of WMW; Count V alleges that WEMEX breached fiduciary duties it owed to WMW as WMW's co-owner; and Count VI alleges that Muender breached fiduciary duties that he owed to WMW in his capacity as liquidator of WEMEX's assets. These claims arise out of alleged duties created under the Joint Venture Agreement executed by WEMEX and GBC. Because plaintiffs have failed to identify any legally cognizable fiduciary duties owed by WEMEX to either GBC or WMW, defendants' motion to dismiss Counts II, V, and VI is granted.
Plaintiffs contend that, under the Joint Venture Agreement, WEMEX and GBC became joint venturers in WMW, and that WEMEX, having failed to further the interests of WMW, violated fiduciary duties that it owed to GBC arising from their relationship as joint venturers. Additionally, plaintiffs assert that pursuant to the Joint Venture Agreement, WEMEX became an "equal co-owner" of WMW. Thus, plaintiffs continue, WEMEX, as a shareholder of a "closely held corporation," owed WMW a duty of "undivided and unqualified loyalty," which it breached, in part, by failing to require newly privatized East German manufacturers to honor WMW's exclusive distribution rights.
Since, under New York law, a joint venture may not be carried on through a corporate form, any fiduciary obligations that coventurers might owe one other cease to exist once the joint venturers agree to conduct business as a corporation. See Birnbaum v. Birnbaum, 73 N.Y.2d 461, 541 N.Y.S.2d 746, 747, 539 N.E.2d 574 (Ct. App. 1989); Sanders v. Boelke, 172 A.D.2d 1014, 569 N.Y.S.2d 272, 274 (4th Dep't 1991). Here, the purpose of the Joint Venture Agreement was to allow its signatories to facilitate the operation of an exclusive distribution agent, WMW, for the sale and service in the United States of machine tools manufactured in East Germany. That objective was to be achieved through the establishment of WEMEX and GBC's equal co-ownership in Alurop, a Panamanian corporation, which, in turn, was the 100% owner of WMW. Once their ownership in Alurop was established, the venturers, WEMEX and GBC, had only the rights of stockholders of Alurop. See Sanders, 569 N.Y.S.2d at 274; Bevilacque v. Ford Motor Co., 125 A.D.2d 516, 509 N.Y.S.2d 595, 599 (2d Dep't 1986); Rosiny v. Schmidt, 185 A.D.2d 727, 587 N.Y.S.2d 929, 932 (1st Dep't 1992); see also Weisman v. Awnair Corp., 3 N.Y.2d 444, 165 N.Y.S.2d 745, 144 N.E.2d 415 (1957) ("A joint venture may not be carried on by individuals through a corporate form. The two forms of business are mutually exclusive, each governed by a separate body of law.").
In addition, plaintiffs' allegation that WEMEX's fiduciary obligations to WMW arose from WEMEX's co-ownership in WMW, a closely held corporation,
mischaracterizes WEMEX's legal relationship to WMW as established under the Joint Venture Agreement. The shareholder of a closely held corporation is indeed subject to a standard of honest and good faith which requires the shareholder to devote its "undivided and unqualified loyalty to the corporation," Fender v. Prescott, 101 A.D.2d 418, 476 N.Y.S.2d 128, 132 (1st Dep't 1984). WEMEX, however, was not a shareholder in WMW but rather a 50% shareholder in WMW's parent company, Alurop. Alurop, in turn, owned 100% of WMW's stock. Thus, Alurop, and not WEMEX, owed WMW a duty of care.
No other cognizable grounds for their breach of fiduciary duties claims having been advanced, counts II, V, and VI of plaintiffs' complaint are dismissed.
V. Forum Selection Clause
Defendants further contend that the claim against WEMEX and Muender for wrongful conversion of the Heckert machine tools is governed by a forum selection clause that precludes this Court from resolving that claim.
The Heckert Agreement provides that (1) the rights of the parties are to be governed by the law of the FRG, and (2) any dispute arising out of or in connection with the Agreement "shall be finally and effectively decided by the appropriate regular court located at the principal place of business of the Defendant." Heckert Agreement Art. 23. Defendants contend that because the wrongful conversion claim "relates to goods and alleged obligations which were the subject of the [Heckert Agreement]," (Defs.' Memo. in Support of Mot. for Summary Judgment at 22), that claim "arises out of or in connection" with the Agreement and must, therefore, be resolved by an appropriate German court.
In assessing the enforceability of a forum selection clause, the Court must first determine whether, under the terms of the Heckert Agreement, the clause applies. If it does, the clause should be enforced unless it is clearly shown that enforcement would be unreasonable or unjust or that the clause was obtained through fraud or overreaching. Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir. 1990).
