The opinion of the court was delivered by: JOHN LIFLAND, Senior District Judge
MEMORANDUM AND ORDER (KPMG Belgium)
Plaintiffs Rocker Management, LLC, Rocker Partners, LP, Rocker
Offshore Management Company, Inc., and Compass Holdings Ltd.
(collectively, "Rocker") have asserted claims under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5,
17 C.F.R. § 240.10b-5, promulgated thereunder by the United States
Securities and Exchange Commission ("SEC"), against Defendants
Jozef Lernout, Pol Hauspie, Gaston Bastiaens, Carl Dammekens,
Allan Forsey, Ellen Spooren, Erwin Vandendriessche, Gerald
Calabrese,*fn1 Klynveld Peat Marwick Goerdeler
Bedrijfsrevisoren (a/k/a KPMG Bedrijfsrevisoren or KPMG Belgium),
KPMG International ("KPMG"), KPMG UK, KPMG LLP ("KPMG US"), Paul
Behets, and SG Cowen Securities Corporation ("Cowen").*fn2
Plaintiffs also bring state law claims for tortious interference
with prospective economic advantage, conspiracy to tortiously
interfere, and aiding and abetting tortious interference.
Before the Court is the Motion of Defendant KPMG Belgium to
dismiss the Amended Complaint pursuant to Federal Rules of Civil
Procedure 12(b)(6), 9(b), and the doctrine of forum non
conveniens. For the reasons set forth below, KPMG Belgium's
Motion will be denied.
The facts of this case are described at length in the Court's
June 7, 2005 Memorandum and Order denying the motions to dismiss
on behalf of individual defendants Jozef Lernout, Pol Hauspie,
and Gaston Bastiaens. Allegations relevant to resolving this
Motion are discussed herein, and, as noted, are taken from the
Plaintiff Rocker Management LLC ("Rocker Management") is a New
Jersey company that administers and manages Plaintiff hedge fund
Rocker Partners LP ("Rocker Partners"). (Am. Compl. ¶ 10).
Plaintiff Rocker Offshore Management Company, Inc. ("Rocker Offshore") is a New York corporation that
manages Plaintiff hedge fund Compass Holdings, Ltd. (Id.).
Defendant KPMG Belgium, a limited liability partnership
organized under the law of and doing business in Belgium, is a
public accounting firm and a member of KPMG International, a
Swiss Association. (Am. Compl. ¶¶ 23, 26).
Plaintiffs engaged in "short selling," which means identifying
and purchasing stock that they expect to decline in price. (Am.
Compl. ¶¶ 5, 11). Profits result from borrowing stock from
various sources, selling that stock at current market prices,
purchasing shares of the stock at a lower price to "cover" the
original position, and then returning the stock to the original
Plaintiffs began to short sell Lernout & Hauspie Speech
Products N.V. ("L&H" or "the Company") stock in June 1998. (Am.
Compl. ¶¶ 6, 100). The price of L&H stock subsequently increased,
forcing Plaintiffs between December 1999 and March 2000 to
purchase stock at a loss to cover their own short positions.
(Id. ¶¶ 6, 104). Plaintiffs charge that the increase in L&H
stock prices was the result of fraud on the part of L&H and/or SG
Cowen. Plaintiffs further allege that the rise in L&H stock may
be attributed to certain financial statements issued by L&H for
the fiscal year 1998, which overstated L&H revenue. (Am. Compl.
¶¶ 51-52, 259). L&H's independent auditor was KPMG Belgium. On April 9, 1999, KPMG Belgium published its Independent
Auditor's Report on L&H's financial statements for the year
ending December 31, 1998 (Id. ¶ 51). KPMG Belgium allegedly
made several false statements in those certified financials.
First, financial statements falsely reported L&H's 1998 revenues.
KPMG Belgium itself withdrew its own certification in late 2000
and disclosed to the investing public that its financial
statements "should not be relied upon." (Id. ¶¶ 4, 123). L&H's
Audit Committee later acknowledged that the statements inflated
L&H's actual income by nearly $28 million (including by 24% and
23% in the last two quarters of 1998, respectively). Second, KPMG
Belgium represented that it conducted an "independent" audit,
thereby indicating that it had no financial interest or ties to
L&H management. In fact, the KPMG "global account partner" for
L&H who was responsible for overseeing the audit, Paul Behets,
took a position with a L&H-related entity shortly after
overseeing and certifying these falsified financials. (Id. ¶
267). Third, KPMG Belgium represented that "[w]e conducted our
audits in accordance with generally accepted auditing standards
in the United States." In fact, the financials violated many
important aspects of United States generally accepted accounting
principles ("U.S. GAAP"), including the backdating of contracts,
contracts entered into with related parties, and the existence of
side agreements releasing customers of their obligation to pay. (Id. ¶ 209-10). Finally, KPMG Belgium
represented that the financials were "free of material
misstatements," and that the financials "present fairly, in all
material respects, the financial position of Lernout & Hauspie
Speech Products, N.V.," when, in fact, they falsely inflated
L&H's revenue by almost $28 million. (Id. ¶ 52).
