and a substantive violation of the Securities Exchange Act of 1934 ("the Exchange Act"), specifically of §§ 10(b), 20 and 27, 15 U.S.C. §§ 78j(b), 78(t), and 78aa, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.
I. ORDER IN WHICH MOTIONS SHOULD BE CONSIDERED
Before the Court are five motions: the Bank Defendants' joint motion to dismiss on grounds of forum non conveniens, and the individual motions of Barclays Australia, Chase AMP, Sumitomo, and Security Pacific to dismiss for lack of personal jurisdiction. In Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 504, 91 L. Ed. 1055, 67 S. Ct. 839 (1947), the Supreme Court stated, "The doctrine of forum non conveniens can never apply if there is absence of jurisdiction or mistake of venue." This language indicates that a court may not consider a forum non conveniens motion unless there is subject matter jurisdiction over the case, personal jurisdiction over the parties, and proper venue. Accordingly, when a forum non conveniens motion and motions to dismiss for lack of personal jurisdiction are before a court, the court must first consider the jurisdictional objections. See Monsanto International Sales Co., Inc. v. Hanjin Container Lines, Ltd., No. 88 Civ. 1673, 1991 U.S. Dist. LEXIS 14189 at *3 (S.D.N.Y. Oct. 8, 1991) (KMW); C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure, § 3828 (1976). Accordingly, this opinion will address the jurisdictional motions before reaching the issue of forum non conveniens.
II. PERSONAL JURISDICTION
A plaintiff has the ultimate burden of establishing jurisdiction over a defendant by a preponderance of the evidence. Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981). However, until an evidentiary hearing on the jurisdictional issue is held, a plaintiff need only make out a prima facie case for jurisdiction through its pleadings and affidavits. Cutco Industries, Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986). Such pleadings and affidavits are to be construed in the light most favorable to the plaintiff, and all doubts must be resolved in the plaintiffs' favor. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985)
Section 27 of the Exchange Act provides the statutory basis for the exercise of personal jurisdiction in cases brought thereunder.
The Second Circuit has interpreted § 27 to extend personal jurisdiction to the full reach permitted by the due process clause. In the case of a defendant not personally present in the United States at the time of service, the boundaries of this reach are best defined by §§ 35-37 of the Restatement (Second) of Conflict of Laws (the "Restatement"). Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 998 (2d Cir. 1975), citing Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326, 1339-40 (2d Cir. 1972). Sections 35-37 of the Restatement provide three separate grounds for asserting jurisdiction over a defendant: (1) doing business in the state, § 35; doing an act in the state, § 36, and causing effects in the state by an act done elsewhere, § 37.
These principles apply to corporations as well as to individuals pursuant to §§ 47-50 of the Restatement. Leasco, 468 F.2d at 1440.
Plaintiffs assert jurisdiction over the moving Defendants based on four theories: (A) that each Defendant is subject to jurisdiction based on the acts committed by its co-conspirators in the United States; (B) that each Defendant meets the "effects test" of § 37 of the Restatement (Second); (C) that each Defendant is doing business in the United States pursuant to § 35 of the Restatement (Second); and (D) that each Defendant should be deemed to be present in the United States because each is a "mere department" of its parent corporations which is present in the United States.