Federal District Court Opinions

(S.D.N.Y. 11-16-2006) SUCHODOLSKI ASSOCIATES, INC., et al.,
Plaintiffs, v. CARDELL FINANCIAL CORP., Defendant. CARDELL
FINANCIAL CORP., et al., Petitioners, v. SUCHODOLSKI
ASSOCIATES, INC., et al., Respondents. Nos. 03 Civ. 4148
(WHP), 04 Civ. 5732 (WHP). United States District Court,
S.D. New York. November 16, 2006



Cardell Financial Corporation (“Cardell” or “Defendant”)
moves for (1) an injunction prohibiting Suchodolski
Associates, Inc. (“SAI”) and Consultadora Worldstar, S.A.
(“Worldstar”) (collectively, “Plaintiffs”) from pursuing
certain claims in Brazil; (2) an order of civil contempt
for Plaintiffs’ purported failure to comply with this
Court’s orders; and (3) attorneys’ fees and costs incurred
by Cardell in connection with these motions. For the
reasons set forth below, Cardell’s motions are granted in
part and denied in part. Page 2


On January 3, 2006, this Court issued an Order granting in
part and denying in part Cardell’s request to enjoin
Plaintiffs’ claims in Brazil (the “January 3 Order”),
familiarity with which is assumed. See Suchodolski Assocs.,
Inc. v. Cardell Fin. Corp., No. 03 Civ. 4148 (WHP), 2006 WL
10886 (S.D.N.Y. Jan. 3, 2006).[fn1]

On August 2, 2005, Plaintiffs commenced the Brazilian
Action against Cardell, Deltec, two Deltec subsidiaries and
several Deltec managers in the First Civil Court of Sao
Paulo. Suchodolski, 2006 WL 10886, at *2. The Brazilian
Complaint essentially asserts two claims. The first is that
Cardell breached its fiduciary duty and abused its control
of Deltec by causing Deltec to default on payments owed
under the Loan Agreement. Suchodolski, 2006 WL 10886, at
*2. Second, the Brazilian Complaint alleges that Cardell
failed to conduct the Auction in a commercially reasonable
manner. Suchodolski, 2006 WL 10886, at *2.

The January 3 Order enjoined Plaintiffs from asserting the
breach of fiduciary duty and abuse of control claim in the
Brazilian Action. That claim related to the Award, which
was confirmed by this Court. Therefore, an anti-suit
injunction was necessary to protect this Court’s
jurisdiction over the Award and to prevent the frustration
of policies favoring the arbitration of disputes and the
enforcement of forum selection clauses. Suchodolski, 2006
WL 10886, at *3. However, the Court declined to enjoin the
Auction claim, which was not before the Panel when the
Award was issued. Suchodolski, 2006 WL 10886, at *3-4.

On July 25, 2006, Cardell filed an arbitration demand with
the American Arbitration Association (“AAA”) seeking, inter
alia, a declaratory judgment that it conducted the Auction
in a commercially reasonable manner. (Affidavit of John H.
Doyle, III, dated Sept. 29, 2006 (“Doyle Aff.”) §
4.) On August 16, 2006, Plaintiffs filed an answer and a
third party Page 3 demand for arbitration against Deltec.
(Doyle Aff. § 4.) The third party demand requests
indemnification from Deltec for the $2.5 million Cardell
paid for Plaintiffs’ Deltec shares at the Auction. (Doyle
Aff. Ex. 4 at 4.) After initiating arbitration, Cardell
requested that Plaintiffs withdraw the Auction claim from
the Brazilian Action. (Doyle Aff. § 5.) Plaintiffs
refused, and Cardell moved to enjoin the Auction claim by
order to show cause dated October 3, 2006. (Doyle Aff.
§ 5.)


An injunction enjoining a party from pursuing a parallel
litigation in a foreign forum “may be imposed only if: (A)
the parties are the same in both matters, and (B)
resolution of the case before the enjoining court is
dispositive of the action to be enjoined.” Paramedics
Electromedicina Comercial, Ltda. v. GE Medical Sys. Info.
Techs., Inc., 369 F.3d 645, 652 (2d Cir. 2004); SG Avipro
Fin. Ltd. v. Cameroon Airlines, No. 05 Civ. 655 (LTS), 2005
WL 1353955, at *2 (S.D.N.Y. June 8, 2005). If the moving
party satisfies these requirements, the Court should then
consider, inter alia: (1) whether the foreign litigation
poses a threat to the enjoining court’s jurisdiction; and
(2) whether the foreign litigation would frustrate
important policies of the United States. Paramedics
Electromedicina Comercial, Ltda. v. GE Med. Sys. Info.
Techs., Inc., No. 02 Civ. 9369 (DFE), 2003 WL 23641529, at
*11 (S.D.N.Y. June 4, 2003).

