Univ. Trading & Inv. Co., Inc., et al. v. Bureau for Representing UA Int. in Int'l & Foreign Courts, et al.
Filing
63
Judge Douglas P. Woodlock: MEMORANDUM AND ORDER entered granting in part and denying in part 27 Motion to Dismiss, specifically the motion is denied as to Count Two with respect to Plaintiffs claim for reimbursement for their recovery efforts and as to Count Seven to the degree a determination of the duration of the April 30, 1999 Power of Attorney may be implicated in a resolution of Count II. (Woodlock, Douglas)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
UNIVERSAL TRADING &
)
INVESTMENT COMPANY, INC., and )
FOUNDATION HONESTY
)
INTERNATIONAL, INC.,
)
)
Plaintiffs,
)
)
v.
)
)
BUREAU FOR REPRESENTING
)
UKRAINIAN INTERESTS IN
)
INTERNATIONAL AND FOREIGN
)
COURTS; UKRAINIAN PROSECUTOR )
GENERAL’S OFFICE; UKRAINE,
)
)
Defendants.
)
Civil Action No.
10-12015-DPW
MEMORANDUM AND ORDER
September 19, 2012
This case involves the alleged failure of agencies or
instrumentalities of the Republic of Ukraine to pay for asset
recovery work performed by a private entity.
The principal issue
is whether the Foreign Sovereign Immunities Act bars the
jurisdiction of this Court to hear the matter.
I conclude that
it does not.
I.
BACKGROUND
The plaintiff Universal Trading and Investment Company, Inc.
(“UTICo”) is a Massachusetts corporation that engages in
international asset recovery operations.
Plaintiff Foundation
Honesty International, Inc. (“Foundation”) is a Massachusetts
nonprofit to which UTICo made the commitment to allocate a
substantial portion of the fees paid by the Defendants for that
work.
The defendant Ukranian Prosecutor General’s Office (“UPGO”),
the prosecutorial agency in Ukraine, engaged UTICo to recover
assets expatriated from Ukraine by United Energy Systems of
Ukraine (“UESU”), its principals, and its parent company United
Energy International, Ltd.
The defendant Bureau for Representing
Ukrainian Interests in International and Foreign Courts
(“Bureau”) is responsible for paying and supporting foreign firms
acting under contract in the interests of Ukraine.
Both UPGO and
the Bureau are agencies or instrumentalities of the Ukrainian
government.
A.
The Agreement and Performance
In 1998 UPGO contacted UTICo and the two parties agreed that
UTICo would engage in asset recovery work on behalf of Ukraine.
Ukrainian Deputy Prosecutor General Nikolai Obikhod traveled to
New York to negotiate an agreement with UTICo’s representatives.
The May 15, 1998, Agreement stated:
Taking into account information and assistance that
Universal Trading & Investment Co. is providing in regard to
the activities of United Energy Systems of Ukraine (Ukraine,
Dnepropetrovsk) and United Energy International Ltd.
(London, U.K.), as well as its principals, shareholders, and
the assets of the shareholders, the Prosecutor General’s
Office of Ukraine has agreed that Universal Trading &
Investment Co. will be attributed a commission of 12
(twelve) percent on all and any above assets to be returned
to Ukraine, in connection with the Power of Attorney of the
Prosecutor General’s Office of May 14, 1998.
The Prosecutor General’s Office of Ukraine confirms its
commitment to engage for that the appropriate State bodies
of Ukraine and to appropriately secure the permission for
the above remuneration, taking into account that that
remuneration is not payable from the State budget of Ukraine
2
but from the assets to be repatriated to Ukraine from
outside of Ukraine.
The Agreement bore the UPGO letterhead, including the Coat of
Arms of Ukraine, and the signature of B. Ferents, the Acting
Prosecutor General of Ukraine.
It was delivered to UTICo’s
office in Massachusetts.
After a new Prosecutor General, Mikhailo Potebenko, was
confirmed by the Ukrainian parliament in September, 1998, he
confirmed the May 15, 1998, Agreement in a letter dated October
2, 1998.
It stated:
With reference to our letter registered No. 12-01379-97 of
May 15 of this year and the follow-up Powers of Attorney of
August 5 and of September 23 of this year, the present
statement is to certify the previously agreed terms in
regard to the unlawful assets outside of Ukraine of the
Ukrainian citizens who illegally became the beneficiaries of
PFG United Energy Systems of Ukraine and of United Energy
International Ltd., and in regard to work on the return of
such assets to Ukraine.
The letter bore the UPGO letterhead, including the Coat of Arms
of Ukraine, and the signature of the Prosecutor General.
It was
delivered to UTICo during a trip to the United States.
In addition to these agreements, UPGO granted Powers of
Attorney to UTICo and/or the attorneys selected by UTICo to
pursue multiple different investigations and actions on its
behalf in particular jurisdictions.
For instance, UPGO executed
powers of attorney relating to work in the British Virgin
Islands, the Bahamas, Panama, and Barbados.
3
UTICo used these
powers of attorney in order to accomplish its asset recovery work
on behalf of Ukraine.
UTICo alleges that its work was instrumental in freezing
many millions of dollars worth of assets that had been
expatriated by UESU.
It provided the evidence to UPGO that
allowed UPGO to freeze $144 million of assets in the Balford
Trust and an additional unknown amount of assets in the BL Trust
maintained by Credit Suisse AG Bank in Guernsey, the Channel
Islands, in 1998.
It also provided the evidence to UPGO that
allowed UPGO to freeze over $100 million of assets held by
Eurofed Bank in Antigua, Lithuania, and Switzerland in 1999 and
2000.
UTICo additionally collected evidence in the Bahamas,
Panama, Cyprus, Nauru, Isle of Man, Jersey, St. Kitts, and the
Cayman Islands.
Based on the evidence it obtained, UPGO was able
to prosecute in Ukraine claims for stolen assets in excess of $1
billion.
Ukraine also received over $10 million in bail, fines,
and money confiscated in connection with criminal prosecutions of
individuals involved in expropriation of Ukrainian assets.
B.
Assignment of Interest and Subsequent Litigation in Federal
Court
UTICo also discovered expropriated Ukrainian assets in the
United States.
UTICo developed evidence that former Ukrainian
Prime Minister Pavlo Lazarenko and his assistant Petro
Kiritchenko had used expropriated Ukrainian assets to acquire
4
real estate in the San Francisco area.
UTICo provided the
evidence to UPGO and proposed that a civil action be initiated to
secure that real estate.
The parties arranged for UTICo to
initiate such litigation.
On April 13, 1999, the Prosecutor General issued a letter to
the United States District Court for the Northern District of
California stating that “the Prosecutor General Office of Ukraine
supports suit of UTICo to attach all realty of Petro M.
