Ace Decade Holdings Ltd. v. Ubs AG

• Decision Date: 07 December 2016
• Docket Number: Index No. 653316/2015
• Citation: 2016 NY Slip Op 32415 (U)
• Parties: ACE DECADE HOLDINGS LIMITED, Plaintiff, v. UBS AG, Defendant.
• Court: New York Supreme Court

2016 NY Slip Op 32415(U)

ACE DECADE HOLDINGS LIMITED, Plaintiff, v. UBS AG, Defendant.

Index No. 653316/2015

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: IAS PART THREE

December 7, 2016

Motion Date: 6/2/2016

Motipn Seq. No. 001

BRANSTEN, J.

In this action, Plaintiff Ace Decade Holdings Limited ("Ace Decade" or "Plaintiff") alleges that it purchased shares of a Chinese company with money borrowed from UBS, AG ("UBS" or "Defendant"), then lost virtually its entire investment when UBS issued a margin call and sold all of Plaintiff's shares at a steep discount. Upon UBS's advice, Plaintiff agreed to make its investment through an intermediary. As a result, the intermediary—not Plaintiff—entered into financing agreements directly with UBS. Since Plaintiff was not a party to these agreements, UBS was able to include onerous margin call provisions and penalty clauses while representing to Ace Decade that the loan agreements did not contain such provisions.

Presently before the Court is Defendant UBS's motion to dismiss Plaintiff's Amended Complaint (the "Complaint") pursuant to CPLR §§ 327, 3211(a)(7)-(8), and 3016(b).¹ Defendant argues that this court lacks personal jurisdiction over UBS, that New York is an inconvenient forum, and that Plaintiff's Complaint fails to state a cause of action.

For the reasons that follow, the Court determines that it lacks jurisdiction over UBS and grants the motion to dismiss. Separately, the Court concludes that even if it could exercise jurisdiction over UBS, the action would be dismissed on forum non conveniens grounds.

I. Background²

A. Ace Decade's Relationship with UBS

Ace Decade is a limited liability investment holding vehicle incorporated in the British Virgin Islands. (Compl. ¶ 18.) UBS is a Swiss banking and financial services company. (Compl. ¶ 19.)

Ace Decade's agent, Kwok Ho Wan ("Mr. Kwok"), began a relationship with UBS in Hong Kong in 2010. (Compl. ¶¶ 22-24.) Since then, Mr. Kwok depended upon UBS's expertise and guidance and relied upon UBS Managing Director Stephen Wong's investment advice. Id.

At all relevant times, Mr. Wong was based out of UBS's Hong Kong office. (Dkt. No. 17, Affirm. of Stephen Wong in Support ("Wong Affirm.") ¶¶ 1, 7.)

Around May 2014, Mr. Kwok and UBS began to discuss an investment opportunity (the "Investment") in an upcoming placement of H-shares³ (the "Shares") of Haitong Securities Co., Ltd. ("Haitong"). (Compl. ¶ 25.) Haitong is a full-service securities firm that has been listed in the Hong Kong Stock Exchange since April 2012. Id. Plaintiff alleges that UBS claimed it was knowledgeable and experienced in advising investors in similar placements; Ace Decade therefore agreed to have UBS act as its advisor in connection with the Investment. (Compl. ¶¶ 27-31.) Plaintiff does not allege that there is any written agreement between Ace Decade and UBS with respect to the Investment.

B. Ace Decade's Contemplated Investment in Haitong

According to Plaintiff, Mr. Kwok initially sought to invest $1 billion in Haitong. (Compl. ¶ 39.) UBS advised him to instead invest only $500 million and obtain a loan to purchase the remaining Shares. Id.

UBS also advised Mr. Kwok not to purchase the Shares directly through Ace Decade because the Investment would constitute more than 5% of Haitong's outstanding H-shares and consequently trigger regulatory disclosure requirements. (Compl. ¶ 32.) UBS convinced Mr. Kwok to structure the investment through an intermediary entity, which would hold legal title to the Shares while Ace Decade remained the beneficial owner. (Compl. ¶ 32.)

UBS suggested that Ace Decade make the Investment through an entity known as Haixia Huifu Asset Investment and Fund Management Co., Ltd. ("Haixia"), which unbeknownst to Plaintiff was closely affiliated with UBS. (Compl. ¶ 33.) UBS concealed its ties to Haixia and represented that Haixia was independent and would protect Ace Decade's interests. Id.

C. Structuring the Deal

In late 2014, Mr. Wong advised Mr. Kwok regarding Haixia's Know-Your-Customer anti-corruption checks, reviewed the résumés of Mr. Kwok's employees, and suggested that he appoint Ms. Yu Yong ("Ms. Yu") as the Director and sole shareholder of Ace Decade. (Compl. ¶ 36.)

Ace Decade agreed to make the investment through one of Haixia's fully-owned subsidiary funds, Dawn State Limited ("Dawn State"). On December 17, 2014, Ace Decade entered into a "Co-Investment Agreement" with Haixia, and a "Letter Agreement" with Haixia and Dawn State. (Compl. ¶¶ 41-44.) Pursuant to the Co-Investment Agreement, Ace Decade would provide Dawn State $500 million and Dawn State would obtain an additional $750 million in financing to purchase the Shares. Id. Haixia would receive a fee of up to $5 million in consideration for permitting Ace Decade to use its special purpose entity for the Investment. (Dkt. No. 38, Compl. Ex. 1 ("Co-Investment Agreement") § 1.1.)

