Recurrent Capital Bridge Fund I, LLC v. ISR Systems & Sensors Corp.
Recurrent Capital Bridge Fund I, LLC v. ISR Systems & Sensors Corp.
Opinion of the Court
OPINION AND ORDER
I. INTRODUCTION
Three investors, Recurrent Capital Bridge Fund (“Recurrent”), Cragmont Capital LLC (“Cragmont”), and individual investor Ethan Einwohner bring several causes of action under contract, tort, and equity against defendants in connection with the transfer of assets from an entity in which these investors held shares to an entity in which they did not. Plaintiffs allege that James Herrmann, Robert Gibbs, and Timothy Arion together formed EMX International LLC (“EMX-II”) to circumvent plaintiffs’ rights as shareholders in ISR Systems and Sensors Corp. (“ISR”) and its successors. Plaintiffs claim that defendants fraudulently conveyed ISR’s valuable assets — especially its corporate opportunity to purchase EMX Inc. — to a series of shell companies for no consideration, in breach of contract, and in breach of their fiduciary duties to plaintiffs as joint shareholders in ISR. Arion and EMX-II each move to dismiss the claims against them pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure for lack of personal jurisdiction.
II. BACKGROUND
In February of 2007, Herrmann founded ISR,
The Subscription Agreement included a forum selection clause providing that it “shall be governed by and construed under the laws of the State of New York,” which extended to “[a]ny legal suit, action or
ISR represented to Einwohner and Recurrent that it had entered into binding agreements with EMX Inc., Wave, and SensArray to acquire one hundred percent of their outstanding capital stock.
After the default, Herrmann and Highland reassured Recurrent and Einwohner that they were working to salvage the deal to acquire the two remaining companies, EMX Inc. and Wave.
Gibbs told Recurrent and Einwohner that they could still salvage their original investment in ISR by helping EMX Group acquire EMX Inc.
EMX Group had no officers, directors, or shareholders, and was wholly uncapitalized.
In October of 2010, Herrmann, Gibbs, and Arion created EMX-I, a Delaware corporation with its principal place of business in Florida, through which they hoped to finally complete the acquisition of EMX Inc.
In January of 2011, Herrmann, Gibbs, and Arion formed yet another company, EMX-II, a Delaware corporation with its principal place of business in Florida.
On January 31, 2012, plaintiffs brought the instant action seeking to: enforce the terms of the Subscription Agreement; enforce the terms of the Cragmont Note; recover damages arising out of defendants’ alleged breaches of fiduciary duties, misappropriation of corporate opportunity, and fraudulent conveyance; and recover restitution for defendants’ unjust enrichment.
III. LEGAL STANDARDS
A. Rule 12(b)(2) Motion to Dismiss
When a federal district court sits in diversity, “personal jurisdiction is determined by the law of the state in which the
B. Motion to Transfer Venue Under Section 1404(a)
Section 1404(a) provides that “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.” The moving party bears the burden of satisfying two requirements in order to successfully transfer an action under section 1404(a).
The court should consider the following factors in deciding a section 1404(a) transfer motion: (1) plaintiffs choice of forum, (2) the convenience to witnesses, (3) the location of relevant documents and ease of access to sources of proof, (4) the convenience of parties to the suit, (5) the locus of operative facts, (6) the availability of process to compel the attendance of unwilling witnesses, (7) the relative means of the parties, (8) the forum’s familiarity with the governing law, (9) trial efficiency, and (10) the interest of justice, based on the totality of circumstances.
The common law doctrine of forum non conveniens invests courts with the discretion to “dismiss a claim even if the court is a permissible venue with proper jurisdiction over the claim.”
D. The Enforceability of Forum Selection Clauses
Forum selection clauses are entitled to a “presumption of enforceability»”
A. Jurisdiction by Contractual Consent
A party can consent to personal jurisdiction by contract prior to litigation.
1. Successor-in-interest
The successorship doctrine “prevents parties to contracts from using evasive, formalistic means lacking economic substance to escape contractual obligations.”
