In re Optimal U.S. Litig.

• Decision Date: 10 October 2012
• Docket Number: No. 10 Civ. 4095(SAS).,10 Civ. 4095(SAS).
• Citation: 886 F.Supp.2d 298
• Parties: In re OPTIMAL U.S. LITIGATION.
• Court: U.S. District Court — Southern District of New York

886 F.Supp.2d 298

In re OPTIMAL U.S. LITIGATION.

No. 10 Civ. 4095(SAS).

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

Aug. 10, 2012.

Opinion Denying Reconsideration Oct. 10, 2012.

Edward W. Miller, Esq., Garden City, NY, Alan Ian Ellman, Esq., Javier Bleichmar, Esq., Labaton Sucharow, LLP, New York, NY, Jack Reise, Esq., Michael L. Greenwald, Esq., Robbins Geller Rudman & Dowd LLP, Boca Raton, FL, for Plaintiffs.

Gustavo J. Membiela, Esq., Samuel A. Danon, Esq., Hunton & Williams, LLP, Miami, FL, Paulo Roberto Lima, Esq., Shawn Patrick Regan, Esq., Hunton & Williams, LLP, New York, NY, for Defendants.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.

I. INTRODUCTION¹

This putative class action arises out of plaintiffs' investment in the Optimal Strategic U.S. Equity Fund (“Optimal U.S.” or the “Fund”), which in turn invested one-hundred percent of its assets with Bernard L. Madoff and his firm, Bernard L. Madoff Investment Securities LLC (“BMIS”). Plaintiffs allege that defendants failed to conduct adequate diligence regarding Madoff, ignored “red flags” that should have alerted them to Madoff's fraud, and made misstatements and omissions in connection with the sale of Optimal U.S. shares, causing plaintiffs to lose their investments and allowing defendants wrongfully to collect management fees.²

On December 20, 2011, I denied defendants' initial motion for forum non conveniens. At that time, the balance of factors was extremely close, and I noted that the public interest factors did point slightly in favor of dismissal. However, I denied defendants' motion based primarily on the deference owed to plaintiffs' choice of forum, the United States' interest in enforcing violations of federal securities law, and the due diligence efforts conducted in New York. Defendants now move, for a second time, for dismissal on the grounds of forum non conveniens. Since the December 20 Opinion plaintiffs' federal securities law claims have been dismissed and the parties have undertaken extensive discovery efforts in Europe. This dispute now concerns claims, governed by foreign law under relevant choice-of-law principles, brought by foreign plaintiffs suing mostly foreign defendants based on alleged misstatements made abroad. Because the balance of factors has changed and now point strongly towards dismissal, defendants' motion is now granted.

II. APPLICABLE LAWA. Forum Non Conveniens

“[F]ederal courts have the power to dismiss damages actions under the common-law forum non conveniens doctrine ... in ‘cases where the alternative forum is abroad.’ ” ³ The “decision to dismiss by reason of forum non conveniens is confided to the sound discretion of the district court.” ⁴ “ ‘[I]n the determination of a motion to dismiss for forum non conveniens, the court may consider affidavits submitted by the moving and opposing parties.’ ” ⁵

The Second Circuit employs a three-part test established in the seminal case of Iragorri v. United Technologies Corporation in addressing motions to dismiss under the doctrine of forum non conveniens.⁶ “At step one, a court determines the degree of deference properly accorded the plaintiff's choice of forum. At step two, it considers whether the alternative forum proposed by the defendants is adequate to adjudicate the parties' dispute. Finally, at step three, a court balances the private and public interests implicated in the choice of forum.” ⁷

“[A] court reviewing a motion to dismiss for forum non conveniens should begin with the assumption that the plaintiff's choice of forum will stand.” ⁸ However, “the degree of deference given to a plaintiff's forum choice varies with the circumstances” and “the choice of a United States forum by a foreign plaintiff is entitled to less deference.” ⁹ In assessing the proper measure of deference,

[f]actors disfavoring forum non conveniens dismissal “include the convenience of the plaintiff's residence in relation to the chosen forum, the availability of witnesses or evidence to the forum district, the defendant's amenability to suit in the forum district, the availability of appropriate legal assistance, and other reasons relating to convenience or expense.” In contrast, Plaintiffs' choice of forum deserves minimal deference where that choice was motivated by “attempts to win a tactical advantage resulting from local laws that favor the plaintiff's case, the habitual generosity of juries in the United States or in the forum district, the plaintiff's popularity or the defendant's unpopularity in the region, or the inconvenience and expense to the defendant resulting from litigation in that forum.” ¹⁰

