Motion to dismiss; Piercing the corporate veil; Choice of law; Personal Jurisdiction; Forum Conveniens; Alter Egos
By: Katherine Sullivan | Staff Writer
Defendant Naeringsbygg 1 Norge III AS (“NBNII”) is a Norwegian company based in Oslo, Norway. Defendant Kommersiella Fastigheter In NY 3 Corp (“KFS” and, collectively with NBNII, the “Defendants”)) is a New York entity that is a wholly owned subsidiary of NBNIII. KFS owns the majority of shares in various LLCs, one of which owns 44 Wall Street, New York, New York (“the Property”).
Plaintiff Time Equites, Inc. (“TEI”) is a New York corporation that owns and manages real estate in the United States, Canada, and Europe. Plaintiff REINvest Capital SA (“Reinvest”, and collectively with TEI, the “Plaintiffs”) is an investment company based in Geneva, Switzerland. Plaintiffs formed a partnership to acquire the interests of Defendants in their LLCs, including the Property.
Plaintiffs initiated discussions to purchase Defendants’ interests. After assessing potential risks of litigation as a result of the purchase, Plaintiffs agreed to proceed with the transaction. In response, NBNIII countersigned a letter agreement (“Agreement”), which stated that Plaintiffs had 90 days to conduct due diligence and 90 days to determine whether minority interests could be obtained on acceptable terms. Pursuant to the Agreement, Plaintiffs obtained the right to purchase before any other buyers for up to 60 days. If Plaintiffs wished to proceed, the parties would negotiate a full purchase agreement of the Defendants’ interests and the Property.
Later, Plaintiffs informed Defendants by e-mail of their intent to proceed with purchasing the property. Defendants, however, stated that they were considering other options and declined to follow the terms of the agreement. Plaintiffs insisted that the parties were already bound by the Agreement. Defendants, however, refused. In response, Plaintiffs commenced suit for breach of contract and violation of the covenants of good faith and fair dealing against Defendants on the basis that they were obligated to close on the terms provided in the Agreement.
In opposition, Defendants jointly moved to dismiss on five grounds. NBNIII moved to dismiss the complaint as against it pursuant to CPLR 3211(a)(8) for lack of personal jurisdiction. Second, Defendants moved to dismiss under CPLR 3211(a)(8) for lack of proper service and third, under CPLR 3211(a)(7) for forum non conveniens. Fourth, KFS moved to dismiss the complaint as against it pursuant to CPLR 3211(a)(7) for failure to state a claim and, finally, KFS moved to dismiss the complaint as against it under CPLR 3211 (a)(4) on the basis of contradictory and dispositive evidence. In response, Plaintiffs argued that there is personal jurisdiction over NBNIII because Defendants are alter egos of each other, and therefore the corporate veil between them should be pierced establishing personal jurisdiction over NBNIII through KFS. They argued that Defendants were alter egos because the operated as part of one enterprise and because NBNIII completely dominated KFS. Further, they also argued that the corporate veil should be pierced so that KFS, as an alter ego of NBNIII, could be held to the Agreement despite not signing it.
The Court granted Defendants’ motions to dismiss. On NBNIII’s claim, the Court found that the applicable law to NBNII, a Norwegian entity, was New York law. The “law of the state of incorporation determines when the corporate form will be disregarded.” Here, New York law applied in this case because Defendants failed to submit relevant Norwegian law and the transaction involved a New York entity and New York real estate, and, therefore, New York has a significant interest. Second, the Court held Plaintiffs’ arguments for piercing the corporate veil lacked merit. To pierce the corporate veil in New York, there must be a showing that (1) the owners have complete domination over the transaction attacked and (2) the domination was used to fraud or wrong that plaintiff, resulting in the plaintiff’s injury. Here, Plaintiffs did not satisfy either element because they were unable to demonstrate that NBNIII dominated KFS with respect to the Agreement, which was the “transaction attacked: in this case. There was no allegation that NBNIII induced KFS to follow the Agreement. Therefore, there was no domination to fraud Plaintiffs. Thus, the Court held that the corporate veil between NBNIII and KFS lacked merit. Since Plaintiffs failed to establish piercing the corporate veil, the Court did not have personal jurisdiction over Norwegian based NBNIII.
As to KFS’s claims for failure to state a claim and contradictory evidence, the Court held that Plaintiffs failed to state a claim because they failed to demonstrate that KFS was involved or was a party to the Agreement. Further, the Court ruled that there was no indication that NBNII was signing on behalf of KFS. Since the Court ruled that Plaintiffs failed to establish their claim of piercing the corporate veil, KFS was not party to the Agreement through NBNIII. Thus, KFS could not be held liable for breaching that agreement as a matter of law and TEI and Reinvest could not bring a claim against it.
Accordingly, the Court granted NBNIII and KFS’ motions to dismiss.
Time Equities, Inc. and REINVEST v. Naeringsbygg 1 Norge III and Kommersiella Fastigheter In NY 3 Corp, Index No. 651906/2015 (O. Peter Sherwood, J.) .