Murren v Schaeffer
[2015] NZHC 2759
•6 November 2015
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2015-442-000028 [2015] NZHC 2759
BETWEEN JAMES JOSEPH MURREN AND
JAMES J MURREN SPENDTHRIFT TRUST
First Plaintiffs
DANIEL LEE Second Plaintiff
AND
GLENN SCHAEFFER Defendant
Hearing: 28 October 2015 Appearances:
A Horne for Plaintiffs
J Maslin-Caradus for DefendantJudgment:
6 November 2015
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
Introduction
[1] Mr Murren and Mr Lee are United States citizens resident in Nevada. Mr Schaeffer is also a United States citizen. Although he now resides in New Zealand, he too lived in Nevada until early 2013.
[2] Late in 2000 Mr Schaeffer and two other persons incorporated Woollaston Estates Holdings Limited (WEHL). Mr Schaeffer held 4,000,000 of the 5,000,000 shares and was one of the two directors. In 2001 and 2002 WEHL acquired various titles to land in the Upper Moutere District near Nelson and took various steps to combine the titles and then resubdivide the land into different blocks. In 2009
WEHL acquired further land and carried out further amalgamations and re- subdivisions of the land. All these steps resulted in there ultimately being six blocks
of land, of which WEHL now owns three.
Murren & James J Murren Spendthrift Trust v Schaeffer [2015] NZHC 2759 [6 November 2015]
[3] Mr Murren and Mr Lee maintain that in 2001 and 2002 Mr Schaeffer discussed with them the prospect of their investing in the land I have described, which comprises a vineyard and a winery. Mr Schaeffer circulated to Mr Murren and Mr Lee, and a group of other investors, a draft Limited Partnership agreement. Mr Murren and Mr Lee say that in about September 2002 Mr Schaeffer represented to them that this partnership would be an investment vehicle which would own the vineyard and winery in issue. The draft partnership agreement provided for capital contributions to be made by the partners, and for Mr Schaeffer to be the general partner. It was signed by Mr Murren in September 2002, and revised by Mr Lee before he signed it in February 2003. It was not, however, ever signed by all the proposed partners. I will refer to this document as the draft 2002 agreement.
[4] From September 2002 onwards Mr Schaeffer sought capital contributions for the intended partnership from Mr Murren, Mr Lee and the other intended partners. In the course of seeking these payments Mr Schaeffer is said to have made various representations either stating or implying that they were part-owners of the Woollaston Estates Vineyard. Mr Murren and Mr Lee made substantial payments of capital in accordance with the requests made to them.
[5] In October 2003 Mr Schaeffer incorporated Constellation Partners LLC as a limited liability company in the State of Nevada. Mr Schaeffer and his ex-wife, Renee Schaeffer, are the shareholders of that company. Renee Schaeffer lived at the time, and continues to live, in the United States.
[6] In 2006 Mr Schaeffer sent out another draft Limited Partnership agreement to Mr Murren, Mr Lee and a group of investors, none of whom, apart from Mr Lee, is cited as an investor in the draft 2002 agreement, though one investor is the James J Murren Spendthrift Trust of which Mr Murren is the trustee. Clause 1.3 of this agreement (the 2006 agreement) is “to invest in, own, develop and commercially exploit interests in a New Zealand entity which, in turn, owns 80 per cent of the Phillip Woollaston Estates vineyard and winery in or near Nelson, New Zealand …”.
[7] Constellation partners, LLC, is cited as the general partner. Mr Lee was to hold a five per cent interest, and Mr Murren’s Trust was to hold a 10 per cent
interest. The agreement was signed by all parties and registered in accordance with the requirements of Nevada law.
[8] In 2008 a further call of capital was made, and Mr Murren’s Trust and Mr Lee duly made payments. As I have said, WEHL then acquired further land. It is alleged that Mr Schaeffer went on to make further representations to Mr Murren and to Mr Lee to the effect that they were part owners of a vineyard and winery in New Zealand.
[9] In all, Mr Murren says that he and his Trust have paid US$1,600,813.92 to Mr Schaeffer personally, and that Mr Lee has paid US$700,406.96 to Mr Schaeffer personally.
