[*1]
| Mashreqbank PSC v Ahmad Hamad Algosaibi & Bros.
Co. |
| 2013 NY Slip Op 51185(U) [40 Misc 3d 1214(A)] |
| Decided on July 18, 2013 |
| Supreme Court, New York County |
| Schweitzer, J. |
| Published by New York State Law Reporting
Bureau pursuant to Judiciary Law § 431. |
| This opinion is uncorrected and will not be
published in the printed Official Reports. |
Supreme Court, New York County
Mashreqbank
PSC, Plaintiff,
against
Ahmad Hamad Algosaibi & Brothers Co., Defendant.
|
601650/09
Melvin L. Schweitzer, J.
Statement of Facts
This is a motion by Mashreqbank PSC (Mashreqbank) to dismiss the
counterclaim filed by Ahmed Hamad Al Gosaibi & Brothers Co., (AHG) alleging that
Mashreqbank aided and abetted fraud and other wrongful conduct of Mr. Maan Al Sanea
( formerly, AHG's manager). Mashreqbank moves to dismiss AHG's counterclaim for
failure to state an actionable claim.
AHG is a general partnership organized under the laws of the Kingdom of
Saudi Arabia. Mashreqbank is a banking corporation established and existing under the
laws of the United Arab Emirates (UAE).
The following facts are taken from the AHG's counterclaim. AHG and
Mashreqbank had a commercial banking relationship. Mashreqbank filled many banking
needs for the AHG and its subsidiaries, including performance of foreign exchange
transactions. One of AHG's businesses includes the Money Exchange business division
(Money Exchange). The Money Exchange provides remittance services to the large
number of expatriate workers in the Kingdom of Saudi Arabia.
In 2000, Mashreqbank agreed to provide a credit facility to the Money
Exchange. AHG alleges that its former manager, then head of Money Exchange, abused
his position to fraudulently exploit the AHG's credit in order to finance his own separate
business empire. AHG alleges that over a period of four years, its former manager
engaged in hundreds of unauthorized foreign exchange transactions with Mashreqbank.
AHG claims that the scheme by its manager entailed the continuous borrowing of
ever-increasing amounts in AHG's name, first to refinance borrowing and second, to
provide funds that could be diverted for personal use. AHG alleges that key to the
success of this scheme was the use of purported foreign exchange deals with
Mashreqbank to generate an ever-growing source of short term cash. AHG claims that
Mashreqbank is liable to it for aiding and abetting its former manager's fraudulent
scheme.
Procedural History
In
the last of the foreign exchange transactions between the parties, Mashreqbank paid
[*2]$150 million into an account in New York City.
AHG alleges that its manager instead of completing his part of the currency trade by
depositing an equivalent amount of Saudi riyals to Mashreqbank's credit stole the funds,
leaving AHG as borrower, to account to Mashreqbank for the loss.
In May 2009, Mashreqbank filed a complaint in the UAE against AHG to
recover payment on this transaction. In January 2012, the Court of First Instance in
Dubai, UAE entered a judgment (Dubai judgment) in favor of the Mashreqbank. The
parties do not dispute that the Dubai judgment resulted from litigation of the same
subject matter now pending before this court between the same parties.
Mashreqbank claims that AHG's counterclaim is precluded by the Dubai
judgment. Mashreqbank claims that even if this court were to consider the counterclaim,
it ought to be dismissed for failure to state a claim under UAE and/or New York law.
Discussion
On a
motion to dismiss for failure to state a cause of action, the court accepts all factual
allegations pleaded in plaintiff's complaint as true, and gives plaintiff the benefit of every
favorable inference. CPLR 3211 (a) (7); Sheila C. v Povich, 11 AD3d 120 (1st Dept 2004). The
court must determine whether "from the [complaint's] four corners[,] factual allegations
are discerned which taken together manifest any cause of action cognizable at law." Gorelik v Mount Sinai Hosp.
Ctr., 19 AD3d 319 (1st Dept 2005) (quoting Guggenheimer v Ginzburg,
43 NY2d 268, 275 (1977)). Vague and conclusory allegations are not sufficient to
sustain a cause of action. Fowler v American Lawyer Media, Inc., 306 AD2d 113
(1st Dept 2003).
Preclusion by Dubai
judgment
Mashreqbank contends that AHG's claims are
precluded as a matter of law by the doctrines of res judicata and collateral
estoppel.
Mashreqbank alleges that the issues raised by AHG in the counterclaim have
been resolved by the Dubai judgment. Mashreqbank asserts that UAE commercial law
recognizes the principle of res judicata and collateral estoppel, and does not
allow for identical claims between same parties to be re-litigated. Mashreqbank relies
upon Mr. Hassan Araab's affidavit, a lawyer admitted to practice in the UAE, to submit
that as a matter of UAE law, "the parties are barred from relitigating a second lawsuit on
the same claim even with legal and factual evidence that was not raised in the first suit,
or had been raised but was not addressed in the earlier decision on the issue lying at the
heart of the cause of action being asserted by either party against the other i.e. the
principal issue the parties have fought out in the first lawsuit that has been definitively
settled by the first decision and cannot be subject to a fresh judicial examination."
