Phoenix Four, Inc. v. Strategic Resources Corp.

• Citation: 446 F.Supp.2d 205
• Decision Date: 01 August 2006
• Docket Number: No. 05 CIV. 4837(HB).,05 CIV. 4837(HB).
• Parties: PHOENIX FOUR, INC., Plaintiff, v. STRATEGIC RESOURCES CORPORATION, Paul Schack, Christian M. Van Pelt, James J. Hopkins III, Robert H. Arnold, R.H. Arnold & Co. Incorporated, Joel G. Shapiro, and JGS Advisors LLC, Defendants.
• Court: U.S. District Court — Southern District of New York

446 F.Supp.2d 205

PHOENIX FOUR, INC., Plaintiff, v. STRATEGIC RESOURCES CORPORATION, Paul Schack, Christian M. Van Pelt, James J. Hopkins III, Robert H. Arnold, R.H. Arnold & Co. Incorporated, Joel G. Shapiro, and JGS Advisors LLC, Defendants.

No. 05 CIV. 4837(HB).

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

August 1, 2006.

Blair Courtney Fensterstock, Julie Ann Turner, Maureen Mary McGuirl, Fensterstock & Partners LLP, New York City, NY, for Plaintiff.

Mark Stephen Katz, Sanjit Shah, Mound Cotton Wollan & Greengrass, Jeremy Andrew Cohen, Kerriann Law, Kramer Levin Naftalis & Frankel, LLP, New York, NY, for Defendants.

OPINION & ORDER

BAER, District Judge.

On March 13, 2006, Plaintiff Phoenix Four, Inc. ("Phoenix") filed an amended complaint against defendants Strategic Resources Corporation ("SRC"), Paul Schack, Christian M. Van Pelt, James J. Hopkins III (collectively with SRC, the "SRC Defendants"), Robert H. Arnold, and R.H Arnold & Company, Inc.¹ alleging several common law claims. The amended complaint pled 28 U.S.C. Section 1332(a) as the sole basis for subject matter jurisdiction. Presently before the Court is the SRC Defendants' motion to dismiss the amended complaint for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. For the reasons set forth below, the SRC Defendants' motion is GRANTED.

I. BACKGROUND

A. Procedural History

Phoenix commenced this action on May 19, 2005, bringing claims under the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the common law. The original complaint asserted subject matter jurisdiction under 28 U.S.C. Section 1331 (federal question) and 28 U.S.C Section 1332(a) (diversity). On February 21, 2006, I granted the defendants' motion, made pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), to dismiss the federal causes of action as time barred. I denied the motion as to most of the common law claims, however, and provided Phoenix leave to amend the complaint. See Phoenix Four, Inc. v. Strategic Resources Corp., No. 05 Civ. 4837, 2006 WL 399396, at *12 (S.D.N.Y. Feb. 21, 2006).

Phoenix filed its amended complaint on .March 13, 2006, asserting common law claims for, among others, breach of fiduciary duty, fraud, and negligent misrepresentation. Phoenix pled subject matter jurisdiction solely under 28 U.S.C. 1332(a). On March 30, 2006, the defendants moved to partially dismiss the amended complaint pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure. On April 27, 2006, the defendants also moved for summary judgment. These two motions were held in abeyance following receipt of this motion to dismiss.

On May 23, 2006, the SRC Defendants alerted the Court—somewhat belatedly, to say the least—that Phoenix may not have subject matter jurisdiction. As a consequence, on May 30, 2006, I amended the pre-trial scheduling order and adjourned the trial to January 2007, so as to enable the parties to brief the jurisdictional issue. I heard oral argument on the SRC Defendants' motion to dismiss for lack of subject matter jurisdiction on July 13, 2006. On July 20, 2006, at the Court's request, Phoenix submitted additional deposition testimony to which it had referred at oral argument.

B. Jurisdictional History

Phoenix is an investment company incorporated in The Bahamas in 1993 and licensed as a mutual fund under Bahamian law in 1997. Am. Compl. ¶¶ 1, 9, 20. Phoenix's Memorandum of Association and Amended Memorandum of Association list the company's registered office as being in Nassau, The Bahamas. See 06/11/2006 Decl. of Paul Hellmers, Director of Phoenix, in Opp'n to 12(b)(1) Mot. to Dismiss Am. Compl. ("Hellmers Decl.") ¶ 3. It was established to invest primarily in real estate ventures in the United States. Am. Compl. ¶ 2. SRC, a New York corporation, was Phoenix's investment adviser, manager, asset manager, and administrator. Id. ¶¶ 10, 28-29, 63. Schack, Van Pelt, and Hopkins were founders, shareholders, officers, and directors of SRC. Id. ¶¶ 11-13. All three also served on Phoenix's Board of Directors: Schack and Van Pelt from 1994 through April 21, 2004, and Hopkins from April through August 2004. Id. Schack is a citizen of the State of New York and resides in New York City. Id. ¶ 11. Van Pelt is a citizen of Belgium and a permanent resident of the United States who resides in New Jersey. See Decl. of Christian M. Van Pelt in Supp. of 12(b)(1) Mot. to Dismiss Am. Compl. ("Van Pelt Decl.") ¶¶ 12-3. Hopkins is a citizen of the State of New Jersey. Am. Compl. ¶ 13.

