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January 5, 2005.


The opinion of the court was delivered by: DEBORAH BATTS, District Judge


Plaintiffs Bank of America Corporation ("BAC"), Bank of America, N.A. ("BNA"), Bank of America Overseas Corporation (BAOC"), and BankAmerica International Financial Corporation ("BIFC") (collectively "Plaintiffs") bring this action alleging fraudulent inducement, conversion, breach of fiduciary duty, and breach of contract. Defendants, Antonio Carlos Braga Lemgruber ("Lemgruber"), Agropastoril Aventura Ltda. ("Agropastoril"), Rio Aventura, Inc. ("Rio Aventura"), and SP Funds LLC ("SP Funds") (collectively, the "Lemgruber Defendants" or "Defendants")*fn1 now move to dismiss the Complaint for lack of subject matter jurisdiction, lack of standing to sue, failure to state a legally sufficient claim, and failure to join real parties in interest pursuant to Rules 8(c), 9(b), 12(b)(1), 12(b)(6), 12(b)(7), and 19 of the Federal Rules of Civil Procedure, and on grounds of forum non conveniens.*fn2 For the reasons stated below, the Lemgruber Defendants' motion is GRANTED IN PART and DENIED IN PART.


  The present action arises out of Plaintiffs' three-phase purchase of the stock of a Brazilian bank, Banco Liberal S.A. ("BL Brazil"), and several of its affiliates, including a Liberal Banking Corporation, Ltd., a Bahamian Bank ("BL Bahamas"), (collectively the "BL Banks"),*fn3 from Defendant Lemburger and former Defendants Floris and De Luca, who allegedly took part in a scheme to defraud Plaintiffs by embezzling millions of dollars from the BL Banks and concealing from Plaintiffs both the embezzlement and other information that depreciated the value of the stock and assets that plaintiffs acquired.

  A. The Parties

  Plaintiff BAC is a multi-bank holding company incorporated in Delaware with its headquarters in North Carolina. (Compl. ¶ 8). BAC is the successor in interest to NationsBank Corporation ("NationsBank"), who originally contracted with Defendants to purchase the BL Banks in 1998. (Id. ¶¶ 8, 17). Plaintiff BNA is an indirect wholly-owned subsidiary of BAC, headquartered in North Carolina, and is the successor by merger to NationsBank, National Association. (Id. ¶ 9). BNA was formed as a national bank organized under the laws of the United States and thus its presence as a party to this action would satisfy the first requirement for the Court's exercise of subject matter jurisdiction under the Edge Act.*fn4 (Id.) Plaintiff BAOC, a wholly-owned subsidiary of BNA, was formed in 1980 as an Edge Act Corporation under the laws of the United States*fn5 and is headquartered in Charlotte, North Carolina. (Id. ¶ 10). Plaintiff BIFC was also formed as an Edge Act corporation and is headquartered in San Francisco, CA. (Id. ¶ 11). BNA, BAOC, and BIFC are hereinafter collectively referred to as the "Edge Act Plaintiffs."

  Defendant Lemgruber is a resident and citizen of Brazil. (Compl. ¶ 12). Prior to Plaintiffs' purchase of the BL Banks' stock, Lemgruber owned significant minority stakes in both BL Brazil and BL Bahamas. (Id.) In addition, during the time period relevant to this action, he was an officer and director of both BL Banks with primary responsibility for managing operations of BL Brazil's overseas' affiliates, including BL Bahamas. (Id.; Declaration of Jared Goldstein ["Goldstein Decl."], Ex. D (Management Agreement Between BAC, the BL Banks, and Lemburger, dated January 23, 1998)).*fn6