Kiritchenko on the territory of the USA, which was acquired by
him for proceeds from crime and registered on the companies
controlled by him” and that “[t]he Prosecutor General Office of
Ukraine seeks to entrust UTICo to represent its interests in the
court in order to effect further proceedings in regard of
returning to Ukraine the property exceeding the amount, awarded
for the benefit of UTICo.”
On April 30, 1999, the Prosecutor General executed a Power
of Attorney to UTICo “to organize and to implement in the USA the
legal work, seeking judgment on attaching such assets [of
Lazarenko and Kiritchenko in the United States] . . . .”
It
stated that “[i]n particular UTICo. is empowered to involve in
the necessary judicial proceedings in USA and for accomplishing
designated juridical tasks in representing Ukraine’s material
claims . . . law firms and lawyers, selected by UTICo, . . . and
to relieve those from such juridical tasks.”
5
UTICo’s counsel prepared a Complaint in the names of both
Ukraine and UTICo to secure the realty in California.
But UGPO
declined to execute the documents, explaining that the
President’s office had decided against Ukraine’s becoming a party
in litigation in the United States.
Instead, UPGO offered to
assign the claims in the United States to UTICo as compensation
for its asset recovery work conducted thus far.
On June 24, 1999, UTICo filed the action in the Northern
District of California in its own name.
On August 11, 1999,
Deputy Prosecutor General Obikhod executed the Assignment of the
claims, which stated:
Taking into consideration the work accomplished by, and the
assistance from, your company as well as the civil law suit
by UTICo in regard to the real estate property in the
USA . . . we confirm the consent that the Ukrainian side
assigns the material claims upon the real estate property
mentioned above to the firm UTICo in such amounts in which
you will be able to prove the unlawful ownership thereof in
your U.S. District Court, with the term that such amounts
will be in the future credited into the amounts ought to be
paid by the Ukraine side for your services, that is into the
12% of all funds returned to Ukraine from outside of its
borders with the assistance of UTICo, as it was stipulated
in the letters of the Prosecutor General’s Office of
Ukraine . . . .
The Assignment bore the UPGO letterhead, including the Coat of
Arms of Ukraine, and the signature of the Deputy Prosecutor
General.
It was delivered to UTICo’s office in Massachusetts.
Kiritchenko and Lazarenko challenged the Assignment in
Ukrainian courts.
Each filed an action against UPGO, designating
UTICo as a third party but failing to serve UTICo.
6
In March,
2003, a municipal judge denied Kiritchenko’s challenge based on
the expired statute of limitations but stated in dicta that the
Assignment was invalid.
In September, 2003, a municipal court judge ruled in favor
of Lazarenko, stating that UPGO had exceeded its powers in
issuing the Assignment.
UPGO appealed and obtained a reversal by
the Court of Appeals in Kiev, but in 2005 Lazarenko obtained a
decision in his favor from the same court.
In June, 2006, the
Ukrainian Supreme Court vacated and remanded on procedural
grounds.
The municipal court thereafter dismissed Lazarenko’s
claim without further substantive consideration when his
representative failed to appear in court.1
Meanwhile, the United States District Court for the District
of Northern California was also considering the validity of the
Assignment.
On September 7, 2007, Judge Chesney dismissed the
case that UTICo had filed there in 1999, finding that UTICo
lacked standing to bring the action because UPGO did not have the
authority to assign Ukraine’s claims to the property.
See
Universal Trading & Inv. Co. v. Kiritchenko, No. C-99-3073, 2007
1
While the reasoning behind the court decisions is not
detailed in the Complaint, the Complaint incorporates the
decisions by reference. The Plaintiffs have provided their
translations of these decisions in support of their Opposition to
the Defendants’ Motion to Dismiss. For the purposes of the
Motion to Dismiss, I will accept the Plaintiffs’ translations of
these and other Ukrainian language documents, such as the 1998
Agreement and confirmatory letter and the Assignment.
7
WL 2669841 (N.D. Cal. Sept. 7, 2007).
Judge Chesney examined
Ukrainian law independently of the Ukrainian court decisions and
then noted that “[t]he Ukrainian court decisions are in accord
with this Court’s finding and provide further support therefor.”
Id. at *19.
“In sum, the Court conclude[d] that [UPGO’s]
assignment to UTI[Co was] invalid under Ukrainian law, and,
accordingly, that UTI[Co] lack[ed] standing, based on such
assignment, to bring the . . . action.”
Id. at *20.
The District Court did not have in its records the Ukrainian
Supreme Court decision or the municipal court decision that
followed on remand when it granted summary judgment in the
California case.
UTICo was unaware of these decisions and could
not obtain them because Ukrainian court records are unavailable
to non-parties; UPGO had failed to advise UTICo about the
decisions and had not sent UTICo copies.
After Judge Chesney
issued her decision, UTICo contacted UPGO and urged it to take
emergency measures so that UTICo could show that the Assignment
was valid.
However, UPGO did not release the decisions to UTICo
until March, 2008.
UPGO did nothing else to support the validity
of the Assignment in the District Court. UTICo asserts that this
inaction was due the political influence exercised by former
Prime Minister Yulia Tymoshenko, who had an interest in UESU.
Upon receiving the decisions, UPGO sought to file a motion
pursuant to Federal Rule of Civil Procedure 60(b) based on the
8
Ukrainian decisions.
The motion was denied.
Judge Chesney noted
that “the Ukrainian Supreme Court’s reversal and remand in
Lazarenko’s Ukrainian case was based on procedural deficiencies
and did not purport to find the assignment valid . . . and, on
remand, Lazarenko’s case was dismissed without prejudice as a
result of his counsel’s failure to appear.”
Universal Trading &
Inv. Co. v. Kiritchenko, No. C-99-3073, 2008 WL 2445073, at *2
(N.D. Cal. June 16, 2008).
She also emphasized that “as the
Summary Judgment Order makes clear, this Court reached it[]s
decision by an analysis that did not depend upon the Ukrainian
court decisions submitted by the parties.”
Id.
“Consequently,”
she concluded, “plaintiff has failed to show any failure to
disclose those decisions affected, in any manner, this Court’s
determination of the issues addressed in the Summary Judgment
Order . . . .”
Id.
UTICo appealed to the Ninth Circuit.
In affirming the
District Court’s decision, the Ninth Circuit stated:
The district court did not err in concluding the assignment
was invalid under Ukrainian law. The purported assignment
of claims by Ukraine was a sham created only to overcome
defendants’ initial challenge to UTI[Co]’s standing. Even
were it not, UTI[Co] failed to prove the assignment was
valid under Ukrainian law. UTI[Co] failed to prove a deputy
prosecutor general had the authority to assign the rights of
the Ukrainian government against Kiritchenko and Lazarenko
to UTI[Co].
Universal Trading & Inv. Co., Inc. v. Kiritchenko, 346 F.App’x
232, 232 (9th Cir. 2009).
9
UTICo then submitted a petition for certiorari to the
Supreme Court of the United States.