Defendant meets these criteria. The issues and parties
before the New York arbitrators and the Brazilian court
are substantially similar. Cardell will be harmed if a
preliminary injunction is not entered because it will be
forced to litigate the Auction claim simultaneously in New
York and Brazil, despite the bargained-for forum selection
clause providing for exclusive jurisdiction in New York.
See GE Med., 2003 WL 23641529, at *12; Reliance Nat’l Ins.
Co. v. Seismic Risk Ins. Servs., Inc., 962 F. Supp. 385,
391 (S.D.N.Y. 1997). Page 4 Thus, the Brazilian Action
violates important policies favoring arbitration, Chelsea
Square Textiles, Inc. v. Bombay Dyeing & Mfg. Co., 189 F.3d
289, 294 (2d Cir. 1999), and the enforcement of forum
selection clauses, Farrell Lines Inc. v. Columbus
Cello-Poly Corp., 32 F. Supp. 2d 118, 130 (S.D.N.Y. 1997).

Plaintiffs contend that an anti-suit injunction would be
inappropriate because arbitration of the Auction claim is
still pending. Yet courts have enjoined foreign litigation
in favor of parallel arbitration even before the
arbitration has concluded. See, e.g., Smith/Enron
Cogeneration Ltd. P’ship, Inc. v. Smith Cogeneration Int’l,
198 F.3d 88, 99 (2d Cir. 1999); Smoothline Ltd. v. N. Am.
Foreign Trading Corp., No. 00 Civ. 2798 (DLC), 2002 WL
273301, at *6 (S.D.N.Y. Feb. 27, 2002). Plaintiffs’
reliance on LAIF X SPRL v. Axtel, S.A., 390 F.3d 194 (2d
Cir. 2004), is misplaced. In that case, the district court
declined to issue an anti-suit injunction against a
litigation in Mexico that was related to an arbitration
between the parties. The Court of Appeals affirmed. LAIF is
distinguishable, however, because the claims asserted in
Mexico differed from those before the arbitrator. In this
action, the same Auction claim is at issue in both of the
parallel proceedings. Further, LAIF declined to enjoin the
Mexican action in part because it involved questions
arising under Mexican law. LAIF, 390 F.3d at 200. Here, the
Auction claim is governed by New York law. (Transcript of
Proceedings, dated Oct. 16, 2006 (“Tr.”) at 6.)

At oral argument, Plaintiffs represented that the
Brazilian Complaint asserts a claim under Brazilian law for
indemnification against Deltec because of Deltec’s failure
to make timely payments under the Loan Agreement. (Tr. at
18-19.) This claim is purportedly unrelated to the Auction
and, therefore, need not be enjoined in light of the
pending arbitration. However, this argument was absent from
Plaintiffs’ opposition brief, and the Court need not
consider an argument raised for the first time at oral
argument. See, e.g., United States v. Barnes, Page 5 158
F.3d 662, 672 (2d Cir. 1998) (“Normally, we will not
consider arguments raised for the first time in a reply
brief, let alone [at or] after oral argument” (citation
omitted).); Process Res. Corp. v. Delta Air Lines, Inc.,
No. 98 Civ. 5648 (JGK), 2000 WL 145114, at *7 (S.D.N.Y.
Feb. 3, 2000) (“The fact that the argument of estoppel was
raised for the first time at oral argument would be reason
enough to dismiss it.”); Yesil v. Reno, 958 F. Supp. 828,
844 n. 11 (S.D.N.Y. 1997) (declining to consider argument
made for first time at oral argument); Basix Corp. v. Cubic
Corp. (In re Basix Corp.), No. 96 Civ. 2478 (JSM), 1996 WL
517667, at *7 n. 5 (S.D.N.Y. Sept. 11, 1996) (same).

