Hemlock Semiconductor Pte. Ltd. v. Jinglong Indus.

• Decision Date: 31 January 2017
• Citation: 56 Misc.3d 324,51 N.Y.S.3d 818
• Parties: HEMLOCK SEMICONDUCTOR PTE. LTD., Plaintiff, v. JINGLONG INDUSTRY and Commerce Group Co., Ltd., Defendant.
• Court: New York Supreme Court

56 Misc.3d 324

51 N.Y.S.3d 818

HEMLOCK SEMICONDUCTOR PTE. LTD., Plaintiff,

v.JINGLONG INDUSTRY and Commerce Group Co., Ltd., Defendant.

Supreme Court, New York County, New York.

Jan. 31, 2017.

J. Peter Coll, Orrick Herrington & Sutcliffe LLP, New York, for Plaintiff.

Charles Edward Dorkey, Dentons U.S. LLP, New York, for Defendant.

JEFFREY K. OING, J.

Defendant, Jinglong Industry and Commerce Group Co., Ltd. ("Jinglong"), moves, pursuant to CPLR 3211(a)(2), for dismissal of the amended complaint for lack of subject matter jurisdiction.

Background

The amended complaint alleges as follows: plaintiff, Hemlock Semiconductor Pte. Ltd. ("Hemlock"), is a Singapore Private Limited Company, whose principal place of business is in Singapore, and is a wholly-owned subsidiary of Hemlock Semiconductor Corporation, a Michigan corporation. It is a leading manufacturer of polycrystalline silicon that is used in manufacturing photovoltaic wafers, ingots, solar cells, and solar modules. Jinglong is a Chinese limited corporation, whose principal place of business is located in Hebei, China. It is principally engaged in manufacturing and distributing the same type of products manufactured by Hemlock.

The amended complaint goes on to allege that on May 4, 2011, the parties entered into a "Long Term Supply Agreement IVB" ("Supply Agreement"), pursuant to which Jinglong agreed to purchase, and Hemlock agreed to supply, solar grade polycrystalline silicon ("Product"). Jinglong agreed to purchase specified annual quantities of the Product for a period of years. It also agreed in the Supply Agreement to make a "non-refundable, unconditional, irrevocable advance payment" to Hemlock ("Advance Payment") in the amount of $34.5 million, payable in installments. Jinglong agreed that it would "take or pay" for the Product. The term of the Supply Agreement is from May 4, 2011 through December 31, 2020. Jinglong paid only the first installment of the Advance Payment.

According to the allegations, on January 9, 2013, August 19, 2013, and January 23, 2014, Hemlock issued default notices to Jinglong for its alleged failure to make its contractual Advance Payment installments. Hemlock alleges that to date Jinglong has not paid Hemlock any of the invoiced defaulted amounts due under the Supply Agreement, but has demonstrated that it does intend to honor its contractual payment obligations.

The amended complaint sets forth three causes of action: 1) breach of contract based on Jinglong's failure to pay amounts owed; 2) anticipatory breach of contract; and 3) an account stated. Hemlock claims that it has been damaged in an amount to be determined at trial, but not less than $41,442,000.

According to the amended complaint, Jinglong is subject to personal jurisdiction in this Court pursuant to General Obligations Law ("GOL") §§ 5–1401 and 5–1402 because the Supply Agreement is for an amount greater than $1 million, and is governed by the laws of the State of New York (Amended Complaint, ¶ 4).

General Obligations Law § 5–1401 provides, in relevant part:

1. The parties to any ... agreement ... in consideration of, or relating to any obligation arising out of a transaction covering in the aggregate not less than two hundred fifty thousand dollars, including a transaction otherwise covered by subsection one of section 1–105 of the uniform commercial code, may agree that the law of this state shall govern their rights and duties in whole or in part, whether or not such ... agreement ... bears a reasonable relation to this state.....

Section § 5–1402(1) provides:

Notwithstanding any act which limits or affects the right of a person to maintain an action or proceeding, including, but not limited to, paragraph (b) of section thirteen hundred fourteen of the business corporation law ..., any person may maintain an action or proceeding against a foreign corporation, non-resident, or foreign state where the action or proceeding arises out of or relates to any ... agreement ... for which a choice of New York law has been made in whole or in part pursuant to section 5–1401 and which (a) is a [n] ... agreement ... in consideration of, or relating to any obligation arising out of a transaction covering in the aggregate, not less than one million dollars, and (b) which contains a provision or provisions whereby such foreign corporation or non-resident agrees to submit to the jurisdiction of the courts of this state.