[10] Mr Murren and Mr Lee say that all the representations made to them were false, as they have no interest in Woollaston Estates Vineyard and Winery. They say the payments they made were not used to make the investments promised in the representations made to them, but were instead used by Mr Schaeffer to acquire the assets he now holds in his capacity as a shareholder of WEHL.
[11] As a result, they have brought four causes of action against Mr Schaeffer. First, they seek a declaration that Mr Schaeffer’s representations constituted breaches of s 9 of the Fair Trading Act 1986, and they seek a direction that Mr Schaeffer repay to them their capital contributions plus interest.
[12] Secondly, they plead that when Mr Schaeffer made the representations which they relied on when making their capital payments, he owed to them a duty of care to ensure that the representations were true and correct. He breached this duty as the representations were false. He either knew this to be the case, or he was reckless in relation to their truth or otherwise. They seek judgment against Mr Schaeffer for their capital contributions plus interest.
[13] Thirdly, Mr Murren and Mr Lee plead that Mr Schaeffer made the alleged representations knowing they were false and with the intention that they would be
relied on. They sue in the tort of deceit for return of their capital contributions plus interest.
[14] Fourthly, Mr Murren and Mr Lee allege fraudulent misrepresentation on the basis that Mr Schaeffer made the alleged representations without belief in their truth, or recklessly without caring whether they were true or false, with the intention that Mr Murren and Mr Lee would act on those representations. They did so, in making their payments to Mr Schaeffer. Again, they seek judgment for their capital contributions and interest.
[15] Fifthly, Mr Murren and Mr Lee plead a cause of action under the Nevada Deceptive Trade Practices Act. After citing the relevant terms of this statute, they say they are victims of consumer fraud, based on the representations I have referred to. After pleading actions by Mr Schaeffer which tie in with the provisions of the Nevada statute, they allege loss of their capital contributions and seek judgment for them.
Applications before the Court
[16] Mr Schaeffer has filed an appearance under protest to jurisdiction. Mr Murren and Mr Lee apply under r 5.49(5) of the High Court Rules to set aside this appearance. The Court must decide whether it is satisfied that it has jurisdiction to hear and determine the proceeding, and either set aside the appearance, or dismiss both the application and the proceeding, depending on that decision.
[17] As well, Mr Schaeffer applies for an order dismissing or staying the proceeding under r 15.1, on the basis that this Court is not the most suitable and appropriate forum to hear the plaintiffs’ claims. He says the claims have a more real and substantial connection with the United States, that he has not agreed to submit to the jurisdiction of this court, that the relief sought by Mr Murren and Mr Lee is repayment of sums of money, not any relief related to the vineyard and winery, that Mr Schaeffer has assets in the United States, and that any judgment obtained in Nevada against Mr Schaeffer can be enforced against him either there or in New Zealand by way of a separate proceeding.
Application to set aside appearance under protest to jurisdiction
[18] In the 2002 draft and the 2006 agreement, clauses 13.18 and 13.17 respectively provide:
Arbitration
If a dispute arises between the Partners as to interpretation, application or enforcement of this Agreement, and that dispute cannot be resolved by good faith negotiation, the parties agree to submit all such disputes to binding arbitration in Las Vegas, Nevada, …
[19] Article 8(1) in Schedule 1 of the Arbitration Act 1996 provides:
A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.
[20] Ms Maslin-Caradus, for Mr Schaeffer, says the issues raised in this case are the subject of the arbitration agreement in the documents so the Court should order a stay. She says that courts should uphold arbitration by striving to give effect to the intention of the parties to submit disputes to arbitration, and by not allowing any inconsistencies or uncertainties in the wording or operation of the arbitration clause to thwart that intention.1 She says that Mr Schaeffer need only establish a prima facie case that there was an agreed reference to arbitration, at which point the Court must leave it to the arbitrator to finally determine the question.
