theories, each of which will be addressed by the court in turn, and also seeks to have the complaint dismissed because the plaintiff has not obtained an order from the Ontario Court of Justice giving it permission to proceed with this action.
Following the discussion of Royal Bank's motions, the court will address the identical motions of defendants Carol Simpson, Dorothy Simpson and Scott Simpson. These defendants also seek summary judgment, or in the alternative, dismissal of the complaint for failure to plead fraud with the requisite particularity.
Finally, the court will address the motions of defendants Royal Bank, Carol Simpson, Dorothy Simpson and Scott Simpson to dismiss the complaint for failure to join necessary parties, and the plaintiff's motion for a continuance.
I. Royal Bank's "Summary Judgment" Motion
Although the Notice of Motion filed by defendant Royal Bank (Docket # 15) describes its motion as one for summary judgment, pursuant to Fed. R. Civ. P. 56, it is clear from its memoranda of law that the Bank intends this motion as a motion to dismiss pursuant to Fed. R. Civ. P. 12. The court will therefore treat it as such.
A. Defendant Royal Bank's Motion to Dismiss for Failure to State a Claim Upon Which Relief May Be Granted
The first basis the Bank sets forth in its Memorandum of Law in support of its motion, is that Canadian law should be applied to this action, and therefore the complaint, which alleges violations of New York law, should be dismissed for failure to state a cause of action. Royal Bank Mem. of Law at 5-12 (Docket # 16). A motion to dismiss the complaint on this ground is normally made under Fed. R. Civ. P. 12(b) (6).
"[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957). "Upon such a motion, all factual allegations in the complaint must be taken as true and construed favorably to the plaintiff." LaBounty v. Adler, 933 F.2d 121 (2d Cir. 1991) (citations omitted). Taking the complaint's allegations as true in this action and construing them in favor of the plaintiff, the court cannot say that the plaintiff can prove no set of facts that would entitle it to relief. Further, the Bank cites no authority for dismissing a complaint based upon the application of foreign law, nor can the court find any such authority.
B. Forum Non Conveniens
The second argument put forth by the Bank is that "the court should decline to exercise subject matter jurisdiction over this action". Royal Bank Mem. of Law at 14. This argument is also founded on the Bank's contention that Ontario provincial law is the proper law to apply to this action. In an action based on diversity of citizenship, however, an allegation of lack of subject matter jurisdiction (usually considered in the context of a motion to dismiss pursuant to Fed. R. Civ. P. 12(b) (1)) implicates either the diversity of the citizenship of the parties or the jurisdictional amount in controversy. See 5A C.A. Wright & A.R. Miller, Federal Practice and Procedure § 1350. Application of controlling foreign law would not divest this court of subject matter jurisdiction.
The arguments made by Royal Bank more properly fit a motion to dismiss for improper venue pursuant to Rule 12 (b) (3), or in this case, because the alternative forum is a foreign country, a motion to dismiss under the doctrine of forum non conveniens. See C.A. Wright & A.R. Miller, Federal Practice and Procedure §§ 1352, 3828 (hereafter "Wright & Miller"). Although a determination of what substantive law governs the case is the first step in any forum non conveniens analysis, In re McClelland Engineers, Inc., 742 F.2d 837, 838 (4th Cir. 1984), cert. denied, 469 U.S. 1228, 105 S. Ct. 1228, 84 L. Ed. 2d 366 (1985), application of a foreign country's law by itself would not constitute grounds for dismissal under this doctrine. Forum non conveniens implicates many factors other than application of foreign law, including factors relating to the public interest and practical problems that affect the ease, expense and efficiency of trying a case or enforcing a judgment if one is obtained. See Gulf Oil Corporation v. Gilbert, 330 U.S. 501, 508-509, 67 S. Ct. 839, 843, 91 L. Ed. 1055 (1947) (the list of relevant factors set forth in Gilbert was endorsed by the Supreme Court in Piper Aircraft v. Reyno, 454 U.S. 235, 241 n.6, 102 S. Ct. 252, 258 n.6, 70 L. Ed. 2d 419 (1981)).
The burden on a defendant moving to dismiss in favor of a foreign court is a heavy one, dismissal being the exception rather than the rule. Wright & Miller § 3828; see, e.g., Schertenleib v. Traum, 589 F.2d 1156, 1160 (2d Cir. 1978). Royal Bank has not met this burden, addressing no factors other than its contention that Canadian law should apply. Defendant Royal Bank's motion to dismiss under the theory of forum non conveniens is denied.
Notwithstanding this decision with respect to defendant Royal Bank's motion, the court will, for the parties' edification and guidance, analyze the "choice of law" to be applied in the instant case.
Choice of Law
In determining whether American law or foreign law governs any of the plaintiff's claims, a federal court in a diversity case must apply the choice-of-law rules of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 1021, 85 L. Ed. 1477 (1941). This court, therefore, applies the choice-of-law rules as developed in New York case law.
"The first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved." Matter of Allstate Ins. Co., 81 N.Y.2d 219, 223, 597 N.Y.S.2d 904, 905, 613 N.E.2d 936 (1993). A federal court sitting in diversity is not required to determine which forum's law applies where the relevant issue would turn out the same under both forums' law and no true conflict exists. Howard v. Clifton Hydraulic Press Co., 830 F. Supp. 708, 712 (E.D.N.Y. 1993). In other words, where there is no material difference between the law of New York and the law of another potential forum, reference to New York law is proper. Seven-Up Bottling Co. (Bangkok) v. Pepsico, Inc., 686 F. Supp. 1015, 1022 (S.D.N.Y. 1988); Walter E. Heller & Co. v. Video Innovations, Inc., 730 F.2d 50, 53 (2d Cir. 1984).
