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New York mogul's Russian corporate raiding case dismissed by US court

Tags: Fraud, U.S., Russia
17:32 17/06/2013

MOSCOW, June 17 (RAPSI, Ingrid Burke) -  The US District Court for the Southern District of New York has dismissed for forum non conveniens a claim filed by New York real estate mogul Janna Bullock against a group of Russian and Cypriot nationals and business entities based on various claims related to an alleged corporate looting conspiracy, according to court documents obtained by RAPSI.

Judging by local media reports, Bullock has made a big – albeit controversial – name for herself in New York’s real estate and social scenes. She was described in a 2010 New York Post article as a “gorgeous and [glamorous] real estate mogul [who] rose from Brighton Beach baby sitter to New York’s best-known Russian socialite without anyone knowing much about her private life or past.” In 2012, The New York Times described her as a “glamorous Russian-born real estate developer and art scene fixture who retreated from life on the party circuit to spend nearly two years combatting accusations against her and her husband.”

In granting the defense motion to dismiss earlier this month, the court upheld the argument advanced by three of the defendants that Russia would be a more appropriate forum than Manhattan.

Forum non conveniens is a legal doctrine that allows courts to dismiss a claim even if the venue and jurisdiction are proper if another forum would be better suited to adjudicate the claim.

In accordance with US law, the court treated all facts asserted by the plaintiffs as true in considering whether to grant the defendants’ motion to dismiss for forum non coneniens. Thus the facts established by the order reflect those asserted in the initial complaint as well as certain external pieces of evidence, including affidavits.

The order describes Bullock as a Russian national and naturalized US citizen, and as the ex-wife of former Moscow Region Finance Minister Alexei Kuznetsov. Through the Delaware LLC RIGroup USA, Bullock – the sole member of the LLC – develops and invests in real property internationally. According to the complaint, RIGroup USA previously owned a controlling interest in RIGroup Russia (OOO RIGroup), which had “significant assets” in Russia.

Bullock and RIGroup USA alleged in the complaint that in 2008, Alexander Esin and Alexey Belov – both Russian citizens primarily residing in Moscow, according to the complaint – and co-conspirators “fabricated a company-initiated ‘buyout’ in which Bullock (or the companies she controlled, including RIGroup USA) purportedly agreed to accept shares of an affiliated company Rosweb in exchange for her shares of RIGroup Russia.” As a result of the buyout, the defendants are accused of having taken control of RIGroup Russia and looted its assets. The buyout was allegedly formalized through the filing of false corporate disclosures.

The defendants then allegedly created and falsified various loans owed by Bullock and some of her other companies to RIGroup Russia. The loan agreements in turn were allegedly sold to some of the other defendant companies for little to no consideration, after which point Esin is alleged to have attempted to extort the plaintiff to pay off portions of the fraudulent loans in order to avoid enforcement.

The defendants were further accused of having stolen and converted the assets of various other companies owned by Bullock.

Then – according to the complaint – in 2009, RIGroup Russia sued RIGroup USA in a Cypriot court in order to enforce one of the purported loan agreements between RIGroup Russia and a Cypriot company Laziar Holding Ltd. The action was ultimately dismissed with prejudice.

The complaint goes on to allege that after serving Esin with notice that she had filed the present claim, he threatened her with retaliation and ruin. Furthermore, she claims to have received anonymous death threats online shortly thereafter. Then a second Cypriot lawsuit was launched, this time at the hands of Gersoan Limited, a Cypriot corporation. That claim brought about an interim freeze of some of the plaintiffs’ assets.

The court notes that despite the plaintiffs’ silence on the issue, RIGroup USA too has turned to the Cypriot courts to adjudicate the present scandal, but to no avail.

In assessing the forum non conveniens claim, the court utilized a three-pronged test established by US case law.

First, the court must determine how much deference should be accorded to the plaintiff’s choice in forum. While there is a strong presumption in favor of the plaintiff’s choice, several relevant considerations must be taken into account. Toward this end, the court describes a sliding scale of deference. On one extreme, the presumption will be strongest in the plaintiff’s favor if the plaintiff or her claim has a strong connection with the US and if convenience considerations favor the US forum. On the other extreme, the presumption will be weaker if the plaintiff appears to be simply shopping for the best forum.

