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Suchodolski Associates, Inc. v. Cardell Financial Corp.

November 16, 2006

SUCHODOLSKI ASSOCIATES, INC., ET AL., PLAINTIFFS,
v.
CARDELL FINANCIAL CORP., DEFENDANT.
CARDELL FINANCIAL CORP., ET AL., PETITIONERS,
v.
SUCHODOLSKI ASSOCIATES, INC., ET AL., RESPONDENTS.



The opinion of the court was delivered by: William H. Pauley III, District Judge

ORDER

Cardell Financial Corporation ("Cardell" or "Defendant") moves for (1) an injunction prohibiting Suchodolski Associates, Inc. ("SAI") and Consultadora Worldstar, S.A. ("Worldstar") (collectively, "Plaintiffs") from pursuing certain claims in Brazil; (2) an order of civil contempt for Plaintiffs' purported failure to comply with this Court's orders; and (3) attorneys' fees and costs incurred by Cardell in connection with these motions. For the reasons set forth below, Cardell's motions are granted in part and denied in part.

BACKGROUND

On January 3, 2006, this Court issued an Order granting in part and denying in part Cardell's request to enjoin Plaintiffs' claims in Brazil (the "January 3 Order"), familiarity with which is assumed. See Suchodolski Assocs., Inc. v. Cardell Fin. Corp., No. 03 Civ. 4148 (WHP), 2006 WL 10886 (S.D.N.Y. Jan. 3, 2006).*fn1

On August 2, 2005, Plaintiffs commenced the Brazilian Action against Cardell, Deltec, two Deltec subsidiaries and several Deltec managers in the First Civil Court of Sao Paulo. Suchodolski, 2006 WL 10886, at *2. The Brazilian Complaint essentially asserts two claims. The first is that Cardell breached its fiduciary duty and abused its control of Deltec by causing Deltec to default on payments owed under the Loan Agreement. Suchodolski, 2006 WL 10886, at *2. Second, the Brazilian Complaint alleges that Cardell failed to conduct the Auction in a commercially reasonable manner. Suchodolski, 2006 WL 10886, at *2.

The January 3 Order enjoined Plaintiffs from asserting the breach of fiduciary duty and abuse of control claim in the Brazilian Action. That claim related to the Award, which was confirmed by this Court. Therefore, an anti-suit injunction was necessary to protect this Court's jurisdiction over the Award and to prevent the frustration of policies favoring the arbitration of disputes and the enforcement of forum selection clauses. Suchodolski, 2006 WL 10886, at *3. However, the Court declined to enjoin the Auction claim, which was not before the Panel when the Award was issued. Suchodolski, 2006 WL 10886, at *3-4.

On July 25, 2006, Cardell filed an arbitration demand with the American Arbitration Association ("AAA") seeking, inter alia, a declaratory judgment that it conducted the Auction in a commercially reasonable manner. (Affidavit of John H. Doyle, III, dated Sept. 29, 2006 ("Doyle Aff.") ¶ 4.) On August 16, 2006, Plaintiffs filed an answer and a third party demand for arbitration against Deltec. (Doyle Aff. ¶ 4.) The third party demand requests indemnification from Deltec for the $2.5 million Cardell paid for Plaintiffs' Deltec shares at the Auction. (Doyle Aff. Ex. 4 at 4.) After initiating arbitration, Cardell requested that Plaintiffs withdraw the Auction claim from the Brazilian Action. (Doyle Aff. ¶ 5.) Plaintiffs refused, and Cardell moved to enjoin the Auction claim by order to show cause dated October 3, 2006. (Doyle Aff. ¶ 5.)

DISCUSSION

An injunction enjoining a party from pursuing a parallel litigation in a foreign forum "may be imposed only if: (A) the parties are the same in both matters, and (B) resolution of the case before the enjoining court is dispositive of the action to be enjoined." Paramedics Electromedicina Comercial, Ltda. v. GE Medical Sys. Info. Techs., Inc., 369 F.3d 645, 652 (2d Cir. 2004); SG Avipro Fin. Ltd. v. Cameroon Airlines, No. 05 Civ. 655 (LTS), 2005 WL 1353955, at *2 (S.D.N.Y. June 8, 2005). If the moving party satisfies these requirements, the Court should then consider, inter alia: (1) whether the foreign litigation poses a threat to the enjoining court's jurisdiction; and (2) whether the foreign litigation would frustrate important policies of the United States. Paramedics Electromedicina Comercial, Ltda. v. GE Med. Sys. Info. Techs., Inc., No. 02 Civ. 9369 (DFE), 2003 WL 23641529, at *11 (S.D.N.Y. June 4, 2003).