The de facto merger doctrine invests courts with discretion to consider multiple factors “in a flexible manner that disregards mere questions of form and asks whether, in substance, ‘it was the intent of [the successor] to absorb and continue the operation of [the predecessor].’”
2. The Closely Related Doctrine
A non-party to a contract may be subject to its forum selection clause if the non-party is so “closely related” to either the parties to the contract
B. Breach of Fiduciary Duty
Although a precise definition of a fiduciary relationship is “ ‘impossible of statement,’ a fiduciary relationship may be found in any case ‘in which ... confidence has been reposed and betrayed.’ ”
V. DISCUSSION
A. This Court Has Personal Jurisdiction Over EMX-II
1. EMX-II Is the Successor-in-interest to ISR, EMX Group, and EMX-I
Plaintiffs argue that EMX-II is ISR’s successor-in-interest and, as such, is bound by the forum selection clause in the Subscription Agreement.
a. EMX Group Was ISR’s Successor-in-interest
Taking plaintiffs’ factual averments as true and drawing all inferences in their favor, the intent of EMX-II was “to absorb and continue the operation of’ ISR and its subsequent iterations.
Because EMX Group had common owners, physical location, and operations with ISR, its acquisition of ISR’s valuable business opportunities created a de facto merger of the two companies.
b. EMX-I Was EMX Group’s Successor-in-interest
History repeated itself in October of 2010, when Herrmann helped found a third company, EMX-I, at the same address as ISR and EMX Group.
EMX Group’s opportunity to acquire EMX Inc. was a valuable asset, based on a written commitment from EMX Inc.’s founder and CEO to sell one hundred percent of his company to EMX Group.
c. EMX-II Was EMX-I’s Successor-in-interest
In January of 2011, the ownership and management of EMX-I formed yet another company, EMX-II. EMX-II does not share a common address with ISR and its two predecessors.
2. The Forum Selection Clause Is Enforceable Against ISR and Its Successors
The series of de facto mergers imputes ISR’s liabilities and contractual obligations — including those under the 2008 Subscription Agreement — to all of ISR’s successors-in-interest.
Notably, neither Arion nor EMX-II disputes the enforceability of the forum selection clause against ISR. Instead, they argue that the clause grants the court personal jurisdiction if the plaintiffs “only want to pursue their breach of contract claims on the non-recourse speculative investment agreements.”
Because EMX-II has not argued that the forum selection clause is unjust or unfair, the clause is enforceable against ISR and its successors-in-interest, including EMX-II. Pursuant to the clause, I find that EMX-II has consented to jurisdiction in New York for all claims arising out of the Subscription Agreement, including several of the claims brought in this action. EMX-II’s contractual consent to jurisdiction “obviat[es] the need for a separate analysis of the [Constitutional] propriety of exercising personal jurisdiction.”
B. This Court Has Personal Jurisdiction Over Arion
Arion contends that because he is not a signatory to the Subscription Agreement, he is not bound by its forum
Because Arion was closely related to ISR’s efforts to obtain financing in New York, and because the Subscription Agreement was a product of those efforts, Arion is bound by the Subscription Agreement’s forum selection clause. Pursuant to the clause, I find that Arion has consented to jurisdiction in New York for all claims arising out of the Subscription Agreement, including several of the claims brought in this action. Arion’s contractual consent to jurisdiction “obviat[es] the need for a separate analysis of the [Constitutional] propriety of exercising personal jurisdiction.”
C. Transfer Under Section 1404(a)
While a forum selection clause will not necessarily dispose of a motion to transfer under section 1404(a), it should be “a significant factor that figures centrally in the district court’s [transfer] calculus.”
The totality of factors counsel in favor of keeping the case in New York. The fact that the forum selection clause was freely negotiated strongly suggests
While the Middle District of Florida may be an acceptable alternative forum, this Court provides an equally reasonable forum. Given that this Court is also the forum all parties agreed to in the Subscription Agreement and is the plaintiffs’ choice, transfer to Florida is inappropriate.
