BSG Resources (Guinea) Limited et al v. Soros et al

Filing 136

OPINION & ORDER re: 55 MOTION to Dismiss filed by Open Society Foundations, Open Society Fund, Inc., Open Society Policy Center, Alliance for Open Society International, Inc., Open Society Institute, Open Society Foundati on, Inc., Foundation to Promote Open Society, George Soros. For the reasons stated above, Defendants' motion to stay this action pending the outcome of the Arbitration between Plaintiffs and Guinea is GRANTED. The parties are directed to advise the Court no later than June 15, 2018 as to the status of the Arbitration, or when there has been a decision in the Arbitration, whichever is earlier. The Clerk of Court is respectfully directed to terminate the motion docketed at ECF No. 55 and stay this case. SO ORDERED. (Signed by Judge John F. Keenan on 11/29/2017) (anc)

Case 1:09-md-02013-PAC Document 57 Filed 09/30/10 Page 1 of 45
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
USDC SDNY
------------------------------ X
DOCUMENT
:
BSG RESOURCES (GUINEA)
ELECTRONICALLY FILED
LIMITED, BSG RESOURCES
:
DOC #: _________________
(GUINEA) SÀRL, and BSG
:
DATE FILED: 11/29/2017
:
RESOURCES LIMITED,
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK :
:
Plaintiffs,
-----------------------------------------------------------x
: :
In re -against- 2008 SECURITIES
FANNIE MAE
08 Civ. 7831 (PAC)
: :
LITIGATION
09 MD 2013 (PAC)
GEORGE SOROS, OPEN SOCIETY
: :
No. 17 Civ. 2726 (JFK)
FOUNDATIONS, OPEN SOCIETY
: :
OPINION & ORDER
OPINION & ORDER
INSTITUTE, FOUNDATION TO
:
-----------------------------------------------------------x
PROMOTE OPEN SOCIETY, OPEN
:
SOCIETY FOUNDATION, INC.,
:
ALLIANCE FOR OPEN SOCIETY
:
INTERNATIONAL, INC., OPEN
:
HONORABLE PAUL A. CROTTY, United States District Judge:
SOCIETY POLICY CENTER, and
:
OPEN SOCIETY FUND,
:
:
BACKGROUND1
Defendants.
:
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The early years of this decade saw a boom in home financing which was fueled, among
APPEARANCES
other things, by low
FOR PLAINTIFFS: interest rates and lax credit conditions. New lending instruments, such as
Louis M. Solomon
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
Michael Lazaroff
GREENBERG TRAURIG, LLP
kept the boom going. Borrowers played a role too; they took on unmanageable risks on the
FOR DEFENDANTS:
assumption that the market would continue to rise and that refinancing options would always be
Joseph Thompson Baio
Benjamin Patrick McCallen
available in the future. Bower discipline was lacking in the system. Mortgage originators did
Elizabeth J. Lending
WILLKIE FARR & GALLAGHER LLP
not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
JOHN F. KEENAN, United States District Judge:
originators sold their loans into the secondary mortgage market, often as securitized packages
Before the Court is Defendants’ motion to dismiss
known as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
Plaintiffs’ amended complaint, or, in the alternative, to stay
But then the housing bubble burst. In 2006, the demand for housing dropped abruptly
this action pending the outcome of an arbitration proceeding
and home prices began to fall. In light of the changing housing market, banks modified their
between Plaintiffs and the African nation of Guinea. For the
lending practices and became unwilling to refinance home mortgages without refinancing.

1

Unless otherwise indicated, all references cited as “(¶ _)” or to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.

reasons stated below, Defendants’ motion to stay this action
pending the outcome of the arbitration is granted.
I.

Background

The following facts and allegations are taken from the
amended complaint.

Plaintiffs BSG Resources (Guinea) Limited,

BSG Resources (Guinea) Sárl, and BSG Resources Limited
(collectively “Plaintiffs” or “BSGR”) together form an
international, diversified mining group. (Am. Compl. ¶ 18.)
Defendant George Soros (“Soros”) is a financier who resides in
the State of New York. (Id. ¶ 8.)

Defendant Open Society

Foundations (“OSF”) is a “de facto corporation” with its
principal place of business in New York City. (Id. ¶ 9.)
is the founder and chairman of OSF. (Id.)

Soros

Defendant Open

Society Institute is a charitable trust organized under the laws
of the State of New York. (Id. ¶ 10.)