Although UTICo requested
UPGO to intervene before the Supreme Court with an amicus brief,
UPGO did not do so.
UPGO advised UTICo that the Bureau was
better suited to submit such a brief.
Ultimately, the Ukranian
Minister of Justice wrote a letter to the Supreme Court, but did
not issue it until June 24, 2010, the date of the Conference
during which the petition was considered.
denied certiorari.
The Supreme Court
See Universal Trading & Inv. Co., Inc. v.
Kiritchenko, 130 S. Ct. 3504, 3504 (2010).
C.
The Instant Litigation
On November 26, 2010, the Plaintiffs filed the instant
action, suing the Defendants under seven separate counts.
In Count One, the Plaintiffs allege that the Defendants
breached the Assignment by failing to support its validity under
Ukrainian law.
In Count Two, the Plaintiffs allege that the Defendants
breached the 1998 Agreements by failing to pay UTICo in an amount
equal to twelve percent of the assets frozen outside of Ukraine.
In Count Three, the Plaintiffs allege that the Defendants
were unjustly enriched by UTICo’s asset recovery services.
In Count Four, the Plaintiffs allege that the Defendants
breached the fiduciary duty they owed to UTICo by failing to
disclose the Ukrainian Supreme Court decision or the subsequent
10
municipal court decision in a timely manner and by failing to
assist UTICo by submitting an amicus brief to the U.S. Supreme
Court in 2010.
In Count Five, the Plaintiffs allege that the Defendants are
liable for misrepresentation for their failure to timely inform
UTICo of the Ukrainian court decisions.
In Count Six, the Plaintiffs allege that the Defendants were
negligent in their failure to timely transfer to UTICo the
Ukrainian court decisions.
Finally, in Count Seven, the Plaintiffs request declaratory
judgment that (1) UTICo is not subject to Ukrainian jurisdiction
and no Ukrainian court decisions concerning it will be recognized
in Massachusetts; and (2) the April 30, 1999, Power of Attorney
was in force until at least the denial of UTICo’s petition to the
Supreme Court for a writ of certiori.
In the motion to dismiss before me, the Defendants argue
that they are immune from suit because they are a foreign
sovereign and its divisions; that venue in Massachusetts is
improper; and that in each Count of the Complaint the Plaintiffs
have failed to state a claim upon which relief can be granted.
In addition, they contend the Foundation should be dismissed from
the case because it does not have standing to bring the action.
I will address the Defendants’ claims of sovereign immunity first
as a threshold matter.
11
II.
FOREIGN SOVEREIGN IMMUNITY
Jurisdiction over this case turns on the Foreign Sovereign
Immunities Act (“FSIA”).
“The Foreign Sovereign Immunities Act
provides the sole basis for obtaining jurisdiction over a foreign
state in the courts of this country.”
Saudi Arabia v. Nelson,
507 U.S. 349, 355 (1993) (internal quotation omitted).
“[I]f
none of the exceptions to sovereign immunity set forth in the Act
applies, the District Court lacks both statutory subject matter
jurisdiction and personal jurisdiction.”
Verlinden B.V. v. Cent.
Bank of Nigeria, 461 U.S. 480, 485 n.5 (1983).
A.
Burden of Proof
While the First Circuit has not directly addressed the
burdens of the parties with respect to a FSIA action, almost
every other circuit has done so.
The Second Circuit has stated
that “the defendant must present a prima facie case that it is a
foreign sovereign”; the plaintiffs then have the “burden of
production” of offering “evidence showing that, under exceptions
to the FSIA, immunity should not be granted”; and finally, “the
ultimate burden of persuasion remains with the alleged foreign
sovereign” to show that none of the pertinent exceptions applies.
Virtual Countries, Inc. v. Republic of S. Africa, 300 F.3d 230,
241 (2d Cir. 2002) (emphases in original, internal citations
omitted).
The Third, Fourth, Fifth, Sixth, Seventh, Ninth,
Tenth, Eleventh, and D.C. Circuits have established the same
12
burden-shifting framework.
See Peterson v. Islamic Republic of
Iran, 627 F.3d 1117, 1124-25 (9th Cir. 2010); Butler v. Sukhoi
Co., 579 F.3d 1307, 1312-13 (11th Cir. 2009); O’Bryan v. Holy
See, 556 F.3d 361, 376 (6th Cir. 2009); FG Hemisphere Associates,
LLC v. Democratic Republic of Congo, 447 F.3d 835, 842 (D.C. Cir.
2006); Enahoro v. Abubakar, 408 F.3d 877, 882 (7th Cir. 2005);
Velasco v. Government of Indonesia, 370 F.3d 392, 397 (4th Cir.
2004); Southway v. Central Bank of Nigeria, 328 F.3d 1267, 1271
(10th Cir. 2003); Federal Ins. Co. v. Richard I. Rubin & Co.,
Inc., 12 F.3d 1270, 1285 (3rd Cir. 1993); Stena Rederi AB v.
Comision de Contratos del Comite Ejecutivo General del Sindicato
Revolucionario de Trabajadad, 923 F.2d 380, 390 n.14 (5th Cir.
1991).
I will adopt this burden-shifting protocol.
And in this
connection, I reject attempts by both the Plaintiffs2 and the
2
The Plaintiffs contend that the Defendants cannot raise
their objections to the applicability of two FSIA exceptions--the
expropriation exception and the immovable property exception--for
the first time in their Reply Brief to the Plaintiffs’ Opposition
to the Defendants’ Motion to Dismiss. However, the Plaintiffs
themselves for their part first addressed those two exceptions in
their own Opposition. Under the burden shifting framework, the
Defendants are not obligated to address an exception until the
Plaintiffs have met their burden of production with respect to
that exception. The Defendants did not “waive” these arguments,
as the Plaintiffs contend, before the Plaintiffs had even raised
the exceptions or put them at issue. The Fifth Circuit has
expressly rejected this argument, stating that “[t]he party
seeking immunity has no obligation to affirmatively eliminate all
possible exceptions to sovereign immunity.” Stena Rederi AB, 923
F.2d at 390 n.14. I agree and will not disregard the Defendants’
briefing.
13
Defendants3 to exclude certain argument and evidence offered by
the opposing parties relating to sovereign immunity.
The parties do not dispute that the Defendants are
instrumentalities of a foreign state within the scope of the
FSIA.
Consequently, I turn directly to the four exceptions to
the FSIA at issue: waiver, expropriation, immovable property, and
commercial activity.4
While I find only the commercial activity
3
The Defendants contend that the Plaintiffs cannot raise
particular exceptions and offer facts in support of those
exceptions for the first time in their Opposition to the
Defendants’ Motion to Dismiss. The Defendants cite Westfield v.