D. Forum Non Conveniens
In moving to dismiss on the grounds of forum non conveniens, the movant bears the burden of showing the existence of an alternative forum.
VI. CONCLUSION
For the foregoing reasons, all of defendants’ motions are denied. The Clerk of the Court is directed to close these motions [Docket No. 6]. A conference is scheduled for July 2 at 4:30 pm.
SO ORDERED.
. Arion resides in Florida and has no contacts with New York other than those described herein.
. The facts below include only those necessary for the resolution of the instant motions. For the purposes of these motions, all of plaintiffs' un-rebutted factual averments are taken as true.
.Arion disputes plaintiffs' allegation that he helped form and manage ISR, and held shares in it. Plaintiffs support their allegations by pointing to a Private Placement Memo ("PPM”) listing Arion as an officer and shareholder in the company. Because the PPM only describes Herrmann as ISR's founder, Arion is considered to be an officer and shareholder in ISR, but is not considered to have been involved in its formation.
. See PPM, Ex. 2 to Amended. Complaint (“Am. Compl.”), at 2, 4, 6.
. See Am. Compl. ¶¶ 20-21.
. Arion contends that he only did so in his capacity as CEO of EMX Inc. See 3/19/12 Affidavit of Timothy J. Arion (“Arion Aff.”) ¶¶ 7-10. For purposes of resolving these motions, I need not decide whether plaintiffs adequately rebutted his testimony.
. See Am. Compl. ¶21; 4/28/10 Email from Arion to Ezra Schwartz (Einwohner’s business partner) ("4/28 Email”), Ex. 4 to Am. Compl. (affirming that Arion had been working with Highland since Spring 2007); 5/5/10 Email from Arion to Gibbs (“5/5 Email”), Ex. 5 to Am. Compl. (affirming that Arion had worked with Herrmann and Highland on the proposed transactions).
. See Am. Compl. ¶¶ 5, 21.
. See id. ¶ 24.
. See id. ¶ 25.
. See id. ISR never actually signed the Subscription Agreement, but the contract did not require ISR to sign it in order to accept its terms. The Agreement defined acceptance as ISR receiving the Subscription Amount and not returning any of the payment within five days. See Subscription Agreement, Ex. 3 to Am. Compl. at 3. Because ISR did not return any such payment, the Subscription Agreement was a legally effective contract between Recurrent and ISR.
. See PPM at 20.
. See Am. Compl. ¶ 23.
. See PPM at 20.
. Am. Compl. ¶ 28; Subscription Agreement at 10.
. Am. Compl. ¶ 28; Subscription Agreement at 10.
. See Am. Compl. ¶ 19.
. See id. ¶ 30. The Amended Complaint is unclear as to the causal relationship between the death and the cashflow problem, but implies that ISR had acquired Sens Array by that point in time.
. See id. ¶ 31.
. See id. ¶¶ 34-36.
. See id. ¶¶ 8, 9, 38.
. See id. ¶ 40.
. See id. ¶ 38.
. Arion was the Chief Executive Officer and sole shareholder of EMX Inc. See id. ¶¶ 23, 39.
. See id. ¶ 39.
. See id. ¶ 41.
. See id. ¶ 42.
. See id. ¶¶ 43-46.
. See id. ¶¶ 43-48.
. See id. ¶ 44.
. See id.
. See id. ¶¶ 46-47.
. See id. ¶ 49.
. See id. ¶¶ 6, 49-52.
. See id. ¶ 52.
. See id. ¶¶ 10, 53-54.
. See id. ¶¶ 8-10.
. See id. ¶ 53.
. See id. ¶ 54.
. See id.
. See id. ¶ 55.
. See id. ¶¶ 11, 57.
. See id. ¶¶ 11, 12.
. See id. ¶ 57.
. See id. ¶ 58.
. DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001).
. Id. (citing Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)). Accord Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp., 751 F.2d 117, 120 (2d Cir. 1984).