Defendants Foundation to

Promote Open Society, Open Society Foundation, Inc.,1 Alliance
for Open Society International, Inc., Open Society Policy
Center, and Open Society Fund, Inc. are all not-for-profit
corporations with principal places of business at 224 W. 57th
Street in New York City. (Id. ¶¶ 9-14.)
This case involves a dispute over mining rights in the
Simandou region of Guinea.

In 2005, BSGR, through its

1

Open Society Foundation, Inc. filed dissolution papers on October 5, 2012.
(Am. Compl. ¶ 9.)

2

subsidiary BSGR Guinea BVI, submitted an application for
prospecting permits over available areas in the north and south
regions of Simandou that would grant BSGR the exclusive right to
conduct exploratory work in an effort to locate and unearth iron
ore deposits. (Id. ¶ 20.)

On February 6, 2006, the Guinean

Minister of Mines granted BSGR’s application. (Id. ¶ 22.)
On November 16, 2009, after drilling for over three years
and investing over $160 million, BSGR submitted a feasibility
study regarding the viability of mining operations in the
southern portion of Simandou (“Simandou South”). (Id. ¶ 29.)
The Guinean Agency for the Promotion and Development of Mining
(“CPDM”) then recommended to the Ministry of Mines that BSGR be
invited to negotiate a mining and infrastructure agreement. (Id.
¶¶ 21, 29.)

On December 16, 2009, BSGR and Guinea entered into

the Basic Convention Agreement (the “Convention”), in which BSGR
agreed to invest billions of dollars in capital investments in
Guinea in exchange for the exclusive right to commercially mine
iron ore in Simandou South, and a potential future grant of
mining rights in other Simandou regions. (Id. ¶¶ 30-34.)

On

March 19, 2010, Guinea’s then-president Sékouba Konaté ratified
the Convention and granted BSGR a mining concession for a
deposit in Simandou South. (Id. ¶ 36.)

In April 2010, BSGR

entered into a joint venture with another mining company, Vale,

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related to the development and operation of BSGR’s mining rights
in Simandou. (Id. ¶ 37.)
Presidential elections took place in Guinea in 2010. (Id. ¶
44.)

Soros became involved in the 2010 election to support

Alpha Condé, who became President of Guinea. (Id. ¶¶ 54, 67.)
In January 2011, Condé requested Soros’ assistance to reform
Guinea’s mining industry. (Id. ¶ 67.)

Condé and Soros held a

joint press conference at which they announced that all existing
mining contracts in Guinea would be “re-examined” and a new
mining code would be enacted. (Id. ¶ 74.)

On March 3, 2011,

Soros publicly stated that Condé would be “introducing a new
mining code . . . and all the mining claims are going to be reexamined and those who want to validate those claims will have
to subscribe to the principles of [the Extractive Industries
Transparency Initiative].” (Id. ¶ 78.)
Through this review process, Defendants “importuned”
President Condé into forcing BSGR to improperly pay
significantly more money than was agreed to under the
Convention, or lose its contracts altogether. (Id. ¶ 56.)
Plaintiffs allege that Defendants first masterminded an
attempted extortion of BSGR. (Id. ¶¶ 57-61.)

In early 2011,

Condé, while “pursuing defendants’ unlawful scheme,” demanded
that BSGR pay $1.25 billion to maintain its contractual mining
rights. (Id. ¶ 58.)

After BSGR refused this demand, Defendants
4

“engaged in secret negotiations with Vale seeking payment of
$500 million” which was characterized as a prepayment of taxes.
(Id. ¶¶ 59, 61.)

BSGR also rejected these terms. (Id. ¶ 66.)

Defendants then employed other means to “destroy BSGR’s
mining rights.” (Id. ¶ 66.)

On or about March 26, 2012, the

government of Guinea established a National Mining Commission
(“NMC”) which was “granted the power to examine the ‘extension,
renewal, lease and cancellation applications for mining titles
on the basis of the [2011] Mining Code.’” (Id. ¶ 98.)

NMC’s

responsibilities were divided among two subcommittees:
Strategic Committee and a Technical Committee. (Id.)

a

Plaintiffs

allege that the Technical Committee, which was designed to serve
as the operational arm of the NMC, was “entirely lacking in the
resources to handle this role,” and the work was eventually
outsourced to other entities that were “funded by” or
“controlled by” Soros. (Id. ¶ 99.)
On November 17, 2011, BSGR received a letter from the
Minister of Mines and Geology which claimed that there were
issues with BSGR’s mining permits, set forth a lengthy list of
information requests, and questioned why Vale was supposedly
working in Simandou without authorization. (Id. ¶ 103.)
Despite BSGR’s “detailed response” and presentation of
“exculpatory material,” on October 30, 2012, the Technical
Committee, relying on the conclusions of “Soros[-]funded
5

agents,” sent a letter to BSGR (the “Allegations Letter”)
accusing BSGR of obtaining mining rights through bribery and
corruption. (Id. ¶¶ 114-15, 128, 150.)

