The opinion of the court was delivered by: SAND
Plaintiff Monica Madanes bring this action against various individual and corporate Defendants, alleging violations of RICO and asserting numerous statutory and common law claims under New York law. The Defendants move to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(2), 12(b)(6) and 9(b), as well as the doctrines of international comity, forum non conveniens and Princess Lida. For the reasons stated below, the Defendants' motions are granted in part and denied in part.
The Plaintiff Monica Madanes is an Argentine citizen and resident. The Defendants comprise two groups, individual and corporate. The individuals include Pablo Madanes, Miguel Madanes, Leiser Madanes ("Madanes Brothers"), all of whom are citizens and residents of Argentina; and Richard Ortoli ("Ortoli"), a New York lawyer, along with Rubin & Bailin ("R&B") and Rubin, Kalnick, Bailin, Ortoli, Abady & Fry, P.C. ("RKB"), Ortoli's New York law firms. The corporate Defendants include Baltimore Ltd. ("Baltimore"), a corporation formed under the laws of the British Virgin Islands; Swansea Holding, Inc. ("Swansea"), a Panamanian corporation registered to do business in New York; Transmarketing and Product Research Co. Panama ("Transmarketing"), a Panamanian Corporation; and Procida Ltd., a/k/a Pegaso Ltd. ("Procida"), a corporation formed under the laws of the Isle of Man.
The history of this case spans one decade, three continents and an array of prior lawsuits. At bottom, however, is a sibling rivalry not unlike those observed with tragic frequency in the annals of law and literature. The relevant allegations are summarized below.
Manuel Madanes was a wealthy Argentine businessmen. Prior to 1986, he managed the assets of the Madanes family, including those of his four children, Monica, Pablo, Miguel and Leiser Madanes. He did so pursuant to mutual powers of attorney executed by the Madanes siblings in 1970.
Following his wife's death in 1986, Manuel apparently "became despondent and lost interest in managing the Madanes family assets." (Compl. P 26.) At that point, "the Madanes Brothers began taking managerial control over the Madanes family assets and investments, including many of Ms. Madanes' assets and investments." (Id.) Manuel died on November 23, 1988.
The Plaintiff alleges that around the time of her father's death, the Madanes Brothers initiated a scheme to divest her of her share of the family assets. She claims that "working together with Ortoli in New York, the Madanes Brothers began implementing a scheme in early 1988 to restructure all of the Madanes family overseas assets into various companies and trusts that would ensure that the Madanes Brothers would attain dominion and control over the assets, to the exclusion of their sister, Ms. Madanes, the rightful one-quarter owner of those assets." (Id. P 1.) The allegation is that "the Madanes Brothers controlled the [family] assets for the sole purpose of enriching themselves." (Id. P 2.) Ortoli, the family lawyer initially hired by Manuel in 1984, is alleged to have consorted with the Madanes Brothers since the outset of this scheme.
The Complaint describes a complex web of transactions involving the family assets. It also maintains that complexity itself has been one goal of these transactions, insofar as such complexity has impeded Ms. Madanes' ability to recover her share of the family assets. (Id. P 22.) Mindful that the Plaintiff has alleged "that there exist additional accounts and assets of which she is not specifically aware" but to which she is entitled, (id. P 3), the Court believes that Ms. Madanes' core allegations may be grouped into six analytically distinct categories. Each is described below.
Swansea Holding, Inc. ("Swansea") was incorporated in Panama in 1984. Soon thereafter the Board of Directors of Swansea granted to Ortoli a general power of attorney to act on behalf of this entity. Ms. Madanes has been a beneficiary of Swansea since its inception, and the Madanes Brothers became joint beneficiaries in 1986.
Bingham Investment Limited ("Bingham") and Tetra Investment Limited ("Tetra") were corporations formed under Bahamian law by Manuel in 1986. Each entity had related company management accounts ("Bingham and Tetra Accounts"). Upon Manuel's death, Ms. Madanes and the Madanes Brothers each owned a one-quarter beneficial interest and had signatory authority over the Bingham and Tetra Accounts. (Id. P 111-12.)
The Plaintiff alleges that the Madanes Brothers made at least two fraudulent diversions with respect to these accounts. First, she contends that in November of 1988, Pablo directed Boston Trust to transfer over $ 1.6 million out of the Bingham Account to an account entitled Niwer, S.A., at Republic National Bank New York in New York City, which was controlled exclusively by the Madanes Brothers ("Niwer Transfer"). (Id. P 113.)