  The remaining Defendants are entities that Plaintiffs allege were either directly controlled by Defendant Lemgruber or, in the alternative, were sufficiently independent to have conspired with Lemgruber to engage in the allegedly fraudulent transactions that gave rise to this action. (Compl. ¶ 13). Defendants Goldbeach Holdings Corporation ("Goldbeach"), Powerstone Corporation ("Powerstone"), Timber Springs Corporation ("Timber Springs"), and Tiger International Overseas Corporation ("TIOC") are incorporated in the British Virgin Islands. (Id.). Defendants Agropastoril Aventura Ltda. and Delaware Asset Management Adm. Financiera e Consultoria ("Delaware Asset") are incorporated in Brazil. (Id.). Defendant Blue Water Capital is incorporated and headquartered in Virginia (Goldstein Decl. ¶ 9, Exs. J and K), while Defendants Santo Escolastica, Inc. and Rio Aventura Stables, Inc. are incorporated and headquartered in the state of Kentucky. (Compl. ¶ 13; Goldstein Decl. ¶ 8, Exs. F and G). Defendant SP Fund is also incorporated in Kentucky with its principal place of business located in Versailles, Kentucky. (Second Declaration of Jared Goldstein ["Goldstein 2nd Decl."] ¶ 2, Ex. 1).*fn7

  B. The Three-Stage BL Bank Stock Acquisition

  1. The 1998 Stock Purchase

  In 1998, BAC, then NationsBank, decided to expand its presence in the investment banking market through the purchase of a majority stake in the BL Banks. (Compl. ¶ 17). At that time, Former Defendants Floris and De Luca and Defendant Lemgruber (collectively referred to as "Sellers") owned or controlled all shares and managed the operations of the BL Banks. (Id. ¶¶ 18-19).

  On January 13, 1998, BAC entered into a Stock Purchase Agreement (hereinafter the "1998 Stock Purchase Agreement") with the Sellers*fn8 through which Plaintiffs acquired 51% of the stock of the BL Banks*fn9 for approximately $115 million. (Compl. ¶ 20; Declaration of Chaya F. Weinberg-Brodt ["Weinberg-Brodt Decl."]*fn10 Ex. B (Fully executed Copy of the 1998 Stock Purchase Agreement)). BAC, as a successor to Nationsbank, is the only plaintiff who was a party. (Weinberg-Brodt Decl., Ex. B at 1). The 1998 Stock Purchase Agreement permitted NationsBank (now BAC) or "one or more of its indirect subsidiaries" to acquire not less than 51% of the shares of the BL Brazil, and 51% of the shares of BL Bahamas. (Id. at 1). In addition, section 11.2 of the Agreement contained a call option granting BAC, or one of its subsidiaries, the right to purchase the remaining shares of the BL Banks at a price to be determined according to the BL Banks' financial statements at the time of sale. (Compl. ¶ 30; Weinberg-Brodt Decl., Ex. B at 60).

