Monsoon Blockchain Storage, Inc. v. Magic Micro Co.

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MONSOON BLOCKCHAIN STORAGE, INC., Petitioner, v. MAGIC MICRO CO., LTD., Respondent.

No. 22-CV-3114 (JGLC)

United States District Court, S.D. New York

July 19, 2024

OPINION AND ORDER

JESSICA G. L. CLARKE, UNITED STATES DISTRICT JUDGE

Petitioner seeks to confirm an arbitration award under the New York Convention that awarded Petitioner $27,000,000 in damages based on Respondent's alleged breach of a stock purchase agreement. Respondent, a publicly traded South Korean company, does not oppose the petition on the merits, but instead asks the Court to dismiss or stay this action based on principles of international comity in deference to Respondent's parallel bankruptcy action in South Korea, a proceeding in which Petitioner has also filed a claim based on the arbitration award. The Court finds that the bankruptcy proceeding warrants declining to adjudicate the petition to confirm the arbitration award at this juncture based on comity. To minimize any potential future prejudice to Petitioner - and considering that the issues in the two actions are not identical and that ambiguities remain regarding the procedural posture of the bankruptcy action - the Court stays rather than dismisses this action. Thus, the Petition is DENIED without prejudice and this action is STAYED.

BACKGROUND

A. The Arbitration Award

On April 14, 2021, New York-based arbitrator Stephanie Cohen (the “Arbitrator”) issued an arbitration award in favor of Monsoon Blockchain Storage, Inc. (“Monsoon”) with respect to the parties' underlying breach of contract dispute. ECF No. 6-1 (“Arbitration Award” or “Award”). The underlying dispute concerned an alleged breach of a contractual agreement (the “Stock Purchase Agreement” or “SPA”) by Magic Micro Co., LTD. (“Magic Micro.”) to purchase shares of Series A Preferred Stock in Monsoon. Id. ¶¶ 2-3. Both parties participated in the arbitration and were represented by counsel. Id. ¶¶ 7-14. The Award found that (i) there was an operative and enforceable contract between the parties, (ii) Monsoon performed its required contractual obligations, (iii) Magic Micro failed to perform under the contract, and (iv) Magic Micro's performance was not excused. Id. ¶¶ 139-71. The Arbitrator awarded Monsoon $27,000,000 in damages, plus post-award interest accruing from March 15, 2019 at a compounding rate of 1% per month, $149,193.82 in legal fees and transcription costs, and $143,640.00, representing the portion of the tribunal and Arbitrator's fees incurred by Monsoon. Id. ¶ 192. The three-month time limit pursuant to 9 U.S.C. § 12 for a notice of a motion to vacate, modify, or correct the Award expired on August 14, 2021 without any such motion being made. ECF No. 6 (“First Myatt Decl.”) ¶ 9. According to Monsoon, Magic Micro has not fulfilled its obligations under the Award. ECF No. 13 at 5.

B. Procedural History

In September 2021, Magic Micro filed an application for commencement of rehabilitation proceedings in the Republic of Korea (“ROK”) the under the Debtor Rehabilitation and Bankruptcy Act (“ROK Rehabilitation Act”) in the Suwon District Court, 1st Bankruptcy Division (the “Suwon Rehabilitation Court” or “SRC”). ECF No. 23 (“Kim Decl.”) ¶ 6; ECF No. 23-1 (the “Preservation Order”).

On September 27, 2021, the SRC issued an order directing the debtor to refrain from (1) “settling or providing security for any monetary debt arising before September 27, 2021,” (2) “[t]ransferring ownership of all properties belonging to the debtor subject to registration or recording, such as real estate, automobiles, construction machinery, patents, and any other property valued at 10 million [South Korean] won or more, and any other disposition of rights, liens, or leases . . .,” (3) borrowing funds, and (4) hiring employees. Preservation Order at 3-4. On the same date, the SRC also issued a “comprehensive injunction against the debtor” stating that “[a]ll rehabilitation creditors and rehabilitation secured creditors shall not go through procedures for compulsory execution, provisional seizure, provisional disposition or action for the execution of security rights based on their rehabilitation claims or rehabilitation security rights until a decision is made on the application for initiation of rehabilitation procedures in relation to this case.” ECF No. 23-2 (the “Injunction Order”).

