Source: http://ny.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20070815_0000708.SNY.htm/qx
Timestamp: 2019-04-20 10:35:43+00:00

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In this diversity action, plaintiffs seek to hold defendant UBS, AG ("UBS" or "the bank") responsible for its alleged role in connection with a massive "pump and dump" scheme perpetrated by two corporate insiders of a software company, who fraudulently inflated the company's value and then sold their shares and funneled these funds through banks in Switzerland and elsewhere. In this motion defendant seeks to dismiss the complaint on three separate grounds: (1) forum non conveniens; (2) preemption of the claims by the Securities Litigation Uniform Standards Act, 15 U.S.C. §§ 77, 78 ("SLUSA"); and (3) failure to state a claim upon which relief may be granted pursuant to Fed. R. Civ. P. 12(b)(6). For the following reasons, I dismiss the complaint on the ground of forum non conveniens.
Much of the following account is drawn from the complaint, whose well-pleaded factual allegations are taken as true on this motion. AremisSoft Corporation ("AremisSoft" or "the Company") was a software company, incorporated in Delaware. From about 1998 through July of 2001, Lycourgos Kyprianou and Roys Poyiadjis, two Cypriots who were officers of the Company,*fn1 caused the Company to issue false public statements and regulatory filings representing to the public that it was experiencing rapid growth when in fact its growth nowhere neared the stated revenues. Compl. ¶ 2. The two men caused AremisSoft to announce publicly that it had acquired other software companies of significant value, when, in reality, the companies were small and had been acquired for much less than the announced price. They fabricated records in support of these falsehoods. Id.
The effect of these fraudulent misrepresentations was that the value and profitability of the Company were perceived to be much greater than they actually were, and consequently the price at which the Company's shares were traded on the open market was artificially high. Kyprianou and Poyiadjis sold their shares at these inflated prices to investors who were not privy to their knowledge concerning the true value of the Company. In order to give the impression that their stock sales were arm's length sales by other investors, the two corporate insiders devised a money laundering scheme, employing various entities to hold and sell their AremisSoft stock. When the truth about the Company was revealed, the value of the stock plummeted, and investors suffered great losses. By the time the fraud was exposed in the summer of 2001, the investing public had sustained losses of approximately $500 million. Id. ¶ 3. On or about March 15, 2002, AremisSoft filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. Id. ¶ 7.
Neither of the swindlers, whose acts of fraud and theft are undisputed, is a party to this case. Kyprianou is in Cyprus, and Poyiadjis is awaiting sentencing in this Court, having pleaded guilty to fraud. See United States v. Poyiadjis, et al., 01 Cr. 1177, 2002 WL 1941481 (S.D.N.Y. Aug. 21, 2002) (cited in Pl.'s Mem. in Opp'n, at 9). Defendant UBS is a private Swiss bank through which some of the Cypriots' ill-gotten gains passed. UBS's principal place of business is in Zurich, Switzerland. Compl.¶ 13.
Plaintiffs are co-trustees of the AremisSoft Corporation Liquidating Trust (the "Trust"), a Delaware trust formed pursuant to three orders by District Judge Pisano of the District of New Jersey in connection with AremisSoft's voluntary bankruptcy: (1) a July 2002 order confirming the First Amended Joint Plan of Reorganization of AremisSoft ("Plan of Reorganization"); (2) an August 2002 order approving a Class Action Settlement, which had settled a consolidated class action brought by former shareholders against AremisSoft; and (3) an August 2002 order correcting the Order and Final Judgment previously entered in respect of AremisSoft's Chapter 11 bankruptcy petition. Id. ¶ 7. The governing documents for the Trust are the Plan of Reorganization and the Liquidating Trust Agreement ("Trust Agreement").
This action seeks to pursue some of the claims assigned to the Trust. Under the Plan of Reorganization, the Trust was assigned claims from the Class Action Settlement as well as all of AremisSoft's claims arising pre-bankruptcy. Id. ¶ 8. The Trust beneficiaries number over 6,000 persons and entities. Id. ¶ 78.
Plaintiffs have already litigated Trust claims abroad. They commenced a chancery action in the Isle of Man against Kyprianou, Poyiadjis, and others. Id. ¶¶ 79, 80. After more than two years of litigation there, the United States government, the plaintiffs, Poyiadjis, and members of his family and others entered into a Settlement Agreement whereby Poyiadjis agreed to pay approximately $200 million to settle charges against him. Id. Plaintiffs maintain that it was through these proceedings that they obtained documents giving rise to their claims in the instant action. Id. ¶¶ 83, 84.