To this point, the court found that shell companies are not entitled to the same degree of deference as other American plaintiffs seeking to assert the “home forum” defense. In this regard, the court stated: “Plaintiffs failed to address the issue at all, and certainly did not contest the characterization of RIGroup USA as a shell corporation, provide any details about its business operations to suggest that is anything other than a holding company for Bullock’s international business ventures, or offer any explanation for its defunct status.”

Bullock’s status as an American citizen didn’t help matters as she did not assert any personal injuries. All injuries asserted were based on her status as a shareholder of the allegedly injured companies, “and it is well established that shareholders and members of limited liability companies — even sole shareholders and sole members — do not have standing to sue for wrongs to the corporate entity.”

Furthermore, the court found that the plaintiffs’ initial efforts to sue in Cyprus evidenced forum shopping.

Second, the court must determine whether the defendants have proposed an adequate alternative forum choice. Under US law, alternative forums are deemed adequate if defendants are amendable to the service of process there, and if the forum permits litigation of the subject matter of the case. Such a forum will still be deemed inadequate if it features a total absence of due process or is otherwise incapable of providing substantial justice, but as a whole such findings are rare. According to relevant US case law on the matter: “[W]e have repeatedly emphasized that it is not the business of our courts to assume the responsibility for supervising the integrity of the judicial system of another sovereign nation.”

The defendants introduced evidence demonstrating their amenability to service of process in Russia and attesting to the capacity of Russia’s courts to adjudicate the subject matter of the case. An affidavit from a Moscow attorney who has been practicing law in Russia for the past three decades claimed that the case would likely be heard by a Russian commercial court.

The plaintiffs claimed that Russia would prove inadequate as a forum due to threats, corruption, and an allegedly basis criminal investigation. The court found these arguments less than compelling, owing largely to a lack of evidence.

Third, the court must balance private and public interests implicated in the selection of a forum. The court found that the following constitute the private interests in the present case: “(1) the relative ease of access to sources of proof; (2) the availability of compulsory process for attendance of unwilling witnesses; (3) the cost of obtaining attendance of willing witnesses; and (4) all other practical problems that make trial of a case easy, expeditious and inexpensive.”

The court found that considerations of the first three points weighed heavily in favor of dismissal. To the first point, practically all documentary evidence is located in Russia, and much of it is in the hands of third parties – beyond the power of the US court to compel disclosure of. With regard to compelling unwilling witnesses and facilitating willing witnesses alike, the court noted that all individuals implicated in the case besides Bullock are Russian citizens living in Russia. Accordingly, “it stands to reason that — in a case relating to conduct that took place almost entirely in Russia, involving a Russian company that invested in Russian real estate, and alleged fraud perpetrated on the Russian courts — most, if not all, of the witnesses are in Russia and speak Russian.” The US court would lack authority to compel any non-party witnesses located in Russia to testify.
Finally, the US court’s judgment may not be enforceable in Russia, as its subject matter falls within the realm of the Russian commercial courts’ exclusive jurisdiction.

Public interests considered included administrative burden, the burden of jury duty in a community with no relation to the litigation, the interest of having local disputes adjudicated locally, and the burden of applying foreign law in a US court. The court found that Russia would be the ideal forum considering all of these except the first factor – which, it explained, is of little to no significance.

Accordingly, the court dismissed Bullock’s complaint.

Bullock and her former husband became embroiled in a criminal investigation in 2010 based on embezzlement allegations. Investigators alleged that the couple had worked alongside regional officials to illegally procure regional property and funds, ultimately causing damages to the regional budget in excess of 27 billion rubles ($900 million).

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New York mogul's Russian corporate raiding case dismissed by US court

17:32 17/06/2013 The US District Court for the Southern District of New York has dismissed for forum non conveniens a claim filed by New York real estate mogul Janna Bullock against a group of Russian and Cypriot nationals and business entities based on various claims related to an alleged corporate looting conspiracy.
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