As will be seen later, Skadden relies heavily on its possible inability to cross claim for contribution or indemnity in the New York court and the risk of inconsistent judgments, in support of its motion for anti-suit relief.
9. There was an appeal from District Court Judge Patterson's judgments in Linter I and Linter II to the United States Court of Appeals for the Second Circuit. On 2 June 1993, that Court, in a short opinion, affirmed Judge Patterson's decisions (994 Fed 2d 996 (2d Cir) (1993)).
10. The present matter was next before this Court on 20 August 1993 when the applicants were directed to serve their draft amended statement of claim and application by 1 October 1993. As at 20 August 1993 the only respondents were the Initial Banks, the Subsequent Banks, the Subsidiaries, Linter Textiles and USTC. This was the first active step taken in these proceedings in preparation for trial. Previously the matter had been adjourned pending developments in the US District Court and Court of Appeals. From August 1993 to date, there have been many directions hearings and motions hearings in these proceedings (see later).
11. The applicants appealed to the Supreme Court of the United States against the dismissal of their appeal by the Court of Appeals for the Second Circuit, but certiorari was denied on 1 November 1993 (114 S Ct 386 (1993)). By 2 June 1993 probably, and by 1 November 1993 for certain, the applicants knew that their preferred forum was to be denied them.
12. In April 1994, the 6th, 11th, 12th, 13th, 14th and 15th applicants, known collectively as "the Ariel Entities", filed a complaint (Index No 110552/94) in the New York court against Skadden seeking damages for fraud and for aiding and abetting fraud pursuant to the common law of New York. Thus, Skadden first became involved in litigation arising out of the debenture issue in that (New York) proceeding rather than in these (Federal Court) proceedings and at the instance of some of the applicants rather than at the instance of any of the respondents (see later).
13. In July 1994 Skadden moved for dismissal for "failure to state a claim". According to the evidence before me, the effect of this was that pre-trial procedures were automatically stayed without the necessity of Skadden's moving for a stay.
Four of the six plaintiffs "withdrew" on 20 August 1994 leaving the 14th applicant (Ithaca Partners LP) and the 15th applicant (Gabriel Capital LP) remaining as plaintiffs. They are limited partnerships organised according to the laws of Delaware and having their principal place of business in New York. By their amended complaint, they pleaded that Skadden's fraud arose out of its involvement in the issue by Linter Textiles of the senior subordinated debentures. This particular New York proceeding has been called, and I will call it, "the Ithaca action".
14. On 24 June 1994 all 17 of the present applicants commenced a new proceeding No NG 381 of 1994 in this Court against the respondents which were parties to proceeding No NG 523 of 1991, the Liquidators, and the Linter Officers. The 54th respondent, Freehills, was joined on 11 October 1994 in all proceedings in the Court.
15. On 25 July 1994, all six Ariel Entities commenced an additional action in New York (Index No 121513/94) against various entities including predecessors in title to their debentures and securities dealers. These proceedings were directed to establishing that the plaintiffs were the beneficial owners of all rights, claims and causes of action in connection with the transfer of the debentures which they had purchased in the secondary market.
Four of the Ariel Entities are limited partnerships with principal places of business in New York and the other two, Ariel Fund Ltd and Carmel Fund Ltd, are Cayman Island corporations with their principal place of business in the Cayman Islands. The first named defendant was a securities dealer, "Bear Stearns & Co, Inc", and I will refer to this action as "the Bear Stearns action". As will be noted below, Skadden has intervened in this action.
16. Progressively in the period September 1994 to February 1995, the Initial Banks filed cross claims against Skadden in these present proceedings (Freehills, not having been joined as a respondent until 11 October 1994, did not file its cross claim against Skadden until 11 July 1995). When the first cross claim was filed against Skadden in September 1994, it was already being sued in the Ithaca action by two of the Ariel Entities as noted above. Skadden submitted to the jurisdiction of this Court and subsequently invoked that jurisdiction by filing cross claims against various respondents seeking indemnity or contribution, and, as will be seen, at the same time sought to extricate itself from the New York proceedings. Perhaps it assumed that it would have little difficulty in doing so in view of what had happened in Linter I and Linter II. Whatever the reason may have been, it committed itself to the course of litigating in this Court and seeking to escape from litigation in the New York court.
