GOSAIN v. State Bank of India, 09 Civ. 4172(VM).

Citation689 F. Supp.2d 571
Decision Date26 January 2010
Docket NumberNo. 09 Civ. 4172(VM).,09 Civ. 4172(VM).
PartiesRajiv Shah GOSAIN, Plaintiff, v. STATE BANK OF INDIA, New York Branch, et al., Defendants.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

Elias N. Sakalis, Sakalis & Associates, Riverdale, NY, for Plaintiff.

Richard Steven Last, Foreht Last Landau & Katz LLP, New York, NY, Karamvir Dahiya, Karamvir Dahiya's Law Office, P.C., Jackson Heights, NY, for Defendants.

DECISION AND ORDER

VICTOR MARRERO, District Judge.

Plaintiff Rajiv Shah Gosain ("Gosain") brought this action on April 21, 2009 alleging that defendants State Bank of India (New York Branch) and State Bank of India (Mumbai) (collectively, "SBI"), and Texplas India Private Ltd. ("Texplas") (collectively, "Defendants") are liable for fraud arising out of the liquidation auction of TechInvest India Private Ltd. ("TechInvest"). Defendants now move to dismiss Gosain's complaint pursuant to Rules 12(b)(1), (2), and (6) of the Federal Rules of Civil Procedure ("Rule 12(b)(1)", "Rule 12(b)(2)" and "Rule 12(b)(6)").

Defendants move to dismiss Gosain's claims against SBI on the following grounds: (1) lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act of 1976 ("FSIA") pursuant to Rule 12(b)(1); (2) lack of personal jurisdiction pursuant to Rule 12(b) (2); (3) forum non coveniens; and (4) considerations of comity. Defendants also move to dismiss Gosain's claims against Texplas on the following grounds: (1) lack of personal jurisdiction pursuant to Rule 12(b)(2); (2) lack of subject matter jurisdiction pursuant to Rule 12(b)(1); and (3) forum non conveniens. In response, Gosain cross-moves for leave to serve an amended complaint pursuant to Rule 15(a) of the Federal Rules of Civil Procedure ("Rule 15(a)"). For the reasons discussed below, Defendants' motion to dismiss is GRANTED and Gosain's cross-motion is DENIED.

I. BACKGROUND1

Gosain alleges that SBI and its officers engaged in a concerted pattern of fraud and misrepresentation, dating back to the early 1990s, that resulted in the loss in value of his shares in TechInvest, an Indian corporation that manufactured industrial unclad laminates in India.

On May 11, 1990, Smarrt Systems, Inc. ("Smarrt"), a former New Jersey corporation, signed a credit agreement with SBI's Flushing Branch ("SBI Flushing") for a loan. At the time, Gosain was an officer and director of Smarrt and was thus required to offer a personal guaranty as collateral for the loan. Gosain ceased being an officer, director or shareholder of Smarrt in February 1991, and SBI allegedly agreed in writing to release his personal guaranty.

Gosain asserts that despite the agreement to release his personal guaranty, SBI proceeded in an action against him in the New York State Supreme Court, Queens County ("State Court"). SBI allegedly used a false address for Gosain in New York to attempt to effectuate service on him and then to request a default judgment against Gosain in the Queens action. The State Court issued a default judgment against Gosain on August 6, 1991. Thereafter, SBI in India, based on instructions received from SBI Flushing, commenced an action to obtain a judgment in India based on the default judgment in State Court. SBI obtained a default judgment against Gosain in India on December 12, 1997 ("Indian Default Judgment"). Gosain claims that SBI misinformed the Indian court that he was an Indian citizen residing in India, rather than a U.S. citizen residing in the United States, and that the Indian court would not have entered the Indian Default Judgment if it had been correctly informed. Based on the incorrect information, according to Gosain, the Indian court, rather than instituting a new civil action, permitted SBI to serve Gosain in India by publication.

Gosain alleges that SBI conspired with Texplas to use the Indian Default Judgment to fraudulently liquidate TechInvest's assets at a sham auction. By letter dated May 3, 1999, Gosain's father, K.K. Gosain, conveyed a 74% common stock interest in TechInvest to Gosain with the formal permission of the Government of India through the Reserve Bank of India ("RBI"), as legally required under Indian law since Gosain was a United States citizen. Gosain thus succeeded his father as a director and the majority shareholder of TechInvest. Because SBI's loan documentation required that current directors replace the personal guaranties of retiring directors, on April 26, 1999, Gosain offered SBI a personal guaranty to replace his father's guaranty. On May 1, 1999, SBI was formally informed of the change in ownership and the reconstitution of the Board of Directors of TechInvest.