Defendant meets these criteria. The issues and parties before the New York arbitrators and the Brazilian court are substantially similar. Cardell will be harmed if a preliminary injunction is not entered because it will be forced to litigate the Auction claim simultaneously in New York and Brazil, despite the bargained-for forum selection clause providing for exclusive jurisdiction in New York. See GE Med., 2003 WL 23641529, at *12; Reliance Nat'l Ins. Co. v. Seismic Risk Ins. Servs., Inc., 962 F. Supp. 385, 391 (S.D.N.Y. 1997).

Thus, the Brazilian Action violates important policies favoring arbitration, Chelsea Square Textiles, Inc. v. Bombay Dyeing & Mfg. Co., 189 F.3d 289, 294 (2d Cir. 1999), and the enforcement of forum selection clauses, Farrell Lines Inc. v. Columbus Cello-Poly Corp., 32 F. Supp. 2d 118, 130 (S.D.N.Y. 1997).

Plaintiffs contend that an anti-suit injunction would be inappropriate because arbitration of the Auction claim is still pending. Yet courts have enjoined foreign litigation in favor of parallel arbitration even before the arbitration has concluded. See, e.g., Smith/Enron Cogeneration Ltd. P'ship, Inc. v. Smith Cogeneration Int'l, 198 F.3d 88, 99 (2d Cir. 1999); Smoothline Ltd. v. N. Am. Foreign Trading Corp., No. 00 Civ. 2798 (DLC), 2002 WL 273301, at *6 (S.D.N.Y. Feb. 27, 2002). Plaintiffs' reliance on LAIF X SPRL v. Axtel, S.A., 390 F.3d 194 (2d Cir. 2004), is misplaced. In that case, the district court declined to issue an anti-suit injunction against a litigation in Mexico that was related to an arbitration between the parties. The Court of Appeals affirmed. LAIF is distinguishable, however, because the claims asserted in Mexico differed from those before the arbitrator. In this action, the same Auction claim is at issue in both of the parallel proceedings. Further, LAIF declined to enjoin the Mexican action in part because it involved questions arising under Mexican law. LAIF, 390 F.3d at 200. Here, the Auction claim is governed by New York law. (Transcript of Proceedings, dated Oct. 16, 2006 ("Tr.") at 6.)

At oral argument, Plaintiffs represented that the Brazilian Complaint asserts a claim under Brazilian law for indemnification against Deltec because of Deltec's failure to make timely payments under the Loan Agreement. (Tr. at 18-19.) This claim is purportedly unrelated to the Auction and, therefore, need not be enjoined in light of the pending arbitration. However, this argument was absent from Plaintiffs' opposition brief, and the Court need not consider an argument raised for the first time at oral argument. See, e.g., United States v. Barnes, 158 F.3d 662, 672 (2d Cir. 1998) ("Normally, we will not consider arguments raised for the first time in a reply brief, let alone [at or] after oral argument" (citation omitted).); Process Res. Corp. v. Delta Air Lines, Inc., No. 98 Civ. 5648 (JGK), 2000 WL 145114, at *7 (S.D.N.Y. Feb. 3, 2000) ("The fact that the argument of estoppel was raised for the first time at oral argument would be reason enough to dismiss it."); Yesil v. Reno, 958 F. Supp. 828, 844 n.11 (S.D.N.Y. 1997) (declining to consider argument made for first time at oral argument); Basix Corp. v. Cubic Corp. (In re Basix Corp.), No. 96 Civ. 2478 (JSM), 1996 WL 517667, at *7 n.5 (S.D.N.Y. Sept. 11, 1996) (same).

Plaintiffs' contention would fail even if the Court were to consider it. The Brazilian Complaint is a sprawling and somewhat convoluted document. The Court has already ruled that any claim arising from abuse of control or breach of fiduciary duty is enjoined, and the Court rules today that Auction-related claims are also enjoined. Plaintiffs imply that somewhere in the Brazilian Complaint, there is a claim for indemnification against Deltec that arises neither from abuse of control nor from the Auction. Yet this directly contradicts Plaintiffs' assertion that in the Brazilian Action, "SAI/Worldstar maintained only those claims arising from events after the date of the Arbitration Award and from the Auction." (Plaintiffs' Memorandum in Response to Order to Show Cause, dated Oct. 11, 2006 ("Pl. Mem.") at 2-3.) Not surprisingly, Plaintiffs have failed to identify the portion of ...


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