[21] This is the approach taken by the Court in Ursem v Chung.2 In that case, the learned Judge recognised that Article 8(1) does not provide any guidance on how far a court should go, on an application for a stay, in determining whether there is an agreement to arbitrate and, if so, whether the dispute or disputes in the court proceeding are matters which the parties have agreed to refer to arbitration. His Honour then canvassed views on this issue expressed in overseas jurisdictions, noting that there was no decision on this point in New Zealand. His Honour adopted
an approach known as the “prima facie review” by which a court will refer the
1 Marnell Corrao Associates Inc v Sensation Yachts Ltd [2000] 15 PRNZ 608 (HC) at [61].
2 Ursem v Chung [2014] NZHC 436 at [31]-[35].
question of whether or not the dispute is within the terms of an arbitration agreement to the arbitral tribunal if it finds a prima facie case for the existence of a valid arbitration agreement.
[22] Ms Maslin-Caradus says that although the claims by Mr Murren and Mr Lee are presented as claims based on representations, in various guises, the nub of their claim is that the vineyard should be owned directly or indirectly by the partnership in which they maintain they invested. Each of the partnership agreements contains a reference to arbitration, and at least prima facie, the real issue between the parties is within the terms of that agreement. As well, even if the claims are correctly presented on the basis of representations, clause 13.7 of the 2006 agreement provides that the agreement constitutes the entire agreement of the parties with respect to its subject-matter, and all prior or contemporaneous representations are superseded and of no force or effect. This, counsel says, involves the interpretation and application of clause 13.7 of the 2006 agreement and so is within the terms of the arbitration clause.
[23] Ms Maslin-Caradus relies on Allan Scott Wines and Estates Ltd v Eurowine Fine Wines (1990) Ltd.3 In that case an arbitration clause applied to “any dispute relating to the terms of this agreement”. An issue had arisen between the parties on whether the agreement continued to be in existence or not and on that basis the plaintiff claimed that the arbitration clause did not apply. The Court held, however, that because the effect of a renewal clause needed to be determined in order to decide whether the agreement remained in force, the dispute was one relating to the terms of the agreement.
[24] Ms Maslin-Caradus says that the need to determine the effect of the “entire agreement” clause, in light of the principle that the Court should strive to give effect to the intention of the parties to submit disputes to arbitration, directs that the Court should order stay or dismissal of the proceeding. The dispute should be determined
pursuant to the arbitration clause.
3 Allan Scott Wines and Estates Ltd v Eurowine Fine Wines (1990) Ltd HC Wellington CIV-2007-
485-001728, Gendall AJ at [42]-[45].
[25] Mr Horne, for Murren and Mr Lee, makes three principal points. First, the
2002 agreement has never been signed in the same form by the persons who were intended to be partners. Although it was signed by both Mr Murren and Mr Lee, Mr Lee only signed after making amendments. As well, even if it had been signed, the partnership to be evidenced by the agreement has not commenced, because clause 1.5 of the 2002 agreement states:
Term
The partnership shall commence upon the filing a (sic) Certificate of Limited Partnership with the Nevada Secretary of State, and shall continue in perpetuity unless it is dissolved as provided in Article Eleven of this Agreement.
[26] At no point has a certificate of limited partnership been filed with the Nevada Secretary of State. For these reasons, Mr Horne says, the partnership has not commenced.
[27] Secondly, Mr Horne says that in any event the arbitration clauses do not apply to the claims which have been made because they do not require “the interpretation, application or enforcement” of the agreement. Contrary to the assertion of counsel on behalf of Mr Schaeffer, Mr Murren and Mr Lee do not claim that Mr Schaeffer has obligations under either of those agreements to ensure ownership of the vineyard is held by the partnership, nor do they seek to enforce any such obligation. In fact, Mr Horne says, Mr Murren and Mr Lee do not assert any claims or entitlements against Mr Schaeffer under either agreement.
[28] Mr Schaeffer recognises this in his affidavit:
The essence of the plaintiffs’ claim against me is that I made false or misleading representations to them. They say that as a result of those misrepresentations they paid me funds, which they thought would be invested in a winery in Nelson, New Zealand, and for which they would in return receive an interest in the winery, but that in actual fact I misappropriated the funds for myself and they received no benefit at all.
Discussion
[29] Whilst I accept the principle summarised in Marnell Corrao Associates Inc v Sensation Yachts Ltd,4 and agree that in a case of this kind it is appropriate to adopt the “prima facie review” approach to the issue before the Court, as in Ursem v Chung,5 I am unable to find that a prima facie case has been made that there exists a valid agreement to arbitrate, for the following reasons.
