March 16, 2010
MICHAEL GOOCH, NICK BROWN, COLIN HEFFRON, JOHN PILUSO, SEAN GORMLEY, JOHN HEALY, LEONARD ALONGE, JAMES TAYLOR, CHRISTOPHER STEFFEN, CHRISTOPHER LANDSBERG, MATTHEW PHELAN, MICHAEL NASR, ROBERT CROSSAN, AND SEAN KELLY, PLAINTIFFS-APPELLANTS,
DONALD FEWER, DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-2804-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 9, 2010
Before Judges Skillman, Fuentes, and Gilroy.
Plaintiffs are shareholders of Jersey Partners, Inc., a New York holding company that owns 43% of the stock of GFI Group, Inc. (GFI), a Delaware corporation, that engages through subsidiaries in the institutional brokerage of financial products as an inter-dealer broker. Plaintiff Michael Gooch is the Chairman and CEO of GFI, plaintiff Colin Heffron is the President and a Director of GFI, and most, if not all, of the other plaintiffs are also high-level GFI executives. GFI's principal office is in New York City, and it has other offices throughout the world.
Defendant Donald Fewer also is a shareholder of Jersey Partners and was formerly a high-level executive of GFI. In July 2000 Fewer entered into an employment agreement with Jersey Partners naming him President and Senior Managing Director of GFI. This agreement was subsequently amended to designate GFI as Fewer's employer. The agreement provided that it would be governed by New York law and that "any dispute arising from Fewer's employment" would be subject to the exclusive jurisdiction of the Supreme Court of the State of New York, County of New York or the United States District Court of the Southern District of New York.
In December 2000 and June 2003, Fewer entered into option agreements with Jersey Partners to purchase shares of its stock. These option agreements, like Fewer's employment agreement, provided that they should be construed in accordance with New York law and that any disputes arising thereunder would be subject to the exclusive jurisdiction of the Supreme Court of New York or the United States District Court for the Southern District of New York. In June 2006 Fewer became a shareholder of Jersey Partners by exercising those options.
Before Fewer became a shareholder, the persons who were then shareholders, consisting of a majority of the plaintiffs in this action, entered into a shareholders' agreement that, like Fewer's employment agreement and the option agreements allowing Fewer to purchase shares of Jersey Partners stock, provided that it would be governed by New York law and that any dispute arising thereunder would be subject to the jurisdiction of the Supreme Court of New York or the United States District Court for the Southern District of New York. The agreement also provided that persons who subsequently acquired shares of Jersey Partners as a result of the exercise of stock options would be subject to the shareholders' agreement. The first option agreement Fewer subsequently entered into provided that "[g]rantee [Fewer] specifically acknowledges that upon exercise of the Option, Grantee shall receive the New Shares subject to the terms and conditions of the Stockholders Agreement."
On April 14, 2008, Fewer left his employment with GFI and allegedly went to work for one of GFI's competitors.*fn1 A few days later, twenty-two GFI credit department employees also left GFI's employ and began to work for the same competitor.
On the same day he left his employment with GFI, Fewer filed an action in the Supreme Court of New York, County of New York, for a declaratory judgment that he had been constructively discharged by GFI and consequently was not required to comply with the restrictive covenants in his employment agreement. Fewer named both GFI and Jersey Partners as defendants in that action.
On May 5, 2008, GFI and Jersey Partners filed an answer and counterclaims against Fewer in the New York action. Those counterclaims asserted that Fewer had not only breached his employment agreement with GFI but also breached his option agreements with Jersey Partners and breached his fiduciary duties and duty of loyalty to GFI. Defendants' answer also asserted as an affirmative defense "[Fewer's] claims are barred in whole or in part by his breach of fiduciary duty to [GFI and Jersey Partners] and the companies they control."
Around the same time it filed these counterclaims, GFI also submitted an arbitration claim to the Financial Industry Regulatory Authority (FIRA) against Fewer, the competitors of GFI that Fewer and the other former GFI employees allegedly went to work for, and various individuals. GFI alleged in its statement of arbitration claim that Fewer had provided GFI's confidential information to, and conspired with, the other respondents to solicit the departure of a significant number of GFI employees, in violation of his fiduciary duties to GFI. At some point, GFI dismissed its claims against Fewer and some of the other individual respondents in the arbitration proceeding.
The Supreme Court of New York stayed the action brought in that court pending the resolution of this arbitration proceeding. However, that stay was subsequently reversed by the Appellate Division of the Supreme Court of New York, Fewer v. GFI Group Inc., 873 N.Y.S.2d 580 (App. Div. 2009), and Fewer, GFI and Jersey Partners are currently engaged in discovery in the pending action before the Supreme Court of New York. The arbitration proceeding is also still pending.
