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ARMCO INC. v. NORTH ATLANTIC INS. CO. LTD.

September 30, 1999

ARMCO INC., ARMCO FINANCIAL SERVICES CORPORATION, ARMCO FINANCIAL SERVICES INTERNATIONAL LIMITED, ARMCO PACIFIC LIMITED, AND NORTHWESTERN NATIONAL INSURANCE COMPANY, PLAINTIFFS,
v.
NORTH ATLANTIC INSURANCE COMPANY LIMITED, ROGER T. DONOHUE, PATRICK H. ROSSI, LARRY L. STINSON, DAVID W. ATKINS, INTERNATIONAL TRUSTEE AND RECEIVERSHIP SERVICES, INC., INTERNATIONAL RUN-OFF SERVICES, INC., WINGFIELD LIMITED, CI SERVICES HOLDINGS LIMITED, AND NPV LIMITED, DEFENDANTS.



The opinion of the court was delivered by: Schwartz, District Judge.

    OPINION AND ORDER

This action was filed by plaintiff Armco Inc. ("Armco") and four of its subsidiaries to recover funds allegedly obtained fraudulently from them by defendants. Plaintiffs assert causes of action for common law fraud, conversion, breach of fiduciary duty, and violation of the Federal Racketeer Influenced and Corrupt Organizations Act. Before the Court are motions by certain of the defendants to dismiss on grounds of (i) lack of personal jurisdiction, (ii) improper venue, and (iii) forum non conveniens. For the reasons set forth below, the motion is DENIED.

FACTUAL BACKGROUND*fn1

Plaintiff Armco, the direct or indirect parent of its co-plaintiffs, is incorporated under the laws of the State of Ohio with its principal place of business in Pittsburgh, Pennsylvania. (Amended Complaint ("Compl.") ¶ 7.) Plaintiff Armco Financial Services Corporation ("AFSC") is a corporation existing under the laws of the State of Delaware, with its principal place of business in Middletown, Ohio. (Id. ¶ 8.) AFSC owned the majority of Armco's finance leasing and insurance businesses during the period relevant to this case. (Id.) Plaintiff Armco Financial Services International Limited ("AFSIL") is a corporation existing under the laws of the State of Delaware, with its principal place of business in Middletown, Ohio. (Id. ¶ 9.) AFSIL owned part of a group of insurance subsidiaries now called the North Atlantic Group during the period relevant to this case. (Id.) Plaintiff Armco Pacific Limited ("APL") is a corporation existing under the laws of Singapore with its principal place of business in Singapore. (Id. ¶ 10.) APL was engaged in the business of finance and leasing during the period relevant to this case. (Id.) Plaintiff Northwestern National Insurance Company ("Northwestern") is a corporation existing under the laws of the State of Wisconsin, with its principal place of business in Middletown, Ohio. (Id. ¶ 11.) Northwestern was engaged in the insurance and reinsurance business during the relevant period. (Id.)

In 1990, Armco sought to dispose of a group of insurance subsidiaries which are now known as the North Atlantic Group (the "Group").*fn2 (Id. ¶ 1.) Armco became interested in selling the North Atlantic Group, in a management buy-out, to defendants David W. Atkins and Roger T. Donohue, who were then the Managing Director and Chairman, respectively, of the Group. (Id.) The sale of the Group was negotiated, on behalf of Armco, by two individuals who were then Armco executives, and who are also defendants in this action: Patrick H. Rossi and Larry L. Stinson. (Id. ¶ 1.) Rossi and Stinson currently reside in Ohio. (Id. ¶¶ 14, 15.) Atkins resides in England, and Donohue, a citizen of the United Kingdom, resides in Singapore. (Id. ¶¶ 12, 13.)

At the time of the negotiation of the management buy-out, the Group was in "run-off" status. (Id. ¶ 2.) This meant that no new policies were being issued by the insurance subsidiaries in the Group, and the business of the Group consisted solely of paying out claims on pre-existing insurance contracts as they became due. (Id.) The sale of the Group therefore was expected to involve a financial transfer from the Armco companies to the Group, which would then be acquired by Atkins and Donohue for nominal consideration. (Id.) After the sale, the Group would pay off the claims on its insurance policies with the funds initially contributed by Armco and its affiliates. (Id.)

According to plaintiffs, Atkins, Donohue, Rossi, and Stinson (collectively, the "Individual Defendants") secretly agreed prior to the sale of the Group that Rossi and Stinson would become joint owners of the Group with Atkins and Donohue after the management buy-out. (Id. ¶ 3.) Defendant Wingfield Limited ("Wingfield"), a corporation existing under the laws of Jersey, Channel Islands, and with its principal place of business in Jersey, was the acquisition vehicle used by Donohue and Atkins to purchase the North Atlantic Group from Armco. (Id. ¶ 18.) Plaintiffs allege that Wingfield was secretly owned also by Rossi and Stinson. (Id. ¶¶ 3, 18.)

The sale of the Group was completed on September 3, 1991 upon the execution of a contract of sale (the "Sale Contract") in the New York City offices of Armco's attorneys. (Id. ¶ 45.) The Sale Contract consisted principally of Wingfield's purchase of CI Services Holding Limited ("CISHL"), which held the assets of the North Atlantic Group, from plaintiff AFSIL and another Armco affiliate.*fn3 (Id. ¶¶ 12, 18.) CISHL, also a defendant in this action, is incorporated and has its principal place of business in Jersey. (Id. ¶ 19.) As part of the agreement between parties, Armco affiliates contributed over $40 million to CISHL. (Id. ¶ 45.) The Sale Contract also contained a forum selection clause providing that all disputes arising out of the transaction would be resolved by the courts of England. (Agreement for the Sale and Purchase of the Whole of the Issued Share Capital of CISHL ("Sale Contract"), set forth as Exhibit 4 to the Affidavit of Stephen Fishbein in Opposition to Certain Defendants' Motion to Dismiss the Complaint ("Fishbein Aff.") at 34.)

