The opinion of the court was delivered by: BASSLER
Defendant Coopers and Lybrand Chartered Accountants ("Coopers") moves to dismiss on the ground of forum non conveniens. Defendants Alan C. Campney and Caspar Koch join in Coopers' motion and also move to dismiss for lack of personal jurisdiction and failure to state a claim. This court's jurisdiction is pursuant to 15 U.S.C. § 78aa and 28 U.S.C. § 1331 and § 1337. For the following reasons, defendants' motions to dismiss are DENIED.
Nesmont is incorporated in British Columbia and has its principal office in that province. Nesmont processes gold from gold dore to create purified gold pellets, primarily for the jewelry market in Los Angeles, California. Nesmont stock was listed on the NASDAQ exchange from May 21, 1993 to August 8, 1994. Plaintiffs allege that Nesmont filed misleading financial statements with the SEC throughout the time the stock was listed on NASDAQ. Plaintiffs contend that the financial statements were materially false and misleading because they overstated Nesmont's inventory by over $ 10 million by counting brass bars as gold bars. As a result, Nesmont's 1992 financial statements showed a profit of $ 219,000 Canadian when in fact, the company had suffered a loss of over $ 7 million Canadian.
Coopers allegedly contributed to this scheme by giving its stamp of approval to the fraudulent financial statements that Nesmont submitted to the SEC. Plaintiffs assert that Coopers' liability arises principally from its April 10, 1993 unqualified opinion in connection with the year end 1992 financial statements of Nesmont. They allege that Coopers had actual knowledge of the fraud as early as January, 1994 but permitted the stock to trade for another eight months.
Plaintiffs contend that the misleading information artificially inflated the price of Nesmont stock, defrauding thousands of U.S. investors. The stock was also listed on the Vancouver stock exchange and Canadian investors were similarly defrauded.
Plaintiffs bring this class action on behalf of "all persons who purchased securities of Nesmont from May 24, 1993 (the date upon which Nesmont filed its annual report with the Securities and Exchange Commission for the year ended December 31, 1992) through August 8, 1994 (the date the Company's stock was delisted from NASDAQ)." They allege causes of action under § 10(b), § 20 and Rule 10b-5 of the Exchange Act against Coopers and Nesmont officers and directors.
Nesmont filed for protection from its creditors in British Columbia and obtained a stay of all actions and proceedings against it on September 26, 1994. Based on this order, the U.S. Bankruptcy Court for the Southern District of New York granted a stay against all proceedings against Nesmont in the United States. Consequently, Nesmont is not a party to this action.
A. Forum Non Conveniens Standard
The doctrine of forum non conveniens provides this court with discretion to dismiss an action "when an alternative forum has jurisdiction to hear the case, and when trial in the chosen forum would 'establish . . . oppressiveness and vexation to the defendant . . . out of all proportion to plaintiff's convenience,' or when the 'chosen forum [is] inappropriate because of considerations affecting the court's own administrative and legal problems.'" Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241, 70 L. Ed. 2d 419, 102 S. Ct. 252 (1981) quoting Koster v. Lumbermens Mutual Casualty Co., 330 U.S. 518, 524, 91 L. Ed. 1067, 67 S. Ct. 828 (1947).
The court must initially determine (1) whether an adequate alternative forum exists and (2) the amount of deference to be accorded plaintiff's choice of forum. Lony v. E.I. DuPont de Nemours & Co., 886 F.2d 628, 633 (3d. Cir. 1989); Lacey v. Cessna Aircraft Co. (Lacey I), 862 F.2d 38, 45 (3d Cir. 1988). If the alternative forum is adequate, the court must then evaluate whether the public and private interests favor dismissal.
In order to satisfy the adequacy requirement, the defendant must establish two conditions: "(1) the defendant must be amenable to process in the alternative forum, and (2) the subject matter of the lawsuit must be cognizable in the alternative forum in order to provide the plaintiff appropriate redress." Kultur Int'l Films Ltd. v. Covent Garden Pioneer, Fsp., Ltd., 860 F. Supp. 1055, 1063 (D.N.J. 1994) (citations omitted). Unless the law in the alternative forum is "'so inadequate or unsatisfactory that it is no remedy at all,' the possibility that [plaintiffs] may receive less favorable results is not a factor to be considered." Kultur, 860 F. Supp. at 1064 quoting Piper, 454 U.S. at 254.
If the defendant establishes that the alternative forum is adequate, the court must consider several private and public interests. The private interest factors include:
the relative ease of access to sources of proof; availability of compulsory process for attendance of the unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious, and inexpensive.
Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 91 L. Ed. 1055, 67 S. Ct. 839 (1947). The public interest factors include:
the administrative difficulties flowing from court congestion; the "local interest in having localized controversies decided at home"; the interest in having the trial of a diversity case in a forum that is at home with the law that must govern the action; the avoidance of unnecessary problems in conflict of laws, or the application of foreign law; and the unfairness of burdening citizens in an unrelated forum with jury duty.
Piper, 454 U.S. at 241 n.6 (citing Gulf Oil, 330 U.S. at 509). Neither list of factors is exhaustive, and certain factors may be more or less relevant in particular cases. Van Cauwenberghe, 486 U.S. at 528.
The trial court should make its forum non conveniens determination by balancing all of the relevant factors. However, a "plaintiff's choice of forum should rarely be disturbed, unless the balance of factors is strongly in favor of the defendant." Lacey I, 862 F.2d at 43. "The defendant bears the burden of persuasion as to all elements of the forum non conveniens analysis." Id. at 43-44.
B. Adequacy of Alternative Forum
Defendants have not met their burden of establishing that an adequate alternative forum exists. Defendants have satisfied the first requirement that all defendants are amenable to process in Canada. They have failed to satisfy the second requirement, however, that the alternative forum will provide the plaintiffs with redress. There are several potential problems with the Canadian forum. Canada does not have a well-developed class action procedure. Although Ontario and British Colombia have recently enacted statutes creating class actions, these procedures may not provide an appropriate remedy for the plaintiffs.
As an initial matter, the court must determine the effect of Coopers' proposed stipulation. In an apparent attempt to remedy the deficiencies in the alternative forum, Coopers stipulates that the "fraud-on-the-market" theory would apply to the claims of U.S. investors and that Coopers will not oppose the certification of the class action in Canada. Kirkham June 30, 1995 Aff. Exh. A. Campney and Koch have also agreed to be bound by this stipulation. Although Coopers has diligently attempted to modify the forum, it can not do so by its own efforts. The Canadian courts are not bound by Coopers' evaluation of how the action should proceed. Locke August 9, 1995 Aff. at 4-6. In addition, even if the stipulation were binding on the Canadian court with respect to Coopers, Campney and Koch, it is not applicable to other defendants. The stipulation can not cure any potential deficiencies in the Canadian forum.
Plaintiffs offer the affidavits of Charles C. Locke and Harvey T. Strosberg, members of the Canadian bar, indicating that the action is not likely to be certified as a class action in either Ontario or British Columbia. The Ontario class action statute provides that a proposed class must meet the following criteria:
Ont. Class Proceedings Act § 5(1). The British Columbia statute imposes substantially identical requirements. Kirkham July 11, 1995 Aff. at 2. There are several reasons why plaintiffs may not satisfy these requirements.
Defendants admit that Canada does not recognize the fraud-on-the-market theory advanced by the Supreme Court in Basic Inc. v. Levinson, 485 U.S. 224, 99 L. Ed. 2d 194, 108 S. Ct. 978 (1988). Under this theory, purchasers are not obligated to prove specific reliance on false information because it may be assumed that they relied on the accuracy of the stock's price and that the price reflected all of the available information in the market. Consequently, a class action may not be the appropriate method of resolving the dispute. If each member of the class is required to establish individual reliance, the individual issues may preclude certification. Although defendants contend that the court could allow affidavits establishing individual reliance, the case they cite allowed affidavits attesting to a lack of specific knowledge, not reliance on specific statements. In addition, the defendant has not shown that the plaintiffs specifically relied on these statements. "In the context of a claim for secondary market securities fraud, this device [class action] is virtually meaningless without having fraud-on-the-market substitute for individual reliance." Trafton v. Deacon Barclays De Zoete Wedd Ltd., 1994 U.S. Dist. LEXIS 20971, No. C 93-2758- FMS, 1994 WL 746199, at *12 (N.D. Ca. Oct. 21, 1994).
Defendants' evidence is not to the contrary. Coopers offers the affidavits of Jeffrey Leon and D. Barry Kirkham, members of the Canadian bar, in support of their contention that the suit could proceed as a class action in Canada. These affidavits do not satisfy defendants' burden. Although both Leon and Kirkham conclude that the class would be certified in Canada, their opinions rely heavily on the assumption that the court would accept the conditions in Coopers' stipulation. See e.g., Leon July 7, 1995 Aff. at 5, 9, 11, 12; Kirkham July 11, 1995 Aff. ...