BML Properties Ltd. won an important victory over China Construction America (CCA) yesterday after the Appellate Division of the New York Supreme Court vacated CCA’s request for the court to stay trial proceedings until the hearing of an appeal could be completed.
The court has decided to move ahead with BML’s lawsuit against CCA, paving the way for the case to proceed and findings to be heard in the New York Supreme Court.
“Defendants-appellants China Construction America Inc., now known as CCA Construction Inc.; CSCEC Bahamas, Ltd. and CCA Bahamas Ltd., having moved for a stay of all proceedings in the trial court pending hearing and determination of the appeal taken from the order of the Supreme Court, New York County, entered on or about January 24, 2019… now, upon reading and filing the papers with respect to the motion, and due deliberation having been had thereon, it is ordered that the motion is denied and the interim stay granted by an order of a justice of this court, dated February 13, 2019, is hereby vacated,” the court ruling notes.
BML sued CCA in December 2017. Last year, CCA tried to convince the court that several grounds in the case were not substantive enough to move ahead with the lawsuit, and the case should go to arbitration and not be heard in court. In January a judge ordered that the case move forward in open court and that ruling now stands.
This is a huge victory for original Baha Mar developer Sarkis Izmirlian and his company BML Properties Ltd., as evidence against CCA will be heard in open court.
In the January ruling it was revealed that CCA had sought to have BML’s case thrown out on the basis that the New York court has no jurisdiction, that BML has no clear fraud case against it based on contractual agreements between them, and that the case is obligated to be settled by arbitration and not in a court.
But New York Supreme Court Judge Saliann Scarpulla disagreed with all of CCA’s claims, ruling in favor of moving BML’s alleged fraud and breach of contract case forward.
A press statement from BML explained that “In sustaining BML Properties’ fraud and other claims, the New York judge quoted from a January 20, 2015, letter secretly sent by the defendants which stated that if CCA America did not correct their serious problems, the result would be ‘irreversible and catastrophic loss’ and ‘unmeasurable damages…’.”
Judge Scarpulla in her ruling found that CCA failed to argue or produce evidence that BML Properties is bound to have the case arbitrated instead of heard in a supreme court.
“I find that the arbitration clause is inapplicable and deny the defendants’ motion to compel arbitration,” she said in her ruling.
While the corporate relationship between CCA and China State Construction Engineering Corporation Ltd. (CSCEC) was called into question pertaining to jurisdiction, the ruling explains: “BML Properties also alleges that CCA’s executives negotiated the investors agreement and that CCA’s president signed the agreement on CSCEC’s behalf.
“It further alleges that CCA created CSCEC ‘solely to hold the preferred shares of Baha Mar Ltd. and knew that CSCEC had no employees capable of performing any duties under the investors agreement, requiring CCA and CCA Bahamas (CCAB) to perform all of those duties’.
“Even though the exact nature of the relationships between the corporate defendants is unclear at this pre-answer stage of the litigation, the facts alleged provide a sufficient basis for me to conclude that BML Properties may, at this point, invoke the forum selection clause in the investors agreement against CCA and CCAB as entities that are successors or ‘closely related’ to CSCEC under New York law.”
CCA also attempted to have the case dismissed claiming that its agreements did not hold it liable for losses under New York law’s “derivative loss” doctrine and Bahamian law’s “reflective loss rule”, which would have prohibited BML from claiming “a loss in the value of its equity investment as the loss simply reflects damages incurred by the company (Baha Mar Ltd.)”.
However, the judge found that not only did BML show where it sustained losses, but CCA as the only other shareholder “benefitted from” its “misconduct that decimated BML Properties’ investment”.
“Therefore, BML Properties has properly alleged a direct claim,” Judge Scarpulla said.
CCA sought to have the claim of fraud thrown out, but the judge decided: “BML Properties has alleged twelve separate fraud causes of action against defendants CCA and CCAB. For this reason (among others) the complaint is an unwieldy, unmanageable 259 pages. The fraud causes of action should have been pled as one claim, and I treat them as one for purposes of this decision.
“The crux of the fraud claims is that CCA and CCAB, from 2012 through 2015, fraudulently misrepresented its existing workforce, available resources and ability to complete the project to BML Properties, preventing the latter from seeking remedies at the time of the misrepresentations or mitigating their cumulative effect and averting added losses. BML Properties further alleges that CCA’s and CCAB’s promises pertaining to project completion and misrepresentations about the workforce caused it to invest additional sums and incur expenses that it would not have if it were aware of the true state of the project.”
In view of the evidence the judge ordered that CCA’s motion to compel arbitration is denied, and that its motion to dismiss BML Properties’ complaint is denied in its entirety.