NNANB Garthon Bus. Inc. v. Stein, 653715/14, 16521NB, 16521NA, 16521N.

• Decision Date: 26 April 2016
• Docket Number: 653715/14, 16521NB, 16521NA, 16521N.
• Citation: 31 N.Y.S.3d 19,138 A.D.3d 587,2016 N.Y. Slip Op. 03102
• Parties: NNANB GARTHON BUSINESS INC., et al., Plaintiffs–Appellants, v. Kirill Ace STEIN, et al., Defendants–Respondents.
• Court: New York Supreme Court — Appellate Division

138 A.D.3d 587
31 N.Y.S.3d 19
2016 N.Y. Slip Op. 03102

NNANB GARTHON BUSINESS INC., et al., Plaintiffs–Appellants,
v.
Kirill Ace STEIN, et al., Defendants–Respondents.

653715/14, 16521NB, 16521NA, 16521N.

Supreme Court, Appellate Division, First Department, New York.

April 26, 2016.

31 N.Y.S.3d 20

Hogan Lovells U.S. LLP, New York (Pieter Van Tol of counsel), for appellants.

Turek Roth Grossman LLP, New York (Jason A. Grossman of counsel), for Kirill Aace Stein, respondent.

SIRI & Glimstad LLP, New York (Aaron Siri of counsel), for Aurdeley Enterprises Limited, respondent.

MAZZARELLI, J.P., SWEENY, RICHTER, MANZANET–DANIELS, GISCHE, JJ.

138 A.D.3d 587

Orders, Supreme Court, New York County (Shirley Werner Kornreich, J.), entered April 1, 2015, which granted the separate motions of defendants Kirill Ace Stein and Aurdeley Enterprises Limited to compel arbitration and stay discovery, and dismissed the action subject to certain conditions, reversed, on the law, with costs, the motions denied, and the complaint reinstated. Order, same court and Justice, entered April 1, 2015, which denied plaintiffs' motion for limited discovery on the issues of, inter alia, personal jurisdiction and alter ego, modified, on the law, to permit discovery on those issues, and otherwise affirmed, with costs.

Plaintiffs are entities controlled by Patokh Chodiev, a Kazakh businessman. Defendant Kirill Ace Stein, individually and through an entity controlled by him called

31 N.Y.S.3d 21

Aurdeley Enterprises Limited, provided financial consulting advice to plaintiffs and other companies affiliated with Chodiev and his family. Initially, the terms of the arrangement between the Chodiev entities and Stein/Aurdeley were set forth in two separate agreements, both of which became effective on January 1, 2000. The first agreement, between an entity called Quennington Investments Limited on the one hand, and Stein on the other (Quennington Agreement), was for an indefinite term, although each party had the right to terminate on notice. The Quennington Agreement also provided that it was to be governed by the law of the United States, and that “the Courts of the United States of America shall have exclusive jurisdiction to settle any claim, dispute, or matter of difference, which may arise out of or in connection with this Agreement ... or the legal relationship established by this Agreement.” The second agreement was between Chodiev and Aurdeley (First Aurdeley Agreement). It was essentially identical to the Quennington Agreement, except that it was to be governed by the law of England and Wales, and the courts of England were to have exclusive jurisdiction over any disputes arising out of it.

By agreement dated September 30, 2009, Aurdeley and Chodiev entered into a second consulting agreement (Second Aurdeley Agreement), which was intended to have an effective

138 A.D.3d 588

date of July 1, 2009. The preamble to that agreement referenced both the Quennington Agreement and the First Aurdeley Agreement, and recited that the new agreement arose out of Chodiev's desire to reduce the fee Stein was to receive for the consulting services that were the subject of the Quennington Agreement and the First Aurdeley Agreement. The Second Aurdeley Agreement expressly terminated the First Aurdeley Agreement, and stated that neither party was to “have any further liability to [the] other of whatsoever nature pursuant to or in respect of [the First Aurdeley Agreement] and (for the avoidance of doubt) [Chodiev] shall have no further liability to make any payment of whatsoever nature to [Aurdeley] pursuant to or in respect of [the First Aurdeley Agreement].” It also had a standard merger clause, providing that it “supersedes all prior arrangements, agreements or understandings (both oral and written) relating to the subject matter of this Agreement.” Finally, the Second Aurdeley Agreement stated that “[a]ny dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the London Court of International Arbitration Rules.”

