Rachel’s Children Reclamation Foundation Inc. v. Elon, Index No. 501415/13 (N.Y. Sup. Ct. Kings County Oct. 6, 2015) [click for opinion]
This case arises from the purchase of three parcels of land in the West Bank area of Israel next to Rachel’s tomb, a site sacred to Judaism. Plaintiff Haies, through her not-for-profit corporation, Rachel’s Children Reclamation Foundation, Inc. (“RCRF”), entered into a Shareholder Agreement with Defendant American Friends of Beit Orot (“AFBO”) to purchase the relevant property through a corporation to be subsequently formed, Bnai Rachel, Inc. (“BR”). RCRF would own 60% equity in this corporation.
The Shareholder Agreement contained an arbitration clause requiring any disputes between the parties, including any disputes over the operation of the property, to be resolved by binding arbitration. The parties subsequently formed two additional corporations, Chearland, Inc. (“Chearland”) and Homebred, Inc. (“Homebred”) in order to purchase two additional parcels of land next to Rachel’s tomb; again, RCRF was going to maintain equity in each of the corporations. However, no written agreements were created to reflect these latter arrangements.
Plaintiff RCRF’s invested funds were allegedly diverted to a fourth entity, Bnai Rachel, Ltd., which became the owner of the combined properties instead of the corporations in which RCRF held equity. After arbitration proceedings in 2006, certain of the parties entered into a settlement agreement to transfer title of the property to one of the agreed-upon corporations, but no such transfer took place.
Thereafter, Defendant Elon, a rabbi with connections to the properties at issue, entered into an agreement with the arbitrator by which Elon became the sole authorized representative to maintain contact with other shareholders in BR, Chearland, and Homebred (collectively “the Defendant Corporations”) and the delegated agent of said corporations. AFBO subsequently transferred all of its shares in the Defendant Corporations to Elon who was then elected director of the Defendant Corporations.
There have been six lawsuits between Plaintiffs and Defendants in Israel, three of which are still pending, relating to the properties next to Rachel’s tomb. In one case, the court found Plaintiffs’ application to rescind the 2006 arbitration award untimely under Israeli law and dismissed the matter.
Plaintiffs Haies and RCRF bring this suit in New York personally and derivatively on behalf of the Defendant Corporations against individuals, all of whom have been directors or officers of said corporations, and AFBO, alleging that the action concerns failure of corporate governance and breach of fiduciary duty. Plaintiffs insist that this suit does not concern title to the properties in Israel—despite Plaintiffs specifically seeking an order that Defendants transfer title to the Defendant Corporations. Defendants moved to dismiss the action on several bases, including lack of jurisdiction, forum non conveniens, the parties’ agreement to arbitrate, and the pendency of the Israeli actions.
The Kings County Supreme Court of New York ultimately dismissed the action as to all parties, reasoning in part that the court lacked jurisdiction to order much of the requested relief because it would involve actions to be taken within the territory of Israel. The court rejected Plaintiffs’ characterization that the suit regarded corporate governance rather than real property issues and further determined that it lacked jurisdiction over most Defendants because none were “at home” in New York. Specifically, the three Defendant Corporations were incorporated elsewhere and did not do any business in New York. Moreover, the individual defendants were Israeli citizens who did not transact any business on their own behalf in New York, and neither the situs of injury nor the damages were in New York.
The court also dismissed the action against AFBO because there was a binding arbitration agreement between it and RCRF that relegated all their disputes to that forum. While the court did not agree that all of the parties were subject to arbitration—since no written arbitration agreement existed between them—the court did dismiss the remaining actions against all parties on the grounds of forum non conveniens, reasoning that there were already multiple related suits and arbitrations in Israel, that virtually all evidence including witnesses and documents were located in Israel, and that all parties were located in Israel.
Laura Kelly of the Chicago office contributed to this summary.