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ROCKER MANAGEMENT v. LERNOUT & HAUSPIE SPEECH PRODUCTS

June 7, 2005.

ROCKER MANAGEMENT, L.L.C. ET AL., Plaintiffs,
v.
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V. ET AL., Defendants.



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.

  FACTS

  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 Amended Complaint.

  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 source. Id.

  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).

  DISCUSSION

  I. Forum Non Conveniens

  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 District.

  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 ...


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