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CROMER FINANCE LTD. v. BERGER

August 16, 2001

CROMER FINANCE LTD. AND PRIVAL N.V., ET AL., PLAINTIFF,
v.
MICHAEL BERGER, FUND ADMINISTRATION SERVICES (BERMUDA) LTD., ERNST & YOUNG INTERNATIONAL, ERNST & YOUNG BERMUDA, KEMPE & WHITTLE ASSOCIATES LIMITED, DELOITTE & TOUCHE (BERMUDA), DELOITTE TOUCHE TOHMATSU, DELOITTE & TOUCHE L.L.P., BEAR STEARNS & CO., INC., BEAR STEARNS SECURITIES CORP., FINANCIAL ASSET MANAGEMENT, INC., AND JOHN DOES 1-100, DEFENDANTS. ARGOS ET AL., PLAINTIFFS, V. MICHAEL BERGER, FINANCIAL ASSET MANAGEMENT, INC., FUND ADMINISTRATION SERVICES (BERMUDA) LTD., ERNST & YOUNG INTERNATIONAL, DELOITTE TOUCHE, DELOITTE TOUCHE TOHMATSU, DELOITTE & TOUCHE L.L.P., BEAR STEARNS & CO., INC., AND BEAR STEARNS SECURITIES CORP., DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, United States District Court Judge.

    OPINION & ORDER

Four accounting firms based in Bermuda have moved to dismiss these federal securities actions on the ground of forum non conveniens. The plaintiffs in the Cromer class action and in the Argos joinder action*fn1 were investors in the Manhattan Investment Fund, Ltd. ("Fund"), an off-shore investment fund established under the laws of the British Virgin Islands, but managed from New York by defendant Michael Berger ("Berger"). Berger is an Austrian citizen who lives in New York. The Fund traded United States securities and the plaintiffs allege enormous losses based on Berger's fraudulent management of the Fund.

Three of the four Bermuda accounting firms that have filed this motion — Ernst & Young Bermuda ("EYB"), Fund Administration Services (Bermuda) Ltd. ("FASB"), and Kempe & Whittle Associates Limited ("K&W") (collectively, the "Ernst & Young Defendants") — served as the Fund's administrators*fn2; the fourth — Deloitte Touche Bermuda ("DTB") — served as the Fund's auditor. The plaintiffs allege that the monthly Net Asset Value ("NAV") statements prepared and distributed by the Ernst & Young Defendants and the annual audit reports prepared by DTB and distributed by the Ernst & Young Defendants contained false statements in that they described the Fund — which had principally utilized a trading strategy of concentrated short selling of United States technology stocks — as profitable although it was, in fact, losing money from its inception. In preparing their reports, the Bermuda defendants used fictitious statements Berger created in New York on the letterhead of another defendant — Financial Asset Management, Inc. ("FAM") — a United States broker with its principal place of business in Ohio but with an office in New York.
When the plaintiffs filed these actions they named as defendants not only the four Bermuda accounting firms, Berger, and FAM, but also defendants who were dismissed through an Opinion and Order of April 17, 2001 ("April 17 Opinion"). Cromer Finance Ltd. v. Berger, 137 F. Supp.2d 452 (S.D.N.Y. 2001). Familiarity with the April 17 Opinion is assumed, and defined terms have the meanings given them there.*fn3 The dismissed defendants included Bear Stearns, which is a broker located in New York that acted as a clearing broker for the Fund's trading activity and that held the Fund's assets in its custody, and United States and international affiliates of the four Bermuda entities. These affiliates had their principal offices in New York.*fn4 In brief, the claims against the affiliates were dismissed because the Court rejected the many theories of derivative liability alleged against them for the alleged wrongdoing by Berger and the Bermuda defendants. The claims against Bear Stearns were dismissed for failure to allege that it "substantially assisted" the fraud, an essential element of the common law theories of liability asserted in the complaints.

Of the six remaining defendants, only the four Bermuda entities are actively defending the claims. The two American defendants — Berger and FAM — are either subject to or have consented to the jurisdiction of Bermuda and support the dismissal of this action on the ground of forum non conveniens.

The Fund was designed for foreign investors and United States tax-exempt investors such as pension funds and trusts. While the Ernst & Young Defendants actively solicited United States investors with mailings to the United States, for purposes of this motion it is assumed that all of the investors are foreign.*fn5 Nevertheless, there were regular mailings by the Ernst & Young Defendants to Fund investors at United States addresses, and it appears that investment managers of investors, if not investors themselves, were located in New York and in other cities in the United States.

