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Global Tech Industries Group, Inc. v. Go Fun Group Holdings, Ltd.

United States District Court, S.D. New York

November 2, 2017

GLOBAL TECH INDUSTRIES GROUP, INC., et al., Plaintiffs,
v.
GO FUN GROUP HOLDINGS, LTD, et al., Defendants.

          OPINION & ORDER

          Andrew J. Peck United States Magistrate Judge.

         Plaintiffs instituted this action on May 17, 2017 to enforce an agreement effectuating acquisition of defendants' corporate assets. (Dkt. No. 1: Compl. ¶ 1.) On April 10, 2017-forty-seven days before this case was filed-defendants had instituted a parallel action in the High Court of Hong Kong seeking to declare the same agreement null and void. (Dkt. No. 37: Lo Aff. ¶ 5; Dkt. No. 35: Go Fun Br. at 3.) Presently before the Court is defendants' motion to dismiss this suit pursuant to the abstention doctrine and/or forum non conveniens. (Dkt. No. 34: Go Fun Notice of Mot.) The parties have consented to decision of this case by a Magistrate Judge pursuant to 28 U.S.C. § 636(c). (Dkt. No. 31.) For the reasons set forth below, defendants' motion is DENIED.

         FACTS

         Plaintiff Global Tech Industries Group, Inc. ("GTII") is a holding and operating company incorporated in Nevada with its principal place of business in New York City. (Dkt. No. 7: Compl. ¶¶ 14-16.) GTII also "is a fully reporting company that is publicly traded on the Over-the-Counter-Market." (Dkt. No. 27: GTII Opp. Br. at 4.) Plaintiff GT International Group, Inc. is a Wyoming corporation and subsidiary of GTII. (Compl. ¶ 17.) GTII and GT International Group share office space in New York City. (Id. ¶ 18.) GTII Chief Executive Officer David Reichman is a United States citizen with his primary residence in New York City. (Id. ¶ 19.)

         Defendant Go Fun Holdings Ltd. ("Go Fun") is a British Virgin Islands corporation with its principal place of business in Hong Kong. (Id. ¶ 20; Dkt. No. 35: Go Fun Br. at 2.) Defendant Go F&B Holdings Ltd. ("Go F&B") is a Hong Kong corporation with its principal place of business in Hong Kong. (Compl. ¶ 21; Go Fun Br. at 2.) GTII alleges that Go Fun is "the sole shareholder, director, decision maker & control party" of Go F&B. (Compl. ¶¶ 20-21; GTII Opp. Br. at 6.) GTII further alleges that Go F&B "is the owner and sole shareholder of" four food/beverage and restaurant "target companies" whose corporate assets are the subject of the at-issue agreement. (Compl. ¶¶ 23-25; GTII Opp. Br. at 4, 7.) Individual defendants Tam Yiu Cheun a/k/a Sam Tam and Cheung Yee Man a/k/a Elaine Cheng are directors of Go F&B. (Compl. ¶¶ 5, 26-27; Go Fun Br. at 3.) Tam and Cheng are residents of Hong Kong. (Compl. ¶¶ 26-27.)

         GTII alleges that negotiations between the parties began when defendants "vocalized a desire to 'go public' and access the U.S. Capital Markets through a small/micro cap listing on the [Over-the-Counter-Market] by being acquired by a traded company and being spun off after 366 days by the acquiring parent." (GTII Opp. Br. at 4.) Communications between the parties were in English, and "[p]rior to and after entering into the December 30, 2016 agreement, Go Fun was advised by and information was exchanged through their U.S. based lawyer" licensed in New York. (Id.) The parties met in person in Hong Kong in February, April, July and December 2016. (Dkt. No. 36: Fong Aff. ¶ 8; Go Fun Br. at 4 & n.4; see also GTII Opp. Br. at 8.) Fong Yiu Yuen asserts that he "personally participated [in] all of the negotiations" on behalf of Go Fun and "attended all meetings between the" parties, and that GTII's "representative at each such meeting was David Reichman; [Go Fun] had several attendees, including [Fong], at such meetings most of whom do not speak English." (Fong Aff. ¶ 8.)