Plaintiffs argue that tort claims, including those for wrongful conversion fall beyond the scope of the clause. Yet, the clause's unequivocal terms make clear that the applicability of the forum selection clause turns, not on the type or nature of the cause of action, but on whether the claim in question "arises out of or in connection" with the Heckert Agreement. See, e.g., Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1361 (2d Cir.), cert. denied, 510 U.S. 945, 126 L. Ed. 2d 333, 114 S. Ct. 385 (1993); Anselmo v. Univision Station Group, Inc., 1993 U.S. Dist. LEXIS 428, 1993 WL 17173 at *2 (S.D.N.Y. Jan. 15, 1993) (J., Carter) (finding tort claim alleging interference with 1987 resolution to indemnify the plaintiff "related to" a 1986 Agreement but that tort claim alleging interference with 1985 resolution to indemnify did not "relate to" the Agreement because the tort grew out of events which preceded the Agreement).
Contrary to plaintiffs' contentions, I find that the allegations that WEMEX and Muender wrongfully converted property belonging to WMW are connected to the underlying Agreement. During the second half of 1991, WMW ordered Heckert machine tools from WEMEX pursuant to the Heckert Agreement. At the time, payment in arrears from WMW to WEMEX amounted to $ 10,181,914.01. When Muender discovered in the fall of 1993 that a large number of Heckert machine tools involved in the purchase were still in Germany but had not been paid for, Muender obtained a court order from a district court in Germany for attachment, pursuant to which the machines were seized and their shipment to the United States prevented. Muender Decl. P23. Defendants assert that the legal basis for the attachment was that the agreed upon purchase conditions set forth in the Heckert Agreement provided that all machines remained the property of WEMEX until fully paid. Plaintiffs, in turn, contend that "consistent with the Heckert Agreement" and with the practice of the parties, title to the machine tools were transferred to WMW earlier, upon delivery of the goods to Heckert's warehouse for storage. The dispute over the parties' ownership rights to the attached Heckert machine tools is clearly "in connection" with the Heckert Agreement.
Forum selection clauses, like the one at issue here, are "presumptively valid where the underlying transaction is fundamentally international in character." Roby, 996 F.2d at 1361 (citing The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972)). Plaintiffs may, nonetheless, overcome that presumption of validity upon a clear showing that enforcement would be unreasonable under the circumstances. The Bremen, 407 U.S. at 10; Roby, 996 F.2d at 1363. The Supreme Court has construed this exception narrowly:
forum selection and choice of law clauses are 'unreasonable' (1) if their incorporation into the agreement was the result of fraud or overreaching; (2) if the complaining party 'will for all practical purposes be deprived of his day in court,' due to the grave inconvenience of the selected forum; (3) if the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) if the clauses contravene a strong public policy of the forum state.
Roby, 996 F.2d at 1363 (internal citations omitted) (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 113 L. Ed. 2d 622, 111 S. Ct. 1522 (1991); The Bremen, 407 U.S. at 12-13, 15).
Here, plaintiffs have adduced no evidence, nor do they even advance the argument, that the forum selection clause is "unreasonable" for any one of these reasons. Plaintiffs do not demonstrate that they were fraudulently induced into agreeing to it or that litigation in Germany would cause substantial inconvenience to WMW. Nor do they claim that proceeding in a German court would deprive WMW of a remedy. Since WMW and the Treuhand entered into the Heckert Agreement with full knowledge of the Treuhand's relationship to the German government, any inconvenience suffered by being forced to litigate in the contractual forum was clearly foreseeable. Consequently, I find that the forum selection clause governs plaintiff's wrongful conversion claim against Muender and that that claim should, therefore, be litigated in Germany.
VI. The German Law Defense of "Changed Circumstances"
Defendants' next ground for summary judgment is that all claims arising out of the Commercial Agency Contract and the Joint Venture Agreement are barred by the German defense of "changed circumstances."
The "changed circumstance" defense, though an element of the former GDR's "Law for Commercial Contract," still applies to certain preunification contracts, including the Commercial Agency Contract.
The Reunification Agreement between the FRG and GDR provided that all legal relationships existing prior to reunification would continue to be subject to GDR law. Because the Commercial Agency Contract between WEMEX and WMW provided that the law of the (now former) GDR applied to the contractual relationship, the GDR "Law for Commercial Contract," continues to apply to the Commercial Agency Contract. Section 295 of the "Law for Commercial Contract," sets forth the "changed circumstances" defense:
(1) If, for the performance of the purpose of the contract, essential circumstances upon which both parties entered into the contract but over which they have no control, have changed so fundamentally and if they, had they known of such circumstances at the time of contracting, would not have concluded the contract, the party disadvantaged by the occurrence of such circumstances is entitled to propose to the other party an appropriate modification of the contract.