Xena Investments, Ltd. v. Magnum Fund Management Ltd. , 726 F.3d 1278 ( 2013 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 11-14770
________________________
D.C. Docket No. 1:11-cv-21065-DLG
XENA INVESTMENTS, LTD.,
Plaintiff-Appellant,
versus
MAGNUM FUND MANAGEMENT LTD.,
DAVID FRIEDLAND,
DION FRIEDLAND,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(August 14, 2013)
Before MARCUS, HILL, and SILER, * Circuit Judges.
*
Honorable Eugene E. Siler, Jr., United States Circuit Judge for the Sixth Circuit, sitting by
designation.
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HILL, Circuit Judge:
This is an appeal from the district court=s grant of defendants-appellees,
Magnum Fund Management, Ltd. (MFM) and David Friedland=s (David), joint
motion to dismiss, and defendant-appellee Dion Friedland=s (Dion) motion to
dismiss the plaintiff-appellant, Xena Investments, Ltd.=s (Xena), complaint for lack
of personal jurisdiction and improper venue.
The merits of Xena=s claims in its complaint arise from loans made by MFM
to a commercial real estate hedge fund managed by MFM in the British Virgin
Islands (BVI). Xena complains that, contrary to what it had been promised, the
defendants-appellees improperly and impermissibly secured these loans, giving
them priority status over Xena=s shares in the fund.
The district court did not reach the merits of Xena=s claims. It dismissed its
complaint, finding that it had no jurisdiction or authority to determine the priority
of foreign parties entitled to, or payments made from, a foreign hedge fund. Under
de novo review, we affirm the judgment of the district court.
I.
As set forth in its 2011 complaint, Xena is a Cayman Islands corporation.
Its principal place of business is in Grand Cayman, Cayman Islands. Xena alleges
claims for fraud, negligent misrepresentation, and fraudulent inducement against
2
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MFM, Dion, and David, and for breach of contract, and declaratory judgment
against MFM, for actions occurring in 2008.
By declaration of Dion, submitted in support of his motion to dismiss, MFM
is incorporated in the Bahamas, with its principal place of business in the Bahamas.
It conducts no business in Florida.1 Dion is the principal decision maker for MFM.
He claims that he does not reside in Florida; does not transact business in Florida
or derive any income in Florida; does not maintain any banking or financial
accounts in Florida; and, pays no taxes in Florida or the United States. 2
In David=s declaration, submitted in support of his joint motion to dismiss
with MFM, David claims that MFM entered a consulting agreement with Magnum
US Investments, Inc. (MUS) in 1996. MUS is a Florida corporation. David is
Dion=s son, and president of MUS. David is a Florida resident. 3
1
In its joint motion to dismiss with David, MFM argues that it is not licensed or qualified
to do business in Florida; has no office or employees in Florida; does not operate, conduct,
engage in, or carry on a business or business venture in Florida; has no office address or
telephone number in Florida; has no appointed agent for service in Florida; pays no taxes in
Florida; and, has no banking or other financial account in Florida.
2
Xena claims that both MFM and Dion were served personally in Florida. MFM and
Dion dispute this. As to MFM, Xena claims that a MUS employee in Miami was authorized to,
and did in fact, accept service on behalf of MFM. The employee later denied acceptance of
service by affidavit. Xena claims Dion was personally served at his apartment in Aventura,
Florida. Dion claims he was in Florida that day, but contends he was in Hallandale, Florida, at
his grandson’s tennis match.
3
MUS is not a party in this action. By his declaration, David has never been an
employee, officer, or director of MFM.
3
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Pursuant to the consulting agreement, David declares that MUS performs
certain functions on behalf of MFM (research, due diligence, legal services, and
negotiations), but is powerless to bind MFM in any way or sign any documents on
its behalf.4
Xena alleges in its complaint that it owns shares in Spectrum Galaxy Fund,
Ltd. (Spectrum). Spectrum is incorporated with limited liability in the BVI. One
of Spectrum=s subsidiary funds, MG Secured Debt Fund (MGSDF), is a hedge fund
participating in loans made to commercial real estate developers. MFM is the
investment manager of MGSDF.
According to its complaint, Xena=s shareholder interest in MGSDF was
acquired in 2009, pursuant to a deed of assignment, from Pentagon Select Ltd.