  The 1998 Stock Purchase Agreement also contained many representations and warranties certified by the Sellers regarding the financial condition of and other important information about the BL Banks. For example:
— In § 3.4 of the Agreement, the Sellers certified that the Balance Sheets and Interim Balance Sheets they provided to NationsBank "fairly present the financial condition . . . of the [BL Banks]." (Compl. ¶ 22; Weinberg-Brodt Decl., Ex. B at 22-23).
— In § 3.10, Sellers certified that the BL Banks had "no undisclosed liabilities or obligations of any nature (whether known or unknown and whether absolute accrued, contingent or otherwise) except for liabilities or obligations reflected or reserved against in the Balance Sheets or the Interim Balance Sheets . . ." (Compl. ¶ 23; Weinberg-Brodt Decl., Ex. B at 26).
— In § 3.14(a)(i), Sellers certified that since 1993 the BL Banks had been "in full compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business." (Compl. ¶ 24; Weinberg Brodt Decl., Ex. B at 30).
— In § 3.15(a), Sellers certified that to their knowledge "no Proceeding has been threatened, and no event has occurred or circumstances exists that may give rise to or serve as the basis for the commencement of any such Proceedings." (Compl. ¶ 25; Weinberg-Brodt Decl., Ex. B at 31).
— In § 3.24(c), Sellers certified that "[t]here is no fact known to any of the Sellers . . . that materially adversely affects, or as far as any Seller can reasonably foresee, materially threatens, the business, operations, properties, prospects, assets, liabilities or condition" of the BL Banks. (Compl. ¶ 26; Weinberg-Brodt Decl., Ex. B at 41).
— In § 3.25, Sellers certified that neither Sellers nor any other related person "has, or has had any interest in any property . . . used in or pertaining to the [BL Banks'] businesses," or except as disclosed has "(i) made any loan to or received any loan from, [the BL Banks], (ii) had any business dealings or any material financial interest in any transaction with [the BL Banks] other than in ordinary course of business with the [BL Banks] at substantially prevailing Market rates." (Compl. ¶ 27; Weinberg-Brodt Decl., Ex. B at 41-42).
  The Agreement also contains an indemnification provision. Under section 10.2 of the Agreement, Sellers agreed to indemnify BAC and its affiliates for "any loss, liability, claim, damage . . ., expense . . . or diminution in value, whether or not involving a third-party claim . . . arising directly or indirectly, from or in connection with: (a) any Breach of any representation or warranty made by Seller or [BL Brazil] in this Agreement . . . or any other certificate or document delivered by Sellers or the Brazilian Bank pursuant to the Agreement; or (b) any Breach by any Seller or the Brazilian Bank of any covenant or obligations of such Seller or the Brazilian Bank in this agreement." (Compl. ¶ 34; Weinberg-Brodt Decl., Ex. B at 52-53).

  While BAC was a signatory to the 1998 Stock Purchase Agreement, the BL Brazil shares were actually acquired by Nationsbank Brasil Holdings, Ltda. (now Bank of America Brasil Holdings Ltd. or "Brasil Holdings"), a Brazilian holding company, and the BL Bahamas shares were actually acquired by NB Bahamas Ltd. ("Bahamas Holdings"), a Bahamian holding company. (Declaration of Glenn Danzinger ["Danzinger Decl."] ¶¶ 7-8; Weinberg Brodt Decl., Ex. B. § 2.3 (a) (ii) and iii)). Brasil and Bahamas Holdings, which were each created for the sole purpose of holding shares in their respective BL Banks, are in turn subsidiaries of BIFC and BAOC, Brasil Holdings being jointly owned by BIFC and BAOC, while Bahamas Holdings is wholly-owned by BAOC. (Danzinger Decl. ¶¶ 7-8). However, neither BIFC, BAOC, nor BNA acquired any shares in the BL Banks through the 1998 stock purchase, though BAOC allegedly contributed $50 million to the capital of BL Brazil. (Compl. ¶ 29). Moreover, Brasil and Bahamas Holdings, not BAC, were parties to the BL Brazil and BL Bahamas Shareholder Agreements executed on January 23, 1998. (See Weinberg-Brodt Decl., Exs. C and D).

  Finally, while the 1998 stock purchase transferred majority ownership of the BL Banks to BAC, Lemgruber, Floris and De Luca maintained managerial control over them. (Compl. ¶ 28). Section 2.3 of the 1998 Stock Purchase Agreement called for each of them to execute a Management Agreement with BAC and the BL Banks, and Lemgruber and De Luca did so on January 23, 1998, while Floris did so on May 13, 1998. (Goldstein Decl., Exs. B-D (Management Agreements for Floris, De Luca and Lemgruber)). 2. The 2000 and 2001 Stock Acquisitions

  In March 2000, BAC first exercised its Call Option under the 1998 Stock Purchase Agreement to purchase an additional 19% of the BL Banks stock in exchange for approximately $52.6 million. (Comp. ¶ 31). Once again, the shares were actually acquired by Brazil and Bahamas Holdings, and BAC was the only Plaintiff who was party to the 2000 Stock Purchase Agreement. (Weinberg-Brodt Decl., Ex. E (Letter Amendment to the 1998 Stock Purchase Agreement, dated January 18, 2000)).

