Bank of Tokyo-Mitsubishi, Ltd., New York Branch v. Kvaerner a.s.

• Decision Date: 07 April 1998
• Docket Number: TOKYO-MITSUBISH,LTD
• Citation: 243 A.D.2d 1,671 N.Y.S.2d 905
• Parties: , 1998 N.Y. Slip Op. 3130, 1998 N.Y. Slip Op. 3131 The BANK OF, NEW YORK BRANCH, et al., Plaintiffs-Respondents, v. KVAERNER a.s., et al., Defendants-Appellants.
• Court: New York Supreme Court — Appellate Division

Page 905

671 N.Y.S.2d 905

243 A.D.2d 1, 1998 N.Y. Slip Op. 3130,

1998 N.Y. Slip Op. 3131

The BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH, et al Plaintiffs-Respondents, v. KVAERNER a.s., et al., Defendants-Appellants.

Supreme Court, Appellate Division First Department.

April 7, 1998.

Thomas J. Hall, of counsel, New York City (Brian A. Miller and Christine P. Searl, on the brief, Chadbourne & Parke LLP, attorneys) for plaintiffs-respondents.

Neil E. McDonell, of counsel, New York City (Kenneth A. Becker, on the brief, Dorsey & Whitney LLP, attorneys) for defendant-appellant Kvaerner.

Charles E. Dorkey III, of counsel, New York City (Edward J. Henderson, Linda M. Baldwin and Piero A. Tozzi, on the brief, Haythe & Curley, attorneys) for defendant-appellant J.A. Jones.

Before MILONAS, J.P., and ELLERIN, RUBIN and TOM, JJ.

RUBIN, Justice.

This is an action brought by plaintiff Bank of Tokyo-Mitsubishi, Ltd. as assignee of a construction contract to build an electric co-generation facility in Fayetteville, North Carolina. The owner of the facility is BCH Energy, L.P., a Delaware limited partnership headquartered in Texas. The contractor, Metric/Kvaerner Fayetteville, is a joint venture between the respective subsidiaries of defendant J.A. Jones, Inc., also a Delaware corporation with its principal place of business in North Carolina, and defendant Kvaerner a.s., a Norwegian corporation that conducts no business in the United States. Plaintiff bank is the agent for a consortium of banks doing business in New York.

The complaint seeks recovery of "damages resulting from the Contractor's failure to perform, including the costs of correcting the defects and deficiencies arising from the Contractor's breach of contract". As the basis for the action, plaintiff relies on two instruments executed by the respective defendants guarantying the performance of the joint venture as contractor under the construction contract. Because the action has only a tenuous connection with this State and because, in any event, the central issue in the case is the subject of arbitration currently pending in North Carolina, this Court concludes that the parties must seek any relief attendant to this dispute before the courts of North Carolina.

Plaintiff Bank of Tokyo-Mitsubishi, Ltd. together with a consortium of international banks (consisting of Barclays Bank PLC, Bayerische Vereinsbank A.G., Credit Suisse First Boston, Dai-Ichi Kangyo Bank, Ltd. and The Fuji Bank, Ltd.) provided financing of approximately $80 million for a construction project to build an electric power plant designed to produce energy from waste. It is apparent from the recitations in the subject guaranties dated November 16, 1993 that the owner, BCH Energy, L.P., entered into a "Credit and Reimbursement Agreement" with the various banks (which is not contained in the record on appeal). The complaint, however, does not allege that the loan is in default, and the guaranties executed by defendants do not extend to the financing agreement but rather to the construction contract dated November 15, 1993. This action is predicated on the joint venturers' default on their obligations under the construction contract. As the complaint recites, "The Contractor has failed to perform as required and, accordingly, the defendants are liable to the Banks under the Guaranties."

BCH Energy, L.P. took possession of the co-generating facility in the summer of 1996, but never issued a certificate of substantial completion in accordance with the construction contract. In September, BCH issued notice that the joint venturers were in default under the agreement. In October, the joint venture commenced an arbitration proceeding in which it seeks a declaration that the project is substantially complete, payment of sums due under the contract and delay damages. In early December, plaintiff bank served notice of default under the guaranties and commenced this action by filing of the summons and complaint on or about January 14, 1997.

In instituting this action in the courts of this State, plaintiff bank relies on several provisions contained in the guaranties: that plaintiff may institute a "separate action" under the instruments, that the guaranties are to be governed by the laws of this State and that the guarantors "submit[ ] to the jurisdiction of any Federal court sitting in the State of New York", fully waiving "the defense of an inconvenient forum".

In opposing litigation of this matter, both defendants contend that the controversy will be determined by the outcome of the arbitration proceeding pending in North Carolina, commenced by the joint venture pursuant to the broad arbitration provision of the construction contract. Both defendants moved to compel arbitration of this dispute or, in the alternative, to stay the action pending resolution of the arbitration proceedings. In addition, defendant J.A. Jones, Inc. argues that the courts of this State lack personal jurisdiction over it because Jones is not doing business in New York. Therefore, Jones moved to dismiss the action on that basis. Defendant Kvaerner additionally moved for dismissal of the action on the ground of forum non conveniens but has abandoned this argument on appeal. Supreme Court denied both motions in their entirety.