Gosain alleges that SBI refused to accept his replacement personal guaranty and elected instead to withdraw financial support to TechInvest because of the change in majority ownership and management. SBI also froze TechInvest's bank accounts and refused to allow TechInvest to seek alternative financing. SBI based this decision on Gosain's default on the Smarrt loan and the State Court default judgment, despite SBI having agreed in writing in 1991 to release Gosain of any liability before the Queens action commenced. Consequently, in October 1999, TechInvest was forced into involuntary restructuring. A Trustee/Receiver (the "Trustee"), known as an Official Liquidator in India, was appointed by the Indian courts with SBI's approval, knowledge and consent, to oversee TechInvest's dissolution. SBI and the Trustee were jointly responsible for overseeing the sale of TechInvest's assets, and accepted and acknowledged in writing a minimum valuation of TechInvest's assets for the purposes of sale at 6.25 million Indian Rupees, the equivalent of about 1.6 million United States Dollars ("USD"). Gosain alleges that SBI formally acknowledged his letter, dated May 21, 2001, which stated, in part, that after paying off the liabilities of TechInvest and the costs of dissolution, there would be a substantial sum of money to be remitted to him in the United States as a final dividend.

On September 23, 2003, the Trustee and SBI auctioned all the assets of TechInvest for about 90,000 USD, far below the minimum reserve sale price accepted by SBI. Gosain alleges that SBI conspired with Texplas to rig the auction, that Texplas paid an assistant general manager of a local SBI branch a bribe, and that Texplas and SBI stage-managed the auction. Before the auction commenced, Texplas made a 10% deposit of the final sale price, which was required to secure its soon-to-be final bid in the auction. Then, at the auction, according to Gosain, sham buyers bid in $100 increments and there was no minimum reserve price for all the assets of TechInvest. Gosain charges that, following the auction, SBI signed the typed auction report, knowing it was fraudulently obtained, and without which the auction could not have been finalized.

Gosain alleges that SBI failed to notify him of the September 2003 auction, even though it was legally bound to do so under Indian law. Because of this failure, Gosain did not learn of the auction until late 2005, when he was informed by a creditor of a company that had petitioned the Indian High Court to overturn the auction on grounds of fraud and corruption. Title to TechInvest's land was transferred to Texplas in August 2004.

II. DISCUSSION
A. LEGAL STANDARD
1. Foreign Sovereign Immunity

SBI moves to dismiss the complaint under Rule 12(b)(1) on the ground that the Court lacks subject matter jurisdiction because SBI is immune from this lawsuit as an agency or instrumentality of a foreign sovereign. The FSIA provides "the sole basis for obtaining subject matter jurisdiction over a foreign sovereign in the United States." Republic of Arg. v. Weltover, Inc., 504 U.S. 607, 611, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992) (quotations omitted). An agency or instrumentality of a foreign sovereign is presumptively immune from suit in the federal courts unless a plaintiff demonstrates that the claim falls within a statutory exception to immunity. See 28 U.S.C. § 1604; see also Verlinden B.V. v. Central Bank of Nig., 461 U.S. 480, 488-89, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983). Under the FSIA, an agency or instrumentality of a foreign state includes "any entity ... a majority of whose shares or other ownership interest is owned by a foreign state or a political subdivision thereof." 28 U.S.C. § 1603(b)(2).

When a defendant moves to dismiss a complaint on the basis of foreign sovereign immunity, the defendant "must present a prima facie case that it is a foreign sovereign." See Virtual Countries, Inc. v. Republic of S. Afr., 300 F.3d 230, 241 (2d Cir.2002) (quotations omitted). Once the movant has made such a showing, the opposing party has the burden of presenting evidence showing that, under the exceptions to the FSIA, immunity should not be granted. See Cabiri v. Government of Republic of Ghana, 165 F.3d 193, 196 (2d Cir.1999); Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir.1993) (citations omitted). The ultimate burden of persuasion, however, remains with the alleged foreign sovereign. See Cargill Int'l, 991 F.2d at 1016; Guirlando v. T.C. Ziraat Bankasi, A.S., No. 07 Civ. 10266, 2008 WL 5272195, at *2 (S.D.N.Y. Dec. 15, 2008). When there are disputed jurisdictional fact issues, the Court has discretion to look outside the pleadings to submissions by the parties. See Filetech S.A. v. Fr. Telecom S.A., 157 F.3d 922, 932 (2d Cir.1998); Antares Aircraft, L.P v. Federal Republic of Nig., 948 F.2d 90, 96 (2d Cir.1991), vacated on other grounds, 505 U.S. 1215, 112 S.Ct. 3020, 120 L.Ed.2d 892 (1992).

In assessing a motion to dismiss on the basis of foreign sovereign immunity, the Court must look to the substance of the allegations to determine whether one of the exceptions to the FSIA's general grant of immunity applies. See Robinson v. Government of Malaysia, 269 F.3d 133, 140 (2d Cir.2001); Pons v. People's Republic of...

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