17. On 5 October 1994, David Scheiber, the 17th applicant and, apparently, a resident of California, filed a complaint (Index No 123343/94) virtually identical to that in the Ithaca action, against Skadden in New York ("the Scheiber action").
18. On 11 October 1994, a further six applicants, namely the 3rd, 4th, 5th, 7th, 8th and 9th applicants, all of which maintained principal places of business in States other than New York, filed a complaint (Index No 128800/94), virtually identical to that in the Ithaca action, against Skadden in New York. The first named plaintiff is "Executive Life Insurance Company Trust" and the second named plaintiff is "Executive Life Insurance Company." I will call this action "the Executive Life action".
19. On 22 November 1994, the 2nd applicant, Colonial Intermediate High Income Fund of Massachussetts, filed a complaint (Index No 132616/94), virtually identical to that in the Ithaca action, against Skadden in New York ("the Colonial action").
20. By 22 November 1994, all of the applicants except the 1st applicant, Allstate Life Insurance Co, the 10th applicant, USTC, and the 16th applicant, First Stratford Life Insurance Co, were suing Skadden in New York (in saying this I assume that one of the plaintiffs "Prospect Street High Income Fund" in the Executive Life action is one and the same as the 7th applicant, Prospect Street High Income Portfolio Inc, and that "First Stratford Stockholder Liquidation Trust", which is a plaintiff in that action, is a not identical with the 16th applicant, First Stratford Life Insurance Co).
21. In December 1994 the 14th applicant (Ithaca Partners LP) and the 15th applicant (Gabriel Capital LP) commenced further proceedings, this time against the 10th applicant, USTC, (Index No 133276/94) in New York ("the USTC action"), alleging, inter alia, that USTC was negligent in performing the obligations which it owed to debenture holders as trustee for them under the Indenture and was therefore in breach of the Indenture.
22. Skadden had filed motions in New York, on 30 September 1994 and 23 November 1994 seeking to have, respectively, the Ithaca action and the Executive Life action dismissed. The parties to the Colonial action and the Scheiber action agreed to be bound by the orders to be made on those two motions. USTC also moved for dismissal of the USTC action. In the Bear Stearns action, Skadden moved to intervene. Justice Cahn heard all four of these motions on 16 December 1994.
23. On 18 April 1995 Justice Cahn denied Skadden's motions and USTC's motion for dismissal on the ground of forum non conveniens. His Honour granted Skadden's motion for leave to intervene in the Bear Stearns action in which it was therefore added as a defendant. His Honour's orders were entered on 21 April 1995. I say more of his Honour's reasoning below. According to the evidence before me, Skadden's motion for dismissal for "failure to state a claim" remained on foot as did the concomitant automatic stay of proceedings.
24. Skadden appealed to the Appellate Division of the New York court against Justice Cahn's refusal to dismiss the Ithaca action and the Executive Life action, and moved for an expedited hearing of the appeal in June 1995. The motion for expedition was denied.
25. Skadden filed a motion dated 26 May 1995 to renew and reargue its motions for dismissal on the ground of forum non conveniens. It withdrew its motion for dismissal for "failure to state a case" and so the automatic stay which had accompanied that motion came to an end. Accordingly, Skadden sought in the alternative to renewal and re-argument, a stay of the Ithaca action and the Executive Life action.
26. Skadden's motion to renew and reargue was before Justice Cahn on 12 June 1995. In support of its motion Skadden relied on a 16 page affirmation in chief and a 21 page affirmation in reply of its attorney, Victor A Kovner, which strongly put the case for a dismissal or a stay, referred to authorities, and dealt with developments since his Honour's dismissal of Skadden's and USTC's motions on 18 April 1995. Skadden was able to point out that the trial of the issue of reliance in these (Federal Court) proceedings was then due to commence in only three weeks' time, on 3 July 1995. Justice Cahn noted that Skadden was to comply with the plaintiffs' document requests and told Skadden's counsel that he would consider its motion for renewal and re-argument promptly but that if he denied it, he would expect the case to move forward.
27. On 27 June 1995 Justice Cahn denied Skadden's motion for renewal and re-argument. The order denying the motion was entered on 29 June 1995.
28. On 5 July 1995 Skadden filed the "record on appeal" and its "appeal brief" and moved the Appellate Division for a stay pending that Division's determination of Skadden's appeal.