Federal Republic of Germany, 633 F.3d 409, 413 (6th Cir. 2011)
and Swarna v. Al-Awadi, 622 F.3d 123, 144 (2d Cir. 2010) in
support of the proposition that the Plaintiffs had the burden to
plead exceptions to immunity under the FSIA. However, those
decisions address the Plaintiffs’ burden of production in
offering evidence regarding the statutorily defined exceptions.
Neither mentions nor establishes a pleading requirement that any
applicable exceptions must be alleged in the complaint. Nor
would such a requirement make sense in the burden-shifting
framework; the plaintiff’s burden of production arises only after
the defendant has presented a prima facie case that it is a
foreign sovereign.
The Defendants also rely on Miller v. Suffolk County House
of Correction, Civ. A. 01-11331-DPW, 2002 WL 31194866 (D. Mass.
Sept. 27, 2002), a case addressing motions to dismiss pursuant to
Federal Rule of Civil Procedure 12(b)(6), in support of their
contention that new factual allegations may not be made for the
first time in an Opposition to a Motion to Dismiss. The
Defendants’ challenge under the FSIA, unlike the challenge
brought in Miller, is made pursuant to Federal Rule of Civil
Procedure 12(b)(1) and (2). The First Circuit has held that
“[w]hile the court generally may not consider materials outside
the pleadings on a Rule 12(b)(6) motion, it may consider such
materials on a Rule 12(b)(1) motion . . . .” Gonzalez v. United
States, 284 F.3d 281, 288 (1st Cir. 2002). Especially in light
of the burden-shifting framework under the FSIA, consideration of
such materials is appropriate here.
4
While the Defendants also address the noncommercial tort
exception in their Motion to Dismiss, the Plaintiffs do not
14
exception applicable, I discuss the other inapplicable exceptions
first to put the scope of the FSIA in full context.
B.
Waiver
Under the FSIA, a foreign sovereign is not immune from the
jurisdiction of United States courts in any case “in which the
foreign state has waived its immunity either explicitly or by
implication . . . .”
28 U.S.C. § 1605(a)(1).
The Plaintiffs
contend that the Defendants waived their immunity when they
executed the 1998 Agreement, the Powers of Attorney, and the
Assignment.
The Plaintiffs fail to carry their burden of
production: the documents do not establish either an express or
implicit waiver under the FSIA.
Nothing in any of the cited documents expressly waives
Ukraine’s sovereign immunity.
is quite stringent.
“The standard for finding a waiver
A waiver must be ‘unequivocally expressed’
and ‘must be strictly construed in favor of the sovereign,’ with
ambiguities construed against waiver.”
In re Rivera Torres, 432
F.3d 20, 23-24 (1st Cir. 2005) (internal citations omitted).
“A
foreign sovereign will not be found to have waived its immunity
unless it has clearly and unambiguously done so.”
World Wide
Minerals, Ltd. v. Republic of Kazakhstan, 296 F.3d 1154, 1161-62
challenge the Defendants’ assertion that this exception does not
apply. The Plaintiffs do not carry--or even assert their
intention to carry--the burden of production in demonstrating
that the claims of their complaint are based on a noncommercial
tort.
15
(D.C. Cir. 2002).
See also Estates of Ungar and Ungar ex rel.
Strachman v. Palestinian Authority, 325 F.Supp.2d 15, 26-27
(D.R.I. 2004) (“An express waiver under the FSIA must give a
clear, complete, unambiguous, and unmistakeable manifestation of
the sovereign’s intent to waive its immunity.”).
Here, the Plaintiffs do not, and cannot, point to any
particular language in any of the documents that they offer that
explicitly waives Ukraine’s sovereign immunity.
There is no
language that might even arguably be construed to waive immunity.
While the Plaintiffs contend that the Power of Attorney allowing
UTICo to attach the real property in the United States
constitutes an express waiver, there is no language in that
document relating to waiver of immunity.
Nor do the Plaintiffs
point to any particular language in any other document.
The Plaintiffs’ contention that implied waiver applies here
is equally unsuccessful.
The Plaintiffs argue that the powers of
attorney and the agency relationship that they created implied
that Ukraine had waived its sovereign immunity.
They do not cite
any case, nor am I aware of any, that supports the proposition
that an agency relationship or even a fiduciary relationship
vitiates sovereign immunity pursuant to the waiver exception.
The case that the Plaintiffs do cite, Maritime Ventures
International, Inc. v. Caribbean Trading & Fidelity, Ltd., 722 F.
Supp. 1032 (S.D.N.Y. 1999), is inapposite.
It relates to whether
a private agent, as opposed to an agent protected by sovereign
16
immunity, may waive sovereign immunity on behalf of a government.
It does not address whether a government impliedly waives its
immunity merely by contracting with a private agent for the
purposes of suits brought by that private agent.
By contrast to the Plaintiffs’ expansive view of implied
waiver, “[f]ederal courts have been virtually unanimous in
holding that the implied waiver provision of Section 1605(a)(1)
must be construed narrowly.”
Shapiro v. Republic of Bolivia, 930
F.2d 1013, 1017 (2d. Cir. 1991).
Courts have found implied
waiver in the three sets of circumstances mentioned in the
legislative history--where a foreign state has filed a responsive
pleading without raising the defense of sovereign immunity, where
the foreign state has agreed to arbitrate in another country, and
where the foreign state has agreed that the law of another
country should govern the contract--but “courts have been
reluctant to stray beyond these examples when considering claims
that a nation has implicitly waived its defense of sovereign
immunity.”
World Wide Minerals, 296 F.3d at 1161 n.11.
Nothing
about the facts of this case justifies overcoming that reluctance
to find implied waiver here and I decline to do so.
C.
Expropriation
The Plaintiffs contend that the Defendants fall under the
“expropriation exception” to foreign sovereign immunity.
Under
the FSIA, a foreign sovereign is not immune from suit in any case
17
in which rights in property taken in violation of
international law are in issue and that property or any
property exchanged for such property is present in the
United States in connection with a commercial activity
carried on in the United States by the foreign state; or
that property or any property exchanged for such property is
owned or operated by an agency or instrumentality of the
foreign state and that agency or instrumentality is engaged
in a commercial activity in the United States . . . .
28 U.S.C. § 1605(a)(3).
The Plaintiffs contend that “[t]he
invalidation by the Bureau of the Assignment . . . represented a
taking and expropriation, falling within the ‘expropriation
exception.’
Instead of the lawful remuneration of UTICo, the
Bureau gave the attached realty properties back to the Ukrainian
fugitives Lazarenko and Kiritchenko . . . .”
The Defendants contend that the expropriation exception does
not apply because the Plaintiffs never possessed the California
realty such that it could be taken by the Defendants.
The
Assignment, it is true, did not transfer the underlying property
itself but instead transferred a chose in action.
The First
Circuit has not yet determined whether a chose in action--or any
other intangible property--can constitute a property right under
the expropriation exception to the FSIA.
The Southern District of New York and the D.C. Circuit have
reached contrary conclusions regarding whether “property” under
the expropriation exception must be tangible or can be intangible
as well.
