CBF Indústria de Gusa S/A v. AMCI Holdings, Inc., No. 13-cv-2581 (S.D.N.Y. Jan. 3, 2023) [click for opinion]

Five Brazilian entities ("Plaintiffs") entered into an agreement under which they sold more than 100 metric tons of pig iron to an entity called Steel Base Trade AG ("SBT"). The market prices for pig iron subsequently collapsed, leaving Plaintiffs with an unpaid balance of more than $42 million owed by SBT. Plaintiffs commenced arbitration proceedings against SBT and were awarded USD 48 million.

Plaintiffs later filed an enforcement action in the U.S. District Court for the Southern District of New York against Hans Mende, who formerly controlled SBT, along with other entities alleged to be alter egos of SBT (which was, by then, defunct and therefore not named as a defendant). Key to Plaintiffs' argument was its contention that, upon commencement of the arbitration against SBT, Defendants transferred SBT's assets to other entities to avoid liability, and induced SBT to declare bankruptcy in Swiss proceedings.

Defendants sought to dismiss the action on multiple grounds, including forum non conveniens, issue and claim preclusion, defenses under Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), lack of evidence to support an alter ego claim, and the applicability of Swiss, rather than New York law, in a fraudulent conveyance claim.

The court first rejected the forum non conveniens defense, citing Defendants' express withdrawal of that defense in an earlier filed motion.

The court then rejected Defendants' issue preclusion defense, which was based on an argument that Plaintiffs had asked the arbitral panel for "interim and conservatory" measures to prevent SBT's asset transfer, but that the panel had denied the request. The court noted that Plaintiffs had had limited opportunity in the arbitration proceeding to learn of the relationship between SBT and its affiliates and shareholders, and the arbitration proceeding thus could not provide the basis for precluding Plaintiffs on any issue related to alter ego or successor liability.

The court also rejected Defendants' claim preclusion defense. The court explained that, while claim preclusion bars relitigation of the events underlying a previous judgment, it does not preclude litigation of events arising after the filing of the complaint that formed the basis of the first lawsuit. Here, the arbitration proceeding commenced before the challenged transfer of assets and the filing of SBT's bankruptcy. The court thus held that Plaintiffs were entitled to bring a subsequent action directed to the asset transfers to SBT.

The court then ruled that, under Article V of the New York Convention—where the burden of the party opposing enforcement of arbitration is "very high"—Plaintiffs' claims were not barred. Defendants argued that, because SBT filed for bankruptcy under Swiss law, it was under an "incapacity" to defend itself in the arbitration proceeding. The court disagreed, finding that, under Swiss law, while bankruptcy vested the right to speak on behalf of SBT in a bankruptcy administrator, this did not "eliminate" SBT's "right to speak." The bankruptcy administrator had advised the arbitration panel that it would not take over the defense of Plaintiffs' claim in arbitration, and that the full extent of Plaintiffs' claim had been recognized in the bankruptcy. The arbitral panel acknowledged this statement as SBT's admission of the claims submitted by Plaintiffs, and proceeded to render its award. The court also noted that Defendants were not deprived of "proper notice" under Article V, because Plaintiffs had notified Defendant Hans Mende—who controlled the Defendant entities—of SBT's default and Plaintiffs' intention to proceed to arbitration if action was not taken.

The court then ruled that Defendants could be liable as alter egos, but not as successors-in-interest. Using federal choice-of-law principles, the court held that Swiss law applied because the connection between the enforcement claim to the forum state was "tenuous"—Defendants were not based in New York, and the alleged transfer of assets was not effectuated in New York. On the other hand, SBT was incorporated in Switzerland, and federal choice-of-law principles recognize that shareholder liability to creditors is determined under the law of the jurisdiction of incorporation. Swiss law is similar to U.S. law on alter ego liability, and Defendants may be held liable on such a theory based on evidence that they used a corporate form to perpetrate a fraud, or "so dominated and disregarded the corporate form." However, Swiss law is different from U.S. law on successor-in-interest liability, and Plaintiffs conceded that Swiss law would not allow them to pursue such a claim against Defendants.

Finally, the court applied Swiss law for the fraudulent conveyance claim against Defendants for the same reason it applied Swiss alter ego and successor-in-interest law. The court noted that, while there is no significant difference between New York and Swiss fraudulent conveyance law, there is a significant difference on who may bring the claim—under Swiss law, this claim belongs to the bankrupt estate and may not be asserted by a creditor. The court accordingly dismissed the fraudulent conveyance claim without prejudice to its reinstatement if Plaintiffs applied to reopen Swiss bankruptcy proceedings and sought or obtained assignment of SBT's clawback claims.

Justin Calderon of the Palo Alto office contributed to this summary.​