Gem Advisors, Inc. v. Corporacion Sidenor, S.A.

• Decision Date: 27 October 2009
• Docket Number: No. 06 Civ. 5693(RJS).,06 Civ. 5693(RJS).
• Citation: 667 F.Supp.2d 308
• Parties: GEM ADVISORS, INC., Plaintiff, v. CORPORACIÓN SIDENOR, S.A. and Industrias Ferricas Del Norte, S.A., Defendants.
• Court: U.S. District Court — Southern District of New York

667 F.Supp.2d 308

GEM ADVISORS, INC., Plaintiff, v. CORPORACIÓN SIDENOR, S.A. and Industrias Ferricas Del Norte, S.A., Defendants.

No. 06 Civ. 5693(RJS).

United States District Court, S.D. New York.

October 27, 2009.

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August C. Venturini and Sean W. Higgins, New York, NY, for Plaintiff Gem Advisors, Inc.

Stephen M. Harnik, Harnik Wilker & Finkelstein LLP, New York, NY, for Defendant Sidenor.

Charles L. Rosenzweig, Rand Rosenzweig Radley & Gordon, LLP, White Plains, NY, for Defendant IFN.

OPINION AND ORDER

RICHARD J. SULLIVAN, District Judge.

Plaintiff GEM Advisors, Inc. ("GEMA" or "Plaintiff") brings this action against Defendants Corporación Sidenor, S.A. ("Sidenor") and Industrias Ferricas Del Norte, S.A. ("IFN") (collectively, "Defendants") for breach of contract, indemnification, quantum meruit, unjust enrichment, fraudulent misrepresentation, and fraudulent concealment. Plaintiff contends that Defendants breached a series of letter agreements by selling certain steel mills in Mexico and not paying the required fees for GEMA's services. Plaintiff alleges that Defendants owe a percentage of the sale's value, as defined in the agreements. Further, Plaintiff asserts that Defendants misrepresented the mills' ownership structure, thereby defrauding Plaintiff. GEMA seeks compensatory and punitive damages, as well as attorneys' fees under an indemnification clause contained in each letter agreement.

Before the Court are motions to dismiss filed separately by IFN and Sidenor. IFN moves to dismiss the complaint: (1) pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure for lack of personal jurisdiction, (2) under the doctrine of forum non conveniens, (3) pursuant to Rule 12(b)(6) for failure to state a claim, and (4) for failure to plead fraud with particularity as required by Rule 9(b).¹ Sidenor seeks to dismiss the claims on the grounds of forum non conveniens, or, in the alternative, pursuant to Rule 12(b)(6). For the reasons set forth below, Defendants' motions are granted in part and denied in part.

I. BACKGROUND

A. Facts²

1. Parties

Plaintiff GEM Advisors is a New York corporation headquartered in New York. (Second Amended Complaint ("SAC") ¶ 1.) Defendants IFN and Sidenor are both Spanish corporations. (Id. ¶¶ 2-3.) The SAC alleges that Sidenor is an affiliate and subsidiary of IFN. (Id. ¶ 2.) From 1996 through December 12, 2002, IFN was the parent and sole shareholder of Sidenor. (Decl. of Gonzalo Mugica ("Mugica Decl.") ¶ 4.) Beginning in December of 2002, however, IFN began selling its shares of Sidenor, and as of January 16, 2006, it no longer maintains any ownership interest in Sidenor. (Id.)

2. The Sidenor Agreements

This dispute arises out of the sale of Mexican steel mills owned by Defendants. That sale, GEMA contends, was covered by letter agreements between itself and Defendants that entitle GEMA to payment. Specifically, from 2001 through 2003, GEMA and Sidenor signed a series of engagement letters, under which GEMA was to provide various consulting services focused on finding companies with which Sidenor could engage in certain large transactions. (SAC Exs. A-E.) These agreements provided that, in return for its services, GEMA would receive certain payments from Sidenor, chiefly a $25,000 "Due Diligence Fee" due upon signing and a Transaction Success Fee ("Success Fee") if Sidenor engaged in any transactions with "Targets" found by GEMA. (SAC ¶¶ 7, 13, 28, 44, 58, 79.) As will be discussed infra, Plaintiff claims IFN is also a party to these contracts.

The first such agreement was dated November 29, 2001. (SAC Ex. A (Nov. 29, 2001 Letter Agreement).) Under that agreement, GEMA was to "serve as financial advisor and investment banker" to Sidenor, assisting in "completing acquisitions, entering into an alliance and/or merger with strategic or financial partner(s), as well as raising new capital in connection with such transactions." (Id. ¶ 11, Ex. A) For its work, GEMA was to receive, among other consideration, a $25,000 Due Diligence Fee and a Success Fee of two-percent of the "Transaction Value" of any "Transaction" with a "Target Investor." Target Investors could be identified by GEMA or Sidenor, and the agreement defines a Transaction broadly to cover acquisitions by Sidenor or by a Target Investor. (Id. Ex. A.) The agreement was to continue until terminated. (Id.)