Compare Canadian Overseas Ores Ltd. v. Compania de
Acero Del Pacifico S.A., 528 F. Supp. 1337, 1346-47 (S.D.N.Y.
1982) (holding that the expropriation exception applies only to
18
tangible property), and Friedar v. Gov’t of Israel, 614 F. Supp.
395, 399 (S.D.N.Y. 1985), with Nemariam v. Fed. Democratic
Republic of Ethiopia, 491 F.3d 470, 479-80 (D.C. Cir. 2007)
(holding that the expropriation exception applies to intangible
property as well).
I need not determine which of these positions
is the more persuasive, because the expropriation exception is
inapplicable here for another, more basic reason.
The Plaintiffs have not alleged facts that support the
proposition that the Defendants “took” the chose in action from
UTICo.
Even if one were to accept the Plaintiffs’ allegations
that the Ukrainian municipal court decisions were tainted by
fraud in which the Defendants were involved, that the Defendants
failed to inform UTICo about the Ukrainian Supreme Court decision
and the subsequent municipal court dismissal, that the Defendants
failed to provide UTICo with copies of those decisions in a
timely manner, and that the Defendants failed otherwise to
support the validity of the Assignment in the United States
litigation, these facts nonetheless would not demonstrate that
the Defendants “took” the chose in action.
The disposition of
Universal Trading & Investment Co. v. Kiritchenko made this
clear.
The decision rendered by the United States District Court
for the Northern District of California ruling that UTICo did not
have standing to bring the action was based upon an independent
determination of Ukrainian law and did not rely on the Ukrainian
19
municipal court decisions.
Judge Chesney stated so explicitly in
her June 16, 2008, opinion.
She noted that UTICo failed to show
that receipt of the later Ukrainian court decisions into the
record in a timely fashion would have made any difference
whatsoever.
Kiritchenko, No. C-99-3073, 2008 WL 2445073, at *2.
The Ninth Circuit agreed that “UTI[Co] failed to prove the
assignment was valid under Ukrainian law.”
Universal Trading &
Inv. Co., Inc. v. Kiritchenko, 346 F.App’x 232, 232 (9th Cir.
2009).
I must apply collateral estoppel effect to that judgment
in this case and find the plaintiffs barred form contending
otherwise.
UTICo was unable to maintain its suit against Lazarenko and
Kiritchenko because United States courts have definitively ruled
that the Assignment was invalid under Ukrainian law, not because
of the actions of the Defendants.
The opinions in the
Kiritchenko litigation establish that the Ukrainian court
decisions (and the failure to submit the later court decisions
until dismissal had been granted) were not determinative.
UTICo
has therefore failed to carry its burden of production of
presenting evidence that the Defendants “took” any rights in
property belonging to UTICo or that the expropriation exception
applies.
D.
Immovable Property
The Plaintiffs contend that the Defendants fall under the
“immovable property exception” to foreign sovereign immunity.
20
Under the FSIA, a foreign sovereign is not immune from suit in
any case “in which rights in property in the United States
acquired by succession or gift or rights in immovable property
situated in the United States are in issue . . . .”
§ 1605(a)(4).
28 U.S.C.
The Plaintiffs contend that the immovable property
exception applies here because “[t]he important component of
UTICo’s claims in the case UTICo v. Kiritchenko et al., that
included Lazarenko and their privies and companies, was the claim
to the real properties.”
This contention fails because no rights in property are at
issue in the instant case.
Rights in property were at issue in
the case being litigated in the U.S. District Court for the
Northern District of California.
The Plaintiffs fail to
recognize that while their contentions regarding the issues in
this case relate to the course of that litigation, the cases are
nonetheless distinct.
Indeed, the judgment in that litigation
would appear to bar the Plaintiffs from pursuing that contention
in this case.
In any event, the Plaintiffs have not sued the
Defendants for rights in the properties in California or for
rights in any other immovable property in the United States.
The
Plaintiffs have requested relief for the breach of contract claim
related to the Assignment in the form of the money equivalent of
the chose in action that was unsuccessfully assigned.
Money
alone is not a right in immovable property in the United States.
21
The Plaintiffs cite Permanent Mission of India to the United
Nations v. City of New York, 551 U.S. 193 (2007), in support of
the applicability of the immovable property exception to the
instant case.
In Permanent Mission of India, the Supreme Court
held that Ҥ 1605(a)(4) does not expressly limit itself to cases
in which the specific right at issue is title, ownership, or
possession.”
Permanent Mission of India, 551 U.S. at 197-99.
Noting that a lien is an encumbrance on the land, and that “[a]
lien on real property runs with the land and is enforceable
against subsequent purchasers,” the Court held that “an action
seeking a declaration of the validity of a tax lien places
‘rights in immovable property . . . in issue.’” Id. at 198.
Here, by contrast, a monetary judgment calculated on the worth of
particular real properties does not have any effect on the land,
its current owners, or its future purchasers.
Plaintiffs’ suit
may be related--in some general sense--to real estate in the
United States, but it does not put rights in that real estate at
issue and does not fall under the immovable property exception to
foreign sovereign immunity.
E.
Commercial Activity
Plaintiffs’ only prospect for success is the commercial
activity exception.
Under the FSIA, a foreign sovereign is not
immune from suit in any case
in which the action is based upon a commercial activity
carried on in the United States by the foreign state; or
upon an act performed in the United States in connection
22
with a commercial activity carried on in the United States
by the foreign state elsewhere; or upon an act outside the
territory of the United States in connection with a
commercial activity of the foreign state elsewhere and that
act causes a direct effect in the United States . . . .
28 U.S.C. § 1605(a)(2).
The parties’ dispute addresses whether
the action is based on “a commercial activity.”
The Plaintiffs
contend that the series of agreements and powers of attorney
executed by UPGO, as well as the work conducted in service of
these agreements by UTICo and the attorneys that it hired,
constitute commercial activity on which the instant litigation is
based.
Whether an action is based upon a commercial activity is
often a difficult question.
The FSIA defines “commercial
activity” as
either a regular course of commercial conduct or a
particular commercial transaction or act. The commercial
character of an activity shall be determined by reference to
the nature of the course of conduct or particular
transaction or act, rather than by reference to its purpose.
28 U.S.C. § 1603(d).
“The problem, as the drafters of the FSIA
themselves admitted, is that the statute is vaguely worded and
offers little guidance to courts construing its terms.”
Transamerican S.S. Corp. v. Somali Democratic Republic, 767 F.2d
998, 1002 (D.C. Cir. 1985).
The Supreme Court has provided some direction regarding the
statute’s application, stating:
[T]he question is not whether the foreign government is
acting with a profit motive or instead with the aim of
fulfilling uniquely sovereign objectives. Rather, the issue
23
is whether the particular actions that the foreign state
performs (whatever the motive behind them) are the type of
actions by which a private party engages in “trade and
traffic or commerce.”
Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614
(1992).
However, even that guidance is not dispositive of most
cases; the Court has acknowledged “the difficulty of
distinguishing ‘‘purpose’ (i.e., the reason why the foreign state
engages in the activity) from ‘nature’ (i.e., the outward form of
the conduct that the foreign state performs or agrees to
perform),’” while “recogniz[ing] that the Act ‘unmistakably
commands’ us to observe the distinction” nonetheless.
Saudi
Arabia v. Nelson, 507 U.S. 349, 361 (1993).
The Defendants contend that the nature of the conduct at
issue here is governmental.
They argue that the conduct is
similar in all relevant ways to the conduct at issue in In re
Estate of Ferdinand Marcos Human Rights Litigation, 94 F.3d 539,
546 (9th Cir. 1996).
In Marcos, the “appeals concern[ed] whether
a United States court properly enjoined the Republic of the
Philippines from entering into agreements with the Estate of
former Philippine President Ferdinand Marcos to transfer to the
Philippines assets of the Estate that the Republic assert[ed]
were looted from the Philippines treasury.”
541.
Marcos, 94 F.3d at
The Ninth Circuit held that such agreements and transfers
did not constitute commercial activity.
It stated:
[The Plaintiff] argues that the Republic is attempting to
recover indebtedness, while the Republic describes itself as
24
pursuing misappropriated public assets. The Republic’s
description is more accurate, in that a governmental agency
of the Philippines is acting under statutory mandate to
recover property allegedly stolen from the treasury. This
exercise of police power is a governmental rather than
commercial activity, and, thus, the commercial-activity
exception does not apply.
Id. at 546.
The Defendants argue that, like the Philippines in
Marcos, Ukraine in the instant case was pursuing misappropriated
public assets instead of engaging in commercial activity under
the FSIA.
The facts in the instant case differ in an important way
from Marcos.
Ukraine was not collecting its expatriated assets
solely by means of its own employees and agencies, as the
Philippines did in Marcos.
Instead, Ukraine hired an outside
agent--UTICo--to engage in asset recovery on its behalf.
It is
the contract between those two parties, and not the asset
recovery itself, that is at issue in this case.
The contract between Ukraine and UTICo is not inherently
governmental and does not address services that could be rendered
to or provided by only a governmental entity.
UTICo’s website,
referenced in the Complaint, describes many types of private
clients that hire UTICo to recover misappropriated assets.
Similarly, the affidavit submitted by W. Scott Thompson, Chairman
of the Board of UTICo, states that UTICo’s asset recovery clients
have included “banks, corporations, [and] private individuals” as
well as “foreign government entities.”
The Defendants have not
attempted to distinguish between the services that UTICo provided
25
to Ukraine and the services that it regularly provides to private
clients.
So, even assuming that the Ninth Circuit was correct in
holding that an asset recovery operation conducted by a
government is not a commercial activity, Ukraine’s entrance into
the market and its hiring of a private entity to recover assets
on its behalf was a commercial act.
The Eleventh Circuit
addressed a similar situation in Honduras Aircraft Registry, Ltd.
v. Government of Honduras, 129 F.3d 543 (11th Cir. 1997), in
which the government of Honduras hired a private company to set
up an aircraft registry.
The Eleventh Circuit stated:
Only Honduras could actually admit aircraft to its
registry--that is a part of sovereignty upon which others
may not encroach. But this case involves more than the
exercise of that sovereign right. Apparently Honduras did
not have the resources or the technical expertise to conduct
its own aircraft inspections or to set up a registry . . . .
Honduras therefore ventured into the marketplace to find the
expertise and resources needed to accomplish those tasks.
All of those underlying activities were commercial in nature
and of the type negotiable among private parties. After
receiving the plaintiff companies’ proposal, Honduras . . .
contracted with the plaintiffs for certain goods, services,
and other economic assistance to support its new civil air
program . . . . Honduras could have stayed out of the
marketplace by keeping this project all under the
sovereignty umbrella. It could have explored the
possibility of hiring plaintiffs and plaintiffs’ personnel
as government employees. Instead, however, Honduras
exercised its business judgment and contracted in the
marketplace with non-government companies to do and supply
what it needed.
Id. at 547.
The Eleventh Circuit concluded that when Honduras
hired a private company for assistance in its governmental
actions, it engaged in commercial activity.
26
Id.
Similarly, in Guevara v. Republic of Peru, 468 F.3d 1289
(11th Cir. 2006), the Eleventh Circuit held that making a
contractual offer of reward for information leading to the
capture of a fugitive constitutes commercial activity.
While
“[t]he location and capture of a fugitive by law enforcement
officials of a country may be a sovereign act,” Guevara, 468 F.3d
at 1298, the courts held contracting to pay for information is
not.
“The underlying activity at issue--the exchange of money
for information--is ‘commercial in nature and of the type
negotiable among private parties.’”
citation omitted).
Id. at 1299 (internal
The Eleventh Circuit stated that “Peru’s
attempt to lower the level of generality from a contract for the
sale of information down to one of reward for information leading
to the capture of a fugitive focuses on the purpose instead of
the nature of the transaction.”
Id. at 1302.
Here, Ukraine, like the government of the Phillipines,
could have conducted its own asset recovery program.
Instead,
like the governments of Honduras and Peru, it chose to enter the
marketplace, and contracted with UTICo in the same manner that a
private company seeking to recover misappropriated assets would.
The underlying activity at issue--the exchange of money for
assistance in recovering misappropriated assets on an
international scale--is the type negotiated among private
parties; it is, in fact, the basis of UTICo’s business, which
serves private as well as public clients.
27
Ukraine’s attempt to
lower the level of generality from a contract for the sale of
asset recovery services to a contract for the sale of services to
recover public assets impermissibly focuses on the purpose rather
than the nature of the transaction.
See also NML Capital, Ltd.
v. Republic of Argentina, 680 F.3d 254, 259 (2d Cir. 2012)
(holding “governmental purpose of the commercial activity does
not immunize” activity from commercial activity exception to
FSIA).
The legislative history of the FSIA, as recounted in the
Reporters’ Notes in the Restatement (Third) of Foreign Relations
Law, supports the Eleventh Circuit case law and its applicability
to the instant case.
[T]he State Department’s Legal Adviser and the Department of
Justice . . . told the House Committee:
[U]nder the restrictive theory of immunity, if a
government enters into a contract to purchase goods and
services, that is considered a commercial activity. It
avails itself of the ordinary contract machinery. It
bargains and negotiates. It accepts an offer. It
enters into a written contract and the contract is to
be performed. So it is not all that important whether
the entity is a commercial entity that enters into the
contract, but what is of importance is that you conduct
activities in the same manner as ordinary trading
activities.
Jurisdiction of the U.S. Courts in Suits against Foreign
States, Hearings on H.R. 11315 Before the Subcomm. On
Administrative Law and Governmental Relations, 94th Cong.,
2d sess., p. 51 (1976) (remarks of B. Ristau).