  Thereafter, in April 2001, BAC again exercised its Call Option under the 1998 Stock Purchase Agreement to acquire the remaining 30% of the BL Banks' stock for approximately $86.4 million. (Compl. ¶ 32). There were two 2001 Stock Acquisition Agreements, one for the purchase of the remaining 30% of BL Brazil stock and the other for the purchase of the remaining 30% of BL Bahamas stock. (See Weinberg-Brodt Decl., Exs. F and G). None of Plaintiffs were signatories to either of these agreements. Instead, Brasil Holdings, which acquired the remaining BL Brazil shares, was party to the BL Brazil Share Purchase Agreement, while Bahamas Holdings, which acquired the remaining BL Bahamas shares, was party to the BL Bahamas Share Purchase Agreement. (Id; Danzinger Decl. ¶¶ 7-8). However, both of the 2001 Share Purchase Agreements specifically state that they were made pursuant to BAC's Call Option in the 1998 Stock Purchase Agreement. (Weinberg-Drodt Decl., Exs. F and G). In addition, as part of these 2001 Agreements, the Sellers allegedly re-certified the warranties contained in the 1998 Stock Purchase Agreement regarding the BL Banks' financial condition. (Compl. ¶ 32; Weinberg-Brodt Decl., Ex. H).

  While neither BNA, BIFC nor BAOC directly purchased any of the BL Banks' stock during the three-phase stock purchase, Plaintiffs allege they did contribute funding for the 2001 Stock Purchase Agreement as follows: BIFC and BAOC borrowed $86.4 million from BNA under a revolving line of credit, $27.8 million borrowed by BIFC and $58.6 million borrowed by BAOC. (Danziger Decl. ¶ 11). BIFC and BAOC then made an equity contribution totaling $46.3 million to Brazil Holdings, which was used to acquire the remaining 30% of BL Brazil stock. (Id.) BAOC also made an equity contribution of $40.1 million to Bahamas Holdings, which the latter used to acquire the remaining 30% of BL Bahamas stock. (Id. ¶ 12). In addition, Plaintiffs allege that "the possessory interests" acquired through the three-phase stock acquisition are currently held by BAOC and BIFC. (Compl. ¶ 33). C. Defendants' Alleged Fraud

  1. Overdrafts and Cover-Ups

  Beginning shortly after the completion of the 1998 Stock Purchase and continuing through the 2001 Stock Acquisition, Defendant Lemgruber allegedly embezzled the assets of the BL Banks by initiating approximately $24 million worth of illegal overdrafts from his personal account and the accounts of companies allegedly under his control. (Compl. ¶ 36). The bulk of those monies, almost $20 million, allegedly went directly to Lemgruber himself and to Defendants Santa Escolastica, Timber Springs Corporation, Agropastoril Aventura Ltda., Deleware Asset Management Adm. Financiera e Consultoria, Rio Aventura Stables Inc., SP Funds, Interbrett Investec Group, Goldbeach, Tiger International Overseas Corporation, American Versailles Fund and Powerstone. (Id. ¶ 37).

  In addition, Lemgruber allegedly attempted to conceal these overdrafts from Plaintiffs by forging documents and executing a series of fraudulent transactions to create fictitious assets that appeared to offset the overdrafts in the BL Banks' financial statements. (Compl. ¶ 42). For example, Plaintiffs allege that on or about March 9, 2001, Lemgruber, through his control and by conspiring with Defendants Powerstone and Goldbeach, conducted a series of fraudulent transactions creating $24 million in fictitious certificates of deposits ("CDs"). (Id. ¶ 43). In addition, to bolster BL Bahamas' assets, Lemgruber allegedly created other false documents for other fraudulent transactions, including the issuance of bogus loans from BL Bahamas, which were then booked as BL Bahamas assets. (Id. ¶ 46). Finally, on or about June 25, 2001 Lemgruber allegedly attempted to cover-up the fictitious CDs by creating documents that purported to swap the fictitious CD's and BL Bahamas' interest in the bogus loans it had purportedly issued for $28.7 million in other fictitious CD's and Brazilian government bonds. (Id. ¶ 47).