Second, the Plaintiff alleges that following the death of Manuel, Pablo ordered the transfer of "all the funds out of the Bingham and Tetra Accounts to Account Number 541056 at Credit Suisse Zurich ("Transmarketing Account") owned by Transmarketing and in fact controlled by the Madanes Brothers." (Id. P 114.) In fact, claims Ms. Madanes, between December 14, 1988 and January 29, 1990, a total of at least $ 17.2 million was transferred from the Bingham and Tetra Accounts to the Transmarketing Account. (Id. P 116.) Like the Swansea Distributions, the funds in the Transmarketing Account were later transferred to the Escrow Account and then into the Procida Account in Switzerland.
The Plaintiff contends that the Madanes Brothers wrongly diverted the Transmarketing funds to their own use. (Id. P 118.)
As of December 1988, the four Madanes siblings jointly owned an account at Credit Suisse, New York ("New York Account"). The Plaintiff contends that between January 1989 and November 1992, the Madanes Brothers directed the transfer of approximately $ 7.5 million from the New York Account to other accounts in furtherance of their fraudulent scheme. (Id. PP 120-21.) She maintains that "the accounts to which some or all of the New York funds were transferred were owned or controlled exclusively by one or more of the Madanes Brothers." (Id. P 122.)
A series of British Virgin Islands Trusts was established by the Madanes Brothers in late 1988 and 1989.
One such set of trusts was entitled Parkhurst Trusts I-V. At the time these entities were created, Trust I pertained to Manuel, Trust II to Monica, Trust III to Miguel, Trust IV to Leiser and Trust V to Pablo. The trustee for Parkhurst Trusts I-V was Westchase Ltd. ("Westchase"), of which Ortoli was the director.
Under the Instruments of Trust, as of December 1989, Parkhurst Trusts II-V each owned a 25% interest in Lacovia, Inc. ("Lacovia"), a British Virgin Islands corporation created to hold the Madanes' family's interest in four other corporations. (Id. PP 42, 47.) Ortoli was the director of Lacovia. Periodically, the four companies owned by Lacovia would issue distributions of significant sums of money, which Ortoli would record in his capacity as director of both Lacovia and Westchase (the trustee of Parkhurst Trusts II-IV). The Plaintiff alleges that at the direction of the Madanes Brothers, Westchase and Ortoli "never transferred a full one-fourth of those funds to Parkhurst II and/or Ms. Madanes." (Id. P 87.) This allegation is made upon information and belief.
Upon the death of Manuel, each of his children inherited a one-quarter undivided interest in the Madanes family's art collection, then worth several million dollars ("Artworks"). The Plaintiff alleges that while she was traveling outside Argentina in December 1988, Pablo "removed the Artworks from the Madanes [residence] in Buenos Aires and transported them to Switzerland without Ms. Madanes' permission or knowledge." (Id. P 63.) The art was placed in storage.
The Plaintiff alleges that in June of 1991 "the Madanes Brothers, in an effort to falsely and fraudulently hide their ownership interest in the Artworks and as part of their overall conspiracy, undertook a scheme with Ortoli in New York to falsely represent that the Artworks had been transferred by Manuel Madanes to the Hastings Trust I prior to his death on November 23, 1988." (Id. P 22.)
In furtherance of this scheme, Ms. Madanes contends, Ortoli prepared and backdated a new, false Schedule A.
In late 1992 or 1993, Ms. Madanes sought access to the Artworks in Switzerland. She was denied access, and the storage facility, purportedly at the direction of the Madanes Brothers, refused to acknowledge her rights to ownership. (Id. P 74.) Ultimately, "Ms. Madanes was forced to bring an action in Switzerland to obtain confirmation of her ownership interests in the Artworks." (Id. P 77.)
6. Demands for Information
The Plaintiff maintains that the Madanes Brothers and Ortoli have stonewalled her attempts to gather information about the family assets. To start, she claims that since late 1991, the Madanes Brothers have refused to communicate with her about their management and control of her interests in such assets. (Id. P 124.) Moreover, Ms. Madanes claims that ever since she attempted to take a more active role in administering her share of the assets in 1992, the Madanes Brothers and Ortoli have perpetrated various frauds to cover up their underlying scheme. For instance, the Plaintiff alleges that on July 8, 1992, she and her siblings entered into a written agreement pursuant to which the Madanes Brothers agreed that, within 180 days they would provide to her a full accounting of the assets and investments they were administering on her behalf. (Id. P 126.) According to the Plaintiff, no such information was ever disclosed.
Soon thereafter Ms. Madanes retained counsel and began an investigation into the Madanes family's assets in the United States and elsewhere. (Id. P 129.) Although Ortoli apparently provided some information to the Plaintiff in 1993, she alleges that at the direction of the Madanes Brothers, Ortoli continued to misrepresent, inter alia, the facts concerning her ownership of the Artworks (Id. P 130-31.) Moreover:
On July 29, 1994, Ortoli wrote to Ms. Madanes' counsel and said that he would provide Ms. Madanes with a copy of the RKB Law Firm files relating to the Joint Representation of the Madanes Family on the condition, as required by the Madanes Brothers, that certain bank account information be used "only for the purpose of determining whether [Ms. Madanes] received her fair share of profits and distributions and enforcing her rights" and "in no way be used by [Ms. Madanes], directly or indirectly, for any purpose related to payment or nonpayment of taxes on such amounts."