Plaintiffs assert that the Sale Contract was not the product of an arms-length negotiation but rather part of a wide-ranging conspiracy to defraud Armco and its affiliates out of millions of dollars. (Compl. ¶ 3.) Plaintiffs assert that, because their representatives Rossi and Stinson were secret partners of the purchasers, the terms of the Sale Contract were biased in favor of the purchasers at the expense of plaintiffs. (Id.) Specifically, plaintiffs allege that the Sale Contract resulted in Armco's making an excessive contribution to the Group, permitting the defendants to enrich themselves at plaintiffs' expense.

In addition to the fraudulent inducement of the sale agreement, plaintiffs allege that defendants engaged in further fraud after the transfer of the Group to their control. According to plaintiffs, the Individual Defendants, acting in concert with the principal insurance subsidiary of the Group, now called North Atlantic Insurance Company ("NAIC"), further increased the available assets of the Group by fraudulently withdrawing funds from two trust funds that NAIC had previously established in favor of plaintiff Northwestern. (Id. ¶¶ 4, 46.) Defendant NAIC is an insurance company existing under the laws of the United Kingdom with its principal place of business in England. (Id. ¶ 21.)

Plaintiffs allege that defendants completed their scheme by diverting funds from the Group to themselves. (Id. ¶ 5.) Defendants allegedly accomplished this by means of excessive "acquisition fees," "dividends," "commissions," and "consulting fees," paid either to the Individual Defendants themselves or to corporate entities they controlled. (Id. ¶ 5.) Plaintiffs allege that more than $16 million was fraudulently obtained by defendants from the Group between 1991 and 1997. (Id.)

Other corporate entities allegedly controlled by the Individual Defendants and used in furtherance of the alleged fraud are (i) defendant International Trustee and Receivership Services, Inc. ("ITRS"), a corporation organized under the laws of the State of Ohio with its last known principal place of business in Ohio, and which was controlled by defendant Rossi in connection with the alleged fraud, (Compl. ¶ 16); (ii) defendant International Run-Off Services, Inc. ("International Run-Off"), a corporation existing under the laws of the State of Ohio with its last known principal place of business in Ohio, and which was controlled by defendant Stinson in connection with the alleged fraud, (Id. ¶ 17); and (iii) defendant NPV, a corporation existing under the laws of Nevis, with its principal place of business in Singapore, (Id. ¶ 20).

The immense fraud was exposed, according to the complaint, because the diversion of funds from the Group eventually led to the insolvency of NAIC in 1997. (Id. ¶ 6.) Atkins had resigned from the Group in 1995, and subsequent to the initiation of the NAIC insolvency proceeding, the other Individual Defendants transferred funds to NAIC which plaintiffs allege represent monies fraudulently obtained by them from Armco and its affiliates. (Id.)

Plaintiffs commenced the present action to recover the funds that they allege were taken under false pretenses by the Individual Defendants and corporate entities they controlled. (Id.) The Amended Complaint states claims arising under the common law doctrines of fraud, conversion, and breach of fiduciary duty, as well as under the Federal Racketeer Influenced and Corrupt Organizations Act ("RICO"). Because defendant NAIC is in provisional liquidation, this action was originally filed as an adversary proceeding in the bankruptcy court. Upon the motion of NAIC, however, the bankruptcy court dismissed the claims against NAIC on the grounds that they were barred by the court's previously issued injunction. Plaintiffs moved this Court to withdraw the reference of the action to the bankruptcy court, and, NAIC having been dismissed from the case, this Court granted the motion on February 3, 1999. (See Order of the Court dated February 3, 1999.)

While the appeal from the bankruptcy court's order dismissing the claims against NAIC was pending, NAIC entered into a settlement with plaintiffs. Defendant Atkins has also settled with plaintiffs and agreed to come to New York to testify on their behalf. A consent judgment between plaintiffs and Atkins was entered by this Court on August 24, 1999. Cf. Armco Inc. v. North Atlantic Ins. Co. Ltd., No. 98 Civ. 6084(AGS), 1999 WL 173579 (S.D.N.Y. Mar.29, 1999) (overruling certain defendants' objection to the entry of the consent judgment).

The case is now before the Court upon the motion to dismiss on various grounds made by Rossi, Stinson, Wingfield, ITRS, International Run-off, and CISHL (the "Moving Defendants").

DISCUSSION

Moving Defendants seek dismissal of this action on three grounds: (1) lack of personal jurisdiction, (2) improper venue, and (3) forum non conveniens, each of which is separately addressed below.

I. PERSONAL JURISDICTION

Moving Defendants move to dismiss this action pursuant to Federal Rule of Procedure 12(b)(2) for lack of jurisdiction over the person. On a motion to dismiss pursuant to Rule 12(b)(2), all pleadings and affidavits must be construed in the light most favorable to plaintiffs, and all doubts resolved in plaintiffs' favor. See Herbstein v. Bruetman, 768 F. Supp. 79, 81 (S.D.N Y 1991) (citing CutCo Industries, Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986)). In order to "withstand a 12(b)(2) motion to dismiss, [plaintiffs] need only make ...


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