United States District Court, S.D. New York
GRAMERCY ADVISORS, LLC and GRAMERCY FINANCIAL SERVICES LLC, Plaintiffs,
DOUGLAS COE and JACQUELINE COE, Defendants.
MEMORANDUM OPINION AND ORDER
VALERIE CAPRONI, District Judge.
In 2001, Defendants - and many others - invested in a tax shelter scheme that the Internal Revenue Service ("IRS") discovered and disallowed. Plaintiffs played a role in executing Defendants' tax-motivated transactions, although they disclaimed all responsibility for the investment strategy or the tax advice underlying the strategy. Defendants, who incurred substantial liability to the IRS in connection with the scheme, have sued a number of entities, including Plaintiffs, in Illinois state court for their role in the unsuccessful tax shelter. Plaintiffs commenced this lawsuit seeking indemnification and advancement of costs incurred in defending against Defendants' Illinois lawsuit. Defendants moved to dismiss, asserting lack of personal jurisdiction, improper venue, and failure to state a claim. Defendants' motion is GRANTED IN PART and DENIED IN PART. Plaintiffs' second cause of action, for breach of contract under the Belief Letter, is dismissed.
In 2001, "ultra-high net worth Georgia residents" Douglas and Jacqueline Coe incurred a tax liability of $4.34 million based on Douglas's sale of his interest in a business. First Am. Compl. ("FAC") ¶ 10. Rather than paying the tax, Douglas Coe (on behalf of his wife and himself) consulted with non-parties BDO Seidman LLP ("BDO") and Proskauer Rose, LLP ("Proskauer"). Id. Based on the strategy that those entities devised, Douglas Coe (again on behalf on both Coes) engaged Plaintiffs and entered into a number of agreements with them to transfer the Coes' assets as advised by BDO and Proskauer. Id. ¶ 12. Plaintiffs frequently stated that they were not providing any tax advice, a fact that the Coes acknowledged in writing. Id. ¶¶ 12-14.
On November 5, 2001, Douglas Coe entered into an Investment Management Agreement ("IMA") with Gramercy Advisors, LLC, FAC Ex. A; and executed a "Belief Letter" in which he represented that "the investments made pursuant to the [IMA]" were, to the best of his belief based on consultation with legal advisors, "in accordance with all the laws, rules and regulations applicable." FAC Ex. B ¶¶ 1-2. Both the IMA and the Belief Letter contained language disclaiming Plaintiffs' liability to Coe. FAC Ex. A §7(b)-(e); FAC Ex. B ¶ 2(c). Coe later entered into four Contribution Agreements through which he transmitted more than $3.5 million to Plaintiffs. FAC Exs. E-G; Dkt. 42 Ex. 1. The Contribution Agreements effected the transactions contemplated by the IMA and the Belief Letter. FAC ¶ 22. Each Contribution Agreement contained a non-exclusive forum selection clause; the first three indicated that forum was New York City and the fourth chose Los Angeles County. FAC Ex. E-G § 3(d), Dkt. 42 Ex. 1 § 3(d).
Pursuant to the BDO and Proskauer recommendations, the Coes included a loss of approximately $6 million on their 2001 tax return and a loss of approximately $5.1 million on their 2002 tax return. FAC ¶ 23. The IRS ultimately rejected the Coes' tax strategy, and the Coes had to pay "back-taxes, interest, and penalties as a direct result of their participation in" the tax-avoidance scheme. FAC Ex. C ¶¶ 106-07. The Coes then brought suit in the Circuit Court of Cook County, Illinois, against BDO, Gramercy Advisors LLC, Gramercy Financial Services LLC, Gramercy Capital Recovery Fund LLC, Gramercy Emerging Markets Fund LLC, KSHER AA LLC, and many others. FAC Ex. C.
On December 16, 2013, Plaintiffs submitted a demand letter requiring Defendants to advance them $250, 000 for their legal fees and to reimburse them for all expenses incurred in defending against the Illinois action. FAC ¶ 26. Defendants did not comply, and Plaintiffs promptly initiated this action alleging that Defendants breached the IMA and the Belief Letter and seeking specific performance of Defendants' alleged contractual obligations to advance Plaintiffs litigation costs and to indemnify and hold them harmless. Defendants moved to dismiss for lack of personal jurisdiction, improper venue, and failure to state a claim. Br. at 1 (citing Fed.R.Civ.P. 12(b)(2), (3), and (6)).