The Co-Investment Agreement provided that Ace Decade would have no management or voting rights with respect to Dawn State. (Co-Investment Agreement § 4.2.) According to Plaintiff, these provisions were included at UBS's advice to avoid regulatory disclosure requirements. (Compl. ¶ 38.) However, Haixia agreed to transfer 100% of Dawn State to Ace Decade upon request at any time after two months following the Investment. (Dkt. No. 39, Compl. Ex. 2 ("Letter Agreement") at 2-4.)

To purchase the Shares, Dawn State separately entered into a Subscription Agreement with Haitong for 569,427,620 Shares at a price of HK $15.62. (Compl. ¶ 46.) The transaction was conditioned on future shareholder and regulatory approvals. (Compl. Ex. 5 at 5-6.) Ace Decade was not a party to the Subscription Agreement.

D. Haixia's Credit Agreements with UBS

According to Plaintiff, Ace Decade did riot pressure Haixia or Dawn State to seek financing from banks other than UBS because UBS represented that it would handle the loan on the most favorable terms. (Compl. ¶ 40.) Moreover, UBS advised Ace Decade that for regulatory reasons Ace Decade should not be a party to UBS's financing agreements with Haixia and Dawn State. (Compl. ¶ 50.)

Plaintiff alleges that throughout 2014, Mr. Wong continuously represented that the terms of the loan would be advantageous to Ace Decade. (Compl. ¶¶ 47-49.) Specifically, during the parties' discussions, Ace Decade demanded that the margin call provisions exclude short-term price fluctuation triggers. Id. With regards to any margin call, Ace Decade sought five business days to pay the first 25%, ten business days for the second 25%, and 20 business days for the remaining 50%. (Compl. ¶ 47.) Mr. Kwok also told UBS that Ace Decade would not make the Investment if the margin call provisions were not appropriate. Id.

Mr. Wong reassured Ace Decade that the terms of the credit agreements would mirror those of a previous loan issued by UBS to a shareholder of Ping An Insurance Group ("Ping An"). (Compl. ¶ 49.) In that transaction, UBS never sold any of the shares following a margin call. Id. Mr. Wong represented to Mr. Kwok that UBS would work with Ace Decade to allow it to meet any margin call, and that UBS would not sell the Shares without giving Ace Decade a reasonable amount of time to pay. (Compl. ¶ 48.)

On December 19, 2014, the final Financing Letter between Haixia and UBS was executed. (Compl. ¶ 50.) Ace Decade's Letter Agreement with Haixia—executed two days earlier on December 17, 2016—states that Ace Decade reviewed the Financing Letter. However, Ace Decade alleges that it could not have reviewed the Financing Letter because it did not even exist at the time the Letter Agreement was signed. (Compl. ¶ 53.)

The Financing Letter contained onerous provisions that allowed UBS to issue a margin call based on short-term price fluctuations, and required that 25% of the total payment be made in less than 24 hours with the remaining 75% due in the next two days. (Compl. ¶ 52.) Dawn State and UBS simultaneously entered into a side letter agreement (the "UBS Side Letter") that provided that if the loans were prepaid, including pursuant to a margin call, UBS would earn a "make-whole premium." Id.

E. Ace Decade's Relocation to New York

In early 2015, Mr. Kwok, Ms. Yu, and Ace Decade relocated to New York. (Compl. ¶ 56.) Ace Decade alleges that Mr. Wong and UBS knew about the relocation and about Ace Decade's intent to seek investors in New York. (Compl. ¶ 57.) Mr. Kwok and Ms. Yu conducted business for Ace Decade out of their offices at 767 Fifth Avenue from April 2015 through February 2016. (Compl. ¶ 60.) For example, Ace Decade entered into an agreement with an entity called China Golden Spring Group (Hong Kong) Ltd., which contemplated the acquisition of the Haitong Shares. (Compl. ¶ 58.) In March 2015, Golden Spring Hong Kong formed an entity called Golden Spring (New York) Ltd., incorporatedin Delaware and registered to do business in New York. (Compl. ¶ 59.) UBS allegedly assisted Mr. Kwok by transferring funds from his personal account at UBS to Golden Spring New York's JPMorgan Chase account in New York, although these are not the same funds Ace Decade used for the Investment. (Compl. ¶ 61.)

Ace Decade asserts that UBS continued to make misrepresentations regarding the terms of the loan throughout 2015-after Ace Decade had moved its operations to New York. (Compl. ¶¶ 65-68.) During numerous telephone calls throughout January, March, April, May, and June, UBS allegedly continued to represent that it would give Ace Decade ample time to meet any margin call, and that Ace Decade would receive the same treatment as the large Ping An shareholder. (Compl. ¶¶ 65-66.)

Significantly, however, Ace Decade's Original Complaint contradicts this narrative: it originally claimed that after moving to New York "Mr. Kwok did not again directly discuss with UBS the margin call provisions in the final Facility Agreement and other associated collateral documents." (Dkt. No. 1, Original Compl. ¶ 39)....