29. The Appellate Division granted a stay of "any trial, hearing or dispositive motion" in the Ithaca action, the Executive Life action and the USTC action.
30. On 18 July 1995 counsel for Skadden informed Justice Cahn that if it failed in its pending appeal, it would file its Answer and implead other parties. Justice Cahn made orders for discovery of documents and interrogatories but declined the plaintiffs' request that the taking of depositions proceed, noting that the subsequent impleading of other parties would make it "very possible" that the transcript of depositions taken in the meanwhile could not be tendered at the trial.
31. On 9 September 1995 Justice Cahn informed the parties that if Skadden's appeal was dismissed by the Appellate Division, the case would "move" and "go forward".
32. On 19 September 1995, the Appellate Division dismissed Skadden's appeal. Accordingly, the stay which the Appellate Division had granted came to an end. Skadden accepts that it would be fruitless for it to seek leave to appeal from that dismissal. Not surprisingly, the successful respondents (appellees) to that appeal do not contend otherwise.
33. Having exhausted attempts to extricate itself from the various actions against it in New York, as noted earlier, on 21 September 1995, Skadden filed in these proceedings its notice of motion for anti-suit relief with which these Reasons for Judgment are concerned, and was granted ex parte relief on the same day.
The applicants have submitted that the course of events before Justice Cahn outlined above shows that Skadden had given them and his Honour to understand that if it failed in its appeal, it would proceed without further delay to comply with the pre-trial procedures in New York. It is clear that they first knew of Skadden's proposal to apply for an anti-suit injunction in this Court after it was granted by me ex parte on 21 September 1995. Skadden accepts that it gave no forewarning of its intention and says that if it had done so it is "on the cards" that an anti-anti-suit injunction would have been sought by the applicants from, and perhaps granted by, the New York court (see my Reasons for Judgment No 16 dated 22 September 1995 in these proceedings).
34. On 22 September 1995 the New York proceedings were again before Justice Cahn at the applicants' request, when certain directions were given. His Honour was informed of the granting of the ex parte injunction by this Court on 21 September and of the fact that Skadden's motion for anti-suit relief was returnable before this Court on the following Monday, 25 September.
35. Subsequently, Skadden has filed and served its Answer and Affirmative Defences in the New York proceedings. It has also, pursuant to a direction of Justice Cahn on 21 September 1995, filed a notice that but for this Court's injunctions against it, it would have filed and served with its Answer and Affirmative Defences, third party complaints (cross claims) against the eleven Initial Banks, Linter Group, Linter Textiles, the Liquidators, Freehills and Price Waterhouse. In effect, Skadden says that it wished to claim contribution or indemnity from those parties in respect of any judgment which may be awarded against it in New York. Those parties resist joinder in New York, seek from this Court injunctions against Skadden to that end, and say that if they fail they will oppose joinder before the New York court.
THE JUDGMENTS IN THE NEW YORK COURT
Although the principles applicable to an application to a domestic court for a dismissal or stay on the forum non conveniens ground differ from those which govern an application to a domestic court for anti-suit relief in respect of proceedings in a foreign court, no doubt there is overlap between the submissions which Skadden made to Justice Cahn in support of its forum non conveniens motion and the submissions which it now makes to this Court in support of its motion for anti-suit relief.
In his Opinion dated 18 April 1995, Justice Cahn reviewed the factual background, the nature of the claims made in the Ithaca action, the Executive Life action, the Bear Stearns action and the USTC action and noted the competing submissions of Skadden and USTC in favour of dismissal on the ground of forum non conveniens and of the plaintiffs in opposition. His Honour's succinct opinion dealing with the motions deserves to be quoted at length:
"Skadden, Arps argues that the events placed at issue in the complaints occurred primarily in Australia and that plaintiffs must prove the primary fraud violation by Linter before it can prove aiding and abetting liability against Skadden. It contends that the fraud claims against Linter are currently pending in Australia after the Southern District dismissed them on comity grounds. It claims that there is the possibility of inconsistent judgments. It also asserts that it will be subjected to hardship because it will be unable to implead
foreign third parties such as the Creditor Banks and Linter officers and employees on claims for contribution and indemnification. It contends that Australia is an appropriate alternative forum. It further contends that fifty key witnesses including Linter and Bank employees are residents of Australia and outside this Court's subpoena power. Finally, it asserts that the Australian action is still at the pleading stage and discovery is continuing.
