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SUN FOREST CORP. v. SHVILI

May 29, 2001

SUN FOREST CORP., PLAINTIFF,
v.
ELI SHVILI AND PAULA SHVILI, DEFENDANTS.



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

    OPINION AND ORDER

Plaintiff Sun Forest Corp. ("Sun Forest"), a New York corporation, originally brought an action styled "motion for summary judgment in lieu of complaint" against Defendants Eli and Paula Shvili (collectively, "the Shvilis"*fn1) in the Supreme Court of New York, New York County, after the Shvilis failed to make payment on two promissory notes (the "Notes") held by Sun Forest. Following removal of the action to this Court by the Shvilis, who are citizens of Canada,*fn2 pursuant to 28 U.S.C. § 1441(a), Sun Forest renewed its summary judgment motion, and the Shvilis cross-moved to dismiss for lack of personal jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(2), and under the doctrine of forum non conveniens.

For the reasons that follow, the Shvilis' cross-motions to dismiss are denied. With regard to Sun Forest's motion for summary judgment, given that the record regarding Eli and Paula Shvili's dealings with Lenard Mandel, Sun Forest's principal, contains disputed issues of material fact that cannot be resolved without additional discovery (and, perhaps, a trial), the Court denies Sun Forest's motion, without prejudice to renewal at a later stage of the case.

BACKGROUND

The essential issues in this case concern the genesis of the Notes on which Plaintiff relies — both how the Notes came to be signed and what underlying transactions gave rise to the Notes. The following facts are drawn from the various affidavits submitted by the parties. Where the parties disagree, the disagreements are set forth. Where no dispute is noted, the facts are not controverted by the parties.

Mandel's Initial Contacts with the Shvilis

Eli Shvili is a real estate developer whose business is primarily based in Toronto, Ontario. For at least the past several years, Eli and his affiliated entities have been involved in a variety of real estate and project finance ventures in North America and the Middle East. (Eli Shvili Aff. ¶¶ 4-5.)

In the summer of 1997, Eli Shvili and his personal attorney, Eli Gutstadt, traveled to New York City to meet with Lenard Mandel, a real estate attorney.*fn3 (Mandel Reply Aff. ¶¶ 8-9.) Mandel is a retired member of the Manhattan law firm White & Case LLP ("White & Case"), who, at that time, was denominated either a "partner emeritus" or "of counsel" to the firm and maintained an office there. (Id. ¶ 8; Goldey Aff. Exs. B & C.) In addition to his affiliation with White & Case, Mandel is also the principal of Mid-City Realty LLC ("Mid-City") and Sun Forest Corp. ("Sun Forest"), entities that conduct business for the benefit of Mandel and his family members. (Mandel Reply Aff. ¶¶ 1, 8.) He resides in New York. (Id. ¶ 73.)

During the meeting, Eli Shvili told Mandel that he intended to form a joint venture called the Harlem Group LLC (the "Harlem Group") with two other Toronto families — the Kerbels (of which Paula is a member) and the Muzzos — and a non-profit organization called the Consortium for Central Harlem Development, Inc. ("Consortium").*fn4 The Harlem Group, Eli said, planned to construct a major residential housing effort in conjunction with a large urban revitalization project called the Bradhurst Project, and requested Mandel's assistance in facilitating the joint venture. (Id. ¶¶ 10-11.)

Mandel contends that Paula Shvili was also heavily involved in the financing, planning and subsequent business activities of the Harlem Group (Id. ¶¶ 9, 11), and that at meetings with Mandel she "spoke knowledgeably about the businesses in which she is involved and actively participated in meetings and discussions concerning the direction of her interests." (Id. ¶ 49.) However, Paula denies Mandel's assertions about her participation in the development project. Instead, she avers that she is "essentially a housewife" whose sole forays into the real estate business have consisted of certain investments "managed by my family, investment professionals and by my husband." (Paula Shvili Aff. ¶¶ 3-4; see also Bernholtz Aff. ¶ 4 & Gutstadt Aff. ¶ 3.) She acknowledges having accompanied Eli to New York, and even having met with Mandel, but contends that she came essentially for shopping and cultural activities, and that she did not participate in substantial business discussions. (2d Paula Shvili Aff. ¶ 3.)*fn5 Paula also contends, among other things, that she has neither maintained a bank account in New York nor "engaged in business" in this state. (Paula Shvili Aff. ¶ 3.)

The Harlem Group's project, of course, was centered on developing property in New York. During the course of its operations, it also maintained an account at Chase Manhattan Bank in New York. Eli Shvili had signatory authority for the account and, indeed, often drew checks from it to pay for various expenses that the entity incurred. (Mandel Reply Aff. ¶ 64 & Exs. 19 & 20.)

