Opinion
Index No. 651048/13
05-15-2014
HANWA LIFE INSURANCE (F/K/A KOREA LIFE INSURANCE), Plaintiff, v. UBS AG, UBS LIMITED, and UBS SECURITIES, LLC, Defendants.
Hon. , J.S.C.:
Plaintiff Hanwa Life Insurance (Hanwa) brings this action to recover $30 million in losses it suffered through its investment in credit-linked notes that were created, arranged, marketed and sold to Hanwa by defendants UBS AG, UBS Limited and UBS Securities, LLC (UBS LLC, and collectively, UBS).
Background
The facts set forth herein are taken from the complaint and are assumed to be true for purposes of disposition.
Hanwa invested in a credit-linked note (CLN) which is a type of credit derivative that is linked to the debt-securities of certain specified entities (referenced risk) pursuant to a credit default swap (CDS) agreement. A CDS shifts the credit risk of the referenced risk from one party to the other.
UBS served as the arranging bank and entered into a CDS agreement with a special purpose vehicle called GAP (GAP SPV) that issued notes to Hanwa. The referenced risk set forth in the CDS agreement was $30 million of the sovereign debt of Korea. During the term of the CDS agreement, the GAP SPV serves as protection seller and the SPV's swap counterparty, UBS AG, serves as protection buyer.
Under the CDS agreement, if the referenced risk experiences a negative credit event such as a default, the GAP SPV, as protection seller, is obligated to "swap" to UBS, as protection buyer, a sum equal to the impairment suffered by the CDS-referenced credit. If the GAP-referenced credit (Korean sovereign debt) performed without impairment during the pendency of the CDS agreement, no swap of funds is suffered, and GAP would have returned the principal ($30 million) to Hanwa upon the maturity of the CLN.
The GAP SPV, in order to fund its contingent obligation to pay UBS up to $30 million should Korea default, issued notes to Hanwa to raise the requisite funds ($30 million). In return for assuming the credit risk of the referenced credit, Hanwa received a coupon comprised of UBS's credit protection payments which are passed through the GAP SPV; any interest generated by Hanwa's principal was deposited into subsidiary investments known as the underlying assets.
Defendants created and designated REVE, a complex security known as a synthetic single-tranche credit default obligation (CDO), to serve as the underlying asset for GAP. Hanwa's $30 million principal was invested in GAP, and then re-invested into REVE. The REVE CDO referenced a credit portfolio that included 115 individual credits, primarily corporate debt issues. UBS designated non-party ING Alternative Asset Management LLC (ING) to serve as the collateral manager for REVE.
The credit to which GAP was linked (the sovereign debt of Korea) experienced no negative credit events. Nonetheless, REVE failed completely, and thus, Hanwa's principal was swapped to REVE's swap counterparty, UBS, under the CDS agreement. GAP was left with now-worthless REVE notes securing GAP'S return of Hanwa's principal, resulting in the complete loss of Hanwa's investment of $30 million.
Hanwa commenced this action in April 2013, claiming that it reasonably relied upon defendants' representations in the offering documents concerning its low-risk investment, the diversification of REVE's portfolio and its structuring to protect against risks posed by the portfolio, and ING's independence as collateral manager. Hanwa alleges that, only after it lost its entire investment did it discover that the offering documents contained material misrepresentations concerning the value of REVE at the time of its purchase by GAP. Defendants allegedly knew that REVE's portfolio had already suffered substantial credit deterioration, which rendered REVE a total loss from the start. Defendants are also alleged to have usurped ING's role as the independent collateral manager and selected credits with a heightened risk of default, and exploited non-public loopholes in the Standard & Poor's ratings model to create a highly correlated portfolio that was far riskier than its AAA rating indicated. Allegedly, as the "short" counter-party to REVE, defendants gained windfall profits at Hanwa's expense when REVE failed as planned.
Hanwa asserts causes of action against all defendants for fraud, aiding and abetting fraud, fraudulent inducement, aiding and abetting fraudulent inducement, breach of the implied covenant of good faith and fair dealing, fraudulent conveyance under New York Debtor and Creditor Law, unjust enrichment, and breach of contract (against UBS AG).
Discussion
Defendants move to dismiss the complaint on the grounds that New York is not a convenient forum for this action, Hanwa's claims are time-barred under applicable Korean law, and for failure to state a claim.
The common law doctrine of forum non conveniens, codified in CPLR 327, permits a court to dismiss an action if it would more appropriately be heard in another forum. Whether to dismiss in favor of another forum is left to the sound discretion of the court (Mashreqbank PSC v Ahmed Hamad Al Gosaibi & Bros. Co., _NY3d_, 2014 NY Slip Op 02381 [2014]; Shin-Etsu Chemical Co., Ltd. v 3033 ICICI Bank, 9 AD3d 171, 175-176 [1st Dept 2004]).
Although not one factor is controlling, courts should balance factors including the factual nexus between New York and the action, the burden on New York courts; the potential hardship to the defendant of litigating here; the availability of an alternative forum in which the plaintiff may bring suit; the residency of the parties (Patriot Exploration, LLC v Thompson & Knight LLP, 16 NY3d 762 [2011]); the forum's interest in litigating the controversy; and the need to apply foreign law (Shin-Etsu Chemical Co., Ltd., 9 AD3d at 178).