  Through this overdraft and cover-up scheme, the Lemgruber Defendants were allegedly able to embezzle approximately $38 million in BL Bank assets and to inflate by many millions of dollars the purchase price paid by Plaintiffs in the 2001 Stock Acquisition by including phony assets on BL Bahamas' books. (Compl. ¶ 49).

  2. Failure to Disclose Administrative and Criminal Investigations Against BL Banks

  In addition to the overdraft and cover-up scheme, Lemgruber and former Defendants Floris and De Luca allegedly failed to disclose to Plaintiffs prior to either the 2000 or 2001 Stock Acquisitions that, beginning in 1999 and continuing to the present, Brazilian authorities instituted a series of administrative proceedings and criminal investigations against them and other BL Banks' officers alleging fraudulent misrepresentations, illegal speculation and other violations of Brazilian law. (Compl. ¶¶ 50-53; 57-59). In April 2001, Lemgruber, Floris and De Luca allegedly expressly certified that the representations and warranties contained in § 3 of the 1998 Stock Purchase Agreement, which declared, among other things, that (1) the BL Banks were in full compliance with all applicable legal requirements, (2) no legal proceedings had been threatened against the BL Banks, (3) the BL Banks had no undisclosed liabilities or obligations except those reflected in the balance sheets, and (4) the Sellers did not know of any facts that materially adversely affected the business of the BL Banks, were still true. (Id. ¶¶ 57-61) (Weinberg-Brodt Decl., Ex. H). Similarly, at the time of the 2000 Stock Acquisition, Lemgruber, Floris and De Luca allegedly failed to disclose that the 1998 certifications were no longer true. (Id. ¶ 62).

  The administrative proceedings and criminal investigations, along with the alleged overdrafts, sham covering transactions and bogus loans created liabilities and obligations of the BL Banks that were not fairly presented in the BL Banks' balance sheets. (Compl. ¶ 62). However, Plaintiffs, relying on Lemgruber, Floris and De Luca's allegedly false recertifications of the 1998 warranties, went through with the 2000 and 2001 Stock Acquisitions and ended up paying more than $139 million for assets allegedly worth substantially less. (Id. ¶¶ 65-66). In addition, Plaintiffs are now responsible for the costs of defending the BL Banks in the on-going administrative and criminal proceedings. (Id. ¶ 54).

  D. The Present Action

  On February 11, 2002, Plaintiffs commenced the present action, asserting: (1) a fraudulent inducement claim against the Lemgruber Defendants for making the above-mentioned misrepresentations and omissions which allegedly induced Plaintiffs to consummate the 2000 and 2001 Stock Acquisitions at prices which far exceeded the actual value of the BL Banks' stock; (2) a conversion claim against Lemgruber for his alleged embezzlement of $38 million in BL Bank assets to which Plaintiffs' have a legal right and immdediate superior right of possession; (3) a breach of the fiduciary duty claim against Lemgruber for embezzling the BL Bank funds while manager of the BL Banks and against the other Lemgruber Defendants for conspiring with him to commit such embezzlement; and (4) a breach of contract claim against Lemgruber for breaching the warranties in § 3 of the 1998 Stock Purchase Agreement by providing untrue re-certifications of the warranties and representations at the time of the 2001 Stock Purchase. (Compl. ¶¶ 75-110).


  The Lemgruber Defendants move to dismiss this action on several grounds. First, they urge dismissal pursuant to F.R.C.P. 12(b) (1) on grounds that the Court cannot properly exercise either Edge Act or diversity subject matter jurisdiction over this case. Second, they contend that all Plaintiffs lack standing to sue for either conversion or breach of fiduciary duty and that BNA, BIFC and BAOC also lack standing to sue for fraudulent inducement and breach of contract. Third, Defendants argue that the fraudulent inducement, breach of fiduciary duty and breach of contract claims should be dismissed pursuant to Rules 12(b) (6) and 9(b) because Plaintiffs have not adequately pled justifiable reliance. Fourth, Defendants urge dismissal under Rules 12(b) (7) and 19(b) for Plaintiffs' failure to join indispensable parties, namely Brasil Holdings, Bahamas Holdings and the BL Banks. Finally, Defendants move for dismissal on grounds of forum non conveniens.