A separate agreement between Stein and Quennington, also entered into on September 30, 2009 (Quennington Termination Agreement), expressly terminated the Quennington Agreement, using the same language employed by the Second Aurdeley Agreement to terminate the First Aurdeley Agreement. The Quennington Termination Agreement also provided for arbitration of any disputes, utilizing the same language as in the Second Aurdeley Agreement.¹

Plaintiffs commenced this action in or about December 2014. The plaintiffs were alleged to be entities controlled by Chodiev. Plaintiff Crestguard Limited was alleged to be a wholly-owned subsidiary of

31 N.Y.S.3d 22

plaintiff Garthon Business Inc., and it allegedly owned 100% of nonparty SBS Steel, a Kazakh company. According to the complaint, beginning in the spring of 2009, Stein, acting under the various consulting agreements discussed above, advised Chodiev (through Garthon and Crestguard) in connection with SBS Steel's decision to retain nonparty Hares

138 A.D.3d 589

Engineering, a company owned by an individual named Youssef Hares, to construct a steel plant in Kazakhstan. Plaintiffs claim that Stein recommended that, in order to ensure that Hares Engineering could complete the steel plant, they make personal, unsecured loans to Youssef Hares. Chodiev accepted this advice, and by an agreement dated June 7, 2009, Crestguard extended an interest-free loan to Youssef Hares in the amount of $7 million, repayable in December 2009. Two similar loans were extended by Crestguard to Hares, one pursuant to an agreement dated December 30, 2009 in the amount of $3 million, and another pursuant to an agreement dated August 10, 2010 in the amount of $6 million. Youssef Hares never repaid the loans, and plaintiff asserted causes of action against defendants for, among other things, breach of fiduciary duty and breach of the “Consulting Services Agreements.” “Consulting Services Agreements” was a defined term in the complaint, relating back to all of the agreements between Chodiev/Quennington and Stein/Aurdeley, including those that were ultimately terminated. The complaint specifically alleged that Stein and Aurdeley are alter egos of each other, that Aurdeley is a sham entity, and that Stein is a New York domiciliary.

Defendants moved for a stay of the action and an order compelling arbitration of all the claims in London, arguing that all of the claims were governed by the Second Aurdeley Agreement and the Quennington Termination Agreement, which provided for arbitration as an exclusive dispute resolution mechanism. Alternatively, they argued that only an arbitration tribunal could determine whether the forum selection clause in the Quennington Agreement, which provided for litigation in United States courts, controlled. In opposition, plaintiffs argued that the broad forum selection clause in the Quennington Agreement continued to apply to the claims accruing between January 1 and June 30, 2009, notwithstanding the subsequent agreements. Plaintiffs moved separately to compel discovery in the action, claiming that the parties' intent concerning forum selection, as well as Stein's relationship to Aurdeley and his amenability to jurisdiction in New York courts, could not necessarily be ascertained without it.

The court granted defendants' motion to the extent of dismissing the action “on [the] condition that defendants not object to arbitration in the London court ... and agree to the arbitration action relating back to the filing of this case on December 3, 2014.” The court also denied plaintiffs' motion to compel discovery.

On appeal, plaintiffs argue that the claims alleged in the complaint relate to consulting services provided by Stein under the Quennington Agreement. Since that agreement unquestionably

138 A.D.3d 590

provided that disputes arising under it are to be litigated in the United States courts, they maintain that the court erred in dismissing the complaint. Plaintiffs acknowledge the arbitration clauses in the Second Aurdeley Agreement and in the Quennington Termination Agreement, but deny that they ified the forum selection clause in the Quennington Agreement, since they did not explicitly disavow it. They further posit that, to the extent their claims relate to loans made to Hares, on Stein's advice, after July 1, 2009, the effective date of the Second Aurdeley Agreement, they are still entitled to litigate those claims in court,

31 N.Y.S.3d 23

since they are inextricably intertwined with claims that arose earlier. Defendants counter that, taken together, the release of liability and merger clause in the Second Aurdeley Agreement, the termination of the Quennington Agreement and the First Aurdeley Agreement, and the arbitration provisions in the Second Aurdeley Agreement and...