Hentsch Henchoz & Cie v. Gubbay

• Decision Date: 06 August 2004
• Docket Number: No. 20020683.,20020683.
• Citation: 2004 UT 64,97 P.3d 1283
• Parties: HENTSCH HENCHOZ & CIE, Plaintiff and Appellee, v. Philippe D. David GUBBAY; Capital Suisse, S.A.; Capital Suisse Securities, Inc.; Capital Suisse, Inc.; Zooley Services Limited; Zooley of Utah, Inc.; Fernland Limited; Douglas P. Hoyt; and John Does 1-10, Defendants and Appellants.
• Court: Utah Supreme Court

97 P.3d 1283

2004 UT 64

HENTSCH HENCHOZ & CIE, Plaintiff and Appellee, v. Philippe D. David GUBBAY; Capital Suisse, S.A.; Capital Suisse Securities, Inc.; Capital Suisse, Inc.; Zooley Services Limited; Zooley of Utah, Inc.; Fernland Limited; Douglas P. Hoyt; and John Does 1-10, Defendants and Appellants.

No. 20020683.

Supreme Court of Utah.

August 6, 2004.

Neil A. Kaplan, Perrin R. Love, Walter A. Romney, Jr., Salt Lake City, for plaintiff.

Brent O. Hatch, Mark H. Richards, Salt Lake City, for defendants.

DURRANT, Justice:

¶ 1 Appellants contest the district court's denial of their motion to dismiss, arguing that venue is not proper in Utah due to a forum selection clause that provides for all actions to be brought in the British Virgin Islands. In light of appellants' wilful defiance of the district court's orders below, we refuse to consider the merits of the appeal at this time. Instead, we will stay the appeal in order to allow appellants time in which to comply with our instructions as outlined in this opinion. If appellants fail to comply, the appeal will be dismissed.

BACKGROUND

¶ 2 The events giving rise to this litigation began in late 2000 when appellee Hentsch Henchoz & Cie ("HH & C"), a Swiss banking institution with offices around the world, was approached about a purported investment opportunity. HH & C was contacted by Philippe D. David Gubbay ("Gubbay"), the "Managing Director, CEO and President" of the "Capital Suisse Group of Companies," an organization that allegedly operated a highly successful "Mutual Fund for the Professional Investor."

¶ 3 The Capital Suisse Group of Companies, purportedly "a worldwide financial services corporation," included the following entities: Capital Suisse, S.A. ("the Fund"), which was incorporated in the British Virgin Islands and had offices in Marbella, Spain; Capital Suisse, Inc., a Utah corporation, which had its principal place of business in Salt Lake City and was the purported administrator and registrar of the Fund; Capital Suisse Securities, Inc., the principal custodian of the Fund with its principal place of business in San Rafael, California; Zooley Services Ltd., a West Indies corporation and professed investment adviser for the Fund; Zooley of Utah, Inc., a Utah corporation that allegedly provided financial services for Zooley Services; and Fernland Ltd., a West Indies corporation and, ostensibly, the sole director of the Fund. Gubbay corresponded on behalf of the Fund as a director of Fernland. (Gubbay and the Capital Suisse Group of Companies will be collectively referred to herein as "Capital Suisse.") Capital Suisse, Inc., and Zooley of Utah, Inc. maintained bank accounts at Wells Fargo Bank and Zions First National Bank in Salt Lake City, Utah.

¶ 4 In November of 2000, Gubbay provided HH & C with a confidential prospectus along with other materials that portrayed the Fund as being very successful and highly profitable. Relying on these and other representations, HH & C wired a total of nearly $25 million to Capital Suisse. Each of HH & C's seven wire transfers was accompanied by a "Subscription Agreement" that purported to set forth the number of shares purchased by HH & C. In addition, each Subscription Agreement contained a forum selection clause, providing that any legal proceedings against the Fund would be brought only in the British Virgin Islands.

¶ 5 Throughout the first quarter of 2001, the Capital Suisse website represented that the Fund was steadily gaining in value. However, after a routine internal review, HH & C became suspicious. Beginning in April 2001, HH & C began a series of attempts to redeem its shares. In the course of these unsuccessful attempts, HH & C discovered that Gubbay was a convicted embezzler and had been sentenced to a term of imprisonment and to deportation from Switzerland for seven years. HH & C also learned of, and subsequently participated in, an ongoing criminal proceeding against Capital Suisse brought by another defrauded investor in Marbella, Spain. In defending against HH & C's claims before the Spanish court, Capital Suisse asserted that jurisdiction was not proper in Spain because HH & C did not have commercial relations with Capital Suisse in Spain, but only with Capital Suisse, Inc., located in Salt Lake City, Utah. At the conclusion of the Spanish proceeding, the Spanish Criminal Court issued an order freezing the Capital Suisse accounts at Wells Fargo Bank and Zions First National Bank in Salt Lake City, Utah (the "Spanish Order").