Further Harlem Group Dealings Involving the Shvilis

As Eli Shvili and his partners in the Harlem Group continued to develop their joint venture, Mandel determined that the venture needed an experienced public relations team to develop relationships with government agencies and burnish its image. (Mandel Reply Aff. ¶ 14.) Accordingly, Mandel arranged for Eli to meet with public relations agent Howard Rubenstein at Rubenstein's New York City offices in September 1997. Subsequently, Eli, acting on behalf of the Harlem Group, executed a letter agreement with Rubenstein's company (Rubenstein Associates, Inc.) on October 7, 1997.*fn7 (Id. Ex. 14.) Rubenstein charged the Harlem Group $7,500 per month for his company's services. (Id. Ex. 14 at 2.) On March 9, 1998, Paula Shvili drew a check in the amount of $22,524.75 from her personal account at The Bank of Nova Scotia (located in Toronto) to pay Rubenstein Associates, Inc. (Id. Ex. 22.) The memo line of the check indicated that it was for a "CONSULTING FEE." (Id.)

Eli Shvili also hired a personal assistant, Nelson Dominguez, to assist him with the Harlem Group's Bradhurst Project. (Id. ¶ 15 & Ex. 16.) Dominguez worked out of an office located on Amsterdam Avenue in Harlem, and regularly copied Eli on invoices sent to the Harlem Group that reflect Dominguez's salary ($4,500 per month) and various expenses incurred as part of his work responsibilities. (Id. ¶¶ 15-16 & Exs. 16-18.) On March 9, 1998, Paula Shvili drew a check from her personal account in the amount of $9,000 to pay Dominguez his salary for January and February 1998. (Id. ¶ 16 & Ex. 21.) The memo line of the check indicated that it was for "SALARY Jan.-Feb. 1998." (Id.) Furthermore, Mandel contends that Paula attended various meetings at his offices concerning the Harlem Group and also went to some of the venture's publicity events, including a high-profile Alliance Dinner attended by "prominent members of the Harlem community." (Id. ¶ 66.)

Paula Shvili, however, avers that she wrote the checks at her husband's direction and — despite having described their intended purposes in the respective memo lines — does not know "what purposes these checks were for." (2d Paula Shvili Aff. ¶ 5.) She denies participating in the meetings at Mandel's offices (although she does not deny having been present at them) or attending the Alliance Dinner (although she does not deny having attended other publicity-related functions). (Id. ¶ 3.)

Mandel's International Business Dealings with Eli Shvili

While Mandel was advising Eli (and perhaps Paula as well) about the Harlem Group's Bradhurst Project, he was also assisting Eli with a variety of business ventures that Eli was exploring outside North America.

In July 1997, Eli Shvili, acting through an entity called Shvili, Inc., entered into negotiations to construct a natural gas pipeline between Egypt and Israel. To assist Eli, Mandel referred him to counsel in Cairo and to a White & Case partner in the firm's London office. Eli often traveled to Mandel's office at White & Case in New York City to discuss the transaction, and was also billed by the firm for work performed in connection with the proposed deal.*fn8 (Goldey Aff. Ex. C at 2; Mandel Reply Aff. ¶ 22(a).)

A few months later, Eli focused his attention on another project based in the Middle East. In March 1998, Eli met with Mandel at White & Case's New York City offices to discuss a natural gas transaction involving Gulf Interstate Co. ("Gulf Interstate"), a Lebanese entity. Eli subsequently returned to New York City for further meetings with his various attorneys. (Mandel Reply Aff. ¶ 22(c).) Several White & Case attorneys, including Mandel himself (who, as "counsel" to White & Case, billed 11.4 hours of attorney time to Eli in an invoice covering a period from March 11, 1998, through July 27, 1998), worked on the transaction, performing tasks such as due diligence and drafting documents. (3d Goldey Aff. Ex. Y.) Mandel avers that the Kerbel family was originally involved in providing financing for the deal, but decided for reasons unspecified in the evidence of record to "withdraw their financial support." Ultimately, the Kerbels' decision resulted in Eli Shvili's defaulting on approximately $500,000-$600,000 worth of deposits that he was required to make in furtherance of the venture. (Mandel Reply Aff. ¶ 22(c).)

Additionally, Eli Shvili, acting through an entity called Shvili International*fn9 that he apparently controls,*fn10 entered into negotiations commencing in 1999 and continuing into 2000 with individuals in Doha, Qatar, to develop a commercial real estate project. Eli attended several meetings at Mandel's New York City offices to discuss the transaction with Mandel and other attorneys at White & Case. (Id. ¶ 22(d).)