(Pentagon). Pentagon is incorporated and registered in the BVI. In 2008, the value
of Xena=s (then Pentagon) shares in MGSDF was estimated to be approximately
$21 million.
Xena=s complaint alleges that the fraud perpetrated by MFM, Dion, and
David arose in 2008 in an attempt by Xena (then Pentagon), to redeem its $21
4
Xena argues that, under agency principles, this consulting agreement is sufficient to
confer jurisdiction over MFM. See Meier ex rel. Meier v. Sun Int=l Hotels, Ltd., 288 F.3d 1264(11th Cir. 2002). Xena argues that, by reason of this consulting relationship with MUS, MFM
regularly transacts business in Florida.
4
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million in shares in MGSDF. At the time, out of economic necessity, MFM had
made certain loans to MGSDF.
Xena claims in its complaint that it relied detrimentally upon MFM, Dion,
and David=s intentional and negligent misrepresentations to it that the MFM loans
were unsecured, and would not be secured. It was Xena=s understanding that the
outstanding loans had no automatic priority over Xena=s redemption rights, and the
loans would remain inferior to Xena=s rights.
Thus satisfied, Xena alleges in its complaint that it agreed to decline to
exercise its redemption rights for two years. This agreement was memorialized in
a 2008 Forbearance Agreement between MFM and Xena (then Pentagon). 5 The
Forbearance Agreement contains a mandatory forum-selection clause (paragraph
10) which reads: AThis letter shall be governed by and construed in
accordancewith English law and any dispute arising out of, or in connection with,
the terms of this letter shall be subject to the exclusive jurisdiction of the English
Courts.@ 6
5
As we do not reach the merits of Xena=s claims, we do not examine the specific terms of
the Forbearance Agreement, other than its forum-selection clause, as it relates to this
jurisdictional appeal.
6
The record reflects that a second document, the Subscription (Private Offering)
Agreement between Spectrum/MGSDF and Pentagon/Xena also contains a forum-selection
clause. It states that the parties shall irrevocably submit to the jurisdiction of the courts of the
BVI and all shall be decided under the laws of the BVI.
5
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The causes of action set forth in Xena=s complaint are: (1) for material,
fraudulent misrepresentations during negotiations for the Forbearance Agreement
in 2008, that the loans were unsecured, and would remain unsecured, by MFM,
Dion, and David; (2) for material, negligent misrepresentations during the same
negotiations that the loans were unsecured, and would remain unsecured, by MFM,
Dion, and David; (3) for fraudulent inducement to enter the Forbearance
Agreement based on misrepresentations that the loans were unsecured, and would
remain unsecured, by MFM, Dion, and David; if not for these misrepresentations,
Xena would not have entered the agreement; (4) for breach of contract under the
terms of the Forbearance Agreement against MFM; and (5) for a declaratory
judgment against MFM for threatening to withhold ten percent of Xena=s
redemption proceeds whenever actually paid. 7
Finally, a third document contained in the record, the Deed of Assignment between
Pentagon and Xena, also contains a forum-selection clause. It states that the parties shall
irrevocably submit to the jurisdiction of the courts of the BVI. Disputes shall be decided under
the laws of the BVI, and, courts of the BVI shall have exclusive jurisdiction to settle any dispute
or claim that arises out of or in connection with the assignment of shares from Pentagon to Xena.
7
As the district court stated in its order:
The alleged misrepresentations concern whether the loans [MFM]
made to [MGSDF] were unsecured and would remain unsecured.
Xena also claims that Defendants fraudulently induced them into
the Forbearance Agreement they reached with [MFM] in
December 2008, and if not for Defendants= misrepresentations,
Xena would not have entered into the agreement. In the
alternative, Xena claims [MFM] breached the Forbearance
Agreement. Lastly Xena seeks declaratory judgment for [MFM]
6
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According to the complaint, two years later, in 2010, during negotiations to
extend the Forbearance Agreement, Xena learned that, contrary to what Xena had
been promised in 2008, MFM, Dion, and David had converted the loans from
MFM to MGSDF to a secured status, with priority over Xena=s shares. Xena
claims that this conversion was memorialized in a revised loan document signed by
Dion on behalf of MFM and MGSDF, dated December 2008, the same day as the
Forbearance Agreement was executed.8
Xena alleges in its complaint that this unsavory discovery caused it to be
concerned about additional misconduct possibly committed without its knowledge.