This case, along with the related cases filed by the plaintiff Trustees against Lloyds TSB, PLC ("Lloyds") and the Bank of Cyprus Public Company Limited ("Bank of Cyprus"),*fn2 turns on the role of a bank in facilitating the fraud and/or the money laundering of one or both of the swindlers and their co-conspirators. The gravamen of the complaint in this case is that "despite the fact that it was aware that the account [with the Bank] was being used in a manner that was designed to conceal the proceeds of illegal conduct, UBS continued to permit Poyiadjis, Kyprianou, and those acting on their behalf, to use the account to launder money in furtherance of their fraudulent scheme." Id. ¶ 6. In the elaborate money laundering scheme described in the complaint, Poyiadjis and Kyprianou would transfer their AremisSoft shares to various entities under their control. Id. ¶¶ 125, 126. Some of the banks they dealt with, including Bordier et Cie ("Bordier") and Dominick Company AG ("Dominick"), then assisted in the sale of shares. Id. ¶ 127, 130. Next, the proceeds of these sales were transferred among various accounts in Switzerland, including the account at UBS. Id. ¶ 128. Finally, approximately $175 million was transferred from these accounts to banks in the Isle of Man, and millions more were transferred to accounts controlled by Kyprianou. Id. ¶ 129.
Three entities used for these purposes were called the Trident Trust, Onyx, and Oracle Capital, Inc. The Trident Trust was an Isle of Man trust formed in 2000, whose stated beneficiaries were Poyiadjis family members. Id. ¶ 105. Onyx was an entity incorporated in 1998 whose assets formed the corpus of the Trident Trust. Id. ¶ 108. Oracle Capital was an entity wholly owned by the Trident Trust. Id. ¶ 110. The Trident trustees arranged for Oracle to open an account at UBS. According to documents signed by Bank employees, and submitted in connection with the opening of the account at UBS on February 28, 2001, the beneficial owner of the assets in the account was Roys Poyiadjis's father Spyros Poyiadjis "through THE TRIDENT TRUST." Id. ¶ 111. On March 9, 2001, $47 million was transferred from the Onyx account at the Swiss bank Bordier to the UBS account. Id. ¶ 121.
(a) As of July 2000, Onyx, controlled by and for the benefit of Roys Poyiadjis, held AremisSoft shares in two certificates. . . . Each of those certificates had restricted legends on them and thus could not be freely traded.
(b) On September 14, Bartel*fn3 wrote to the Company's [i.e. AremisSoft's] transfer agent authorizing the removal of the restrictive legends and asking the transfer agent to "reissue a legend-free stock certificate for 779,620 shares." Poyiadjis also wrote to the transfer agent a hand-written note in which he, too, asked that the legends be removed and the shares be returned to him at his New York address. As requested, the transfer agent canceled the two certificates and reissued a new, unrestricted certificate, Certificate No. 1465, in the amount of 779,620 shares.
(c) Poyiadjis then requested, in a hand-written note, that Certificate No. 1465 be broken into two once again, into certificates of 400,000 shares and 379,620 shares, and that the certificates be sent to him. The transfer agent did as directed, canceled Certificate No. 1465, issued Certificate No. 1472, for 400,000 shares, and No. 1473, for 379,620 shares, and sent them to Poyiadjis. Poyiadjis, however, lost the certificates and had to request re-issuance of each certificate. The agent re-issued once again, and Certificate No. 1483, for 400,00 [sic] shares, and No. 1484, for 379,620, were issued. Pursuant to a hand-written note from Poyiadjis dated September 25, 2000, those certificates were sent to Grut*fn4 in Monaco by overnight delivery.
(d) Bordier received the shares on or about October 3, 20000 and deposited them into an account at Bordier which was held in the Onyx name and had been opened by Grut on September 28, 2000. Bordier immediately sent the shares to BBH*fn5 for sale, and BBH received the shares on October 4, 2000. . . .
(e) BBH then sold the 400,000 shares in 11 separate blocks beginning on October 9, 2000 and ending on November 2, 2000, with total proceeds exceeding $14 million. After transfers were made into the Bordier Onyx account from some of the other 14 Swiss accounts controlled by Meyer, Grut and Baines,*fn6 all of which were derived almost exclusively from the sale of AremisSoft stock, funds were transferred out of the Bordier Onyx account to the UBS Oracle account and the Hentsch Oracle account on March 7, 2001. From those two accounts, as discussed below, fund transfers were made into the Oracle account at Fleming in the Isle of Man on July 26, 2001. (f) On March 7, 2001, $47,000,024.29 was transferred from the Onyx account at Bordier and received into the UBS account on March 9, 2001.
Id. In addition to these shares belonging to Poyiadjis, proceeds of the sale of shares belonging to Kyprianou and his exercise of AremisSoft stock options were allegedly transferred to the Oracle UBS account in June of 2001 and later that month transferred into an account at the Bank of Cyprus. Id. ¶¶ 141-48.
