740 F.2d 148 (2nd Cir. 1984), 1444, AVC Nederland B.V. v. Atrium Inv. Partnership
|Docket Nº:||1444, Docket 84-7305.|
|Citation:||740 F.2d 148|
|Party Name:||AVC NEDERLAND B.V., Plaintiff-Appellant, v. ATRIUM INVESTMENT PARTNERSHIP, Pieter Kuik and Robert K. Lenting, Defendants- Appellees.|
|Case Date:||July 19, 1984|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued June 11, 1984.
James M. Brachman, New York City (Freeman, Wasserman & Schneider, New York City), for plaintiff-appellant.
Thomas B. Branch, III, Atlanta, Ga. (Wildman, Harrold, Allen, Dixon & Branch, Atlanta, Ga. (Brian N. Smiley, Atlanta, Ga., of counsel), and Meltzer, Lippe & Goldstein, P.C., Mineola, N.Y. (Alan L. Mittman, New York City, of counsel)), for defendants-appellees.
Before FRIENDLY, VAN GRAAFEILAND and WINTER, Circuit Judges.
FRIENDLY, Circuit Judge:
The issues on this appeal from an order of the District Court for the Eastern District of New York dismissing an action under Sec. 10(b) of the Securities Exchange Act and the SEC's Rule 10b-5 are whether the complaint alleged a claim within that court's subject-matter jurisdiction and, if so, whether the court properly dismissed the action because of an agreement of the parties that disputes between them should be decided by the competent court at Utrecht in the Netherlands in accordance with Dutch law. We answer both questions in the affirmative and therefore affirm the order of the district court.
The facts, gleaned from numerous affidavits and documents submitted in support of and in opposition to defendants' motion to dismiss, taken in the light most favorable to plaintiff as they must be, Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326, 1330 (2 Cir.1972), are as follows:
Plaintiff AVC Nederland B.V. ("AVC") is a Dutch corporation that imports recording tapes and cassettes into the Netherlands and sells them to retailers in that country. Peter J. Haan, a Dutch citizen and resident, is its managing director and sole shareholder. Defendants Pieter Kuik and Robert K. Lenting are also Dutch citizens and residents; Lenting had been Haan's insurance broker since the early 1970's. Defendant Atrium Investment Partnership ("Atrium") is a general partnership formed in Georgia by Kuik and Lenting in July, 1981; the objective was to purchase the Atrium building in Great Neck, Nassau County, New York, and sell shares in the partnership to citizens and residents of foreign countries.
For some years Kuik and Lenting had been studying the American real property market with a view to developing opportunities attractive to European investors. To
that end they had formed a company in Atlanta, Georgia, called K & L Advisory Company ("K & L") and had retained an Atlanta law firm as counsel. 1
In August 1981, at the instigation of Henk van Gaalen, AVC's financial auditor and representative, Lenting met in Holland with Haan and van Gaalen to discuss AVC's participation in Atrium. Haan claims that Lenting told him that Lenting and Kuik had paid $18 million for the Atrium building, including a $10 million dollar mortgage held by an American insurance company. Lenting gave Haan a copy of a lengthy brochure concerning the building and the partnership. This was in Dutch and had been prepared by Wisselink B.V., a firm of Dutch tax advisers, at the request of Lenting and Kuik. The brochure referred to the formation of the Atrium Investment Partnership, which would have "(total net worth invested, including the existing mortgage, of approximately $18 million), of which the equity will amount to $10 million." (Haan's translation). 2 Lenting urged Haan to inspect the building before deciding whether to invest.
Haan came to New York City in November 1981. Kuik and Lenting showed him the Atrium building, as well as another building in Lake Success on Long Island, which they had bought for a different partnership, and other real estate ventures in Washington, D.C., Baltimore and Atlanta. Discussions were had at K & L's offices in Atlanta. Haan claims that all the misrepresentations alleged in the complaint 3 were stated to him by Kuik and Lenting in the United States. More specifically he avers that Kuik and Lenting repeated in Great Neck that the Atrium Building had cost $18,000,000, and that they stated in Atlanta that Atrium's total equity in the building was approximately $10,000,000 and that AVC's cost per unit of equity in the partnership would be the same as Kuik's and Lenting's. During the meeting Lenting also drafted an outline of the terms on which AVC would become a 40% member of Atrium by paying the partnership $3,800,000. 4 Although plaintiff makes frequent reference to the delivery of this outline in Atlanta, the only representation is a statement that "[t]he first four quarters cash flow at an annual basis of U.S. $280,000 shall be paid to K & L Advisory Group," which is not alleged as a misrepresentation in the complaint. Admittedly nothing was concluded in Atlanta.
