A New York state court recently dismissed, on forum non conveniens grounds, a case filed by the Winding-up Board of Glitnir Banki HF, a major Icelandic bank, and its foreign representative against certain of the bank’s former officers and directors and the bank’s auditor, PricewaterhouseCoopers, to recover billions of dollars allegedly fraudulently funneled from the bank’s capital raising activities. Glitnir Banki HF v. Johannesson, Index No. 601217/10 (N.Y. Co.).
According to plaintiffs, during 2007 and 2008, certain of the bank’s former officers, directors and auditors engaged in a fraudulent scheme that included raising funds based on fraudulently misstated financial statements. The former officers and directors allegedly funneled those funds through a series of transactions to corporations controlled by them and certain other defendants, allowing them collectively to loot billions of dollars from Glitnir, which ultimately became insolvent during the world-wide financial crisis. Plaintiffs thus seek to recover the allegedly diverted funds from the individual defendants for the benefit of the Icelandic equivalent of Glitnir’s bankruptcy estate.
Defendants moved to dismiss the action on forum non conveniens grounds (in favor of Iceland as a more appropriate forum) and for lack of personal jurisdiction. PricewaterhouseCoopers also moved to dismiss based on a forum selection clause in its engagement letter with Glitnir that provided that Iceland would be the exclusive forum for disputes under that agreement. Plaintiffs opposed the motion, arguing that New York was a proper forum because a significant portion of the alleged fraud took place in New York.
The Parties’ Arguments Regarding New York as a Forum
In determining whether to dismiss an action under the forum non conveniens doctrine, a New York state court must consider and balance relevant public and private interest factors—including, for example: (i) the burden on New York courts, (ii) any hardship for defendants, (iii) the availability of an alternative forum, (iv) the residency of the parties and (v) where the transaction that gave rise to the suit occurred—and ultimately determine whether to retain jurisdiction in “the exercise of its sound discretion.” Islamic Republic of Iran v. Pahlavi, 62 N.Y.2d 474, 478-79 (1984).
Plaintiffs focused their arguments on the third, fourth and fifth factors. Thus, plaintiffs argued that the courts in Iceland were flooded with cases related to the financial crisis and that the Icelandic judiciary “does not have experience with complex international cases[.]” Plaintiffs further argued that certain of the individual defendants were residents of New York, and that plaintiffs would attempt to enforce the requested judgment against assets maintained in New York.
Plaintiffs focused their argument, however, on conduct intended to address the fifth factor. Plaintiffs therefore argued that four specific “buckets” of activity occurred in New York that justified a New York state court as the venue for the dispute: (1) Glitnir needed to access financial markets in New York to effectuate its scheme by raising money in the form of medium term notes; (2) a Glitnir board meeting was held in New York, during which the defendants “took significant steps to advance” their fraud and approved false financial statements; (3) New York served as the “nerve center” for one of the transactions whereby the defendants diverted nearly half a billion dollars from Glitnir to corporations that they controlled; and (4) false financial statements were distributed to investors in the New York financial markets in support of Glitnir’s fundraising activities. Moreover, during the relevant time period, Glitnir had opened an office in New York, which, according to plaintiffs, provided the venue for certain activities undertaken in furtherance of the fraud.
The individual defendants countered plaintiffs’ arguments by setting forth arguments relating to all five relevant factors. The individual defendants argued that, because the plaintiffs were Icelandic citizens, their choice of forum was entitled to no weight. And, moreover, they emphasized how inconvenient—and burdensome on the Court—it would be to try the case in New York: the action involved an Icelandic bank suing its former officers and directors—all Icelandic citizens—as well as the officers and directors of other Icelandic corporations. Indeed, defendants identified forty witnesses who were in Iceland, and asserted that “huge amounts of evidence not only are in Iceland, but will have to be translated” if the case remained in New York. The claims themselves were based on Icelandic banking laws and Icelandic fiduciary duty rules, all under a legal theory that was not even certain in Iceland. Courts in Iceland, they argued, should decide such unsettled issues, not courts in New York. Finally, even if the Court kept the case and rendered a judgment in it, Defendants argued that a judgment rendered by a New York court would not even be enforceable in Iceland, which would make the New York action “just a warm up act to another case.”
Defendants disputed plaintiffs’ contention that New York was a central location of the relevant transactions, and emphasized that the case involves a “critical issue for the country of Iceland.” Finally, Defendants cited a statistic that revealed that, rather than being flooded with cases, as the plaintiffs argued, the case load maintained by Icelandic judges pales in comparison to that of a Commercial Division judge in New York County.
New York Is an Inappropriate Forum
As a threshold issue, the judge indicated—although he did not formally decide the issue—that he likely would have concluded that he could exercise jurisdiction over the defendants based on the New York contacts alleged by plaintiffs. The forum non conveniens doctrine, however, permits the court to dismiss an action over which it otherwise has jurisdiction. The Court addressed plaintiffs’ various arguments. With respect to the plaintiffs’ arguments about judicial resources, the court found that the case “is an unnecessary burden for the State of New York[.]” While the Court appreciated the compliment regarding the quality of the judges of the commercial division, the court contrasted the relative workload of the New York State judiciary with that of Iceland, and concluded that plaintiffs’ arguments regarding the flooding of the Icelandic judiciary were unconvincing given the much larger caseload of the average New York state judge. Significantly, the court determined that the Icelandic judiciary was competent to decide this case, reasoning that the arguments regarding the relative inexperience of the Icelandic judiciary in such matters were not compelling because “the only way the Icelandic courts will learn how to handle cases like this is to handle cases like this.”
With respect to plaintiffs’ arguments regarding the ties to New York, the court concluded that those arguments were relevant to the jurisdictional questions, not the forum non conveniens analysis. Given the strong relationship to Iceland, the court observed, “I don’t think that I can come up with a credible argument that the center of this case belongs anywhere other than Iceland.” Thus, the Court concluded:
“Looking at this as kindly as I can, what I see unfolding is a case that is going to show me that the conspiracy was hatched in Iceland or Denmark or some place, but not necessarily New York. That New York played a role in that it was the marketplace where these notes could be successfully sold to the public. This is where you do things like that. Either New York or London, that’s primarily where these things are done. It doesn’t make us the focus of this conspiracy, if it is [one].”
Interestingly, the court noted that the result may have been different had the suit been filed on behalf of note holders who purchased notes marketed in New York, rather than on behalf of an Icelandic bankruptcy estate. The court also agreed that the claims against PricewaterhouseCoopers would have to be dismissed based on the forum selection clause in its retainer letter.
Finally, as a condition for dismissal, the court required all defendants to consent to the jurisdiction of the courts of Iceland, and to agree not to raise jurisdictional or other similar defenses to any enforcement actions arising from a final judgment in Iceland against assets located in New York.
The Glitner case provides several important takeaways:
- The existence of personal jurisdiction over defendants in New York does not guarantee that New York is a convenient forum. Indeed, the allegation that certain of the defendants maintained residences in New York was not sufficient to avoid dismissal on forum non conveniens grounds.
- Simply because a financial fraud involves a New York financial market, as most (or, at least, many) do, the use of that market does not guarantee that New York will be deemed an appropriate forum; otherwise, New York would be an appropriate forum for nearly every financial fraud.
- The relative lack of experience of a foreign court with respect to complex financial-based claims does not make that court an inadequate forum.
- New York’s overtaxed judiciary will take a serious look at forum non conveniens motions concerning disputes that seemingly have little to do with New York.