To “cause BSGR further

damages,” Defendants leaked the contents of the Allegations
Letter to the press prior to its being sent to BSGR. (Id. ¶
130.)

In 2012 and 2013, Defendants and their agents—including

Global Witness, an organization that Soros “heavily funded”—
continued spreading “untrue accusations” suggesting that BSGR
obtained its mining rights in Guinea through bribery. (Id. ¶¶
140-49.)

In addition, Soros paid Guinean officials to influence

proceedings in Guinea and cause the revocation of BSGR’s mining
rights. (Id. ¶¶ 161-64.)
Plaintiffs allege that Defendants were ultimately
successful in their campaign to have Plaintiffs’ mining rights
revoked. (Id. ¶ 160.)

On March 21, 2014, the Technical

Committee recommended that the Minister of Mines revoke BSGR’s
mining rights and cancel the Convention. (Id. ¶ 151.)

On April

2, 2014, the Strategic Committee issued an opinion to President
Condé and the Minister of Mines agreeing with the Technical
Committee’s report and recommendation. (Id. ¶ 155.)

Later in

April of 2014, pursuant to the Technical and Strategic
Committees’ recommendations, President Condé and the Minister of
Mines terminated the Convention and BSGR’s mining rights. (Id.
¶¶ 156-58.)

To date, Guinea has not compensated BSGR for its
6

$800 million investment in Guinea. (Id. ¶ 166.)

BSGR has since

challenged Guinea’s conduct before the International Centre for
Settlement of Investment Disputes (“ICSID”) in an arbitration
proceeding currently pending in Paris (the “Arbitration”). (Id.)
Plaintiffs seek in the Arbitration an award declaring that
Guinea’s termination of the Convention was unlawful and
restoration of their mining rights. (See “Claimant’s Memorial,”
Fitzmaurice Decl. Ex. 2 ¶ 431, ECF No. 57-3 (filed July 28,
2017).)

Defendants are not a party to the Arbitration.

On April 14, 2017, Plaintiffs filed their initial complaint
in this action against Soros and OSF only. (See Complaint, ECF
No. 1 (filed Apr. 14, 2017).)

On June 30, 2017, Plaintiffs

filed an amended complaint, adding the remainder of the OSF
entities as Defendants.
causes of action:

The amended complaint alleges five

(1) tortious interference with contract, (2)

conspiracy to commit tortious interference with contract, (3)
fraud, misrepresentation, and conspiracy to commit fraud and
misrepresentation (against Soros only), (4) commercial
defamation, and (5) prima facie tort (against Soros only).
On July 28, 2017, Defendants moved to dismiss the amended
complaint, or in the alternative to stay this action pending the
outcome of the Arbitration between BSGR and Guinea. (See Mot. to
Dismiss, ECF No. 55 (filed July 28, 2017).)

7

II.
A.

Discussion

Stay Pending Arbitration

Defendants argue that, in lieu of dismissal, the Court
should stay this action pending resolution of the Arbitration,
which will dispose of or significantly narrow the issues at
stake. (Defs.’ Mem. of L. in Supp. of Mot. to Dismiss at 27.)
1.

Legal Standard

Within the “Court’s inherent power to manage its docket” is
the discretion to stay “nonarbitrable claims” in favor of a
“pending arbitration,” even where the parties in the litigation
and the arbitration are not identical. Alghanim v. Alghanim, 828
F. Supp. 2d 636, 664-65 (S.D.N.Y. 2011).

The movant seeking a

stay must show “there are issues common to the arbitration and
the court proceeding,” and that “those issues will be finally
determined by arbitration.” American Shipping Line, Inc. v.
Massan Shipping Indus., Inc., 885 F. Supp. 499, 502 (S.D.N.Y.
1995).