In opposition, plaintiffs urge that as New York residents in actions involving a complaint of fraud by Skadden, Arps in New York and a breach of the Indenture by USTC in New York, both of which defendants are New York residents, plaintiffs' choice of forum should not be disturbed. They argue that the relevant documents and witnesses are in New York: (i) with regard to Skadden, Arps, the acts were perpetrated by Skadden, Arps in New York and the issue is the knowledge and intent of Skadden, Arps as a primary violator and an aider and abettor; (ii) with regard to USTC, the issue is whether USTC failed to take adequate action in New York to protect the interests of the bond holders in response to a breach of contract by the issuer. Plaintiffs assert that they suffered the harm here in New York and that New York law applies to the fraud claims. They claim that Indenture trustee, defendant USTC, is a New York resident as is the underwriter, Drexel. The Indenture was executed in New York and is by its terms governed by New York law. They claim the majority of the material witnesses who will be called upon to testify as to the knowledge and intent of Skadden, Arps and as to USTC's failure to take adequate action, are American not Australian. They assert New York's interest in maintaining its status as the preeminent commercial and financial center of the nation and in controlling the activities of its licensed professionals and companies operating within its borders whose conduct is regulates.
Plaintiffs assert that Australia is not an appropriate alternative forum for these claims because: (i) the Australian action is well along, discovery is nearly completed with trial scheduled for July 1995; (ii) there is no right to a jury trial on the fraud claims in Australia; and (iii) there is no deposition discovery there. They assert that defendants will be able to obtain documents from Australia because it is a Hague Convention signatory. They further assert prejudice because the statute of limitations may have already expired as to fraud claims in Australia.
Under the rule of forum non conveniens, now codified in CPLR 327, a court in its discretion may stay or dismiss an action even through it is jurisdictionally sound when the action would be better adjudicated elsewhere. (Islamic Republic of Iran v Pahlavi, 62 NY2d 474, 478-79 [1984], cert. denied 469 U.S. 1108 [1985]; Corines v Dobson, 135 AD2d 390, 391 [1st Dept 1987]). 'A defendant has a heavy burden in attempting to establish that New York is an inappropriate forum before plaintiff's choice of forum is disturbed.' (Highgate Pictures, Inc. v DePaul, 153 AD2d 126, 129 [1st Dept 1990]). This burden is even more onerous where the plaintiff is a New York resident. (Id.; see also Kastendieck v Kastendieck, 191 AD2d 328 [1st Dept 1993] [plaintiff's residence is a most significant factor]; Cadet v Shortline Terminal Agency, Inc., 173 AD2d 270 [1st Dept 1991]; cf. Westwood Assocs. v Deluxe General. Inc., 53 NY2d 618 [1981]. Unless the balance is strongly in defendant's favor, particularly where the action is commercial in nature, plaintiff's choice should not be disturbed. (Bata v Bata, 304 NY 51 [1952]; World Point Trading Pte. Ltd. v Credito Italiano, ___ Misc.2d _____, 622 NYS2d 862 (1994); see also Ehrlich-Bober & Co. v University of Houston, 49 NY2d 574 [1980] [New York's interest as commercial and financial nerve center of the motion in providing a convenient forum is least subject to challenge when transaction is centered here and is wholly commercial in character]).
The Court has considered and balanced the following relevant factors, among others: the burden on the New York courts posed by this action, the situs of the transaction out of which the litigation arose, the residence of the parties, the potential hardship to the defendants, the availability of an alternative forum (Islamic Republic of Iran v Pahlavi, supra at 479; see Varkonyi v Varig, 22 NY2d 333 [1968]) and the location of material witnesses (Continental Ins. Co. v Polaris Industries Partners, L.P., 199 AD2d 222 [1st Dept 1994]). Choice of law is also a consideration. (Hormel International Corp. v Arthur Andersen & Co., 55 AD2d 905 [2d Dept 1977]). No one factor is controlling and the application of the rule of forum non conveniens rests on considerations of justice, fairness and convenience. (Silver v Great Amer. Ins. Co., 29 NY2d 356, 361 [1972]).