Thus, “the greater the plaintiff's or the lawsuit's bona fide connection to the United States and to the forum of choice and the more it appears that considerations of convenience favor the conduct of the lawsuit in the United States, the more difficult it will be ... to gain dismissal” whereas “the more it appears that the plaintiff's choice of a U.S. forum was motivated by forum-shopping reasons ... the less deference the plaintiff's choice commands.” ¹¹

At step two, “the court must consider whether an adequate alternative forum exists.” ¹² “The defendant bears the burden of establishing that a presently available and adequate alternative forum exists.” ¹³

Dismissal is not appropriate if an adequate and presently available alternative forum does not exist.... [A] forum may ... be inadequate if it does not permit the reasonably prompt adjudication of a dispute, if the forum is not presently available, or if the forum provides a remedy so clearly unsatisfactory or inadequate that it is tantamount to no remedy at all. ¹⁴

However, “[a]n alternative forum is adequate if the defendants are amenable to service of process there, and if it permits litigation of the subject matter of the dispute.” ¹⁵ “An agreement by the defendant to submit to the jurisdiction of the foreign forum can generally satisfy this requirement, and only on rare occasions will the alternative forum ... be so unsatisfactory that the forum is inadequate.” ¹⁶ Moreover, “[t]he availability of an adequate alternative forum does not depend on the existence of the identical cause of action in the other forum, nor on identical remedies.” ¹⁷

“At step three, Defendants must establish that a balancing of the private and public interest factors tilts heavily in favor of the alternative forum.” ¹⁸ In weighing the private and public interests, the Second Circuit employs a list of factors first stated in Gulf Oil Corp. v. Gilbert.¹⁹ “The private interest factors include: (1) the relative ease of access to evidence; (2) the cost to transport witnesses to trial; (3) the availability of compulsory process for unwilling witnesses; and (4) other factors that make the trial more expeditious or less expensive.” ²⁰ “In considering these factors, the court is necessarily engaged in a comparison between the hardships defendant would suffer through the retention of jurisdiction and the hardships the plaintiff would suffer as the result of dismissal and the obligation to bring suit in another country.” ²¹ However, “the concentration of evidence [overseas] weighs heavily in favor of dismissal.” ²² Moreover, American courts may not be able to “compel unwilling third-party witnesses to appear in the United States.” ²³

“The public interest factors include: (1) settling local disputes in a local forum; (2) avoiding the difficulties of applying foreign law; and (3) avoiding the burden on jurors by having them decide cases that have no impact on their community.”²⁴ No one factor is dispositive, however, and so, for example, although “this country's interest in having United States courts enforce United States securities laws” is relevant “this interest is not outcome-determinative.” ²⁵ In sum, “[t]he action should be dismissed only if the chosen forum is shown to be genuinely inconvenient and the selected forum significantly preferable.” ²⁶

B. Choice of Law

To resolve choice-of-law conflicts in tort cases, New York applies an “interest analysis” to identify the jurisdiction that has the greatest interest in the litigation based on the occurrences within each jurisdiction, or contacts of the parties with each jurisdiction, that “ ‘relate to the purpose of the particular law in conflict.’ ” ²⁷

Under the interest-analysis test, torts are divided into two types, those involving the appropriate standards of conduct, rules of the road, for example and those that relate to allocating losses that result from admittedly tortious conduct ... such as those limiting damages in wrongful death actions, vicarious liability rules, or immunities from suit.²⁸

“Conduct-regulating rules have the prophylactic effect of governing conduct to prevent injuries from occurring.” ²⁹ When such rules are at issue, the law of the place of the tort—commonly known as lex loci delicti—“will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders.” ³⁰ In the end, “[i]f the choice of law analysis leads to the application of foreign law, a court may refuse to apply that law only if its application would be violative of fundamental notions of justice or prevailing concepts of good morals.” ³¹

III. DISCUSSIONA. Deference Accorded to Plaintiffs' Choice of Forum

Generally, a foreign plaintiff's choice of forum is accorded less deference, unless the choice of forum is based on “valid reasons, such as convenience.” ³² In the December 20 Opinion on forum non conveniens, I held that plaintiffs' choice of forum was accorded deference. ³³ In doing so, I distinguished four opinions holding that plaintiffs' choice of forum was not accorded significant deference in similar cases involving foreign investors in foreign funds that allegedly suffered losses due to the Madoff Ponzi scheme.³⁴ In reevaluating the Iragorri factors, I now conclude that plaintiffs' choice of forum is “entitled to some, but little,...