Eli Shvili claims that throughout the course of his international business dealings with Mandel, he believed that Mandel acted as a legal advisor who also (as is further described below) provided financial support "in exchange for a percentage interest in the ventures that we supported." (Eli Shvili Aff. ¶ 5.) Mandel denies ever having acted as Eli's attorney (see, e.g., Mandel Reply Aff. ¶¶ 4, 12, 21, 24-29, 32, 48), but does not specifically deny that he was Eli's business partner. (Mandel Reply Aff. ¶ 4.) He claims, however, that the money he paid to or on behalf of various Shvili enterprises took the form of loans.

Mandel's Loans to and Other Financial Dealings with the Shvilis

As the financial pressures associated with the Harlem Group's Bradhurst Project and Eli's various international projects began to mount, the Shvilis (and their associated enterprises) looked to Mandel for financial assistance.

The apparent beginning of the Shvilis' financial difficulties coincided with the decision by the Kerbel and Muzzo families, sometime in early 1998, to withdraw their capital investments in the Harlem Group. Consequently, Eli Shvili became the sole owner of that venture's equity. (Mandel Reply Aff. ¶ 17 & Ex. 23.)

On June 8, 1998, Eli executed an agreement on behalf of the Harlem Group (and, apparently, in his individual capacity as well) with KLM North Realty LLC ("KLM"), a building contractor, to provide services related to the Bradhurst development project.*fn11 (Id. ¶ 18 & Ex. 24.) In accordance with the agreement, KLM paid Eli $400,000 for what Mandel terms a "good faith . . . deposit." (Id. ¶ 18.) Eli then used the proceeds to satisfy outstanding obligations to the Kerbel family. (Id.) However, following the death of KLM's principal in a plane crash on June 9, 1998, the parties terminated the agreement, and Eli was required to return the deposit to KLM later that year. (Id. ¶ 18 & Exs. 24-25.)

For Eli Shvili, the combination of financial pressures associated with his international dealings, such as his default on deposits required for the natural gas transaction with Gulf Interstate and the necessity of returning $400,000 to KLM apparently exceeded his available resources. (Id. ¶ 19.) Accordingly, he (and perhaps Paula as well) turned to Mandel for assistance.

Mandel avers that on January 7, 1999, Mid-City (one of the companies that he controls) lent $300,000, at a rate of 7% per annum, to Kimoo Holdings Limited ("Kimoo"), a company wholly owned by Paula Shvili.*fn12 The loan, Mandel contends, was to be repaid on demand. (Id. ¶ 24 & Ex. 1.) That same date, however, Mandel (as Manager for Mid-City) and Eli Shvili (as President of Kimoo) executed an agreement stating that Mid-City, in addition to lending funds, would receive 29% of Kimoo's equity.*fn13 (2d Goldey Aff. Ex. Q at 2.) Moreover, Eli Gutstadt, an attorney who has represented the Shvilis on various matters (Gutstadt Aff. ¶ 2), contends that Mandel never actually lent money to Kimoo; rather, according to Gutstadt, Mandel paid $300,000 as consideration "to purchase shares" of the company.*fn14 (Id. ¶ 9.)

Mandel also alleges conclusorily that he lent money to the Shvilis jointly on several occasions. (See, e.g., Mandel Reply Aff. ¶¶ 25, 27-29, 33-34, 38, 42.) However, the evidence of record suggests that all of the non-Kimoo transactions were, if anything, loans to Eli or entities that he controlled. Following entreaties from Eli Shvili about his need to satisfy commitments made to various parties in his Lebanese transaction, on February 23, 1999, Mid-City wired $175,000 to Gulf Interstate. (Mandel Reply Aff. ¶ 25 & Ex. 2.) Mandel characterizes the transaction as a loan (Id. ¶ 25), although the evidence of record does not indicate whether it was contemporaneously memorialized as such.*fn15 As described above, Eli also needed funds so that he could return the deposit money previously advanced to the Harlem Group by KLM Realty. Accordingly, on April 29, 1999, Mandel drew a check on his personal account (denominated as "Lenard H. Mandel Special") for $400,000 (equal to the full amount of the deposit), payable to Richards & O'Neil, one of the law firms that represented the Harlem Group. Mandel avers the money was lent to both of the Shvilis at a rate of 7% per annum. (Id. ¶ 27 & Ex. 4.) In neither case does Eli dispute Mandel's description of those particular transactions with specific denials or other evidence.

Additionally, Mandel claims that prior to August 1999, Mid-City made several additional loans to the Eli and to Kimoo, as follows:

• On March 24, 1999, Mid-City lent $30,000 to Eli Shvili and $50,000 to Kimoo, both loans at a rate of 7% per annum. (Id. ¶ 26 & Ex. 3.)
• At the request of Eli Shvili, on May 7, 1999, Mid-City wire transferred $174,900 to Gulf Interstate. (Id. ¶ 28 & Ex. 5.)
• On May 27, 1999, Mid-City lent Eli Shvili $50,000 at a rate of 7% per annum. (Id. ¶ 29 & Ex. 6.)