On June 17, 2008, plaintiffs filed this action against Fewer in the Law Division alleging breach of Fewer's fiduciary duties as a shareholder in Jersey Partners to plaintiffs as other shareholders in the same closely held corporation. The complaint alleged that Fewer breached those duties by conspiring with GFI's competitor to misappropriate GFI's confidential and proprietary information in order to solicit and hire GFI's brokers.
On July 23, 2008, Fewer filed a motion to dismiss the Law Division action on the grounds that the New Jersey courts should defer, under the "first-filed doctrine," to the previously filed action in the Supreme Court of New York and that the forum selection clauses in Fewer's employment and option agreements and the shareholders' agreement required litigation of plaintiffs' claims in the Supreme Court of New York rather than the New Jersey courts. Fewer also sought dismissal of plaintiffs' complaint on the ground that their claims were only maintainable by Jersey Partners and therefore plaintiffs lacked standing to bring the action. Because the parties submitted certifications and a substantial number of exhibits in support of and in opposition to the motion, it was treated as a motion for summary judgment.
The trial court issued a comprehensive written opinion granting Fewer's motion and dismissing plaintiffs' complaint based on both the first-filed case doctrine and the forum selection clauses in Fewer's employment and option agreements and in the Jersey Partners' shareholder agreement. Although the trial court did not grant Fewer's motion to dismiss the complaint on the basis of plaintiffs' lack of standing, the court nevertheless stated in the course of its opinion that it agreed with Fewer's argument that as a matter of New York law, which the court found to govern the standing issue, "the New Jersey litigation, brought by the Gooch plaintiffs, is in reality a disguised version of a shareholder's derivative action of JPI against Fewer and would have to be brought in the name of JPI by these shareholders."
In concluding that the first-filed case doctrine required dismissal of plaintiffs' complaint, the court concluded that the parties, issues and claims in this action are substantially similar to the parties, issues and claims in the FIRA arbitration and in the counterclaims in the action in the Supreme Court of New York and that there were no "special equities" that militate against allowing those claims to be adjudicated in New York as the forum of the first-filed action.
Regarding the similarity of the claims asserted in the New York and New Jersey actions, the court stated:
The New Jersey Complaint alleges a claim against Fewer by primarily the JPI shareholders for breach of fiduciary duty to them. The claims are substantially similar, if not identical, to those in the New York Supreme Court Counterclaim and the FINRA Arbitration: that Fewer breached... his fiduciary duty to GFI and JPI by conspiring with [GFI's competitors] to provide them illicitly with GFI's confidential and proprietary information and to draw away employees of GFI to [its competitors'] credit desk. In short, the factual allegations by Gooch, et al. in New Jersey are nearly identical to the factual allegations in the New York Supreme Court and in FINRA by GFI and JPI. The only meaningful distinction is that in New Jersey the claims are being advanced by individual shareholders of JPI and employees of GFI, while in New York, the claims are being asserted by the entities GFI and JPI.
Regarding the absence of any "special equities" that would require the New Jersey court to retain jurisdiction of this action even though plaintiffs' claims were first asserted in the New York action, the court stated in part:
First, defendant, Fewer, has not forum-shopped in the New York jurisdiction to deny the plaintiffs herein, Gooch, et al., the benefit of a natural forum. Other than several of the individual plaintiffs in the forum state residing in New Jersey and other than defendant, Fewer, in the forum state residing in New Jersey, most other parties do not and the more appropriate forum would be the first-filed forum, New York. Most of the forum plaintiffs reside outside New Jersey. JPI is a New York-S corporation. GFI is a Delaware-C corporation with principal office in New York.
Second, this court references its discussion above as to the forum selection clauses in the Stockholders['] Agreement of January 1, 2000, the Option Agreement of December 22, 2000, and the Employment Agreement of July 17, 2000, same collectively can be regarded as strong evidence militating against a special equity existing in favor of the forum plaintiffs, Gooch, et al.
Third, it has not been demonstrated that Fewer forum-shopped the matter in New York to deprive the forum plaintiffs, Gooch, et al., access to the New Jersey courts on the basis that the New Jersey jurisdiction would be less favorable to Fewer. In other words, there has been no demonstration that the substantive or procedural law of the New Jersey jurisdiction would work a less favorable result to Fewer than the chosen first-filed jurisdiction of New York.
Fourth, New Jersey does not have a significant state interest that is implicated in this litigation. Although large amounts of capital are involved, the litigation centers around breach of contract, breach of fiduciary obligations and other related causes of action. Nothing suggests that litigation of this matter in the State of New York will negatively impact any New Jersey state interest....