Section 22 of the Supply Agreement provides:

Choice of Law. This Agreement is made in, and shall be governed and controlled in all respects by the laws of, the State of New York, U.S.A. (specifically disclaiming the United Nations Convention on Contracts for the International Sale of Goods), and all disputes, including those related to interpretation, enforceability, validity, and construction, shall be determined under such laws, all without giving any effect to any choice or conflict of law provision or rule that would cause application of the laws of any jurisdiction other than that set forth in this section.

Section 23 provides, in relevant part:

Choice of Forum: Time Period. The parties submit to the exclusive jurisdiction of the state and federal courts of the State of New York, U.S.A. for all disputes and actions arising, directly or indirectly, out of this Agreement, the performance of this Agreement, or the breach of this Agreement.....

The Parties' Contentions

Jinglong argues that section 5–1402 does not apply here because it can only apply where there has been a contractual choice-of-law provision made pursuant to section 5–1401. No such choice-of-law could have been made, however, because, Jinglong argues, to the extent that section 5–1401 purports to authorize the application of New York law to transactions and parties that have no connection to or relationship with New York, as is the case here, it violates the Commerce Clause of the United States Constitution, and the Due Process Clause.

With respect to the Commerce Clause, Jinglong argues that section 5–1401 is a per se violation of that clause because its extraterritorial reach directly regulates commerce taking place wholly outside of New York. Because section 5–1401 was intended to override the common-law rule that precluded New York courts from applying New York law to transactions that have no reasonable connection to New York, even if the parties had agreed that New York law should apply, Jinglong asserts that section 5–1401 exceeds the limitations imposed on states by the Commerce Clause, and this Court should invalidate the statute as unconstitutional, as least when applied to the circumstances presented here.

Jinglong also contends that section 5–1401 exceeds the limitations on state actions imposed by the Due Process Clause. Under the Due Process Clause, a state cannot apply its own law to a transaction or occurrence if the application of that law would be arbitrary or fundamentally unfair. As such, section 5–1401 is unconstitutional and, therefore, is invalid.

Lastly, Jinglong posits that a contractual choice-of-law provision will only be enforced if the chosen state has a substantial relationship to the dispute or the parties. Here, the contractual selection of New York law contained in section 22 of the Supply Agreement would not be enforceable because neither party has any significant contacts with New York, nor does the contract have any reasonable relationship to New York.

Jinglong then continues and argues that this action is governed by Business Corporation Law ("BCL") § 1314(b), which precludes certain suits by one foreign corporation against another. Jinglong argues that section 1314(b) applies because both Hemlock and it are foreign corporations, and none of the exceptions set forth in subsections (1)–(5) is available.

In opposition, Hemlock avers that section 5–1402 has provided the jurisdictional basis for more than one hundred multi-million dollar actions in New York State over the past six years, including more than ten in this Court alone. Hemlock asserts that the statute has no impact or effect on any trade, market, or industry. Instead, it instructs that where parties have agreed that New York law will govern the contract New York courts will not conduct the usual conflict-of-law analysis, but instead will apply New York law without further inquiry. Even if the statute did regulate commerce, its effect would be confined to the State of New York and its courts. In fact, Hemlock points out that the statute (1) does not restrict the free flow of trade across borders; (2) does not impose a commercial scheme that supersedes the laws of another state; (3) does not require that other states apply New York law; and (4) does not in any way impede another state from passing its own version of the statute for use within its own courts and borders. Under these circumstances, Hemlock contents that section 5–1402 does not violate the Commerce Clause.

As for the Due Process Clause, Hemlock argues that the enforcement of a bargained-for choice-of-law provision actually ensures fairness and protects the parties from the arbitrary application of an unanticipated body of laws. Moreover, Hemlock contends that there is significant contact with New York because sophisticated global commercial actors, in a multi-million-dollar agreement, chose New York law to govern their contract. In fact, Hemlock reminds this Court that Jinglong is a sophisticated global actor who negotiated and executed the Supply Agreement with full knowledge of its terms.

Hemlock also argues that although BCL § 1314(b) might bar this Court from hearing a dispute between two foreign corporations this Court can exercise jurisdiction here because the contract has: (1) a value greater than $1 million; (2) a provision calling for the application of New York law; and (3) a provision in which the parties submit to the jurisdiction of the courts of New York. The subject matter jurisdiction conferred on this Court pursuant to GOL § 5–1402 does not...