Mashreqbank cites the court's judgment in Watts v Swiss Bank
Corp., 27 NY2d 270, 275 (1970) to argue that New York law requires that the Dubai
judgment be given the same preclusive effect that it would be given by a UAE court.
Mashreqbank asserts that the Dubai judgment has a preclusive effect on AHG's alleged
claims in the UAE, and precludes AHG's claims in this court.
AHG disputes the preclusive effect of the Dubai judgment in UAE. AHG
argues that the judgment is not enforceable in UAE. AHG quotes from the Dubai
judgment to claim that it expressly states that it is not enforceable: "In response to the
request that the judgment be given expedited enforcement, the Court found that there is
no necessity for the same and hereby rejects it." AHG contends that UAE law provides
that a judgment on appeal is not final and does not serve as res judicata in a
second proceeding. AHG cites Mr. Majed Assad's affidavit, counsel [*3]for AHG in UAE that the Dubai judgment is subject to de
novo review on appeal, on matters of both law and fact, and the Court of Appeal may
take new evidence and hear new arguments. AHG asserts that without further orders, the
Dubai judgement cannot be enforced and is not entitled to res judicata effect in
the UAE. AHG contends that the Dubai judgment is not barred by res judicata in
UAE. As such, its counterclaim is not precluded in this court by the Dubai judgment.
With respect to Mashreqbank's defense of collateral estoppel, AHG counters
that UAE commercial law is modelled after European civil law where the concept of
collateral estoppel is not recognized.
Res judicata and collateral estoppel prevent a party from relitigating
claims or issues, identical to those litigated or resolved in a prior action. Watts v
Swiss Bank Corp., 27 NY2d 270 (1970). In New York, the doctrine of res
judicata gives binding effect to the judgment of a court of competent jurisdiction and
prevents the parties to an action, and those in privity with them, from subsequently
relitigating any questions that were necessarily decided therein. Matter of Shea,
309 NY 605, 616 (1956). In Langerman v Langerman, 303 NY 465, 473-474
(1952), the court held that the law of the rendering jurisdiction, insofar as it limits the
effect of its own judgments, would also limit elsewhere the preclusive effect of the
judgment and the definition of the parties bound.
In New York, recognition of foreign judgments and the application of res
judicata doctrines to domestic judgments are similar. In Schoenbrod v
Siegler, 20 NY2d 403 (1967), the court held that "while we are under no
constitutional compulsion to give full faith and credit' to the judgment of a court of a
foreign nation (quoting Rosenstiel v Rosenstiel, 16 NY2d 64, 73 (1965), we
frequently recognize such a judgment as a matter of comity'." New York law requires
that the Dubai judgment be given the same preclusive effect that it would be given in
UAE. Gonzalez v Lebensversicherung AG, 304 AD2d 427, 761 NYS2d (1st
Dept 2003).
The parties dispute the preclusive effect of the Dubai judgment in the UAE.
AHG claims that the judgement does not serve as res judicata in a second
proceeding in the UAE. AHG alleges that the Dubai judgment is neither final, nor
enforceable, and neither has it been granted preclusive effect by a Dubai court.
The burden of proof in establishing the conclusive effect in the rendering
jurisdiction of a prior judgment is upon the party asserting it. Marine Tr. Corp. v
Switzerland Gen. Ins. Co., 263 NY 139, 147 (1933). Mr. Hassan Araab's affidavit
notes that a UAE court, may, in its discretion, give a judgement preclusive effect even
though an appeal of the judgement is pending. Mashreqbank has not presented any
evidence that the UAE court has granted preclusive effect to the judgment. AHG's claims
are supported by a sworn affidavit by Mr. Majad Assad. In a motion to dismiss, the court
must accord the AHG, "the benefit of every favorable inference," Noonan v City of
New York, 9 NY3d 825, 827 (2007). Here there are plausible factual inferences that
support AHG's contention that its counterclaim is not barred by res judicata.
Mashreqbank's motion to dismiss is denied.
Choice of
law
Mashreqbank claims UAE law should apply to the tort claims
alleged by AHG. Mashreqbank contends that the UAE has a greater interest than New
York in having its law applied to AHG's claims. Mashreqbank asserts that it is based in
the UAE, and the acts through which it purportedly aided and abetted AHG manager's
alleged fraud occurred in UAE.
AHG counters that New York has the greater interest in having its laws
applied to the [*4]counterclaim. AHG states that the
Mashreqbank is an international bank with its principal place of business in New York.
AHG alleges that Mashreqbank assisted its former manager's fraud by providing the
Money Exchange with billions of US dollars through foreign exchange transactions all of
which were executed in New York through Mashreqbank's New York branch. AHG
claims that Mashreqbank's transactions amounted to a significant course of conduct over
four years involving more than a hundred such transactions conducted by Mashreqbanks
in New York.
