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CROMER FINANCE LTD. v. BERGER
August 16, 2001
CROMER FINANCE LTD. AND PRIVAL N.V., ET AL., PLAINTIFF,
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.
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 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.
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
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
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
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 ...