         Negotiations produced two preliminary agreements dated February and April 2016 (GTII Opp. Br. at 4; see also Dkt. No. 27-1: 2/8/16 Agreement; Dkt. No. 27-2: 4/18/16 Agreement), both of which contain clauses specifying "the state and federal courts in the City of New York" as the proper forum for resolving disputes arising under those agreements (2/8/16 Agreement ¶ 9; 4/18/16 Agreement ¶ B-12). In December 2016, Reichman traveled to Hong Kong to execute the final Stock Purchase Agreement (the "Agreement") on which this case is based. (Compl. ¶¶ 29-30; GTII Opp. Br. at 4, 7-8; Go Fun Br. at 3-4; see also Stock Purchase Agreement.) Unlike the preliminary agreements, the Stock Purchase Agreement states only that it should "be governed by and construed in accordance with the laws of the State of Nevada"; it does not contain a forum selection clause. (See Stock Purchase Agreement ¶ 11.) The Agreement contains an integration clause, stating that the Agreement supercedes "any prior understanding or representation of any kind preceding the date of th[e] Agreement." (Id. ¶ 10.) Further, individual defendants Tam and Cheng agreed to indemnify GTII in certain situations. (Compl. ¶¶ 5, 56; Dkt. No. 7-1: Stock Purchase Agreement, Schedule B, ¶ 9.)

         Pursuant to the Agreement, Go Fun paid a $126, 000 deposit to GTII. (Compl. ¶ 32.) The Agreement provided for monthly payments of $91, 667 to GTII, but Go Fun ceased making such payments in January or February 2017. (See Compl. ¶ 31; GTII Opp. Br. at 8.) "The destination of said funds was New York." (GTII Opp. Br. at 13.) Go Fun also "was to provide substantive materials to GTII relating to the target companies, " such as corporate business plans and financial information. (Compl. ¶ 33; see also Stock Purchase Agreement, Schedule B.) Such information was "to be prepared in English for filing with U.S. regulators and for inclusion in Global Tech disclosure filings." (GTII Opp. Br. at 15.) Although Go Fun apparently contacted an auditor with expertise in compiling such materials (see Dkt. No. 27-8: 9/21/16 UHY Letter), the materials never were disclosed to GTII as required under the Agreement (Compl. ¶ 33; GTII Opp. Br. at 8).

         On March 23, 2017, GTII sent a notice of default to Go Fun and its representatives. (GTII Opp. Br. at 8; see also Dkt. No. 27-9: 3/31/17 Go Fun Letter.) On March 31, 2017, Go Fun acknowledged receipt of the notice of default and requested that GTII "withhold commencing any legal action" until April 10, 2017 while Go Fun consulted with counsel. (3/31/17 Go Fun Letter; GTII Opp. Br. at 8.) Go Fun filed its parallel action against GTII in the High Court of Hong Kong on April 10, 2017. (Dkt. No. 37: Lo Aff. ¶ 5; Go Fun Br. at 3.)

         ANALYSIS

         I. GO FUN'S MOTION TO DISMISS PURSUANT TO THE ABSTENTION DOCTRINE IS DENIED

         A. Standards Governing Motions Under Federal Rule Of Civil Procedure 12(b)(1) And The Abstention Doctrine

         Courts in this Circuit consider a "motion to dismiss based on the abstention doctrine . . . as a motion made pursuant to Rule 12(b)(1)." Kingsley v. N.Y.C. Hous. Auth., 16 Civ. 0169, 2016 WL 5939359 at *2 n.2 (S.D.N.Y. Oct. 6, 2016); 5B Charles A. Wright & Arthur R. Miller, Fed. Prac. & Proc. Civ. § 1350 (3d ed. 2017) ("Courts have recognized a variety of other defenses that one normally would not think of as raising subject-matter jurisdiction questions when considering a Rule 12(b)(1) motion, such as claims that . . . the subject matter is one over which the federal court should abstain from exercising jurisdiction."). In considering a Rule 12(b)(1) motion, a court "may refer to evidence outside the pleadings." Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000).

         In Colorado River, the Supreme Court provided guidance on when a federal court should abstain from exercising jurisdiction due to a parallel state proceeding. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817-19, 96 S.Ct. 1236, 1246-47 (1976); see also, e.g., Garfield v. Ocwen Loan Servicing, LLC, 811 F.3d 86, 93 (2d Cir. 2016) (Colorado River "created a limited abstention doctrine in the context of ongoing, parallel state proceedings"). The doctrine is a narrow one given the "virtually unflagging obligation of the federal courts to exercise the jurisdiction given them." Colorado River Water Conservation Dist. v. United States, 424 U.S. at 817, 96 S.Ct. at 1246. "[T]he existence of a parallel foreign proceeding does not negate that obligation." Kitaru Innovations Inc. v. Chandaria, 698 F.Supp.2d 386, 390 (S.D.N.Y. 2010); see also, e.g., Royal & Sun All. Ins. Co. of Canada v. Century Int'l Arms, Inc., 466 F.3d 88, 92 (2d Cir. 2006) ("The mere existence of parallel foreign proceedings does not negate the district courts' 'virtually unflagging obligation . . . to exercise the jurisdiction given them.'").