The relevant issue framed by the parties' motion papers involves proof of intent in a fraudulent conveyance cause of action. Resolution of this issue would likely turn out the same under the Fraudulent Conveyances Law of Ontario as it would under New York's Debtor & Creditor Law.
New York Law
Article 10 of New York's Debtor and Creditor Law (§§ 270-281) provides causes of action for fraudulent conveyances. A conveyance is fraudulent when it is made without fair consideration and renders the transferor insolvent (§ 273), leaves the transferor with unreasonably small capital (§ 274), or when the transferor believes it will be unable to pay its debts (§ 275). Section 276 further provides that "every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors."
The parties are in agreement that, under New York law, a plaintiff can recover for fraudulent conveyance without directly proving intent, by establishing "constructive fraud". Constructive fraud can be proven merely by showing that a transfer was made without fair consideration, and it "constitutes a fraudulent conveyance, regardless of the intent of the transferor." HBE Leasing Corporation v. Frank, Nos. 93-9263L, 94-7185XAP, 1995 WL 23412, at *5 (2d Cir. January 18, 1995). "Constructive knowledge of fraudulent schemes will be attributed to transferees who were aware of circumstances that should have led them to inquire further into the circumstances of the transaction, but who failed to make such inquiry." HBE Leasing at *7-8.
Even in "intentional fraud," intent does not have to be shown by direct evidence, and rarely is. It is normally inferred from circumstances surrounding the transfer. ACLI Gov't Sec., Inc. v. Rhoades, 653 F. Supp. 1388, 1394 (S.D.N.Y. 1987), aff'd, 842 F.2d 1287; Farino v. Farino, 113 Misc. 2d 374, 449 N.Y.S.2d 379, 386 (Sup. Ct. Nassau Co. 1982). Factors considered include close relationships among parties to a transaction, secrecy and haste in making the transfer, inadequacy of consideration, and the transferor's knowledge of creditors' claims and his own inability to pay them. ACLI Gov't Sec., 653 F. Supp. at 1394. Only an actual intent to hinder and delay need be established, not an actual intent to defraud, and lack of fair consideration gives rise to a rebuttable presumption of fraudulent intent. Atlanta Shipping Corp., Inc. v. Chemical Bank, 631 F. Supp. 335, 346-47 (S.D.N.Y. 1986) ("A fraudulent intent will not be presumed, unless fair consideration is lacking.").
Section 2 of Ontario's Fraudulent Conveyances Act provides:
(2) Every conveyance of real property or personal property and every bond, suit, judgment and execution . . . made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns.
R.S.O. 1980; c. 176, s. 2. To set aside a transfer as a fraudulent conveyance under Ontario law, a plaintiff must prove that the conveyance was made without valuable or "good" consideration, that the transferor intended to delay or defeat his creditors, and that the conveyance had the effect of delaying or defeating the creditors. Murray E. Hogarth and George N. Wallace v. William J. Rowe, No. 21209/87, 1994 Ont. C. J. LEXIS 2582, at *22 (Ont. Ct. of Just. (Gen. Div.), June 15, 1994) ("Hogarth ") (citing Bank of Montreal v. Crowell, 109 D.L.R. 3d 442 (N.S.S.C., 1980)). The knowledge or intent of the transferee is irrelevant where consideration is demonstrated to be lacking or inadequate. "The intent to defeat, hinder, delay or defraud of the transferor alone is sufficient to bring the conveyance within section 2 of The Fraudulent Conveyances Act." Hogarth at *23 (citing Courtesy Chevrolet Oldsmobile Ltd. v. Dhaliwal (1987), 62 O.R. (2d) 716 (H.C.J.) at 718)).
As is true under New York law, intent need not be shown by direct evidence. "The intent of a transferor to defeat, hinder, delay or defeat creditors is a question of fact. The court must look at all the circumstances surrounding the conveyance, and is entitled to draw reasonable inferences from the proven facts to ascertain the intention of the transferor in making the conveyance." Hogarth at *24 (citing Bank of Montreal v. Crowell et al., supra, at 451). When a particular conveyance has the effect of defeating, hindering or delaying creditors, that effect is "to be considered as evidencing an intention to do so. In such a case it would be the duty of the judge to direct the jury that they must infer the intent of the settlor to have been to defeat or delay his creditors." The Toronto-Dominion Bank v. Michael V. Miller, No. 31-230926, 1990 Ont. C. J. LEXIS 541, at *5 (Ont. Ct. of Just. (Gen. Div.) In Bankr., Dec. 18, 1990) (citation omitted). This presumption may be rebutted by "cogent and affirmative evidence establishing an honest purpose in the making of the transfer, a purpose in no way designed to prejudice creditors[.]" Id. at *6 (citation omitted).
The court can find no material difference in the application of the law of Ontario vis-a-vis the law of New York with respect to the claims alleged against the defendant Royal Bank. The court will therefore apply New York law as the "choice of law" in the instant case.
C. Defendant Royal Bank's Motion to Dismiss Due to Plaintiff's Failure to Obtain Permission to Proceed
In its Reply Memorandum of Law (Docket # 41), defendant Royal Bank further urges the court to dismiss the complaint because the plaintiff has not obtained permission to proceed with this action from the Ontario court that adjudicated Compro's bankruptcy pursuant to § 38 of Canada's Bankruptcy and Insolvency Act ("BIA"), R.S.C. 1985, c.B-3 (referred to hereafter as a "§ 38 order"). Section 38(1) provides:
Where a creditor requests the trustee to take any proceeding that in his opinion would be for the benefit of the estate of a bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk, on notice being given the other creditors of the contemplated proceeding, and on such other terms and conditions as the court may direct.