. See Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 567 (2d Cir. 1996).
. A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993).
. Schenker v. Assicurazioni Genereali S.p.A., Consol., No. 98 Civ. 9186, 2002 WL 1560788, at *3 (S.D.N.Y. July 15, 2002).
.See id. at *1.
. See D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 106 (2d Cir. 2006).
. Fellus v. Sterne, Agee & Leach, Inc., 783 F.Supp.2d 612, 617 (S.D.N.Y. 2011) (citing Stewart Org. v. Ricoh Corp., 487 U.S. 22, 30, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988)).
. In re Cuyahoga Equip. Corp., 980 F.2d 110, 117 (2d Cir. 1992) (citing Stewart, 487 U.S. at 29, 108 S.Ct. 2239).
. See Fellus, 783 F.Supp.2d at 617-18; see also D.H. Blair, 462 F.3d at 106-07 (listing factors 1-7 as “some” of the factors to consider).
. PT United Can Co. v. Crown Cork & Seal Co., 138 F.3d 65, 73 (2d Cir. 1998).
. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981) (quoting Roster v. Lumbermens Mut. Cas. Co., 330 U.S. 518, 67 S.Ct. 828, 91 L.Ed. 1067 (1947) (quotation marks omitted)).
. Id. at 253, 102 S.Ct. 252.
. Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp., 549 U.S. 422, 430, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007) (quoting American Dredging Co. v. Miller, 510 U.S. 443, 449, n. 2, 114 S.Ct. 981, 127 L.Ed.2d 285 (1994) (internal citation omitted)).
. Id.
. See Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 100 (2d Cir. 2000).
. Aguas Lenders Recovery Group v. Suez, S.A., 585 F.3d 696, 700 (2d Cir. 2009).
. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972).
. 407 U.S. at 18, 92 S.Ct. 1907.
. TradeComet.com LLC v. Google, Inc., 647 F.3d 472, 475-76 (2d Cir. 2011) (rejecting the notion that M/S Bremen only applies to admiralty law or international agreements).
. Stewart, 487 U.S. at 29, 108 S.Ct. 2239.
. Id.
. See National Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 315-16, 84 S.Ct. 411, 11 L.Ed.2d 354 (1964) ("[I]t is settled ... that parties to a contract may agree in advance to submit to the jurisdiction of a given court.”).
. Packer v. TDI Sys., Inc., 959 F.Supp. 192, 196 (S.D.N.Y. 1997) (citing Jones v. Weibrecht, 901 F.2d 17, 18 (2d Cir. 1990)). Accord D.H. Blair & Co., 462 F.3d at 103 (no due process analysis needed once court established personal jurisdiction through a forum selection clause).
. Aguas Lenders, 585 F.3d at 701 (citing with approval Holland Am. Line Inc. v. Wartsila N. Am., Inc., 485 F.3d 450 (9th Cir. 2007); Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir. 1983), overruled on other grounds by Lauro Lines s.r.l. v. Chasser, 490 U.S. 495, 109 S.Ct. 1976, 104 L.Ed.2d 548 (1989); TAAG Linhas Aereas de Angola v. Transam. Airlines, Inc., 915 F.2d 1351 (9th Cir. 1990); Marano Enters. of Kansas v. Z-Teca Rests., L.P., 254 F.3d 753 (8th Cir. 2001); Lipcon v. Underwriters at Lloyd’s, London, 148 F.3d 1285 (11th Cir. 1998); Hugel v. Corp. of Lloyd’s, 999 F.2d 206 (7th Cir. 1993); Bonny v. Society of Lloyd’s, 3 F.3d 156 (7th Cir. 1993)).
. See id. ("[A] forum selection clause is integral to the obligations of the overall contract, and a successor in interest should no more be able to evade it than any other obligation under the agreement.”).
. See, e.g., Nanopierce Techs., Inc. v. Southridge Capital Mgmt. LLC, No. 02 Civ. 0767, 2003 WL 22882137 at *5-6 (S.D.N.Y. Dec. 4, 2003) (non-party to contract bound by its forum selection clause by virtue of being closely related to signatory company in her capacity as its CFO).