In these cases as well, Mandel presents no documentary evidence supporting his account, and Eli offers no specific testimony or evidence of any kind.

Mandel contends that by the end of July 1999, the Shvilis (or their affiliated entities) owed Mid-City an aggregate amount of $1,210,013,84. To memorialize the indebtedness, Mid-City drafted a Promissory Note, executed by Eli Shvili on July 29, 1999 (the "July Note"), pursuant to which Eli agreed to pay Mid-City $1.21 million, plus interest accruing at the rate of 7% per annum, on October 29, 1999, at a Toronto branch of The Royal Bank of Canada. (Id. ¶¶ 30-31 & Ex. 7.) The note also contained the following forum-selection and choice-of-law clauses:

The enforcement of this Note and any obligations hereunder may be brought in any court in the State of New York, United States of America, and shall be governed by and construed in accordance with the laws of that State.

(Id. Ex. 7.)

Following the execution of the July Note, Mandel and Mid-City continued to extend funds to Eli. On July 29, 1999, Mandel drew a $100,000 check on his personal account, payable to Eli Shvili. Mandel characterizes this transaction as a loan, with interest accruing at the rate of 7% per annum. (Id. ¶ 32 & Ex. 8.) On August 16, 1999, Mid-City once again wire transferred funds (this time, $250,000) to the account of Gulf Interstate. Mandel also describes this transaction as a loan to Shvili. (Id. ¶ 33 & Ex. 9.)

To evidence the indebtedness incurred since the execution of the July Note, Mid-City drafted another, superseding, note, in the amount of $1.56 million, with interest accruing at a rate of 7% per annum, to be payable at The Royal Bank of Canada in Toronto, which both of the Shvilis executed on August 16, 1999 (the "August Note"). (Id. ¶ 35 & Ex. 10.) Like the earlier note, this was also to be payable on October 29, 1999. Mandel avers that he and the Shvilis engaged in "arm's length negotiations" concerning the note's forum-selection clause, and, at the request of the Shvilis, he altered the clause to permit an enforcement action to be brought in either Canada or New York State. The choice-of-law clause remained the same. (Id. ¶ 36 and Ex. 10.)

Eli Shvili claims that Mandel had "insisted" that Eli sign the August Note. (Eli Shvili Aff. ¶ 7.) Though Mandel characterizes all of the transactions as loans (Mandel Reply Aff. ¶¶ 19, 23-33), Eli says that the note "reflected the money that [Mandel] had advanced in furtherance of our business interests." (Eli Shvili Aff. ¶ 7.) The term "advanced" appears carefully chosen to avoid the term "loan" without clearly characterizing the "advance" as either a loan or a contribution to capital. Eli does, however, refer to two specific transactions that he claims were not antecedent obligations to Mid-City. (Id.)

By letter dated October 4, 1999, Mandel reminded Eli Shvili about the October 29, 1999, payment date for the August Note and requested that Eli make certain logistical arrangements with the Royal Bank of Canada, the situs of the account where Eli was to transfer the funds due. (Id. ¶ 37 & Ex. 35.) October 29 passed, however, and neither Eli nor Paula made any payments to Mid-City. (Id. ¶ 37.)

Nevertheless, Mid-City decided to forebear collecting on either the July or August Notes. (Id. ¶ 39.) Moreover, on November 23, 1999, Mid-City extended yet another loan to "the Shvilis" in the amount of $209,872,86. That same date, both of the Shvilis executed yet another promissory note in favor of Mid-City, in the amount of $1,803,446,36, with interest accruing at 7% per annum (the "November Note"), payable on demand. (Id. ¶¶ 38-39; Goldey Aff. Ex. F.) This note is the principal basis for the present lawsuit.

Negotiations Over the November Note, and One Further Loan

Mandel contends that various provisions of the November Note were the result of specific bargaining with the Shvilis. According to Mandel, the Shvilis insisted on eliminating, among other things, a requirement that the note be presented for collection at the Shvilis' bank in Toronto. Mandel agreed, and the note instead specified that it would be payable on demand at Mandel's offices in New York City. The forum-selection (Canada or New York) and choice-of-law clauses (New York) were unchanged. (Id. ¶ 40.)

Paula Shvili contends that her husband "required" her to execute the November Note, and that Mandel "insisted that [Eli] sign" it as well. (Paula Shvili Aff. ΒΆ 6.) In an affidavit, Paula describes her state of mind when Mandel ...


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