The investors in the Fund came from many foreign countries, including countries in Europe and in the Caribbean. The named plaintiffs in the Cromer action are domiciled in the British Virgin Islands and the Netherlands Antilles. The majority of plaintiffs in the Argos action are European entities or citizens, but also include companies from the Cayman Islands, Bahamas, or the British Virgin Islands (three of whom have offices in Bermuda), and a Panamian company. The plaintiffs urge this Court to retain jurisdiction because the United States, and New York in particular, is the one venue in the world with the strongest connection to the fraud and is the most convenient forum for the widely dispersed plaintiffs. They argue that any claims of inconvenience by the Bermuda defendants must be discounted because these defendants regularly operate in the international arena and obtained their assignments for this Fund by applying directly to Berger in New York and by touting their affiliation with international Ernst & Young or Deloitte & Touche entities.

The four Bermuda defendants emphasize that they are small entities with offices solely in Bermuda, that Bermuda has a strong interest in enforcing compliance by its own accounting firms with the professional and legal prohibitions against fraud and negligence, and that the plaintiffs have no connection with the United States since they are all foreign. They also point out that the discovery and litigation over jurisdiction would be eliminated if the cases were prosecuted in Bermuda. With this overview, an application of the law of forum non conveniens follows.

DISCUSSION

The doctrine of forum non conveniens permits a court in "rare instances to `dismiss a claim even if the court is a permissible venue with proper jurisdiction over the claim,'" Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 100 (2d Cir. 2000) (citation omitted), if dismissal would "best serve the convenience of the parties and the ends of justice," Koster v. (American) Lumbermens Mut. Cas. Co., 330 U.S. 518, 527 (1947). Dismissal is appropriate "where trial in the plaintiff's chosen forum imposes a heavy burden on the defendant or the court, or where the plaintiff is unable to offer any specific reasons of convenience supporting his choice." Piper Aircraft Co. v. Reyno, 454 U.S. 235, 249 (1981) (applying doctrine in case with Scottish plaintiffs); see also Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947); Iragorri v. International Elevator, Inc., 243 F.3d 678, 680 (2d Cir. 2001). "Because much of the doctrine's strength derives from its flexibility and each case turns on its own facts, a single factor is rarely dispositive." DiRienzo v. Philip Serv. Corp., 232 F.3d 49, 57 (2d Cir. 2000) (citing Piper Aircraft, 454 U.S. at 249-50).

A district court follows two steps when considering a forum non conveniens motion:

First, the district court must decide whether an adequate alternative forum exists, and if so, the district court must apply a presumption in favor of the plaintiff's choice of forum and then weigh a variety of factors [articulated in Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947)] relating to the private interests of the litigants and the public interest in order to determine whether that presumption is overcome and ultimately which forum is more convenient.

Iragorri, 243 F.3d at 680 (citing, inter alia, Gilbert, 330 U.S. at 508-09). The burden of proof is on the defendant. Wiwa, 226 F.3d at 100.

I. Adequate Alternative Forum

An alternate forum is generally adequate provided that the defendant may be served there. DiRienzo, 232 F.3d at 57. On "rare occasions," the available remedies in an alternative forum "may be so unsatisfactory that the forum is inadequate." Id. The forum is not inadequate, however, by the "mere fact that the foreign and home fora have different laws," and "`dismissal may not be barred solely because of the possibility of an unfavorable change in law.'" Id. (citing Piper Aircraft, 454 U.S. at 249); see also Capital Currency Exchange, N.V. v. National Westminster Bank PLC, 155 F.3d 603, 609-10 (2d Cir. 1998) (same). Rather, the Second Circuit has held
Even if particular causes of action or certain desirable remedies are not available in the foreign forum, that forum will usually be adequate so long as it permits litigation of the subject matter of the dispute, provides adequate procedural safeguards and the remedy available in the alternative forum is not so inadequate as to amount to no remedy at all.
DiRienzo, 232 F.3d at 57 (citing Piper Aircraft, 454 U.S. at 254-55) (emphasis supplied). Where the remedy provided by the foreign forum, however, is "so clearly inadequate or unsatisfactory that it is no remedy at all, the unfavorable change in law may be given substantial weight" and the district court may refuse to dismiss based on the "interests of justice." Piper Aircraft, 454 U.S. at 254.
Plaintiffs do not contest that the defendants remaining in this action are either subject to or have consented to jurisdiction in Bermuda, nor do they argue that Bermuda fails to permit litigation of the subject matter of the dispute or to provide adequate procedural safeguards. The sole objection plaintiffs make to Bermuda's adequacy is that EYB's Bermuda counsel has asserted that the Fund is subject to the Companies Act under Bermuda law. Section 90(3A) of that Act provides that no action lies against an auditor in the performance of its functions except where brought by the company hiring the auditor or "any other person expressly authorized by the auditor to rely on his work." Since DTB has explicitly rejected reliance on Section 90(3A) and has acknowledged that it is not applicable here, there is no basis for dispute that Bermuda is an adequate alternative forum.