Restatement (Third) of Foreign Relations Law § 453 (1987),
Reporters’ Notes.
Here, Ukraine purchased UTICo’s services after
bargaining, negotiating, and entering into a written contract.
Ukraine may not now claim immunity from UTICo’s suit after
28
engaging in these commercial activities with UTICo in the United
States.
While the First Circuit has not ruled on precisely this
issue, there is reason to believe that it will be in accord.
In
Fagot Rodriguez v. Republic of Costa Rica, 297 F.3d 1 (1st Cir.
2002), the First Circuit held that “entering into a contract for
lease of property constitutes ‘commercial activity.’” Id. at 6.
In support of this holding the First Circuit cited cases from the
Fifth and Seventh Circuits.
It characterized Walter Fuller
Aircraft Sales, Inc. v. Rep. of the Philippines, 965 F.3d 1375
(5th Cir. 1992), as “noting the commercial nature of the making
or breaching of a contract” and Rush-Presbyterian-St. Luke’s
Medical Center v. Hellenic Republic, 877 F.2d 574 (7th Cir.
1989), as “noting that contracts for the purchase or sale of
goods or services are presumptively ‘commercial activities.’”
The First Circuit approved of the holdings as thus characterized
and relied on them for its own holding.
My determination that
the commercial exception is applicable here moves in the
direction that the First Circuit identified in Fagot Rodriguez.
I hold that Ukraine’s contract with UTICo for the purchase of
services was a commercial activity and that this action is
therefore subject to the commercial activity exception of the
FSIA.
29
III.
VENUE
The Defendants also move pursuant to Federal Rule of Civil
Procedure 12(b)(3) to dismiss the Plaintiffs’ claims on venue
grounds.
“When an objection to venue has been raised, the burden
is on the plaintiff to establish that venue is proper in the
judicial district in which the action has been brought.”
Transamerica Corp. v. Trans-Am. Leasing Corp., 670 F. Supp. 1089,
1090 (D. Mass. 1987).
“In ruling on a motion filed under Rule
12(b)(3), all well-pleaded allegations in the complaint bearing
on the venue question generally are taken as true, unless
contradicted by the defendant’s affidavits.
A district court may
examine facts outside the complaint to determine whether its
venue is proper.”
Turnley v. Banc of Am. Inv. Services, Inc.,
576 F. Supp. 2d 204, 211 (D. Mass. 2008) (internal citation
omitted).
Venue with respect to civil actions against foreign states
is governed by 28 U.S.C. § 1391(f).
This provision states, in
relevant part:
A civil action against a foreign state . . . may be brought:
(1) in any judicial district in which a substantial part of
the events or omissions giving rise to the claim occurred,
or a substantial part of property that is the subject of the
action is situated; . . . . or
(4) in the United States District Court for the District of
Columbia if the action is brought against a foreign state or
a political subdivision thereof.
28 U.S.C. § 1391(f).
The Defendants contend that no substantial
part of the events or omissions giving rise to the claim occurred
30
in Massachusetts and that the Plaintiffs therefore chose an
improper venue.
Instead of transfer to the U.S. District Court
for the District of Columbia, they request dismissal of the case
pursuant to 28 U.S.C. § 1406.
In evaluating whether a “substantial part of the events or
omissions giving rise to the claim” occurred in a given district,
“courts have recognized that particular attention should be paid
to those core aspects of any contract dispute, including where
the contract was negotiated or executed, where it was to be
performed, and where the alleged breach occurred.”
Wye Oak
Tech., Inc. v. Republic of Iraq, No. 1:09CV793, 2010 WL 2613323,
at *10 (E.D. Va. June 29, 2010), aff’d, 666 F.3d 205 (4th Cir.
2011).
Here, W. Scott Thompson, Chairman of UTICo’s Board,
submitted an affidavit stating that over ninety percent of the
contract performance occurred in Massachusetts.
It is apparent
from the Powers of Attorney that the vast majority of the
attorneys hired to work on Ukraine’s behalf by UTICo were
licensed in Massachusetts and worked at Massachusetts firms.
The
Defendants present no countervailing evidence.
The Defendants contend that even assuming the contract
performance occurred in the judicial district of Massachusetts,
it was not UTICo’s performance that gave rise to its claims.
disagree.
I
UTICo’s performance is a significant component of the
contract claims and constitutes an event giving rise to the
claims.
See Tonoga, Ltd. v. Ministry of Pub. Works & Hous. Of
31
Kingdom of Saudi Arabia, 135 F. Supp. 2d 350, 356-59 (N.D.N.Y.
2001) (finding venue in the Northern District of New York where a
substantial portion of the contract was performed there).
The
Defendants cite no case law, and I am aware of none, that limits
“events . . . giving rise to the claim” to the precise location
of the breach alone.
Here, a substantial part of the events
occurred in Massachusetts.5
IV.
FAILURE TO STATE A CLAIM
The Defendants also move to dismiss each Count of the
Complaint, as well as the Foundation, pursuant to Federal Rule of
Civil Procedure 12(b)(6) for failure to state a claim upon which
relief can be granted.
A.
Standard of Review
To survive a motion to dismiss for failure to state a claim
upon which relief can be granted, “a complaint must contain
sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.”
Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (internal citation omitted).
All well-
pleaded factual allegations in the complaint must be taken as
true and all reasonable inferences must be drawn in the pleader's
5
Neither party specifically addresses the proper venue in
the context of the tort claims in the Complaint. On this record
where it appears the injury was felt in Massachusetts, where the
tort claims are intertwined with contract claims and the contract
performance took place in Massachusetts, and where the issue has
not been briefed with particularity, I will not dismiss or
transfer the case on the basis of the tort claims.
32
favor. SEC v. Tambone, 597 F.3d 436, 441 (1st Cir. 2010) (en
banc).
Unless the alleged facts push a claim “across the line
from conceivable to plausible,” the complaint is subject to
dismissal.
B.
Iqbal, 556 U.S. at 680.
Choice of Law
The Plaintiffs’ Complaint presents six different common law
claims as well as a request for declaratory judgment.
Given the
international nature of both the parties and the events
underlying the Complaint, this case potentially raises difficult
if perhaps interesting choice-of-law issues.
However, the
parties, without engaging in a choice-of-law analysis, appear to
have been content to apply Massachusetts common law to both
contract and tort claims in their briefing.
“Because the parties
agree that Massachusetts law governs this dispute, and because
there is at least a ‘reasonable relation’ between the dispute and
the forum whose law has been selected by the parties, [I] will
forego an independent analysis of the choice-of-law issue and
apply Massachusetts law.”
Merchants Ins. Co. of New Hampshire,
Inc. v. U.S. Fidelity and Guar. Co., 143 F.3d 5, 8 (1st Cir.