If this requirement is met, then the movant must show

that that “the non-arbitrating party will not hinder the
arbitration, that the arbitration will be resolved within a
reasonable time, and that such delay that may occur will not
cause undue hardship to the non-moving parties.” Id. (citing
Sierra Rutile Ltd. v. Katz, 937 F.2d 743, 750 (2d Cir. 1991)).
“Stays are particularly appropriate where they promote judicial
economy, avoidance of confusion and possible inconsistent
8

results.” Birmingham Assocs. Ltd. v. Abbott Labs., 547 F. Supp.
2d 295, 302 (S.D.N.Y. 2008) (internal quotation marks omitted).
2.

Analysis

Defendants have established that the same key issues
underlie Plaintiffs’ allegations in the Arbitration and the
claims in this action.

Plaintiffs seek in the Arbitration an

award “[d]eclaring that Guinea’s termination of . . . the Base
Convention[] [and] the . . . Mining Concession . . . was illegal
and unlawful” and ordering that Guinea “restore the Base
Convention and observe the rights granted to BSGR.” (See
“Claimant’s Am. Memorial,” Fitzmaurice Decl. Ex. 2 ¶ 431, ECF
No. 57-3 (filed July 28, 2017).)

Plaintiffs there allege that

“there was in fact no legitimate basis for the withdrawal or
revocation of their [mining rights]” and that Guinea breached
the Convention. (Id. ¶¶ 234-35.)

Plaintiffs further claim that

“[a]t the heart of these proceedings is Guinea’s allegation,
that the Claimants’ obtained their mining rights by corrupting
Guinean officials . . .

[t]hese corrupt practices would nullify

the mining titles and the mining agreement that were held by
[Plaintiffs].” (Id. ¶ 345.)

Here, the core issue underlying

Plaintiffs’ claims is whether Guinea, induced by Defendants,
breached a valid contract with BSGR, or whether the Convention
and BSGR’s mining rights were procured through corruption.

9

Thus, it is clear that there are common issues between this
action and those to be decided in the Arbitration.
The resolution of these issues in the Arbitration
proceeding will “likely provide significant insight into, if not
actually resolve, the claims asserted in this action.” Orange
Chicken, L.L.C. v. Nambe Mills, Inc., No. 00 CIV. 4730 (AGS),
2000 WL 1858556, at *9 (S.D.N.Y. Dec. 19, 2000).

To prove their

claims for tortious interference and conspiracy to commit
tortious interference, Plaintiffs must show that there was a
breach of contract. See Samsung Display Co. v. Acacia Research
Corp., No. 14-CV-1353 JPO, 2014 WL 6791603, at *4 (S.D.N.Y. Dec.
3, 2014) (“New York law is clear:

nothing short of actual

breach gives rise to a claim for tortious interference with
contractual relations.”).

Courts have granted stays where a

pending arbitration was likely to determine the validity of the
underlying contract and whether that contract was breached. See,
e.g., Geo Vantage of Ohio, LLC v. GeoVantage, Inc., No. 2:05-CV1145, 2006 WL 2583379, at *12 (S.D. Ohio Sept. 6, 2006) (staying
case where issues in the arbitration were “all related to the
interpretation of the [contract] and the question of whether or
not it has been breached,” and plaintiff, without a stay, “would
proceed to court on the issue[] of tortious interference . . .
without knowing whether Defendants had breached the contract at
issue”); Orange Chicken, 2000 WL 1858556, at *9 (stay was
10

particularly appropriate where claims in arbitration arose out
of the same acts and resolution of contractual disputes would
provide clarity and avoid inconsistent results); Andrews v.
Lasser Marshall, Inc., No. 97 Civ. 3827 (JGK), 1997 WL 624986,
at *1 (S.D.N.Y. Oct. 6, 1997) (staying plaintiff’s action for
tortious interference pending arbitration of plaintiff’s claim
for breach of the underlying contract with non-parties).

The

Arbitration Tribunal’s examination of the validity of the
Convention and determination of whether Guinea breached its
agreement with BSGR will directly implicate, and may be
dispositive of, Plaintiffs’ tortious interference claim here.
A resolution of the issues in the Arbitration will also
directly implicate the viability of Plaintiffs’ claims for fraud
and commercial defamation.

Plaintiffs’ commercial defamation

claims rely on the falsity of statements about BSGR’s alleged
corruption and bribery in procuring its mining rights in Guinea.
(Am. Compl. ¶ 206.)

Similarly, Plaintiffs allege in their fraud

claim that Soros made false statements that implied an
“impartial” review by the Technical Committee, despite his
alleged knowledge that the process was “rigged to reach the
conclusion that BSGR’s Convention and related agreements should
be terminated and its valuable rights revoked.” (Id. ¶¶ 196-97.)
Thus, the determination of key issues in the Arbitration—
including whether BSGR and Guinea had an enforceable contract or
11

whether BSGR’s mining rights were, as the Technical Committee
found, obtained through corruption—will have some bearing on all
of Plaintiffs’ claims in this action.