  A. Subject Matter Jurisdiction

  1. Rule 12(b) (1) Dismissal

  While a Court considering a challenge to subject matter jurisdiction under Rule 12(b) (1) must "accept as true all material factual allegations in the complaint," Shipping Financial Serv. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998), "the burden of proving jurisdiction is on the party asserting it . . . to make a prima facie showing of jurisdiction." Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cir. 1994). (citing Cuto Indus., Inc. v. Naughton, 806 F.2d 361, 364 (2d Cir. 1986)). Moreover, "that showing is not made by drawing from the pleadings inferences favorable to the party asserting it." Shipping Financial, 140 F.3d at 131; see also Robinson, 21 F.3d at 507 ("In determining whether a plaintiff has met this burden, we will not draw argumentative inferences in the plaintiff's favor."); London v. Polishook, 189 F.3d 196, 199 (2d Cir. 1999) ("[I]t is the affirmative burden of the party invoking [federal subject matter] jurisdiction . . . to proffer the necessary factual predicate — not just an allegation in a complaint-to support jurisdiction.") (citations omitted). Therefore, when resolving issues surrounding its subject matter jurisdiction, a district court is not confined to the Complaint and may refer to evidence outside the pleadings, such as affidavits. Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000) (citing Kamen v. American Telephone & Telegraph Co., 791 F.2d 1006, 1011 (2d Cir. 1986)). Plaintiffs have asserted two bases for this Court's exercise of subject matter jurisdiction over the present case: (1) federal question jurisdiction under the Edge Act, 12 U.S.C. § 632, and (2) diversity jurisdiction under 28 U.S.C. § 1332. (Compl. ¶ 14). Accordingly, the Court shall address each of these jurisdictional bases separately.

  2. Edge Act Jurisdiction

  The Edge Act, 12 U.S.C. §§ 601 et seq., provides federal district courts with an independent basis for exercising subject matter jurisdiction over certain purely state or common law actions involving international banking by designating such actions as "federal question" actions. The Act provides, in relevant part:
Notwithstanding any other provision of law, all suits of a civil nature at common law or in equity to which any corporation organized under the laws of the United States shall be a party, arising out of transactions involving international or foreign banking . . . or out of other international or foreign financial operations . . . shall be deemed to arise under the laws of the United States.*fn11
12 U.S.C. § 632 (emphasis added).

  For a district court to exercise Edge Act jurisdiction over a civil action, that action must meet two requirements: (1) a corporation organized under the laws of the United States is a party; and (2) the action arises out of transactions involving international or foreign banking or other financial operations. See Papadopoulos v. Chase Manhattan Bank, N.A., 791 F. Supp. 72, 74 (S.D.N.Y. 1990). Defendants contend that the present action does not satisfy either of these requirements. Thus, the Court shall address both.

  a. Corporation Organized Under the Laws of the United States as a Party to Action

  For this Court to have Edge Act jurisdiction over the present action, at least one of the parties must be a corporation organized under the laws of the United States. Defendants do not dispute that three of the four named Plaintiffs, BNA, BAOC, and BIFC are corporations organized under the laws of the United States (see Compl. ¶¶ 9 — 11), and, as discussed in Part II.B.5 infra, these three Plaintiffs have standing to assert a breach of contract claim against Defendants. Nevertheless, Defendants argue that the first prong of Edge Act jurisdiction is not met because the Edge Act Plaintiffs are not the "true parties in interest" with respect to the breach of contract claim since the indemnity and warranty provisions in the 1998 Stock Purchase Agreement which give them the right to sue for ...

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