KPMG Belgium moves to dismiss this case on the basis of forum
non conveniens, arguing that Belgium provides an adequate forum
and that "the balance of conveniences" suggests that a trial in
the United States would be "unnecessarily burdensome" for
Defendants and the Court.
This Court may dismiss an action on forum non conveniens
grounds 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] appropriate because of considerations affecting the Court's
own administrative and legal problems.'" Piper Aircraft Co. v.
Reyno, 454 U.S. 235, 241 (1981). There is a strong presumption
in favor of Plaintiffs' choice of forum. Id. at 255. Defendants
bear the burden of persuasion as to all elements of the forum non conveniens analysis. Lacey v. Cessna Aircraft Company,
932 F.2d 170, 180 (3d Cir. 1991).
This Court concludes that it should not exercise its discretion
to dismiss this case against KPMG Belgium on forum non conveniens
grounds. As explained below, the Court is not persuaded that
manifest unfairness will result from hearing the case in this
First to be determined is whether the Belgium forum is
"adequate" in the sense that defendant would be subject to
service of process there and whether the forum permits litigation
of the subject matter of the dispute. Piper Aircraft Co.,
454 U.S. at 255, n. 22. KPMG Belgium has submitted the Declaration of
Hans van Houtte to support its claim that Belgium is an adequate
forum for this litigation. The declaration notes that nine of the
defendants named in this action are Belgian and clearly subject
to service of process there. (van Houtte Decl. ¶¶ 5, 6). Van
Houtte goes on to state that the Belgian court would have
jurisdiction over all other defendants (English, Dutch, and
U.S.), as well. (Id. ¶ 6).
Plaintiffs counter that it is unlikely a Belgian court would
retain jurisdiction over the entire matter and over all
defendants, and then only if all the acts which were criminal in
nature took place in Belgium would that court retain
jurisdiction. (Pls.' Br. at 87-88.). Plaintiffs predict that, if
this case were brought in Belgium, there exists a potential for litigating against certain
defendants in Belgium and others in the United States. But this
portion of Plaintiffs' argument does not appear to be supported
by the declaration of Plaintiff's expert, Etienne Claes, and thus
cannot be accorded any weight.*fn3 In contrast, Defendant's
expert declaration states the Belgian courts would have
jurisdiction over all the parties in the case. (van Houtte Decl.
¶ 6). KPMG Belgium has thus made an uncontroverted showing that
Belgian courts would have jurisdiction over all parties.
Next to be determined is whether Belgium permits litigation of
the substance of this dispute. Plaintiffs point out, and KPMG
Belgium concedes, that Belgium does not provide a cause of action
identical to that provided by Rule 10b-5. Nonetheless, KPMG
Belgium asserts that the Companies Act of Belgium generally
encompasses Plaintiffs' cause of action and that Belgium has
before been held to provide an adequate forum for the resolution
of fraud claims, Calavo Growers of California v. Generali
Belgium, 632 F. 2d 963, 968 (2d Cir. 1980). Plaintiffs dispute whether Belgium permits litigation of this
sort. The Claes Declaration states that there is no equivalent
civil action that can be brought in Belgium and, more
specifically, that no cause of action in Belgium is comparable to
an action for securities fraud under United States securities
laws. (Claes Decl. § A). Plaintiffs further claim that they would
effectively be barred from bringing a claim for civil damages for
securities fraud. In addition, short sellers are apparently
disfavored in Belgium. (Claes Decl. § D).
The fact that the law of the foreign forum differs or is less
favorable to Plaintiffs is not conclusive in a forum non
conveniens analysis. What matters most is when the remedy
provided by the foreign forum is "so clearly inadequate or
unsatisfactory that it is no remedy at all." Piper Aircraft
Co., 454 U.S. at 252 n. 18, 254. It is unclear to what extent
Belgium would permit litigation of the substance of this dispute.
However, the Court is not persuaded that Plaintiffs would have no
remedy at all were this case to proceed in ...