Discussions were resumed in the Netherlands on November 27, 1981. Haan described the meeting as follows:
Mr. Lenting spoke in terms of units costing $380,000 each. I informed him that I would acquire an interest only if I would be paying the same amount for each of my units that he and Mr. Kuik had paid for each of their units. He assured me that would be the case and that he and Mr. Kuik were so enthusiastic that they had invested almost $10,000,000 of their
own money. He repeated that he and Mr. Kuik had purchased the building for $18 million (including the pre-existing mortgage obligation of $8,000,000). He had found three other investors willing to purchase minor interests in Atrium, and it was anticipated that AVC's share in the partnership would be 40%, ten units at $380,000 each. Mr. Lenting explained that when additional investors were found, his share and [Mr. Kuik's] would decrease, but that they intended to keep at least 20% of the partnership equity at a personal cost of $380,000 per unit. Their profit, Mr. Lenting explained, would be earned in fees charged by their management company ... and upon the sale of the Building and liquidation of the partnership.
As a result of the meeting, a civil law notary, B.A.G. van Nievelt, 5 drafted, in Dutch, an "Agreement for Joining General Partnership" (the "Agreement"), which was signed by Lenting and Haan. This began by reciting AVC's desire to become a 40% partner in Atrium by contributing $3,800,000 as capital and Atrium's acceptance of AVC as a partner. It went on to provide that a revised partnership agreement reflecting the participation of AVC and other investors was to be prepared by the Atlanta law firm and that AVC "subjects itself to the provisions of the Partnership as the same have been and shall subsequently be laid down and confirmed" by the firm. AVC was to pay the $3,800,000 at an unspecified date in 1981 to an account of Atrium at a bank at The Hague. AVC agreed to an Advisory Agreement between Atrium and K & L, under which K & L would receive 5% of the monthly gross results of the building and, upon its resale, percentages of the profits ranging upwards, on a sliding scale, from 10% on the first 10% to 25% on profits in excess of 30%. 6 AVC also agreed to subject itself to a supplemental Dutch partnership to be prepared by four civil law notaries (including van Nievelt) that would take into consideration the fiscal advices of Wisselink and the Atlanta law firm. The partnership agreed that AVC should receive "during the years 1981 and 1982 a return upon the basis of US $28,000 per calendar year and during the year 1983 US $30,400." Penalties were provided for AVC's failure to make the required payment. The Agreement concluded with a Final Provision, the pertinent parts of which are as follows:
2. All and any disputes, differences or questions arising from the present Agreement shall be decided and determined by the competent court in Utrecht, unless the Partnership should prefer to proceed according to the standard and normal rules of competency.
3. The laws of the Netherlands shall apply to and govern this agreement.
After executing the Agreement, AVC paid into the Atrium account in the Netherlands a total of some $3,100,000 between December 1981 and May 1982 on a schedule roughly tracking the outline Lenting had prepared in Atlanta; as contemplated by that outline the bulk of these payments was loaned to AVC by a Dutch bank. Thereafter AVC failed to make further payments or to sign the revised partnership agreement prepared by the Atlanta law firm.
On June 7, 1983, AVC filed suit against Atrium, Kuik and Lenting in the Supreme Court of New York, Nassau County, alleging fraud in the sale of its partnership interest and seeking to block Atrium's sale of the building. 7 On July 18, 1983, Atrium instituted a suit against AVC in the court at Utrecht requesting a declaration that AVC was in default and an order that it pay the balance due under the Agreement. AVC brought the instant suit in the Eastern District of New York on August 16, 1983. It filed its answer in the Utrecht suit on December 14, 1983. After calling attention to the pending state and federal actions, it pleaded essentially the same fraudulent acts alleged in the complaint here and contended that these were in violation of Article 1364 of the Dutch Civil Code; it also raised other defenses not here material, reserved the right to file a counterclaim if it did not obtain restitution in the proceedings in this country, and requested the Dutch court, unless it was willing to dismiss Atrium's action, to await the decision in such proceedings before making its own decision.
Defendants moved to dismiss the instant action for lack of jurisdiction over the subject matter under Fed.R.Civ.P. 12(b)(1). The argument on the briefs to the district court dealt not only...
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