New York choice-of-law principles require a court to apply the law of the
state with the most significant relationship with the particular issue in conflict. Padula
v Lilarn Props. Corp., 84 NY2d 519 (1994). In the context of tort law, New York
applies an interest analysis to determine which of the two competing jurisdictions has the
greater interest in having its law applied to litigation. The greater interest is determined
by an evaluation of the, "facts or contracts which relate to the purpose of the particular
law in conflict." Schultz v Boy Scouts, 65 NY2d 189, 197 (1985).
This court holds that New York law applies. Mashreqbank's assertion that
UAE law applies is conclusory. UAE has no comparable interest in the dispute. UAE
currency is not involved. Mashreqbank is an international bank with principal place of
business in New York. AHG alleges that Mashreqbank assisted its former manager in
carrying out his scheme, through its New York branch. AHG alleges that the cause of
action occurred in New York. The parties agreed that foreign exchange payments in New
York were to be made in United States dollars, not of dirhams in the UAE. This reflects
the parties' reliance on this state's experience with and ability to ensure orderly dollar
currency transactions. The Court of Appeals has emphasized New York's "overriding and
paramount interest" since it is "a financial capital of the world, serving as an international
clearing house and market place for a plethora of international transactions." J. Zeevi
& Sons, Ltd., v Grindlays Bank (Uganda) Ltd., 37 NY2d 220 (1975). By the virtue
of the nature of the transactions, New York has paramount interest in applying its law.
Mashreqbank's motion to apply UAE law is denied.
Failure to state actionable claim under New
York law
Mashreqbank claims that the doctrine of in pari
delicto bars AHG from making claims against it for allegedly aiding and abetting its
manager in carrying out the fraud. Mashreqbank states that an agent's alleged wrongful
acts, even if unauthorized, are properly imputed to his principal. Mashreqbank says that
AHG's former manager at the time of the alleged acts of wrongdoing was the AHG's
agent. Mashreqbank asserts that AHG's claims are barred by in pari delicto,
regardless of whether or not the AHG authorized its manager's alleged wrongful
misconduct.
AHG contends that its manager's fraud is a fraud upon it and operated entirely to its
detriment, and places AHG within the adverse interest exception to the in pari
delicto doctrine. AHG does not dispute the principal-agent relationship with its
former manager. AHG asserts that the manager's acts cannot be imputed to it. AHG
posits that its manager acted for himself, against AHG's interests with the intent to
defraud AHG. AHG alleges that it did not benefit from the manager's scheme. The
scheme simply allowed its manager to use the Money Exchange as the instrument for
siphoning off funds for his own account. AHG further states that the scheme was
disastrous for it.
Mashreqbank counters that the adverse interest exception claimed by the AHG is
inapplicable to the AHG. Mashreqbank alleges that the former manager's conduct raised
funds [*5]that allowed AHG to conceal its insolvency
and continue doing business for years.
The doctrine of in pari delicto mandates that a wrongdoer cannot
assert a tort claim against another who participated in the wrong. Kirschener v KPMG LLP, 15
NY3d 446 (2010). The fundamental agency principle that the acts of agents and the
knowledge they acquire while acting within scope of their authority are presumptively
imputed to their principals plays an important role in an in pari delicto analysis.
Id.
Where an agent of the corporation acts wrongfully, the agent's acts will
typically be imputed to the corporation by the usual percepts of agency law. As such, in
the case of a corporate employee who conspires with outsiders to commit fraud, the
employee's bad acts, if they can be imputed to the employer, may bar claims by the
corporation against the outsiders. Id.
In Kirschener, the court stated that, "to come within the adverse
interest exception' to the principle that the acts of corporate agents and the knowledge
they acquire while acting within the scope of their authority are presumptively imputed to
their principals, the agent must have totally abandoned his or her principal's interest and
be acting entirely for the benefit of the agent or a third party. Because the exception
requires adversity, it cannot apply unless the scheme that benefitted the insider operated
at the corporation's expense. So long as the corporate wrongdoer's fraudulent conduct
enables the business to survive — to attract investors and customers and raise
funds for corporate purposes — the adversity test is not met."
While discussing the scope of the adverse interest exception, the court held
in Kirschener that the adverse interest exception is available only where the
insiders' misconduct has harmed the corporation. To fall within the narrow exception of
the adverse interest exception, AHG must allege, not that the former manager intended
to, or to some extent did, benefit from the scheme, but that the AHG was harmed by the
scheme, rather than being one of its beneficiaries. Id.
The court finds that AHG's allegations do not fall within the adverse interest
exception. AHG has not set forth in its submissions how it was disadvantaged by its
former manager's actions. AHG's allegation that its former employee's misconduct
harmed the AHG is conclusory. Vague and conclusory allegations are not sufficient to
sustain a cause of action. Fowler v American Lawyer Media, Inc., 306 AD2d 113
(1st Dept 2003). Mashreqbank's arguments support an in pari delicto dismissal of
AHG's counterclaim. Mashreqbank's motion to dismiss is granted.
Accordingly, it is
ORDERED that the Mashreqbank's motion to dismiss is granted.
Dated:July 18, 2013
ENTER:
/s/Melvin L. Schweitzer
J.S.C.