[30] First, it is clear on the evidence that the 2002 draft partnership agreement has not been executed by the partners, nor even by Mr Murren and Mr Lee in the same form. Whilst in this circumstance it may sometimes be found that the terms of the agreement evidence the existence of an oral partnership, this is not established in this case. The only evidence given on the point by Mr Murren, for himself and Mr Lee, is this:6
A United States limited partnership was the investment vehicle by which the defendant represented that the plaintiff investors were to own an interest in Woollaston Estates. The plaintiffs were to each hold separate percentage shares in the partnership as owners. In 2002, a partnership agreement was circulated but was not signed by all the partners.
[31] Mr Schaeffer says that a draft partnership agreement was circulated, but the capital raising failed and the 2002 draft agreement was never properly executed. Mr Murren signed the draft, but Mr Lee altered the draft before signing it.
[32] I find that the evidence does not sufficiently establish an oral agreement to form a partnership on the terms contained in any version of the 2002 draft agreement.
[33] Even if the existence of a partnership were established, it would include clause 1.5 which expressly sets out the event on which the partnership will commence. The evidence is that a certificate of a limited partnership has not at any point been filed with the Nevada Secretary of State. Therefore, the partnership
would not, in any event, have actually commenced.
4 See n 1.
5 See n 2.
6 Affidavit dated 31 August 2015, para 13.
[34] Secondly, although the 2006 limited partnership agreement was signed by all partners, and was registered, Mr Schaeffer is not a party to that agreement so is not bound by the arbitration clause. Because of these findings, the Allan Scott Wines case does not assist: there is no partnership agreement to enforce in this case.
[35] Thirdly, I am satisfied that the claims made by Mr Murren and Mr Lee are not within the terms of the arbitration clause in either agreement, even if either of those agreements were binding on Mr Schaeffer. Disputes which are referred to arbitration are “as to interpretation, application or enforcement of this agreement
…”. The claims made by Mr Murren and Mr Lee are quite outside that phrase, as a matter of straightforward interpretation. In fact, the claims are not made under either agreement, but rather are expressly based on representations said to have been made at various times by Mr Schaeffer to Mr Murren and Mr Lee. I do not accept Ms Maslin-Caradus’s submission that the Court should look at what she submits is the substance of the claims, namely whether Mr Schaeffer was obliged to ensure that ownership of the vineyard was held for Mr Murren, Mr Lee and the other intended partners. It may be correct to say there would not be any claims if Mr Murren and Mr Lee did hold an interest in the land, but that is not a sufficient reason to proceed as she suggests. It is for Mr Murren and Mr Lee to decide the basis on which they claim Mr Schaeffer is liable to them. It is not for the Court to, in effect, recast their claims in order to fit them within the terms of the arbitration clauses in the documents.
[36] Even if the 2006 agreement were to apply to Mr Schaeffer, it contains, in addition to the arbitration clause, a provision at clause 13.5 that it shall be construed and enforced in accordance with, and governed by, Nevada law. Mr Murren and Mr Lee filed an affidavit by Judge Philip Martin Pro, a retired judge from Las Vegas, Nevada. He was presented with the statement of claim, the protest to jurisdiction, the application to set it aside, and the affidavit of Mr Murren. He considered these documents in terms of Nevada law and concluded that under Nevada law the claims by Mr Murren and Mr Lee are not encompassed within the arbitration clause in question. No evidence was presented to dispute this opinion. It accords with my opinion on the interpretation of the clauses in New Zealand.
[37] For these reasons I conclude that there is no binding agreement to arbitrate the claims made by Mr Murren and Mr Lee and, therefore, Article 8.1 in Schedule 1 of the Arbitration Act 1996 does not apply.
[38] It follows that I am satisfied that the Court has jurisdiction to hear and determine this proceeding, and the appearance must be set aside.