(Id. P 148.) Ms. Madanes' counsel rejected Ortoli's conditional offer. Subsequently, on August 26, 1994, four months after the Plaintiff's original request for his files, Ortoli "provided copies of what he represented to be the files." (Id. P 150.) Finally, the Plaintiff alleges that Ortoli and the Madanes Brothers have steadfastly refused to provide an accounting of the British Virgin Island Trusts, despite an order issued by the High Court of the British Virgin Islands to provide such an accounting. (Id. PP 152-60.)
On July 25, 1996, the Plaintiff filed a petition for attachment against the Madanes Brothers in the District Court in Zurich, Switzerland. (Baumgartner Decl. P 3.) This order sought to attach their property in Switzerland. On July 8, 1996, the Zurich Court issued an order directing the attachment of Pablo's share of the Artworks and certain Swiss bank accounts. The Swiss Court denied the petition with respect to Miguel and Leiser. (Id. P 5.)
As a prudential measure to perfect this attachment, Ms. Madanes claims, on August 19, 1996, she filed suit solely against Pablo in Zurich District Court. The suit is based on a contractual claim under Argentine law regarding the abuse of the power of attorney under which Ms. Madanes' assets have been managed. It seeks money damages up to the amount available pursuant to the attachment order. (Id. PP 11-12.)
On August 22, 1996, the Plaintiff filed this action. The Complaint alleges violations of RICO §§ 1962(c) and (d), in addition to articulating claims of fraud, conversion and breach of fiduciary duties under New York law. The RICO claims provide the sole basis for federal jurisdiction.
After serving the Complaint, Ms. Madanes served requests for third-party discovery. The Defendants moved to stay discovery pending resolution of their motions to dismiss. The Court granted the stay, subject to a telephone deposition of Leiser on the limited issue of personal jurisdiction.
A. Subject Matter Jurisdiction
Where, as here, the defendants move for dismissal pursuant to Rule 12(b)(1) as well as on other grounds, it is appropriate to consider the Rule 12(b)(1) challenge first since the accompanying defenses and objections may become moot should the Court find that subject matter jurisdiction is lacking. Rhulen Agency v. Alabama Ins. Guar. Ass'n, 896 F.2d 674, 678 (2d Cir. 1990). The uncontroverted factual allegations in the Complaint are taken as true, and the Court "may resolve disputed jurisdictional fact issues by reference to evidence outside the pleadings, such as affidavits." Antares Aircraft, L.P. v. Federal Republic of Nigeria, 948 F.2d 90, 96 (2d Cir. 1991), vacated on other grounds, 505 U.S. 1215 (1992).
The RICO Act is silent regarding its extraterritorial application. Accordingly, "when, as here, a court is confronted with transactions that on any view are predominantly foreign, it must seek to determine whether Congress would have wished the precious resources of United States courts . . . to be devoted to them rather than leave the problem to foreign countries." Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 985 (2d Cir.), cert. denied sub nom. Bersch v. Arthur Andersen & Co., 423 U.S. 1018, 46 L. Ed. 2d 389, 96 S. Ct. 453 (1975).
"Specifying the test for the extraterritorial application of RICO is delicate work . . . . that has not been done" in this Circuit. North South Finance Corp. v. Al-Turki, 100 F.3d 1046, 1052 (2d Cir. 1996). District courts may seek guidance, however, from "precedents concerning subject matter jurisdiction for international securities transactions and antitrust matters." Id. at 1051. After reviewing the relevant authorities, the Court concludes that RICO subject matter jurisdiction may be established by meeting either of two alternative tests: the "conduct test" or the "effects test." See id. at 1052 (noting that Alfadda v. Fenn, 935 F.2d 475 (2d Cir.), cert. denied, 502 U.S. 1005, 116 L. Ed. 2d 656, 112 S. Ct. 638 (1991), "lends some support to that view").
Under the conduct test, the court has subject matter jurisdiction "where conduct material to the completion of the fraud occurred in the United States." Psimenos v. E.F. Hutton & Co., 722 F.2d 1041, 1046 (2d Cir. 1983). According to the Psimenos Court, "mere preparatory activities, and conduct far removed from the consummation of the fraud, will not suffice to establish jurisdiction." Instead, "only where conduct 'within the United States directly caused' the loss will a district court have jurisdiction . . . ." Id. at 1051 (quoting Bersch, 519 F.2d at 993). Under the alternative effects test, the court has jurisdiction "whenever a predominantly foreign transaction has substantial effects within the United States." ...