II. Deference Accorded to Plaintiffs' Choice of Forum

It is well settled that every plaintiff's selection of forum receives deference, although the degree of deference "increases as the plaintiff's ties to the forum increase." Wiwa, 226 F.3d at 101. Where a plaintiff has chosen to litigate in his home forum, that choice is "entitled to greater deference" because it is "reasonable to assume that this choice is convenient." Piper Aircraft, 454 U.S. at 255-56; see also Guidi v. Inter-Continental Hotels Corp., 224 F.3d 142, 146 (2d Cir. 2000). In contrast, where the plaintiff is foreign, the strong presumption that "ordinarily" applies to a plaintiff's choice of forum, "is much less reasonable." Piper Aircraft, 454 U.S. at 256; see also Wiwa, 226 F.3d at 103. Consequently, when the real parties in interest are foreign, "the presumption in favor of the [plaintiff's] forum choice applie[s] with less than maximum force." Piper Aircraft, 454 U.S. at 261. This does not mean, however, that dismissal is "automatically barred" when a plaintiff has chosen his home forum, id. at 255 n. 23, nor that dismissal is automatically mandated when a foreign plaintiff is involved. Rather, "some weight" must be given to the foreign plaintiff's forum choice, and "`this reduced weight is not an invitation to accord a foreign plaintiff's selection of an American forum no deference since dismissal for forum non conveniens is the exception rather than the rule.'" Murray v. British Broadcasting Corp., 81 F.3d 287, 290 (2d Cir. 1996) (citation omitted) (emphasis in original). As the Supreme Court noted in Gilbert, in which it applied the doctrine in a case with a "foreign" plaintiff, "the plaintiff's choice of forum should rarely be disturbed." Gilbert, 330 U.S. at 508 (Virginia plaintiff filed action in New York).

The Bermuda defendants emphasize that the plaintiffs in both cases are sophisticated non-American institutions with no ties to the United States and that they invested off-shore in an attempt to avoid American tax liability. They argue that none of the class members in the Cromer action or plaintiffs in the Argos action could have had any reasonable expectation of being able to sue the Bermuda defendants in the United States when they made their investments. The Offer Memo advertising the Fund stated that the Fund was a British Virgin Islands Fund with Bermuda auditors and administrators. Each plaintiff sent its subscription documents to Bermuda and represented and warranted when investing in the Fund that it was not acquiring shares in the United States.

To the extent that this argument is an attempt to reargue for a second time the Court's finding in the April 17 Opinion that there is personal jurisdiction over the Bermuda defendants, it can be swiftly rejected. There is no basis presented in these papers to reevaluate the preliminary determination made in that Opinion that there is either general jurisdiction over these defendants based on their continuous and systematic general business contacts with the United States, or specific jurisdiction based on their purposeful activities directed at the residents of the United States in connection with their work on the Fund, or both, and that it is reasonable under the Due Process Clause to exercise this jurisdiction. Moreover, from the perspective of the investors, each investor was advised from the outset of significant connections between the Fund and the United States. The Offer Memo indicates that the Fund's shares are to be purchased in United States currency, that the Fund will engage in trading of United States securities, and that the Fund is managed by Berger, "the sole shareholder of Manhattan Capital Management, Inc.," identified as "a Delaware Corporation."*fn6

Even acknowledging that the Argos plaintiffs are entirely non-American and assuming for the purposes of this Opinion that the Cromer action includes no American-resident plaintiffs,*fn7 the Court still accords some deference to their choice of forum. The level of deference, however, will be ...


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