Application for dismissal or stay of proceeding
[39] The Court will strike out this proceeding or, alternatively, stay it under r 15.1, if Mr Schaeffer can show that there is another court with jurisdiction to hear and determine the matter in which the proceeding could be more suitably tried in the interests of the parties and for the ends of justice.7 The court in which a case is most appropriately tried is called the forum conveniens. This is the court with which the action has the most real and substantial connection. In deciding whether this is the High Court, or a court in Nevada, the court will take into account all relevant factors.8
[40] Initial discussions between Mr Schaeffer, Mr Murren and Mr Lee took place when all of them were in New Zealand. The discussions continued after they had returned to Nevada. All of the representations and statements which are relied upon by Mr Murren and Mr Lee for their causes of action against Mr Schaeffer were made in Nevada, with the exception of one conversation which took place on a flight over United States territory, and certain statements in tax forms filed with the Inland Revenue Service in the United States, outside Nevada. All the capital payments made by Mr Murren and Mr Lee were made in Nevada in US dollars, and banked by Mr Schaeffer in Nevada. The 2002 draft agreement was circulated in Nevada, and the 2006 agreement was circulated, executed and registered in Nevada. All parties are United States citizens, and Mr Murren and Mr Lee still reside there. The remedy sought is a payment of money, and Mr Schaeffer has funds in both the United States
and New Zealand.
7 Schumacher v Summergrove Estates Ltd [2014] NZCA 412, [2014] 3 NZLR 599.
8 A number of factors are conveniently summarised in Laws of New Zealand Conflict of Laws
Part II, paragraph 30.
[41] On the other hand, Mr Schaeffer lives permanently in New Zealand, was served with the proceeding here, and since 2001 has been the majority shareholder in Woollaston Estates Holdings Limited, now Woollaston Estates Limited. That company owns all the land in which Mr Murren and Mr Lee allege they were to be investing. Thus the subject-matter of all the alleged misrepresentations is located in New Zealand.
[42] In my opinion, the connections this case has with New Zealand and Nevada are finely balanced, when one weighs up the factors to which I have just referred. If anything, the balance may lie slightly in favour of Nevada because the actions sued on are a series of representations, almost all of which took place there. All the steps which Mr Murren and Mr Lee took, they also took in Nevada. On the other hand, although Mr Schaeffer received the capital contributions in United States dollars, in Nevada, and banked them there, his failure to deliver the asset Mr Murren and Mr Lee say they were entitled to amounts to a failure to take steps which they expected him to take in New Zealand. Had Mr Schaeffer put in place an ownership structure in New Zealand which included shares or other interests in the name of Mr Murren and Mr Lee, he would have fulfilled the representations which form the basis of all the causes of action.
[43] There are, however, other factors to consider. The first is that Mr Schaeffer is now a permanent resident of this country, and would need to be present in Nevada if proceedings were to be filed there.
[44] Secondly, four of the five causes of action are based on principles of New Zealand law, while one is based on a Nevada statute. It is more convenient for a court in New Zealand to hear evidence in relation to, and apply, Nevada law on a single cause of action than it is for a court in Nevada to engage in the inverse process in relation to four separate and different causes of action.
[45] Thirdly, there is no reason on the evidence before the Court to find that there is any manifest weakness in the claims brought by Mr Murren and Mr Lee. Ms Maslin-Caradus notes that some of the pleaded representations are in general terms such as the property being “our vineyard”, and she questions whether
Mr Murren and Mr Lee placed reliance on the misrepresentations because, as she puts it, they are wealthy and sophisticated businessmen. For all that, however, if one reads the pleaded representations as a whole, they paint a picture of joint ownership between Mr Schaeffer, and Mr Murren and Mr Lee, and no doubt others. Further, when one looks at the nature of the deal that Mr Murren and Mr Lee thought they were buying into, there is no reason, at least at this stage, to form the view that they did not rely on what they were being told when deciding to make the capital payments sought from them. They were a very long way away from New Zealand, had decided to invest in this country in a specific venture and, on their version of events at least, agreed that Mr Schaeffer would bring that about and understood he had done so. The various representations he made which confirmed that position are capable of amounting to a misrepresentation of the true picture and, on the evidence before the Court, are all that Mr Murren and Mr Lee had to go on when they decided to forward money to Mr Schaeffer. I note that Mr Schaeffer does not, at least in his evidence to date, deny that he represented that Mr Murren and Mr Lee would own, and indeed did own, an interest in the Woollaston Estate Vineyard and Winery. I am mindful that when a defence has not been filed, the Court must rely on the allegations in the statement of claim, as well as the evidence, when making its
decision.9 There is nothing implausible in the claims Mr Murren and Mr Lee make,
nor is there any documentary evidence to contradict their evidence in relation to the representations made. To the contrary, the claims are supported by documentary evidence produced by Mr Murren.