Plaintiff argues essentially that the rights of the financing banks under the guaranties are distinct from their rights pursuant to the construction contract, that the arbitration provision of the contract is inapplicable to the guaranties and that, in any event, the consortium of banks it represents are not parties to the arbitration. With respect to the jurisdictional issue, plaintiff bank relies on the theory that, by mailing the guaranty to New York, Jones was conducting business in this State and is thereby subject to its long-arm jurisdiction (CPLR 302[a][1] ).

One obvious question raised by the forum designation provision is why defendants, having consented to suit in Federal court, find themselves litigants before a State court. The apparent answer is that, by virtue of the appearance in this action by an alien corporation (defendant Kvaerner a.s.), plaintiff bank is unable to establish the necessary diversity of citizenship prerequisite to Federal jurisdiction (see, e.g., Marathon Oil Co. v. Ruhrgas, A.G., 115 F.3d 315, 319 [5th Cir.1997], cert. denied --- U.S. ----, 118 S.Ct. 413, 139 L.Ed.2d 316 [1997], reh. en banc granted 5th Cir., 129 F.3d 746; Attorneys Trust v. Videotape Computer Prods., 93 F.3d 593, 595 [9th Cir. 1996]).

Another question that naturally arises is whether the provision that New York law shall govern the interpretation of the guaranties and the choice of New York as the situs of any related action are sufficient to confer jurisdiction over defendants. As this Court has noted, choice of law and choice of forum are altogether separate matters (Merrill Lynch, Pierce, Fenner & Smith v. McLeod, 208 A.D.2d 81, 83-84, 622 N.Y.S.2d 954 [Wallach, J.] ). Furthermore, the choice of forum provision does not comply with General Obligations Law § 5-1402(1) because defendants have not consented "to submit to the jurisdiction of the courts of this state" but have submitted only to the jurisdiction of the courts of the United States sitting in New York. For the same reason, this Court regards defendants' waiver of objection to the convenience of this forum as coextensive with, and ancillary to, the forum selection clause that precedes it. Therefore, the waiver extends only to litigation conducted in the Federal courts and has no application to a State action.

With respect to the issue of personal jurisdiction over defendant Jones, this Court has consistently held that "New York may not extend long-arm jurisdiction over a non-domiciliary who was never physically present in New York, and who never agreed to provide any goods or services here, other than a promise to a New York corporation that he would make good if a corporation of another state defaulted on its debt" (First National Bank & Trust Co. v. Wilson, 171 A.D.2d 616, 618, 567 N.Y.S.2d 468). Specifically, the rule established in this Department is that the mere furnishing of a guaranty by a non-domiciliary on behalf of a foreign corporation does not serve to confer in personam jurisdiction upon our courts (Waldorf Assocs. v. Neville, 141 Misc.2d 150, 154, 533 N.Y.S.2d 182, affd. for reasons stated 155 A.D.2d 283, 547 N.Y.S.2d 556; contra, Rielly Co. v. Lisa B., Inc., 181 A.D.2d 269, 586 N.Y.S.2d 668 [3d Dept.]; Fashion Tanning Co. v. Shutzer Indus., 108 A.D.2d 485, 489 N.Y.S.2d 791 [3d Dept.] ). While this principle would furnish a sufficient basis for dismissal were this action brought to recover damages from the guarantors of a note payable in this State, it is all the more appropriate where, as here, suit is brought against the guarantors to recover damages arising out of the failure to perform a contract, which performance is to be rendered in North Carolina (Waldorf Assocs. v. Neville, supra, at 154, 533 N.Y.S.2d 182). Nor has plaintiff demonstrated that a subsidiary of defendant Jones, concededly doing business in this State, lacks an independent corporate existence so as to subject its parent to the exercise of jurisdiction (Delagi v. Volkswagenwerk, A.G., 29 N.Y.2d 426, 328 N.Y.S.2d 653, 278 N.E.2d 895; see also, Landoil Resources Corp. v. Alexander & Alexander Servs., 77 N.Y.2d 28, 34, 563 N.Y.S.2d 739, 565 N.E.2d 488; Volkswagenwerk, A.G. v. Beech Aircraft Corp., 751 F.2d 117 [2d Cir.1984] ).

The significance of the nature of the guaranties upon which plaintiff sues cannot be overstated. The viability of plaintiff's case rests on its contention that the guaranties give it a right of action entirely separate from the contract. To this end, plaintiff places considerable reliance on this Court's decision in National Union Fire Ins. Co. v. Williams, 223 A.D.2d 395, 637 N.Y.S.2d 36.

Ordinarily, a...