The plaintiff's choice of forum is afforded great weight and should not be disturbed unless the balance strongly favors the jurisdiction in which the defendant seeks to litigate the claims (Anagnostou v Stifel, 204 AD2d 61 [1st Dept 1994]). Nonetheless, New York courts have regularly dismissed actions on the grounds that they have an insufficient nexus with New York and would thus place an undue burden on the courts by adjudicating them here (see Viking Global Equities, LP v Porsche Automobil Holding, SE, 101 AD3d 640, 641 [1st Dept 2012]; Neuter, Ltd. v Citibank, N.A., 239 AD2d 213 [1st Dept 1997]; Deutsche Anlagen-Leasing GMBH v Kuehl, 111 AD2d 69 [1st Dept 1985]).
In the recent case of Viking Global Equities, LP, 101 AD3d at 641, all of the critical witnesses that plaintiffs identified either resided or had offices in New York. There, plaintiffs had alleged that they evaluated all of Porsche's public statements and oral communications, sent to or made directly in New York, conducted their due diligence and made their investment decisions entirely in their New York headquarters.
Further, Porsche and its wholly-owned affiliates regularly transacted business in New York, and in general, had extensive operations in the United States with sales in excess of $1.5 billion, employed over two hundred people and provided vehicles, parts, services, marketing and training for more than 200 dealers.
Nevertheless, the Appellate Division found: a) because defendants and most plaintiffs were not New York residents, b) that the subject of the action was a foreign corporation, c) that many of the witnesses and documents were located in a foreign country, which d) had an interest in the underlying events, and e) provided an adequate alternative forum, that the heavy burden had been met, and New York was an inconvenient forum.
Here, Hanwa's claims arose almost entirely from events and transactions that took place outside of New York and mainly in Korea and Hong Kong. The complaint concerns defendants' material misrepresentations contained in offering memorandum issued in connection with Hanwa's purchase of GAP and self-dealing in structuring the GAP notes that were purchased in Korea by plaintiff, a Korean company, and were structured and arranged by UBS employees based in Hong Kong. Hanwa does not allege that UBS made any representations to Hanwa to or from New York or structured the GAP note-the only note that Hanwa purchased-in New York.
Hanwa contends that the Court should nevertheless retain jurisdiction over this action because one of the defendants, UBS LLC, has an office in New York where its CDO operations are based, and REVE must have been structured here or in Connecticut where UBS LLC is domiciled. Hanwa claims that all of critical witnesses and documents concerning REVE and ING are located in New York (or, presumably, Connecticut).
In fact, the only detailed allegations in the complaint involving REVE pertain to conduct which occurred at UBS LLC's Stamford, Connecticut office, which allegedly oversaw the underlying CDS and collateral swap and to whom notices of events relating to such swaps were directed (Complaint, ¶¶ 14, 28). Beyond UBS LLC acting out of Connecticut, REVE is a Cayman Islands entity, Hanwa is domiciled in Korea, UBS AG is domiciled in Switzerland, and UBS Limited is domiciled in England. Critical witnesses and documents are likely located primarily in Korea and Hong Kong, and to a much lesser extent London and Stamford.
Furthermore, it is undisputed that the claims for fraud and aiding and abetting fraud will be governed by Korean law while English law applies to the unjust enrichment claim under the terms of the GAP note. The applicability of foreign law is an important consideration in the forum non conveniens analysis and weighs in favor of dismissal (Shin-Etsu Chem. Co., Ltd., 9 AD3d at 178). While this Court is capable of applying Korean law, a Korean court is more familiar with such law, and better suited to resolve the parties' disputes (see Deutsche Anlagen-Leasing GMBH, 111 AD2d 69). Thus, it appears that this action has an overwhelming nexus with Korea, and Korea has a significant interest in adjudicating this dispute.
Furthermore, Korea provides an adequate, alternate forum to adjudicate this action. Generally, an adequate, alternative forum is available when the defendant is amenable to process in that jurisdiction (Shin-Etsu Chemical Co., 9 AD3d at 178). Here, UBS has represented that it would voluntarily submit to Korean jurisdiction if this Court dismisses on forum non conveniens grounds. Neither can Hanwa claim that it would experience substantial hardship from having to litigate this action in Korea, as it is a major Korean company domiciled in that country.
Therefore, the Court determines, on balance, that it would be a greater hardship for defendants to litigate in New York than for Hanwa to litigate in Korea.
Thus, the branch of the motions that seeks to dismiss the complaint on the ground of forum non conveniens is granted. In light of the foregoing, the branch of motions that seeks to dismiss the action on other grounds is denied as moot.
Accordingly, it is
ORDERED that the motion by defendants to dismiss the complaint on the ground of forum non conveniens is granted and, pursuant to CPLR 327, the entire action is dismissed on those grounds; and it is further
ORDERED that the remaining motion to dismiss this action is denied as moot.
ENTER:
__________
J. S. C.
HON. CHARLES E. RAMOS