         In Royal & Sun Alliance, the Second Circuit applied Colorado River abstention principles in the context of parallel foreign proceedings.[1] The court opined that "[g]enerally, concurrent jurisdiction in United States courts and the courts of a foreign sovereign does not result in conflict" that raises comity concerns. Royal & Sun All. Ins. Co. of Canada v. Century Int'l Arms, Inc., 466 F.3d 88 at 92. "Rather, [p]arallel proceedings in the same in personam claim should ordinarily be allowed to proceed simultaneously, at least until a judgment is reached in one which can be pled as res judicata in the other." Id. (quotations omitted). Thus,

[t]he task of a district court evaluating a request for dismissal based on a parallel foreign proceeding is not to articulate a justification for the exercise of jurisdiction, but rather to determine whether exceptional circumstances exist that justify the surrender of that jurisdiction. The exceptional circumstances that would support such a surrender must, of course, raise considerations which are not generally present as a result of parallel litigation, otherwise the routine would be considered exceptional, and a district court's unflagging obligation to exercise its jurisdiction would become merely a polite request.

Id. at 93 (citations omitted).

         When deciding whether to abstain "[i]n the context of parallel proceedings in a foreign court, a district court should be guided by the principles upon which international comity is based: the proper respect for litigation in and the courts of a sovereign nation, fairness to litigants, and judicial efficiency." Id. at 94.

The Second Circuit in Royal and Sun Alliance instructed courts to use a non-exhaustive list of factors when contemplating a stay in favor of a foreign proceeding, including: (1) the similarity of the issues; (2) the order in which the actions were filed; (3) the adequacy of the alternate forum; (4) the potential prejudice to either party; (5) the convenience of the parties; (6) the connection between the litigation and the United States; and (7) the connection between the litigation and the foreign jurisdiction.

C.D.S., Inc. v. Zetler, 198 F.Supp.3d 323, 331 (S.D.N.Y. 2016) (citing Royal & Sun All. Ins. Co. of Canada v. Century Int'l Arms, Inc., 466 F.3d at 94).[2] "The abstention decision rests on a careful balancing of the important factors . . . as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction." Kitaru Innovations Inc. v. Chandaria, 698 F.Supp.2d at 390 (quotations omitted).

         B. Application

         Go Fun asserts that the Court should abstain in favor of the Hong Kong action because: the parties are identical apart from the addition of individual defendants Sam Tam and Elaine Cheng in this suit (Dkt. No. 35: Go Fun Br. at 6-7); both actions concern enforcement of the Stock Purchase Agreement and defenses thereto (id. at 7); the Hong Kong action was filed forty-seven days before GTII commenced this action (id. at 7-8); all defendants in this action are based in Hong Kong (id. at 8); the Stock Purchase Agreement was negotiated and executed in Hong Kong, and it concerns the assets of Hong Kong-based corporations (id. at 8-9); GTII could "raise each and every one of its common law claims for relief under existing Hong Kong law" and "the Hong Kong court [would] have the authority to provide Plaintiffs the full range of remedies substantially similar to those available under U.S. law" (id. at 9-10); Hong Kong "has a bilingual system" and the individual defendants and some "key" witnesses do not speak English (id. at 10); and if both actions proceed, there is a risk of inconsistent rulings and resulting comity concerns (id.).

         GTII responds that although the Hong Kong action was filed first, that action "has not been served upon the Plaintiffs (GTII), no parties have appeared to defend, none have retained counsel and there is no indication that service outside of Hong Kong . . . was authorized in accordance with the Rules of The High Court." (Dkt. No. 27: GTII Opp. Br. at 10-12.) In this action, on the other hand, GTII has served defendants; defendants have retained counsel that has entered an appearance on behalf of the corporate defendants and a "special appearance" on behalf of the individual defendants; and the parties have briefed the instant motion challenging venue. (Id. at 11-12; see also Dkt.: 9/29/17 Minute Entry.) GTII also argues that to the extent U.S. and Hong Kong courts ...


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