Defendants Skadden, Arps and USTC have not met their heavy burden. Several of the plaintiffs are New York residents. Defendants also are New York residents. Both of these are important factors in favor of retaining jurisdiction. (See Highgate Pictures, Inc. v DePaul, supra; Yoshida Printing Co. v Aiba, ____ AD2d ____, NYLJ March 23, 1995, p. 26 col. 4 [1st Dept] [defendant's residence is an important factor]).
Moreover, the claims in the complaints have a substantial nexus with New York. The bond offering was made in New York through the commercial markets centered here. A New York based underwriter presented them to the financial world. The Prospectus and Registration Statement with its amendments were drafted and disseminated in New York by Linter's New York attorneys, Skadden, Arps. The issues raised by the complaints against Skadden, Arps involve Skadden, Arps' professional conduct here: what did Skadden, Arps do in reference to the alleged Guaranty Replacement Scheme, what did it know about the Scheme and when did it know it. Most of the witnesses who would testify about the knowledge and intent of Skadden, Arps in drafting the Prospectus, the Registration Statement and any opinion letters reside in the United States. (See Dept. of Economic Dev. v Arthur Andersen & Co., 683 F. Supp 1463, 1484 [SDNY 1988]). In addition, the documents drafted by Skadden, Arps and the correspondence are located in New York.
Similarly, USTC's actions in discovering or failing to discover the breach of the Indenture by Linter Textiles and in failing to protect the interests of the bond holders occurred in New York. These issues can be proven by plaintiffs or disproven by defendants with witnesses and documents here. While it is true that both parties will no doubt offer testimony of foreign witnesses pertaining to the claimed fraudulent scheme by Linter Textiles and the Creditor Banks, the testimony of defendants' personnel is likely to be of greater importance to the case. (Id). The Court recognizes that defendants may be inconvenienced in obtaining the testimony from the foreign witnesses, however, plaintiffs would be similarly inconvenienced by the denial of the access to our courts to redress their grievances: (See Slaughter v Waters, 41 AD2d 810 [1st Dept 1973]; Sullivan v J. V. McNicholas Transfer Co., 93 AD2d 527 [4th Dept 1983]). Dismissal is not warranted simply because some of the issues involve activities in Australia. (See Reaves v Exxon Corp., 90 Misc2d 980, 984 [Sup Ct NY Co 1977] [w]hile many of the issues in this lawsuit involve activities in Venezuela, many also involve actions taken by defendant Exxon from its New York office.])
Skadden, Arps' argument that it will not be able to implead other potential defendants, who are not amenable to suit in New York, is unavailing (Neville v Anglo American Management Corp., 191 AD2d 240 [1st Dept 1993]). Plaintiffs are not seeking to hold the defendant vicariously liable for their its [sic] acts, but rather by reason of its claimed knowledge, intent and active assistance in perpetrating a fraud in the actions against Skadden, Arps, and, in the action against USTC, by reason of its action or lack thereof in protecting bondholders when it became aware of Linter's breach of the Indenture. The absence of other potential defendants will not substantially impair defendants' ability to defend. Defendants, if held liable to plaintiffs, are entitled to seek any remedy available to them by way of an action for indemnity, in Australia. (Dept. of Economic Dev. v Arthur Andersen & Co., supra [forum non conveniens dismissal denied notwithstanding defendants' claim of inability to implead other parties directly involved in controversy]).
Plaintiffs' contentions regarding the inadequacy of the Australian forum further persuades the Court that dismissal would impose a greater hardship on plaintiffs than failure to dismiss will on defendants. If plaintiffs are required to litigate their fraud claims against Skadden, Arps in Australia, there is no right to trial by jury. (See Gyenes v Zionist Organization of Amer., 169 AD2d 451, 452 [1st Dept 1991]). The Court also notes that pursuant to the choice of law provision in the Indenture, New York law applies to the claims against USTC and will likely apply to the fraud claims against Skadden, Arps, providing further reasons for retaining jurisdiction.
The dismissal by the federal district court for the Southern District of New York of plaintiffs' actions against the Linter companies and the Creditor Banks does not warrant dismissal here. Those decisions do not bind this Court or require it to force plaintiffs to pursue these New York defendants in Australia for actions they took in New York in connection with a New York commercial transaction. Defendants came to the New York capital markets to borrow money; plaintiff, holder of some of the debt, should be permitted to sue here on the transactions.