GEMA and Sidenor signed a second letter agreement dated January 25, 2002. (Id. ¶ 23; id. Ex. B (Jan. 25, 2002 Letter Agreement).) Although that agreement "substitute[d] all of the provisions of the letter dated November 29, 2001" (id. Ex. B), it largely parallels the earlier letter, including the scope and fee structure. (See id.) Like the prior agreement, the January 25, 2002 Letter Agreement was to "continue until terminated." (Id. § 6.)

The third agreement is dated July 4, 2002. (SAC ¶ 38; id. Ex. C (July 4, 2002 Letter Agreement).) Again, it "substitute[d] all of the provisions" of the previous letter, though its terms are similar. (Id. Ex. C.) Apart from slight adjustments, this letter made one material change. For the first time, the definition of a Target "include[d] but [was] not limited to" specific companies and opportunities. As before, GEMA still was to receive a Due Diligence Fee and two percent of the Transaction Value of any Transaction with a Target. (Id.) The July 4, 2002 letter also provided that the agreement would "continue until terminated." (Id.)

Three months later, the parties executed a fourth letter agreement. (Id. ¶ 53; id. Ex. D (Oct. 4, 2002 Letter Agreement).) Like its predecessors, the October 4, 2002 letter purported to "substitute[] all of the provisions" of the July 4, 2002 agreement. (Id. Ex. D.) Unlike its predecessors, however, the October 4 agreement made two significant changes. First, it added additional details to the scope of the agreement. It identified several target companies, including Grupo Simec ("Simec") and Industrias Campos Hermanos ("ICH"), but the definition of a Target was not limited to the companies listed. (Id.) Moreover, "Transaction" was defined to cover, inter alia, transactions involving "all or a material portion of businesses in Mexico in which [Sidenor] or any of its affiliates or subsidiaries holds a controlling stake." (Id.) Second, the fee structure was altered. While GEMA was still entitled to a $25,000 Due Diligence Fee upon signing, the method for determining compensation "in the event [Sidenor] enter[ed] into a Transaction with a Target" was different. (Id.) Specifically, the October letter agreement stated that the "amount of such Transaction Success Fees shall be mutually agreed between [Sidenor] and GEMA at a later time." (Id.) In contrast to the exact two-percent figure agreed to in prior letters, the Success Fee under the October 4 agreement was to "be in an average range of 2.0% (two-percent) of each Transaction Value, and will be determined prior to October 31, 2002." (Id.)

In connection with the services that GEMA was to provide under the agreements, around September or October 2002, Sabino Arrieta and Enrique Teruel, at least one of whom is alleged to "own[] and control[]" both IFN and Sidenor, approached GEMA for assistance in selling the Mexican steel mills. (SAC ¶¶ 89, 103.) The following month, GEMA introduced ICH and Simec to Defendants as potential buyers. (Id. ¶ 91.) GEMA then set up a conference call with ICH and Defendants in January 2003. During that call, ICH offered to purchase the Mexican steel mills. (Id. ¶ 97.) Shortly thereafter, however, Defendants rejected the purchase offer. (Id. ¶ 98.) As a result of Defendants' rejection of the purchase offer, Plaintiff concluded that negotiations between Defendants and ICH for the sale of the mills had terminated. (Id.)

The last letter agreement identified in the SAC is dated February 21, 2003. GEMA alleges that it signed that agreement and sent a copy to Sidenor. (Id. ¶¶ 70-71; id. Ex. E (Feb. 21, 2003 Letter Agreement).) This agreement, like the others, covered various financial services, specifically naming several possible transactions in Mexico and South America. (Id. Ex. E.) The letter also "substitute[d] all of the provisions" of the October 4, 2002 agreement "when executed by both parties." (Id.) It was to continue in effect until terminated. For its services, GEMA was to receive a $25,000 Due Diligence Fee and two-percent of the value of an investment into "Sidemex and/or Sidenor ABX." (Id.) In the event that any other transactions materialized, fees would be mutually agreed upon before March 30, 2003. (Id.) GEMA asserts that Sidenor accepted this letter but did not send a signed copy back.³ (Id. ¶¶ 72-73.)

3. IFN's Relationship with Sidenor

Each of the above-described agreements is signed by or addressed to only Sidenor, not IFN. (Id. Exs. A-E.) Nonetheless, with respect to the sale of the Mexican steel mills, Plaintiff alleges that IFN agreed to and intended to be bound "by the applicable engagement letter." (Id. ¶ 102.) Specifically, GEMA alleges that when Defendants initially approached them about selling the mills, Defendants claimed that the mills were owned by Sidenor and other third parties, but not IFN. (Id. ¶ 89.) Around March or April 2003, however, GEMA alleges that it discovered documents which revealed that IFN also had a direct ownership interest in the mills. (Id. ¶ 100.) Plaintiff confronted Defendants who confirmed that IFN did, in fact, directly own a portion of the steel mills. (Id. ¶ 101.) As a result of this discovery, GEMA inquired into IFN's obligations under the letter agreements. (Id. ¶ 102.) IFN allegedly assured GEMA that it intended and understood itself to be bound under the relevant agreements, despite not being named in the agreements themselves, and that it was therefore unnecessary to amend...