The complaint states that by mid-May, 2001, there were "widespread media reports" about the inflated revenues reported by Kyprianou and Poyiadjis and other components of their fraudulent scheme. Id. ¶ 134. On May 21, 2001, an article entitled "The Plot Thickens: Bulgaria Disputes AremisSoft's Claims" reported that Bulgarian officials and the World Bank had confirmed that an AremisSoft contract to automate the nationwide healthcare system of Bulgaria was worth far less than reported. Id. ¶ 135; see also id. ¶¶ 31-53. On July 6, 2001, trustees of the Trident Trust wrote UBS to inform the bank of their decision to consolidate their banking in the Isle of Man. Id. ¶ 138. On July 12, 2001, $35,080,000 was transferred from the UBS account to the Isle of Man Bank, but these funds were returned from that bank on July 16, 2001, and on July 26, 2001 UBS transferred substantially the same amount to a different bank on the Isle of Man. Id. All of this was just weeks before NASDAQ suspended trading of AremisSoft on July 30. Id. ¶ 19. On August 28, 2001, the day before AremisSoft was delisted from NASDAQ, the UBS account was closed and the balance sent to an account in the Isle of Man. Id. ¶ 140.
The complaint contains two counts. Count I alleges that the bank aided and abetted the breach of fiduciary duty perpetrated by Kyprianou and Poyiadjis against AremisSoft. Count II is a Swiss tort claim based upon UBS's alleged violations of Swiss statutory law provisions. Specifically, Count II alleges substantive violations of three statutory provisions: (1) the Federal Act on Prevention of Money Laundering in the Financial Sector ("Money Laundering Act"), which requires banks to verify the identity of the customer opening an account through examination of proper documentation; requires banks to identify the beneficial owner of the assets in the account if the customer is not the owner; and requires additional investigation and reporting measures where a customer engages in unusual transactions or there is reason to suspect that assets in the account are proceeds of criminal conduct, see id. ¶¶ 90, 93-95; (2) Article 305ter of the Swiss Federal Code of Criminal Law, which prohibits financial intermediaries from accepting, holding on deposit, investing, or transferring assets or failing to determine the identity of the beneficial owner of the assets without the necessary diligence required by circumstances, see id. ¶ 91; and (3) Article 305bis of the Swiss Federal Code of Criminal Law, which prohibits anyone from taking action to frustrate the discovery, tracing, or recovery of funds he or she knows or must assume are the proceeds of criminal conduct, see id. ¶¶ 92. It is contended that if UBS had heeded its obligations under these statutes as well as under banking requirements,*fn7 the Bank would have taken steps to verify the beneficial owner/s of the accounts, and the two swindlers would have been unsuccessful in their scheme. Id. ¶¶ 88, 89, 101. Plaintiffs allege that under Article 41 of the Swiss Code of Obligations, which provides that anyone who causes harm to another (whether willfully or negligently) shall be liable for damages, civil damages may be awarded for violations of these statutory provisions. Id. ¶ 162.
After defendant had filed its motion, but before the motion was fully briefed, District Judge Pisano dismissed a similar case brought by the same plaintiffs in the District of New Jersey against two private Swiss banks. See LaSala & Zeidman v. Bordier et Cie & Dominick, 452 F. Supp. 2d 575 (D. N.J. 2006). The complaint in that case had, like the complaint at bar, asserted tort and Swiss statutory claims. Judge Pisano dismissed all the claims on the ground that the entire action was preempted by SLUSA. Id. at 579-91.
In that case, defendants had filed a separate motion to dismiss on the basis of forum non conveniens and lack of personal jurisdiction, but "contend[ed] that dismissal under SLUSA . . . is a subject matter jurisdiction inquiry pursuant to Rules 12(b)(1) and 12(h)(3)." 452 F. Supp. 2d at 577 n.1.While Judge Pisano noted that the case had been brought on the basis of diversity jurisdiction, he said, "The Court need not resolve whether this motion is properly brought pursuant to Rule 12(b)(1) and/or Rule 12(h)(3)," because the parties agreed that SLUSA would be addressed before other pending motions and the outcome of his SLUSA analysis rendered the other pending motions moot. Id.