Phoenix alleges that Schack, Van Pelt, and Hopkins engaged in self-dealing when they sat on the Phoenix Board, and that they and SRC made fraudulent misrepresentations to Phoenix. Id. ¶¶ 5, 217-31. As a result of this and other misconduct by the SRC Defendants, Phoenix faced a liquidity problem and was forced to suspend the sale and redemption of its shares in February 2003. Id. ¶ 7. In April 2004, after Schack and Van Pelt resigned from the Phoenix Board, a new Board was installed. Id. ¶ 8. The members of the new Board were Percy R. Pyne IV, Paul Hellmers, Richard Schneider, Richard Dawids, Philippe Verhoeven, Etienne Beeckmans, and Hopkins. See 06/09/2006 Deel. of Percy R. Pyne IV in Opp'n to 12(b)(1) Mot. to Dismiss Am. Compl. ("Pyne Decl.") ¶ 4. All currently remain on the Board except for Hopkins who, as noted above, ceased to be a Phoenix director after August 2004. See id. Pyne and Hellmers have been residents of the State of Connecticut since April 22, 2004. See id. ¶ 2; Hellmers Decl. ¶ 2. Schneider is a citizen of Luxembourg who resides partly in Luxembourg and partly in The Bahamas. See Hellmers Decl. ¶ 4. Dawids, Verhoeven, and Beeckmans all reside in Belgium. See id. Dawids is a citizen of Denmark; Verhoeven and Beeckmans are citizens of Belgium. See id.

Beginning in or about September 2004, the officers of Phoenix were: Schneider (President), Beeckmans (Vice President), Shirl Gaskins (Secretary), and Khalila Dorset (Assistant Secretary). See id. ¶ 8. Gaskins was Phoenix's sole employee and, until her resignation in November 2004, worked and lived in The Bahamas. See id. Dorset is a Bahamian attorney and citizen who resides in The Bahamas. See id. After Gaskins resigned, Dorset became Secretary of Phoenix. See id. Pyne and Hellmers became officers of Phoenix in September 2005. See id. ¶ 9.

Prior to March 2003, Phoenix made investments, issued shares, redeemed shares, and calculated its Net Asset Value ("NAV"). See Pyne Decl. ¶ 12. Phoenix suspended the issuance and redemption of shares, as well as the calculation of its NAV, in February 2003. After that time, because Phoenix had no funds to make new investments, its Board did not make or consider any new investments, and no new subsidiaries were established. See id. The only expenses Phoenix incurred after February 2003 were directed to the compensation of directors, compensation of attorneys and experts who worked for Phoenix in The Bahamas, on this litigation, and on an arbitration with Phoenix's outside accountant and auditor BDO, compensation of accountants who prepared the company's financial statements, and any payments to shareholders. See id. ¶ 11.

Prior to January 2005, Phoenix maintained an office in Nassau, The Bahamas. See Hellmers Decl. ¶ 10. After that date, however, Phoenix's Bahamian office was repossessed for non-payment of rent. See id. Phoenix's official address then became c/o Fidelity Merchant Bank and Trust Limited, 51 Frederick Street, Nassau, The Bahamas. See id. In late 2004 or January 2005, Phoenix's files and records were moved to the Fidelity offices. See id. In accordance with Bahamian law, Fidelity had maintained Phoenix's shareholder records and files, and these remained at Fidelity in May 2005. See id. ¶ 11.

Phoenix has several subsidiaries incorporated in Delaware, New Jersey, and The Bahamas. See Pyne Decl. ¶ 11. Some of these subsidiaries directly or indirectly own or have owned real estate located in Massachusetts, New York, Maryland, and New Jersey. See id.

C. Jurisdictional Facts Asserted By Phoenix

Subsequent to the installation of the new Board, the Phoenix Board met face to face on six occasions. See Pyne Decl. ¶ 6. Three of those meetings were held in Brussels and three in New York. See id. In the same period, the Board also held fourteen meetings via conference or teleconference calls. See id. On all but one of these occasions, Schneider, Dawids, Verhoeven, and Beeckmans participated from Europe—generally from Brussels or Luxembourg. See id. Pyne generally participated from New York, but on four occasions he called in from other locations in the United States and Europe. See id. Hellmers participated in seven calls from New York, and in six calls from other locations in the United States or Europe. See Hellmers Decl. ¶ 7.

All formal meetings of Phoenix's shareholders since January 1, 2004, have taken place in Brussels. See Pyne Decl. ¶ 5. Some shareholders met as members of an Informal "Steering Committee" in late 2003 and early 2004. See id. All meetings of the Steering Committee have occurred in Europe, generally in Brussels. See id.

Phoenix's financial records had been kept by SRC in New York. See Pyne Decl. ¶ 9. Sometime in the Fall of 2004, SRC delivered those records to RESIG² in New York City and/or to the offices of Pyne's 2. Pyne's Declaration does not define what the company, The Pyne Companies, at 40 Wall Street, New York City. See id.; Pyne Companies Corporate Brochure, Ex. H to Shah Decl. I. At the end of December 2004, the active financial data and records were sent to the Pyne Company of Colorado LLC in Denver, Colorado, whose staff took over responsibility for the financial affairs of Phoenix and its subsidiaries. See Pyne Decl. ¶ 9. All of Phoenix's financial records were maintained and payments processed from Denver through and after May 19, 2005. See id....