¶ 6 On June 21, 2001, HH & C filed a petition in Utah's Third District Court to enforce the Spanish Order. The district court scheduled an evidentiary hearing, and HH & C began serving subpoenas on the banks. Capital Suisse moved to quash the subpoenas or, alternatively, for a protective order preventing disclosure to third parties of any information gained from the bank accounts. Capital Suisse also filed a motion in limine, seeking to exclude any evidence relating to the bank records at the scheduled evidentiary hearing. On July 27, 2001, in its order on the motion to quash, the district court determined that HH & C was entitled to review the bank account balances for the dates of June 26th and July 25th pending the evidentiary hearing. Upon reviewing the account balances pursuant to the district court's order, HH & C learned that the accounts had been severely depleted.¹

¶ 7 In the face of the dissipation of the bank accounts, and Capital Suisse's refusal to comply with HH & C's document requests, HH & C filed a verified complaint in the district court on August 2, 2001, asserting claims for fraud, civil conspiracy, breach of fiduciary duty, breach of contract, and conversion.² At that time, HH & C also filed a motion seeking a temporary restraining order and prejudgment writ of attachment of the bank accounts, in addition to a motion for expedited discovery with interrogatories and document requests to Capital Suisse and subpoenas to Zions and Wells Fargo. At a hearing on the motions, the district court questioned counsel for Capital Suisse as to the marked depletion in the bank accounts. Finding counsel's answers unsatisfactory, the court ordered counsel to be prepared the following week to disclose what had happened to the funds.³ The court then granted HH & C's motions and entered a temporary restraining order freezing the Zions and Wells Fargo accounts.

¶ 8 On August 15, 2001, Capital Suisse requested a stay pending interlocutory appeal of the order granting expedited discovery.⁴ Capital Suisse also filed a motion to dismiss based on lack of jurisdiction and improper venue due, in part, to the existence of the forum selection clause contained in the Subscription Agreements. In a minute entry dated October 11, 2001, the district court denied Capital Suisse's motion to dismiss. The court determined that, since the forum selection clause was unfair and the entire agreement was pervaded by fraud, the forum selection clause could be disregarded. It is this ruling that is the subject of this appeal.

¶ 9 The district court denied Capital Suisse's subsequent motion to stay the litigation pending interlocutory appeal of the denial of the motion to dismiss⁵ and ordered Capital Suisse to comply with HH & C's outstanding discovery requests, which it noted had been outstanding for "some time." In response, Capital Suisse invoked the Fifth Amendment privilege against self-incrimination and otherwise refused to answer. Capital Suisse's privilege claim was also denied by the district court, and the court again ordered Capital Suisse to answer the interrogatories and ordered all of the Capital Suisse defendants to answer the complaint. Capital Suisse filed an answer to the verified complaint on February 28, 2002.

¶ 10 At some point during the course of this litigation, in defiance of the district court's orders requiring Capital Suisse to comply with HH & C's discovery requests, Capital Suisse shipped all of its documents, records, and computer hard drives from Utah to Spain. Upon discovering that the documents and other items were no longer in Utah, the district court ordered their return. Soon thereafter on April 1, 2002, Capital Suisse filed a notice of withdrawal of answer, stating that it "refuse[d] to acknowledge [the] litigation any further" because, pursuant to the forum selection clause in the parties' agreement, jurisdiction was only proper in the British Virgin Islands. Capital Suisse's counsel also filed a motion to withdraw, indicating that Capital Suisse "do[es] not recognize the jurisdiction of the United States over the dispute." Counsel also stated that "as officers of the [c]ourt" they had been placed in a "conflict of interest situation" in light of the outstanding orders of the district court and Capital Suisse's "refus[al] to comply or otherwise participate any further in th[e] action."

¶ 11 HH & C then moved for summary judgment on three of its claims, which was unopposed by Capital Suisse. The district court granted the motion, concluding that Capital Suisse had defrauded HH & C "by acting in concert to create the appearance of a legitimate investment opportunity" that was "nothing more than a ruse to defraud innocent investors." The court entered judgment against Capital Suisse in the amount of $24,730,000 plus interest. Capital Suisse filed this appeal on August 15, 2002, contesting only the district court's denial of its motion to dismiss based on the forum selection clause. We have jurisdiction pursuant to Utah Code section 78-2-2(3)(j) (2002).

ANALYSIS

¶ 12 In its argument on appeal, HH & C urges this court to dismiss Capital Suisse's appeal without considering the merits because Capital Suisse has "repeatedly and willfully disobeyed [the district court's] orders ..., destroyed evidence, and refused to recognize the jurisdiction of the Utah courts." To date, this court has not addressed whether it may dismiss a civil appeal...