SLUSA preemption is certainly a question of subject matter jurisdiction when the case comes to federal court via removal from a state court. See Spielman v. Merrill Lynch et al., 332 F.3d 116, 122-25 (2d Cir. 2003); Aruaujo v. John Hancock Life Ins. Co., 206 F. Supp. 2d 377, 380 (E.D.N.Y. 2002). For claims that fall within SLUSA, the statute preempts actions removed from state courts "by essentially converting a state law claim into a federal claim," Spielman, 332 F.3d at 123, and then mandating its dismissal. As Judge Lynch of this Court has pointed out, however, the statute contains separate provisions concerning "preemption as a jurisdictional mechanism requiring removal" and "preemption as a defense to state-law claims."Winne v. Equitable Life Assurance Soc. of U.S, 315 F. Supp. 2d 404, 409 (S.D.N.Y. 2003). Preemption therefore appears in SLUSA in the form of both a jurisdictional provision and a failure to state a claim provision. Normally, as Judge Newman pointed out in a concurring opinion in Spielman, the two are "the opposite sides of the same coin." Spielman, 332 F.3d at 132. See also Winne, 315 F. Supp. 2d at 409. The case at bar was not removed from a state court to this Court. Plaintiffs initially filed their complaint in this Court on the basis of diversity of citizenship. In consequence, SLUSA is a preemption defense and, as such, one of a number of preliminary grounds for dismissal, among which a judge has discretion to choose when deciding whether to dismiss a case. See Sinochem Int'l Co. Ltd. v. Malaysia Int'l Shipping Corp., 127 S.Ct. 1184, 1186 (2007) (a federal court "has leeway to choose among threshold grounds for denying audience to a case on the merits") (citation and internal quotation marks omitted). In the exercise of that discretion, I consider first the forum non conveniens ground for dismissal.
The doctrine of forum non conveniens permits a court to dismiss an action "even if the court is a permissible venue with proper jurisdiction over the claim." Carey v. Bayerische Hypo-Und Verinsbank AG, 370 F.3d 234, 237 (2d Cir. 2004) (citation omitted). A district court should dismiss a complaint where, on balance, the resolution of the matter in an adequate alternative forum would be more convenient for the parties and courts and more just. See R. Maganlal & Co. v. M.G. Chem. Co., 942 F.2d 164, 167 (2d Cir. 1991) ("The central purpose of a forum non conveniens inquiry is to determine where trial will be most convenient and will serve the ends of justice."). "The first step in a forum non conveniens analysis is for the court to establish the existence of an adequate alternative forum. Second, the court must determine the level of deference to accord the plaintiff's choice of forum. Third, the court must weigh the public and private interests in order to determine which forum will be most convenient and will best serve the ends of justice." USHA (India), Ltd. v. Honeywell Int'l, Inc., 421 F.3d 129, 134 (2d Cir. 2005) (emphasis in original) (internal question marks omitted).
A decision to dismiss "lies wholly within the broad discretion of the district court and may be overturned only when we believe that discretion has been clearly abused." Id. at 134 (quotation omitted). "In the last analysis, it always must be borne in mind that there is no algorithm that assigns precise weights to the factors that inform forum non conveniens determinations. The doctrine instead is intensely practical and fact-bound. The most that may be said is that courts reach informed judgments after considering all of the pertinent circumstances." First Union Nat'l Bank v. Paribas, 135 F. Supp. 2d 443, 448 (S.D.N.Y. 2001), aff'd sub nom., First Union Nat'l Bank v. Arab African Int'l Bank, 48 Fed. Appx. 801 (2d Cir. 2002) (unpublished opinion).
An alternative forum is adequate "if the defendants are amenable to service of process there, and if it permits litigation of the subject matter of the dispute." Pollux Holding Ltd. v. Chase Manhattan Bank, 329 F.3d 64, 75 (2d Cir. 2003). The test does not require that the alternative forum provide the same degree of relief. See Fitzgerald v. Texaco, Inc., 521 F.2d 448, 453 (2d Cir. 1975) (district court "has discretion to dismiss an action under the doctrine of forum non conveniens, . . . even though the law applicable in the alternative forum may be less favorable to the plaintiff's chance of recovery"). "Absent . . . a fundamental obstacle to a plaintiff's recovery . . . American courts are not prone to characterizing a sovereign nation's courts as 'clearly unsatisfactory.' International comity plays a part in this context as well." Sussman v. Bank of Israel, 801 F. Supp. 1068, 1076 (S.D.N.Y. 1992), aff'd, 990 F.2d 71 (2d Cir. 1993).
Because defendant may properly be sued in Switzerland, see Decl. Isabelle Romy in Supp. Def.'s Mot. Dismiss, dated June 2, 2006 ("Romy Decl."), ¶¶ 24-26, only the second part of the test is at issue. Both parties agree that Switzerland does not recognize a cause of action for aiding and abetting a breach of fiduciary duty parallel to that brought by plaintiffs, and therefore that if this case were tried in Switzerland, and Swiss law were applied, Count I will fail. See Def.'s Mem., at 18; Romy Decl., ¶¶ 34-36 (Swiss law recognizes aiding and abetting liability only in criminal context); Pl.'s Mem. in Opp'n, at 8. Plaintiffs contend that since Switzerland does not afford plaintiffs a cause of action comparable to Count I, and since defendant also maintains that plaintiffs have no claim under Swiss law, Switzerland is an inadequate alternative forum. See Pl.'s Mem. in Opp'n, at 8.

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