On April 14, 2022, Monsoon filed the instant Petition to confirm the Award. ECF No. 1. Pursuant to the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (“Hague Convention”), Monsoon initiated service of process through the Korean Central Authority (“KCA”). ECF No. 8 ¶ 3. The KCA served Respondent on August 4, 2022 at its current registered business address. Id. at ¶¶ 3-4; ECF No. 8-2 at 4; see also ECF No. 21 (“Opp.”) at 5 (confirming Magic Micro's registered business address at 205 Manhae-ro). On July 8, 2022, Monsoon also sought recognition of the Award in the Netherlands. ECF No. 26-2 § 1.1.

On August 18, 2022, the SRC issued an order commencing the rehabilitation procedures for Magic Micro. ECF No. 23-3 (the “Commencement Order”) at 3. The ROK bankruptcy law provides that when commencement of rehabilitation procedures has been decided, “litigation procedures on the debtor's properties shall be suspended” and that “[c]ompulsory execution . . . based on any rehabilitation claim or rehabilitation security right” - including “[p]roperty claims based on grounds that arise before the rehabilitation procedures commence for the debtor” - is prohibited. ECF No. 21, App-4-5 (ROK Rehabilitation Act, Arts. 58, 59, 118).

On September 15, 2022, Monsoon filed a declaration of claim in the SRC action (the “SRC Action”) seeking a total of $39,348,047.36 covering the principal, interest, legal fees, and other expenses to which Monsoon claims to be entitled in connection with the Arbitration Award (“Monsoon ROK Claim”). ECF No. 23-6 at 4.

On June 7, 2023, the SRC granted Magic Micro's application to cancel the SPA (the basis for the Arbitration Award) between Magic Micro and Monsoon on the basis that cancellation was in the best interest of Magic Micro and its creditors. ECF No. 23-7 at 10. With respect to the Arbitration Award, the SRC stated:

Furthermore, the arbitration decision itself is based on a judgment that involves the exchange of stock and stock payment. Considering that the debtor is currently undergoing a rehabilitation process under the court's supervision, and the acquisition of “Monsoon” preferred stock, which holds minimal practical value according to the international arbitration decision, would provide no tangible benefit to the creditors or shareholders of Magic Micro. Therefore, it is deemed reasonable to terminate the original contract in order to minimize the potential harm to the parties involved.

Id. Based on the SRC's cancellation of the SPA, Magic Micro requested the return of the $3 million deposit that it paid Monsoon prior to execution of the SPA. ECF No. 23-8 at 3; Award ¶ 4.

On July 4, 2023, the Dutch court recognized the Award as an enforceable judgment. ECF No. 26-2 § 6.

On August 24, 2023, Magic Micro appeared in the instant action, opposed the Petition, and sought dismissal or stay of this action. ECF Nos. 19-23.

LEGAL STANDARD

Under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), the Court “shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.” 9 U.S.C. § 207. “Article V of the Convention specifies seven exclusive grounds upon which courts may refuse to recognize an award.” Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 90 (2d Cir. 2005); see Commodities & Mins. Enter. v. CVG Ferrominera Orinoco, C.A., 49 F.4th 802, 809 n.4 (2d Cir. 2022) (listing the seven grounds for vacatur). The party opposing enforcement of an arbitral award bears the burden of proving that one of the seven defenses under the New York Convention applies, Encyclopaedia Universalis, 403 F.3d at 90, and the “burden is a heavy one, as ‘the showing required to avoid summary confirmance is high.'” Olin Holdings Ltd. v. State, 73 F.4th 92, 108 (2d Cir. 2023) (quoting Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997)).

A district court is not permitted to “vacate an arbitral award merely because it is convinced that the arbitration panel made a wrong call on the law.” Wallace v. Buttar, 378 F.3d 182, 190 (2d Cir. 2004). “[T]he award ‘should be enforced, despite a court's disagreement with it on its merits, if there is a barely colorable justification for the outcome reached.” Id. (quoting Banco de Seguros del Estado v. Mutual Marine Office, Inc., 344 F.3d 255, 260 (2d Cir. 2003)).

DISCUSSION

The Court first rejects Magic Micro's challenge to the Court's jurisdiction, finding that Respondent was properly served with the Petition. Turning to the merits, the Court finds that principles of international comity - in particular the ROK's interest in the equitable and orderly administration of the bankruptcy of a publicly traded Korean company - warrant declining based on comity to adjudicate the Petition at this juncture. To minimize any potential future prejudice to Petitioner - and considering that the issues in the two actions are not identical and that ambiguities remain regarding the procedural posture of the bankruptcy action - the Court stays rather than dismisses this action.

I. Respondent Was Properly Served

Magic Micro argues that the Court lacks personal jurisdiction over it, claiming that Magic Micro was not properly served under the Hague...