0

Sarkis Defeats Cca Over $150m 'Oppression' Claim

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sarkis Izmirlian has fought off a $150m “shareholder oppression” claim in the latest of a series of New York legal victories against Baha Mar’s main contractor.

Judge Saliann Scarpulla, sitting in the New York State Supreme Court, ruled that China Construction America’s (CCA) action had “no basis” in New York law. This, she explained, was because Baha Mar Ltd - the entity in which it held an ownership interest - had already been dissolved by the Bahamian winding-up proceedings that stripped control of the $3.5bn development from Mr Izmirlian.

And, in a comprehensive win for Baha Mar’s former developer, she found that CCA had failed to meet the threshold for bringing a “shareholder oppression” claim. The Chinese state-owned contractor’s interest in Baha Mar Ltd had consisted of $150m worth of non-voting preference shares, whereas New York law required it to own at least 20 percent of the ordinary voting shares.

Judge Scarpulla also dismissed CCA’s argument that its claim should be governed by Bahamian law, namely the Companies Act, finding instead that the Investors’ Agreement signed with Mr Izmirlian “plainly and broadly agreed that New York law, not Bahamian law, would govern their relationship”.

This latest legal sideshow was sparked by CCA’s counterclaim to Mr Izmirlian’s $2.25bn fraud and breach of contract lawsuit. The Chinese contractor hit back by alleging he exploited his position as Baha Mar’s majority shareholder to take actions that ultimately wiped out its $150m preference share investment in the original project, even though it was subsequently selected for the $700m contract to complete the development.

“[CCA] served an answer with counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, and shareholder oppression under the Bahamas Companies Act. In its request for relief, CCA seeks money damages, costs and attorneys’ fees, and punitive damages,” Judge Scarpulla added.

“In the shareholder oppression counterclaim, CCA alleges that BML took actions that were oppressive to CCA, such as diverting money to entities controlled by BML, for purposes unrelated to the development project, and that BML withheld material information from CCA relating to the project’s design and finances.

“BML Properties moves to dismiss [CCA’s] counterclaim for shareholder oppression on the ground, among others, that it is not viable under New York law. BML also seeks to strike the punitive damages demand as unwarranted.”

BML Properties is Mr Izmirlian’s investment vehicle. He and his company argued that CCA’s claim, grounded in the Bahamian Companies Act, was “not the law applicable to the parties’ relationship” as New York law governed their investors’ agreement.

However, CCA argued that New York law did not govern all aspects of the two sides’ agreement, and insisted it did not apply in this particular instance as its claim was based on the Bahamian Companies Act.

Dismissing CCA’s arguments, Judge Scarpulla said: “In the Investor Agreement’s governing law clause, these sophisticated business entities, negotiating a multi-billion dollar business agreement, plainly and broadly agreed that New York law, not Bahamian law, would govern their relationship. Moreover, the parties directly disclaimed any choice of law analysis.

“[CCA] has not alleged that the governing law clause is invalid or that its enforcement would be unreasonable or against public policy. Thus, there is no reason to ignore the parties choice of New York law simply because a Bahamian statute is more favorable to CCA. Further, CCA’s argument that New York law only applies narrowly to the interpretation of the Investors Agreement is meritless.”

She added that the Investors’ Agreement “explicitly carves out one exception to the application of New York law”, where Mr Izmirlian and CCA agreed that Bahamian law would apply to the interpretation of the Memorandum and Articles of Association for Baha Mar Ltd.

“That provision is inapplicable here, and [CCA] does not invoke the provision in support of its arguments that Bahamian law should be applied,” Judge Scarpulla added. Finding that New York law governed the shareholder oppression counterclaim, she added that CCA did not meet the threshold to bring such an action.

“It is undisputed that [CCA] did not receive any voting shares in Baha Mar Ltd,” she ruled. “Because CCA does not satisfy the requirement that, to assert a claim for shareholder oppression, a shareholder must hold 20 percent or more of the corporation’s outstanding shares, CCA may not assert a shareholder oppression counterclaim under the New York [law].

“Because CCA does not own 20 percent voting shares, and because Baha Mar Ltd has already been dissolved, there is no basis for CCA’s shareholder oppression counterclaim.”

As a result, Judge Scarpulla dismissed CCA’s move “for failure to state a claim” along with its bid to secure punitive damages.

The decision thus maintains Mr Izmirlian’s 100 percent success rate over CCA in their preliminary legal skirmishes. However, it appears that any hearings on his substantive case remain some way off.

Comments

bogart 2 months, 1 week ago

Hooray to Sarkis...!!!! Keep it up...Go Sarkis go...!!!! Now seems every investor in the Bahamas must put in clauses for Courts and US to have final say.

0

Sign in to comment