I. The Court Has Specific Personal Jurisdiction Over the Defendants and New York Is an Appropriate Venue
Defendants first argue that the Court lacks personal jurisdiction. "There are two types of personal jurisdiction: specific and general." Sonera Holding B.V. v. Çukurova Holding A.S. , 750 F.3d 221, 225 (2d Cir. 2014) ( per curiam ). Plaintiffs here do not allege general personal jurisdiction, but assert that the Court has jurisdiction pursuant to the forum selection clause in three Contribution Agreements. See FAC Exs. E-G § 3(d). A valid and enforceable forum selection clause confers personal jurisdiction consistent with New York's long-arm and constitutional due process requirements. See Rosenbaum v. DataCom Sys., Inc. , No. 13-CV-5484(PKC), 2014 WL 572529, at *4 (S.D.N.Y. Feb.13, 2014) (collecting cases). The question before the Court is whether the forum selection clauses in the three Contribution Agreements that select New York as an appropriate forum confer jurisdiction over the Plaintiffs' claims, which are based on the IMA and the Belief Letter.
The Second Circuit has adopted an extremely broad presumption in favor of the enforceability of forum selection clauses because they "reflect a strong federal public policy" in favor of "orderliness and predictability.'" Martinez v. Bloomberg LP , 740 F.3d 211, 218-19 (2d Cir. 2014) (quoting Scherk v. Alberto-Culver Co. , 417 U.S. 506, 516 (1974)). The Circuit has echoed the Supreme Court's instruction "that forum selection clauses are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable' under the circumstances.'" TradeComet.com LLC v. Google, Inc. , 647 F.3d 472, 475 (2d Cir. 2011) (quoting M/S Bremen v. Zapata Off-Shore Co. , 407 U.S. 1, 10 (1972)).
Defendants first argue that Plaintiffs cannot enforce the forum selection clauses in the Contribution Agreements because Plaintiffs were not parties to the agreements. The parties to the Contribution Agreements were Douglas Coe, KSHER AA LLC, and GFLIRB, LLC. See FAC Exs. E-G. GFLIRB, LLC is a plaintiff in the Illinois action, while KSHER AA LLC is a defendant in that action. FAC Ex. C. KSHER AA LLC, which "was under common management and control with Gramercy Advisors at the time the Contribution Agreements were entered" and "had identical indirect beneficial ownership and management personnel" with Gramercy Advisors, "entered into the three Contribution Agreements on Gramercy's behalf." Lanava Decl. ¶ 6.
"In general, the fact a party is a non-signatory to an agreement is insufficient, standing alone, to preclude enforcement of a forum selection clause.'" Magi XXI, Inc. v. Stato della Citta del Vaticano , 714 F.3d 714, 722 (2d Cir. 2013) (quoting Aguas Lenders Recovery Grp., LLC v. Suez, S.A. , 585 F.3d 696, 701 (2d Cir. 2009)). "[A] non-signatory to a contract containing a forum selection clause may enforce the forum selection clause against a signatory when the non-signatory is closely related' to another signatory." Id. at 723. The Coes entered into the Contribution Agreements with KSHER AA LLC, an affiliate of the Gramercy companies, in order to effect the transactions contemplated by the IMA between the Coes and Gramercy Advisors. FAC ¶ 22, Lanava Decl. ¶ 6. It was certainly "foreseeable to [the Coes] that the [Gramercy companies] would seek to enforce the forum selection clauses in the [Contribution] Agreements." Magi XXI , 714 F.3d at 723. As a result, the fact that Gramercy Advisors LLC was not directly a party to the Contribution Agreements is of no moment.
Second, Defendants argue that even if Plaintiffs are considered parties to the Contribution Agreements, the forum selection clause from these agreements does not apply to Plaintiffs' action based on the IMA and the Belief Letter. Defendants rely heavily on Judge Lynch's decision in Sempra Energy Trading Corp. v. Algoma Steel, No. 00-CV-9227(GEL), 2001 WL 282684 (S.D.N.Y. Mar. 22, 2001). In Sempra , as here, the parties negotiated one underlying agreement and numerous subsequent agreements to effectuate the transactions contemplated by the original agreement. Id. at *1-3. Also as here, the Sempra plaintiff sued to enforce rights under the original contract while relying on the forum selection clauses in the subsequent agreements (which each contained a New York forum selection clause) to provide the court with venue and jurisdiction. Id. at *5. This is where the similarities end, however. In Sempra , the original agreement contained an Ontario choice of law provision, id. ; the IMA here is governed by New York law, FAC Ex. A § 14(d). Moreover, the forum selection clauses in the later agreements in Sempra referred "to any action or proceeding relating to this agreement .'" 2001 WL 282684, at *6 ...