The Court further notes defendants' concern about inconsistent judgments, a risk present whenever several lawsuits on the same transaction proceed simultaneously in different forums, but finds that the countervailing factors discussed above warrant the retention of jurisdiction. Therefore, the branch of the motions of defendants Skadden, Arps and USTC for dismissal of actions 1 through 3 [the Ithaca action, the Executive Life action and the USTC action] on forum non conveniens grounds is denied." (judgment transcript at pp 9-16)
The judgment of the Appellate Division of the New York court is so short that it is convenient to repeat it (omitting only the formal introductory paragraph and final paragraph):
"The claims in this case concern allegations that defendant, a New York law firm, committed various acts of fraud and misrepresentation in connection with a bond offering of its client, an Australian company, in the New York financial markets. All of defendant's actions concerning such offering were performed in New York. The main issues raised involve New York law and concern defendant's conduct in New York. Much of the relevant testimony will likely come from witnesses who reside in the United States. Most of the relevant documents are located in New York or can be produced here. Under these circumstances, on this record, the IAS court properly determined that defendant failed to sustain its significant burden of proving that any alleged prejudice to it in defending this action here outweighs plaintiff bondholders' right of access to the New York courts (see, Islamic Republic of Iran v Pahlavi, 62 NY2d 474, cert denied 469 US 1108; Silver v Great Am. Ins. Co 29 NY2d 356, 361). While a related action is pending in Australia, a majority of defendants in that case are from Australia or New Zealand, and the complaint in this case clearly alleges a New York based fraud."
INTRODUCTION TO CONSIDERATIONS RELEVANT TO THE INCONVENIENCE OF THE CONCURRENCE OF THESE PROCEEDINGS AND THOSE IN NEW YORK
If the New York proceedings continue, "inconvenience" of three kinds will or may result: administrative burden including labour and cost; possible interference with the processes of this Court and even contempt of this Court; and possible
conflicting results with an adverse impact on Skadden's claim for contribution or indemnity. I will give an account here only of the first of these.
Administrative burden including labour and cost.
The hearing is fixed to commence on 18 March 1996. The hearing time has been estimated at a minimum of six months, and periods of 12 months and 18 months have been mentioned. There are 73 named parties or groups of parties. The evidence will cover the making of the investments in the debentures held by the 17 applicants, their title to the debentures and the loss allegedly suffered from the making of the respective investments. The applicants claim against 12 independently represented respondents or groups of respondents. There are two additional independently represented cross respondents or groups of cross respondents. The issues, particularly the legal issues, are of considerable complexity. The pleadings are voluminous. For example, the applicants' third further amended statement of claim comprises 165 paragraphs with two annexures and occupies 92 pages. There are over 30 cross claims.
It is inevitable that an enormous amount of time and energy is being, and will continue to be, devoted by the parties between now and 18 March 1996 in preparing for the hearing and after that date in the conduct of the hearing. To date, there have been over 100 Court appearances in the proceedings and 21
judgments have been delivered. The week from Monday 13 November to Friday 17 November was devoted to the hearing of 41 motions (including those the subject of these Reasons for Judgment). There is a strong interest in the retention of the trial date of 18 March, 1996.
If all injunctive relief is refused, Skadden and its advisers will devote time, energy and expense in the first instance in seeking to join the parties mentioned earlier as cross defendants in the New York proceedings and then in defending those proceedings. The proposed cross defendants will devote time, energy and expense, in the first instance in resisting joinder and, if joined, in defending Skadden's cross claims against them.
Both Skadden and the various respondents which seek injunctions against it and USTC have read affidavit evidence establishing the heavy burden which would fall upon them if the New York proceedings were to continue in the ordinary way.
The potential for interference with the processes of this Court and even for contempt of this Court.
There is the potential for the exercise of procedural rights in the New York actions, namely the procedures of discovery of documents common to both Courts and the pre-trial taking of witness depositions ("deposition discovery") known to the New York court but not to this Court, to constitute an interference with the processes of this Court and even contempt of this Court. This is discussed under "REASONING" later.
The potential for conflicting results and their impact on Skadden's claims for contribution or indemnity.
If Skadden is found liable in New York, "conflicting" results in these proceedings could raise difficulties for it. This possibility is also discussed under "REASONING" later.