Plaintiffs’ contention would fail even if the Court were
to consider it. The Brazilian Complaint is a sprawling and
somewhat convoluted document. The Court has already ruled
that any claim arising from abuse of control or breach of
fiduciary duty is enjoined, and the Court rules today that
Auction-related claims are also enjoined. Plaintiffs imply
that somewhere in the Brazilian Complaint, there is a claim
for indemnification against Deltec that arises neither from
abuse of control nor from the Auction. Yet this directly
contradicts Plaintiffs’ assertion that in the Brazilian
Action, “SAI/Worldstar maintained only those claims arising
from events after the date of the Arbitration Award and
from the Auction.” (Plaintiffs’ Memorandum in Response to
Order to Show Cause, dated Oct. 11, 2006 (“Pl. Mem.”) at
2-3.) Not surprisingly, Plaintiffs have failed to identify
the portion of the Brazilian Complaint asserting a claim
for indemnification unrelated to abuse of control, breach
of fiduciary duty or the Auction. Nor do Plaintiffs explain
why any such claim would avoid compulsory arbitration in
New York.

Even if the Brazilian Complaint did assert a distinct,
non-arbitrable claim against Deltec, this Court would order
Plaintiffs to amend the Brazilian Complaint to assert only
that claim. Yet Plaintiffs have demonstrated an inability
or unwillingness to comply with such directives. The
January 3 Order required Plaintiffs to “revise their
submissions” to the Brazilian court to remove the abuse of
control allegations. Suchodolski, 2006 WL 10886, at *4.
Instead Page 6 of filing an amended complaint, Plaintiffs
asked the Brazilian Judge to ignore the abuse of control
claims in the original Brazilian Complaint. (Declaration of
Ruy Pereira Camilo Junior, dated Oct. 11, 2006 (“Camilo
Decl.”) §§ 5-10.) This Court explained that
“[because] the Brazilian Complaint’s request for damages
does not distinguish between the Auction claim and the
abuse of control claim, it is impossible to isolate the
portions of the Brazilian Complaint that violate this
[January 3] Order.” Suchodolski, 2006 WL 10886, at *4.
Plaintiffs disregarded this Court’s concern and required
the Brazilian judge to do precisely what this Court found
impossible — identify the aspects of the Brazilian
Complaint that deal solely with the Auction claim.

Plaintiffs then represented the following to this Court:

There is no procedure in Brazil whereby an “Amended
Initial Petition” is filed. Instead, amendments to the
Initial Petition are accomplished by the filing of a
separate petition with the judge identifying the changes.

(Pl. Mem. at 4.) This is not true. After Plaintiffs
submitted the above-quoted opinion on Brazilian law,
Cardell offered evidence that a party may amend its
pleading in Brazil with the consent of other parties.
(Declaration of John H. Doyle, III, dated Oct. 13, 2006
§ 6.) Although Plaintiffs do not dispute Cardell’s
evidence, they made no attempt to amend their pleadings in
accord with Brazilian procedure.[fn2] If Plaintiffs made no
effort to tailor the Brazilian pleadings to comply with the
January 3 Order, then tailored relief would be equally
futile now.

Cardell’s motion for an anti-suit injunction is granted.
For this reason, Cardell’s request for a penalty for
future non-compliance with the Court’s previous orders is
moot. (Tr. at 9.) However, Cardell may renew its contempt
motion or seek other appropriate sanctions if Plaintiffs
fail to comply with this Order. Defendant also moves for
attorneys’ fees and costs Page 7 relating to the instant
motions. Because Defendant has failed to identify the
statutory or contractual basis for its request, the motion
for attorneys’ fees and costs is denied.


Defendant’s motion for an anti-suit injunction against the
Auction-related claims in the Brazilian Complaint is
granted. Plaintiffs, their officers, directors, employees
and agents, and all persons acting under their direction
and control, are directed to withdraw from and discontinue
the Brazilian Action forthwith. For purposes of clarity,
anything short of full withdrawal and discontinuance
— for example, a stay or partial discontinuance
— will constitute noncompliance with this Order, and
Plaintiffs will be sanctioned accordingly. On November 28,
2006, Plaintiffs shall file and serve an affidavit
confirming that they have fully complied with this Order
and detailing the method of compliance. Defendant’s motion
for attorneys’ fees and costs is denied, and its contempt
motion is denied as moot.


[fn1] Capitalized terms not defined herein shall have the
meanings ascribed to them in the January 3 Order.

[fn2] Plaintiffs assert that Cardell has not appeared in
the Brazilian Action, suggesting that it was impossible to
seek Cardell’s consent to amend the pleadings. However,
Plaintiffs have requested Cardell’s consent regarding other
matters before the Brazilian court. (See, e.g., Tr. at
14.) Page 1