As a result, it commenced insolvency proceedings in 2010 against MGSDF in the
BVI. Joint liquidators were appointed to further investigate the financial affairs of
MDSDF.
II.
After MFM, Dion, and David submitted their declarations and motions to
dismiss for lack of personal jurisdiction and improper venue, Xena submitted a
threatening to withhold ten percent of the Redemption proceeds
whenever they are actually paid.
8
Xena alleges in its complaint that it is irrelevant whether the revised loan agreement
was backdated two years by the defendants, or that it was actually executed on the same date as
the Forbearance Agreement was signed.
7
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memorandum of law opposing the motions. It also submitted an affidavit of
Yonaton Aronoff, one of Xena=s attorneys.
Aronoff=s affidavit states that the attached six exhibits are true and correct
copies of certain websites, webpages and an online article. The district court found
the Aronoff affidavit inadmissible as hearsay; that there was no evidence that the
information on these websites was true and correct; and that Aronoff was not in a
position to verify their accuracy. 9 In the alternative, the district court found, that
even if these exhibits were not hearsay, they had no prima facie value, were
insufficient to prove systematic contacts by MFM in Florida, and therefore were
insufficient to assert jurisdiction over MFM in Florida.10
The district court held that it lacked personal jurisdiction over MFM and
Dion, as Xena failed to rebut evidence presented by MFM and Dion to the
contrary. Thereafter the district court entered an order of dismissal of Xena=s
complaint for lack of personal jurisdiction.
The district court also upheld the forum-selection clause contained in the
Forbearance Agreement, in that any disputes between Xena, MFM, Dion, and
9
Xena did not offer any rebuttal to the hearsay ruling by the district court.
10
Xena also complains that the district court granted the motions to dismiss without
conducting any jurisdictional hearing, or permitting any jurisdictional discovery. It claims that
disputed facts in the record should have been subject to discovery. MFM, Dion, and David
argue that, during the pendency of the case in the district court, Xena: (1) neither moved for an
evidentiary hearing regarding personal jurisdiction; (2) nor did it move to compel jurisdictional
discovery from the defendants.
8
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David, shall be subject to the exclusive jurisdiction of the English Courts. It
dismissed Xena=s action for improper venue and denied all other pending motions
as moot. 11
This appeal follows.
III.
There are only two issues before us on appeal:
A. Whether or not the district court correctly dismissed Xena=s complaint
for lack of personal jurisdiction over MFM and Dion; and
B. Whether or not the district court correctly dismissed Xena=s complaint
for improper venue under the forum-selection clause contained in the Forbearance
Agreement against MFM, Dion, and David.
IV.
We review a dismissal for lack of personal jurisdiction de novo. Alexander
Proudfoot Co. World Headquarters L.P. and APCO, Inc. v. Thayer, 877 F.2d 912,
916 (11th Cir. 1989). When a district court does not conduct a jurisdictional
hearing on a motion to dismiss, a plaintiff must establish a prima facie case of
personal jurisdiction over the nonresident defendant. See Cable/Home Commc=n
Corp. v. Network Prods., Inc., 902 F.2d 829, 855 (11th Cir. 1990).
11
This includes the defendants=s motion to quash service of process, due to insufficient
service of process.
9
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We review de novo a dismissal for improper venue involving a forum-
selection clause in an international agreement. See Lipcon v. Underwriters at
Lloyd’s, London, 148 F.3d 1285, 1290-91 (11th Cir. 1998).
V.
A. Motion to Dismiss for Lack of Personal Jurisdiction
Here, the district court, in examining MFM and David=s joint motion to
dismiss, accepted the allegations contained in Xena=s complaint as true and
construed the complaint in its favor. See Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555-56, 127 S. Ct. 1955, 1965, 167 L. Ed. 2d 929, 940 (2007). It applied the
same rationale when conflicts arose between the factual allegations contained in
Xena=s affidavits, and the declarations of the three defendants. See Morris v. SSE,
Inc., 843 F.2d 489, 492 (11th Cir. 1988).
1. MFM
In its complaint, Xena alleged that, upon information and belief, MFM is a
foreign, non-Cayman Islands corporation, with offices in Miami, Florida, and that
MFM conducts business in Florida. In its motion to dismiss, MFM refutes these
assertions in detail. See note 1 supra.