. Aguas Lenders, 585 F.3d at 701 (citing United States v. Mexico Feed and Seed Co., Inc., 980 F.2d 478, 487 (8th Cir. 1992) and Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240, 1246 (6th Cir. 1991)).
. See Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41, 45 (2d Cir. 2003).
. Nettis v. Levitt, 241 F.3d 186, 194 (2d Cir. 2001) (per curiam) (quoting Woodrick v. Jack J. Burke Real Estate, Inc., 306 N.J.Super. 61, 703 A.2d 306, 314 (N.J.Super.Ct.App.Div. 1997)), rev’d on other grounds, Slayton v. American Exp. Co., 460 F.3d 215 (2d Cir. 2006).
. See id.
. New York v. National Service Indus., Inc., 460 F.3d 201, 211 (2d Cir. 2006) (quoting Cargo Partner, 352 F.3d at 47).
. Id. (quoting United States v. General Battery Corp., 423 F.3d 294, 305 (3d Cir. 2005)).
. See In re Optimal U.S. Litig., 813 F.Supp.2d 351, 369 (S.D.N.Y. 2011) (“a forum selection clause may bind non-parties to a contract if 'the relationship between the non-party and the signatory [is] sufficiently close so that the non-party’s enforcement of the forum selection clause is foreseeable by virtue of the relationship between the signatory and the party sought to be bound.’ ”) (quoting Direct Mail Prod. Servs. Ltd. v. MBNA Corp., No. 99 Civ. 10550, 2000 WL 1277597, at *3 (S.D.N.Y. Sept. 7, 2000)).
. See, e.g., Cuno, Inc. v. Hayward Indust. Prods., Inc., No. 03 Civ. 3076, 2005 WL 1123877 (S.D.N.Y. May 10, 2005) (non-party is closely related to dispute when its interests are derivative of and predicated upon the interests of the signatory).
. In re Lloyd’s Am. Trust Fund Litig., 954 F.Supp. 656, 669 (S.D.N.Y. 1997).
. See, e.g., Thibodeau v. Pinnacle FX Invs., No. 08 Civ. 1662, 2008 WL 4849957, at *5 n. 4 (E.D.N.Y. Nov. 6, 2008) (principals of signatory corporation bound because they were closely related to the signatory and being sued in connection with their activity at signatory corporation); Cfirstclass Corp. v. Silverjet PLC, 560 F.Supp.2d 324, 329 (S.D.N.Y. 2008) (successor to signatory was closely related); Burrows Paper Corp. v. Moore & Assocs., No. 07 Civ. 62, 2007 WL 2089682, at *3 (N.D.N.Y. July 20, 2007) (third-party beneficiary is closely related as it would "defy logic” to allow non-signatory to seek enforcement of the agreement but avoid its obligations); Weingrad v. Telepathy, Inc., No. 05 Civ.2024, 2005 WL 2990645, at *5-6 (S.D.N.Y. Nov. 7, 2005) (finding non-signatories closely related where they allegedly acted in concert); Nanopierce, 2003 WL 22882137, at *5-6 (enforcing forum selection clause against CFO of signatory company).
.See, e.g., Nanopierce, 2003 WL 22882137, at *5-6; Thibodeau, 2008 WL 4849957, at *5 n. 4; Firefly Equities, LLC v. Ultimate Combustion Co., Inc., 736 F.Supp.2d 797, 799 (S.D.N.Y. 2010) (binding corporate officer to contract signed in his capacity as corporate officer). See also Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 514 n. 5 (9th Cir. 1988) (enforcing forum selection clause against non-signatory directors of a corporation).
. See Hugel, 999 F.2d at 210 ("In order to bind a non-party to a forum selection clause, the party must be 'closely related’ to the dispute such that it becomes 'foreseeable' that it will be bound.”).