[46] I conclude that Mr Murren and Mr Lee have a good arguable case in relation to the four causes of action based on principles of New Zealand law, though I do not comment on the strength or otherwise of the claim they make under the Nevada Deceptive Trade Practices Act.
[47] A fourth factor relied on by Mr Schaeffer is that the parties have agreed that their disputes should be governed by Nevada law. However, this proposition is based on the 2002 draft agreement, and the 2006 agreement, neither of which applies
for the reasons I have discussed. There is no other agreement to the effect that
9 Stone v Newman (2002) 16 PRNZ 77 (CA) at [24] and [25].
Nevada law will apply to any claim or dispute arising out of the business relationship between the parties.
[48] Counsel traversed issues relating to discovery of documents and the location of witnesses. I find issues in relation to discovery to be evenly balanced. As to the giving of evidence, Mr Schaeffer is in New Zealand and would need to travel to Nevada if the proceeding were heard there. Mr Murren and Mr Lee have both confirmed their willingness to travel to New Zealand. Mr Schaeffer’s estranged wife, Renee, lives in the United States, but according to Mr Lee has devoted much of her time to working for Woollaston Estates Holdings Limited and has spent considerable time in New Zealand in recent years. Another potential witness is Mr Philip Woollaston, a co-owner of Woollaston Estates Holdings Limited who is believed to live in New Zealand. Convenience and cost to the parties and witnesses appear to be evenly balanced.
[49] An unusual feature of this case is that Mr Schaeffer maintains that there should be proceedings in Nevada, when he lives in New Zealand. More frequently applications of this kind are made on an inverse basis. The final point to consider is Mr Schaeffer’s given reason for this. He contends that hearing the claim in New Zealand will result in publicity in the country in which he now lives, but there would be less publicity if the case was heard in Nevada. Mr Murren and Mr Lee maintain that international borders are not a significant factor to the spread of information. This point does not weigh materially in favour of Nevada. This is a commercial dispute but without any identified issues of sensitivity such as, for example, competition issues. It will be decided in court wherever it is heard. Publicity may ensue, but that is ordinarily the case and no specific prejudice was identified.
[50] I have weighed up all of the points argued by counsel and, on balance, find that the forum conveniens for the claims brought by Mr Murren and Mr Lee is New Zealand. In my opinion the fact that four of the five claims are based on principles of New Zealand law, that this Court has jurisdiction to decide all the claims as the defendant is a New Zealand resident, the fact that no valid criticism can be made of the strength of the plaintiffs’ case, the fact that Mr Murren and Mr Lee are prepared to travel to this country to give evidence, and the fact that any judgment obtained can
readily be enforced in this country against assets Mr Schaeffer is known to own, outweigh the other factors that favour the forum conveniens being Nevada. Issues such as relative costs and convenience are balanced. There is no suggestion of any procedural advantage in conducting the case in either jurisdiction. Overall, the only factors of any substance, in my view, favouring the case being heard in Nevada, are those discussed in paragraphs 40 and 42. As I have indicated, the balance of the factors of that kind slightly favours the case being brought in Nevada but, in my opinion, this is outweighed by the other factors to which I have referred.
[51] I find that Mr Schaeffer has not established that this case could be more suitably tried in Nevada, in the interests of the parties and for the ends of justice.
Outcome
[52] The appearance by Mr Schaeffer objecting to the jurisdiction of this court is set aside under r 5.49(6)(a). Mr Schaeffer may file and serve a statement of defence within 20 working days.
[53] The application by Mr Schaeffer to dismiss or stay this proceeding is dismissed.
[54] Mr Schaeffer will pay costs to Mr Murren and Mr Lee on a 2B basis. As agreed by counsel, the costs will be assessed on the basis of one application, not two.
Mr Schaeffer will also pay disbursements as fixed by the Registar.
J G Matthews
Associate Judge
Solicitors:
Minter Ellison Rudd Watts, Auckland. Duncan Cotterill, Nelson.
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