David=s declaration supports and reaffirms MFM=s position as a foreign
corporation. As president of MUS, David is unable to bind MFM in any way, or
sign documents on its behalf.
10
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Dion=s declaration states that he is a foreign citizen. He is the decision
maker for MFM, a foreign corporation.
When the burden of proof shifted back to Xena, Xena responded with a
memorandum of law opposing the motions to dismiss, and submitted the affidavit
of its counsel, Mr. Aronoff. The district court dismissed the six exhibits attached
to Aronoff=s affidavit as hearsay, applying the legal standards set forth above. It
found that Xena had not established a prima facie case supporting personal
jurisdiction over MFM, and granted its motion to dismiss. We agree. 12 In the
chain of entities, there is not one Florida entity before us. Every entity in this
appeal is a foreign corporation, including MFM.
2. Dion
Xena alleges in its complaint that Dion is an individual that resides in
Aventura, Florida. Dion, in response, declares that he is a foreign citizen whose
principal place of residence is outside the United States. For reasons previously
12
Xena argues that Meier ex rel. Meier, 288 F.3d at 1264, is applicable here. Xena
claims that the consulting agreement between MFM and MUS, on its own, under agency
principles, is enough to assert jurisdiction over MFM, and prove that MFM is present and doing
business in Florida. Id. Through MUS, Xena contends, MFM is holding itself out as doing
business in Florida, and MUS is sufficiently present in Florida, as the agent of MFM, to bind
MFM. Id.
We disagree. In Meier, there was a parent-subsidiary relationship between the foreign
corporation and its Florida subsidiary. Id. at 1267. The Florida subsidiary in Meier had no
identity of its own, and operated solely for the benefit of its parent foreign corporation. Id. at
1272. There were also significant financial ties between the Meier foreign corporation and its
Florida subsidiary. Id. at 1273. None of these distinctions are present here.
11
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stated, there was evidence that Dion has no continuous or systematic contact with
Florida.
Thereafter, the burden of proof shifted back to Xena to prove that Dion had a
nexus of minimum contacts with Florida. The district court found that Xena had
failed to offer any proof in rebuttal of Dion=s declaration.
As the district court found that there was no Abattle of affidavits,@ it was not
Ainclined to give greater weight . . . to the plaintiff=s version@ of the facts. See
Psychological Res. v. Gerleman, 624 F. Supp. 483, 486 (N.D.Ga. 1985). The
district court determined that Xena had failed to establish a prima facie showing of
personal jurisdiction over Dion. Xena=s claims against Dion were due to be
dismissed for lack of personal jurisdiction.
We disagree. Under our de novo review, the record reflects that Xena
submitted evidence that it had established personal jurisdiction over Dion under
Florida’s transient jurisdiction rule, which is the exercise of jurisdiction based
solely on a “non-resident [] when [the] non-resident is properly served with service
of process while voluntarily present in the state.” Meier v. Sun Int’l. Hotels, Ltd.,
288 F.3d 1264, 1269 (11th Cir. 2002); Keveloh v. Carter, 699 So. 2d 285, 288
(Fla. Dist. Ct. App. 1997 (citing Burnham v. Super. Ct. of Cal., 495 U.S. 604(1990)). Although Dion disputes this, the district court was required to accept
Xena’s allegations as true, and should not have dismissed the claims against him
12
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for lack of personal jurisdiction. See Morris, 843 F.2d at 492. Nevertheless, we
need not reach this issue, as the district court correctly dismissed Xena’s claims
against Dion for lack of improper venue, discussed in the following Section B of
this opinion.
B. Motions to Dismiss for Improper Venue
As the district court found, forum-selection clauses are presumed to be valid
and enforceable Awhere the underlying transaction is fundamentally international in
character.@ Lipcon, 148 F.3d at 1295. These clauses will not be upheld if there is a
Astrong showing that enforcement would be unfair or unreasonable under the
circumstances,@ but the party attempting to invalidate a forum-selection clause has
a heavy burden of proof. Krenkel v. Kerzner Int=l Hotels Ltd., 579 F.3d 1279, 1281
(11th Cir. 2009).