Fifth, nor is this a case where there would be great hardship and inconvenience to one party by proceeding in the first-filed action and no unfairness to the opposing party by proceeding in the second-filed action.... Most parties, witnesses, and evidence are more than accessible in New York and the various forum selection clauses in the agreements mandate New York law as the choice of law.
Sixth, the Appellate Division of New York decision that lifted the stay of Judge Lowe has, effectively, eliminated what has been a major argument of the Gooch plaintiffs that full discovery could not be had in New York, that only inadequate limited discovery could be had in the FINRA Arbitration, and that procedural and substantive due process was lacking in FINRA....
Seventh, concerns regarding federalism and comity to sister states' proceedings, vexatious and oppressive litigation, and wasting and duplication of judicial resources are all concerns that the Gooch plaintiffs have not overcome.
Ninth, especially now that the stay has been lifted in New York, nothing prevents the New Jersey Gooch plaintiffs from intervening in the New York Supreme Court matter to add those same parties and their individual claims against Fewer for breach of fiduciary duties to them as shareholders. [Footnotes omitted.]
We affirm the dismissal of plaintiffs' complaint substantially for the reasons set forth in the part of the trial judge's opinion dealing with the first-filed case doctrine. We conclude that the court's analysis of that doctrine was correct and that the court did not abuse its discretion in dismissing the complaint on that basis. See Sensient Colors Inc. v. Allstate Ins. Co., 193 N.J. 373, 390 (2008). Our affirmance on that basis makes it unnecessary to address the part of the court's opinion dealing with the forum selection clauses in Fewer's employment and option agreements and the Jersey Partners' shareholder agreement.
We supplement the trial court's opinion regarding the similarity of the parties in the New York action and this action. The Court in Sensient Colors indicated that a party seeking dismissal of a second-filed action in this State is not required to show that the "parties, claims, and issues" are "exactly the same" as in the first-filed action in another state. 193 N.J. at 391. Rather, a party seeking dismissal under the first-filed doctrine "is required only to show that the parties, claims, and issues in the two lawsuits are substantially the same. Ibid. The reason for this approach is that "[m]andating a complete identity of parties, claims, and issues would unfairly limit the exercise of comity on the basis of minor or technical differences between the two suits and give a party an undesirable incentive to change the format, and not the substance, of a pleading for the purpose of defeating comity." Id. at 391-92. On the face of the complaints, the parties to this action and the New York action are different. Although Fewer is a party to both actions, the other parties to this action are fourteen individual shareholders of Jersey Partners, while the other parties to the New York action are Jersey Partners and GFI, which are corporations in which plaintiffs are officers, directors and, through their Jersey Partners stock, dominant owners. However, plaintiffs bring their claims against Fewer solely as shareholders of Jersey Partners who claim to have suffered loss because of GFI's decline in value as a result of Fewer's alleged breach of fiduciary duties and other wrongdoing. This is the same loss asserted by Jersey Partners and GFI in their counterclaims against Fewer in the New York action.*fn2 Therefore, the trial court correctly concluded that the parties to this action and the New York action are substantially similar.
We also note that New York is the natural forum for the resolution of the claims plaintiffs have asserted against Fewer. Although some of the plaintiffs and Fewer reside in New Jersey, that is the only connection this case has to New Jersey. Jersey Partners is a New York corporation, and GFI has its principal office in New York City. Consequently, Fewer's alleged breach of fiduciary duty had to have occurred primarily in New York rather than New Jersey. Furthermore, the documents that governed Fewer's employment relationship with GFI and his ownership of Jersey Partners stock (i.e., the employment agreement, stock option agreements, and Jersey Partners' shareholders' agreement) all specified that any dispute between the parties would be subject to the exclusive jurisdiction of the Supreme Court of New York or the Federal District Court for the Southern District of New York and would be governed by New York law. Even if the shareholders' agreement and other documents containing the forum selection clause did not expressly require plaintiffs to file their claims in a New York court (an issue we have elected not to decide), these agreements manifest a mutual understanding that the locus of the parties' relationship was in New York. Therefore, the Supreme Court of New York is the appropriate forum to hear all aspects of their dispute.
Finally, we note our disapproval of the trial court's decision to address plaintiffs' standing to assert their breach of fiduciary duty and other claims against Fewer. Once the court determined that plaintiffs' claims should be pursued in the pending action in the Supreme Court of New York, it should have refrained from any discussion of the merits, including plaintiffs' standing to pursue those claims. Plaintiffs' standing, which the trial court concluded is governed by New York law, can be determined by the Supreme Court of New York if and when plaintiffs seek to intervene in the action pending in that court.