. United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc., 216 F.Supp.2d 198, 218 (S.D.N.Y. 2002) (quoting Penato v. George, 52 A.D.2d 939, 383 N.Y.S.2d 900, 904 (2d Dep’t 1976)).
. EBC I, Inc. v. Goldman Sachs & Co., 5 N.Y.3d 11, 19, 799 N.Y.S.2d 170, 832 N.E.2d 26 (2005) (citing Northeast Gen. Corp. v. Wellington Adv., 82 N.Y.2d 158, 604 N.Y.S.2d 1, 624 N.E.2d 129 (1993)).
. American Fed. Group, Ltd. v. Rothenberg, 136 F.3d 897, 905 (2d Cir. 1998) (quoting Benson v. RMJ Sec. Corp., 683 F.Supp. 359, 375 (S.D.N.Y. 1988)).
. Benson, 683 F.Supp. at 374.
. American Fed. Group, 136 F.3d at 906.
. See Opp. Mem. at 27-28.
. Aguas Lenders, 585 F.3d at 701.
. Nettis, 241 F.3d at 194; Am. Compl. ¶¶ 38-39, 53-54, 57-58.
. See PPM.
. See Am. Compl. ¶¶ 18-23.
. See id. ¶ 34-38.
. See id. ¶¶ 8-9.
. See id. ¶ 39.
. See id. ¶ 44.
. PPM at 5.
. See Nettis, 241 F.3d at 194.
. National Service Indus., 460 F.3d at 211 (quoting General Battery Corp., 423 F.3d at 306 (quotation marks omitted)).
. See Am. Compl. ¶¶ 8-10, 53.
. See id. ¶¶ 18, 38, 53.
. See id. ¶¶ 53-54.
. See id. ¶ 39.
. See id. ¶ 49.
. See id. ¶¶ 8-11.
. See id. n 11-12.
. See id. ¶ 58.
. See id.
. See Nettis, 241 F.3d at 193; Aguas Lenders, 585 F.3d at 701.
. Aguas Lenders, 585 F.3d at 701.
. Reply Memorandum of Law in Further Support of Motion to Dismiss Plaintiffs’ Complaint or Transfer this Matter to the District Court for the Middle District of Florida ("Reply Mem.”) at 1.
. Id.
. See, e.g., Fed.R.Civ.P. 18; CPLR § 601.
. Subscription Agreement at 10.
. See Benson, 683 F.Supp. at 374.
. Packer, 959 F.Supp. at 196.
. See Reply Mem. at 6-7. This argument is particularly weak given that the duly executed Subscription Agreement did not require a signature for acceptance. See Subscription Agreement at 3; Am. Compl. ¶ 25.
. 2003 WL 22882137.
. See id. at *6.
. See PPM at 58-60.
. See id. at 20.
. See Am. Compl. ¶ 21
. See 4/28 Email; 5/5 Email.
. See Am. Compl. ¶ 23.
. See id.; PPM at 59.
. Packer, 959 F.Supp. at 196.
. Stewart, 487 U.S. at 29, 31, 108 S.Ct. 2239.
. See id. at 29, 108 S.Ct. 2239 ("[T]he District Court will be called on to address such issues as ... the fairness of transfer in light of the forum-selection clause and the parties' relative bargaining power.”).
. See Opp. Mem. at 33.
. See Memorandum of Law in Support of Defendants’ Motion to Dismiss Plaintiffs’ Complaint for Lack of Jurisdiction and Forum Non Conveniens or, Alternatively, to Refer this Matter to the District Court for the Middle District of Florida at 15.
. Sinochem Int'l, 549 U.S. at 430, 127 S.Ct. 1184.
. Id.
Reference
- Full Case Name
- RECURRENT CAPITAL BRIDGE FUND I, LLC, Cragmont Capital LLC and Ethan Einwohner v. ISR SYSTEMS AND SENSORS CORP., EMX Group, Inc., EMX International, Inc., EMX International LLC, James M. Herrmann, Robert V. Gibbs and Timothy Arion
- Cited By
- 31 cases
- Status
- Published