As the district court stated:
Forum selection clauses and choice of law clauses will be
found unreasonable and unenforceable Aonly when: (1)
their formation was induced by fraud or overreaching; (2)
the plaintiff would effectively be deprived of its day in
court because of the inconvenience and unfairness of the
chosen forum; (3) the fundamental unfairness of the
chosen law would deprive the plaintiff of a remedy; or
(4) enforcement of such provisions would contravene a
strong public policy.@ Lipcon, 148 F.3d at 1296. Also, a
plaintiff must specifically allege that the forum selection
clause was included in the agreement because of fraud
when seeking to invalidate it. See id. at 1296 (citing
Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 594-
95).
13
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Xena argues that its claims are broader than the Forbearance Agreement. It
claims they do not necessarily arise out of, or in connection with the Forbearance
Agreement. Xena contends that forum-selection clauses are not limitless, and, as
Dion and David are non-signatories to the Forbearance Agreement, they cannot
now invoke its forum-selection clause pertaining to English courts and English
law. 13 Xena also argues that because it was fraudulently induced into the
agreement the clause should not be binding, and therefore, venue in Florida is
proper.
Relying upon the standards of law set forth above, the district court found,
that due to the presumption of validity of the forum clause contained in the
Forbearance Agreement, and Xena=s failure to challenge the clause specifically, the
forum-selection clause was valid. It dismissed all of Xena=s claims on the basis
that Florida is not a proper venue.
13
At oral argument, Xena offered Bahama Sales Assoc., LLC v. Byers, 701 F.3d 1335(11th Cir. 2012), in support of its position that its claims surpass the limits of the Forbearance
Agreement. In Bahama Sales, Byers purchased a lot in the Bahamas. The parties signed a lot
purchase contract that contained a forum-selection clause and a choice-of-law clause that
required all disputes to be litigated in Bahamian courts under Bahamian law. Id. at 1338.
Byers=s mortgage financing note also contained a forum-selection clause and a choice-of-law
clause. Id. That clause required that all disputes be litigated in Florida under Florida law. Id.
When Byers failed to make payments on the mortgage note, Bahama Sales sued him in the
Middle District of Florida. Id. The district court dismissed Bahama Sales=s breach-of-contract
claim against Byers for lack of subject-matter jurisdiction. Id. at 1339. This court reversed the
district court on the basis that the forum-selection clause of the secondary document, the
mortgage note, requiring all disputes to be resolved in Florida, controlled. Id. at 1341. Xena=s
reliance upon Bahama Sales is misplaced. The secondary agreements here, unlike those in
Bahama Sales, do not require that all disputes be resolved in Florida. They direct the parties to
the BVI.
14
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The district court found the same true for Dion, as MFM=s principal decision
maker. Also, as representations made by David led to the execution of the
Forbearance Agreement, the district court found that the forum-selection clause
also controlled.
Here, the district court enforced the forum-selection clause of the
Forbearance Agreement, requiring all disputes be resolved under English law in
English courts. Under our de novo review, the district court correctly enforced the
forum-selection clause against the signatories to the Forbearance Agreement, Xena
and MFM, and also the closely-related parties, Dion and David.14
VI.
This appeal appears to be a case of international forum shopping by Xena,
considering its previous instigation in 2010, of insolvency proceedings against
MGSDF in the BVI. This is an international dispute between foreign entities.
Only David lives in Florida. His father, Dion, is a foreign citizen.
If the Forbearance Agreement is in effect, it appears that the parties must go
to the English Courts. If the Forbearance Agreement is not in effect, then perhaps
14
Xena argues that its claims are far broader than just those found in the Forbearance
Agreement (the primary document). Yet the forum-selection clauses in the Subscription
Agreement and the Assignment Agreement (the secondary documents) require that all disputes
be resolved under BVI law in BVI courts. Even if the primary document is not controlling, the
secondary documents also direct the parties to a foreign court. See Bahama Sales, 701 F.3d at
1341.
15
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the parties must go to the courts of the British Virgin Islands. Either way, they
have no day in court in Florida.
This is a simple case involving sophisticated international parties and an
international fund. Under our de novo review, the parties appear to be free to
litigate on foreign soil -- but that issue is not before us. What is before us is the
correct decision by the district court -- the parties are not free to litigate in Florida.
VII.
The judgment of the district court is affirmed.
AFFIRMED.
16