Accordingly, judicial

economy weighs in favor of a stay to allow for resolution of
these underlying issues and to avoid inconsistent results.
Plaintiffs argue that the outcome of the Arbitration will
not have a preclusive effect here because the causes of action
and the elements of the claims are not the same. (See Pls.’ Mem.
of L. in Opp’n to Mot. to Dismiss at 29.)

Although the claims

in this action and the Arbitration are not identical, courts
have granted stays where “the arbitration of the plaintiff’s
claims against a defendant party to the arbitration would at
least partially determine the issues which form the basis of the
claim against [the] non-arbitrating defendant.” Hikers Indus.,
Inc. v. William Stuart Indus. Ltd., 640 F. Supp. 175, 178
(S.D.N.Y. 1986); see also Andrews, 1997 WL 624986, at *1 (stay
granted where result of arbitration between plaintiff and nonparty could “substantially resolve issues in th[e] case”).
Plaintiffs also contend that Defendants offer only “rank
speculation” that the Arbitration Tribunal will issue an award
“with the requisite detail for application of discretionary
estoppel.” (See Pls.’ Mem. of L. in Opp’n to Mot. to Dismiss at
30.)

However, “in the Second Circuit, the doctrine of

collateral estoppel has long been applied to arbitrator’s
12

decisions . . .

and the effects of foreign arbitration are no

less preclusive than domestic arbitration.” Alghanim, 828 F.
Supp. at 665; see also Weizmann Inst. of Sci. v. Neschis, 421 F.
Supp. 2d 654, 676–83 (S.D.N.Y. 2005) (finding plaintiffs
collaterally estopped from re-litigating issue decided in
arbitration proceedings in Lichtenstein).
Moreover, there is no indication that Defendants, who are
not parties to the Arbitration, will hinder its progress or that
the Arbitration will not proceed in a reasonable time.

Finally,

a stay will not create undue hardship for Plaintiffs.
Plaintiffs selected the ICSID as the forum to challenge Guinea’s
alleged breach of contract.

Plaintiffs commenced the

Arbitration on August 1, 2014, a hearing on the merits was
completed on June 1, 2017, and “the closing of the evidentiary
phase . . . will take place at some stage in the foreseeable
future.” (See “Request for Arbitration,” Fitzmaurice Decl. Ex.
1, ECF Nos. 57-1, 57-2 (filed July 28, 2017); Libson Decl. ¶¶ 6,
11, ECF No. 70 (filed Aug. 18, 2017).)

Plaintiffs argue that a

stay would cause undue hardship as it could take several years
“before a final and nonappealable award is made” in the
Arbitration and there is a danger that evidence may grow stale
if a stay is imposed. (See Libson Decl. ¶ 11; Pls.’ Mem. of L.
in Opp’n to Mot. to Dismiss at 30.)

However, the Arbitration is

substantially further along than this action, in which document
13

discovery has only recently begun.

Thus, it is not clear that a

stay of this proceeding would cause substantial prejudice to
Plaintiffs. See Andrews, 1997 WL 624986, at *1 (“In these
circumstances, where the result of the arbitration may
substantially resolve issues in this case thereby saving the
resources of the parties and the Court, where the arbitration is
moving expeditiously and there is no showing of any prejudice
from a brief stay to allow the arbitration to conclude, the stay
of this action is warranted.”).

In addition, “because many, if

it not all, of the issues in the action will be touched on in
the arbitration, there is little risk that the evidence
supporting [Plaintiffs’] case may grow stale, become
unavailable, or be lost.” Orange Chicken, 2000 WL 1858556, at
*10 (internal quotation marks omitted).
CONCLUSION
For the reasons stated above, Defendants’ motion to stay
this action pending the outcome of the Arbitration between
Plaintiffs and Guinea is GRANTED.

The parties are directed to

advise the Court no later than June 15, 2018 as to the status of
the Arbitration, or when there has been a decision in the
Arbitration, whichever is earlier.

The Clerk of Court is

respectfully directed to terminate the motion docketed at ECF
No. 55 and stay this case.

14

SO ORDERED.

Dated:

New York, New York
November
2017

:2</ ,

/k?~·
F.Keenan

~ John

United States District Judge

15