1998).
C.
Substantive Claims
1.
Breach of Contract (Assignment)
In Count One, the Plaintiffs allege that the Defendants
breached the Assignment by failing to support its validity under
33
Ukrainian law.
The claim appears to be based on two allegations:
(1) the Defendants did not support, and perhaps undermined, the
validity of the Assignment in the Ukrainian courts; and (2) the
Defendants did not support UTICo’s litigation in the United
States District Court for the District of Northern California by
failing to apprise UTICo of the Ukrainian court decisions in a
timely manner and by failing to draft briefs in support of UTICo
on appeal.
The Plaintiffs, however, have not shown that the Ukrainian
court decisions caused their injury.
The decisions in the United
States courts, and not the Ukrainian courts, denied UTICo the
right to proceed based on the Assignment.
The opinions from the
United States courts did not rely on the decisions from the
Ukrainian courts.
See supra Part II.C.
To the extent that Count
One is based on the Defendants’ alleged misdeeds in
relation to the Ukrainian court decisions, it must be dismissed
because of the lack of causation.
To the extent that Count One is based on the Defendants’
failure to support the validity of the Assignment in the United
States courts, it fares no better.
Most fundamentally, the
collateral estoppel effect of the Kiritchenko litigation in the
Northern District of California would appear to bar the claim.
I
may not entertain the claim because (1) the issue of the validity
of the Assignment was involved in that action; (2) the issue was
actually litigated; (3) the issue was determined by a valid and
34
binding final judgment; and (4) the determination of the issue
was essential to the judgment.
See Ramallo Bros. Printing, Inc.
v. El Dia, Inc., 490 F.3d 86, 90 (1st Cir. 2007) (listing the
elements of collateral estoppel).
In any event, even if the claim is not estopped, no clause
in the Assignment obligates the Defendants to support its
validity in court.
The Plaintiffs contend that the Assignment
incorporated by reference the May 15, 1998, Agreement, which
stated that “the Prosecutor General’s Office of Ukraine confirms
its commitment to engage for that the appropriate State bodies of
Ukraine and to appropriately secure the permission for the above
remuneration.”
However, that clause does not obligate the
Defendants to support the validity of the Assignment in the
United States court system.
It refers to securing permission
from the appropriate Ukrainian governmental entities to pay
UTICo.
It was included in the May 15, 1998, Agreement before any
assignment, much less the need to support that assignment in
foreign courts, was even contemplated.
The Plaintiffs have failed to state a claim upon which
relief can be granted regarding the alleged breach of the
Assignment.
I therefore will grant the Defendants’ motion to
dismiss with respect to Count One.
2.
Breach of Contract (1998 Agreements)
The Plaintiffs separately claim in Count II that the
Defendants breached the 1998 Agreements by not providing payment
35
for expropriated assets returned to Ukraine.
The Plaintiffs
allege that UTICo was instrumental in freezing over $270 million
in assets that is available for collection by Ukraine.
They
request twelve percent of the value of these assets.
The Defendants first contend that no money is yet due under
the Agreement because the Complaint does not allege that any
assets have been transferred to Ukraine.
The assets have been
frozen but they have not been collected.
Especially given the
vagaries of translation, I hold that the Agreement’s language is
ambiguous.
It refers to “a commission of 12 (twelve) percent on
all and any above assets to be returned to Ukraine.”
It is not
clear from the Agreement what constitutes a “return”--such a
return might require that the assets be transferred to Ukraine’s
bank accounts or it might require only that the assets simply be
made available for Ukraine’s collection.
According to the Defendants, the clause in the Agreement
that UPGO “confirms its commitment to engage for that the
appropriate State bodies of Ukraine and to appropriately secure
the permission for the above remuneration, taking into account
that that remuneration is not payable from the State budget of
Ukraine but from the assets to be repatriated to Ukraine from
outside of Ukraine” supports their interpretation of the
Agreement.
I do not agree.
The statement expresses that
remuneration is available only from the repatriated assets.
does not state that those assets are only considered
36
It
“repatriated” or “returned” once they are in Ukrainian coffers.
It does not discuss when payment is due and does not resolve the
ambiguity of the phrase “returned to Ukraine.”
This issue of
contract interpretation is not appropriately resolved at the
motion to dismiss stage; extrinsic evidence will be necessary to
establish the parties’ intent.
The Defendants also contend that even if the Agreement is
interpreted to mean that a twelve percent commission is due on
all assets made available to Ukraine, the statute of limitations
has run.
In Massachusetts, the statute of limitations for a
breach of contract is six years.
G.L. c. 260, § 2.
The
Complaint alleges that the freezing of assets took place in 1999
and 2000; more than six years have passed since the Defendants’
debt has accrued.
The Plaintiffs respond that the Agreements and other
instruments from UPGO were under seal and so are subject to a
longer statute of limitations.
In Massachusetts, the statute of
limitations for a breach of contract action based upon a contract
under seal is twenty years.
G.L. c. 260, § 1.
If the May 15,
1998, Agreement is a sealed document, then the statute of
limitations on actions for its breach has not run.
The
Plaintiffs contend that UPGO’s official stamp, placed at the
bottom of each Agreement and Power of Attorney, constitutes a
seal.
“Whether an instrument is under seal or not is a question
37
for the court upon inspection.
Whether a mark or character shall
be held to be a seal depends upon the intention of the executant,
as shown by the paper.”
Jacksonville, M., P. Ry. & Nav. Co. v.
Hooper, 160 U.S. 514, 519.
Based on the papers presented before
me and on guidance from the Massachusetts courts, I agree with
the Defendants that UPGO’s official stamp does not operate as a
seal on these contracts.
“In similar circumstances authorities
have construed a corporate seal stamp as authentication of the
authority of the signing officers and not as a manifestation of
intent that the instrument is under seal.”
Kingston Housing
Authority v. Sandonato & Bogue, Inc., 577 N.E.2d 1, 4 (Mass. App.
Ct. 1991).
The Massachusetts Appeals Court in Kingston Housing
Authority cited President & Directors of Georgetown College v.
Madden, 660 F.2d 91 (4th Cir. 1981) (per curiam) in support of
its holding.
In that case, the Fourth Circuit stated:
The contract at issue here did not contain the familiar
phrases, “witness my hand and seal,” or “signed and sealed,”
nor did its body refer to the fact that it was under seal.
Without such indications that the parties intended to make
the contract a sealed instrument, the combination of the
word “(Seal)” and the corporate impressions was insufficient
to establish such an intention.
Madden, 660 F.2d at 96.
Here, the instrument includes even fewer
indications that it is under seal; the word “(Seal)” or similar
does not appear.
There is no indication that the stamp was
placed to signify anything more than the authority of the
signatory, and I interpret it to operate in that way.
38
“Such an
interpretation is appropriate in light of the diminished
significance of the seal in contemporary law and
practice . . . .”
Kingston Housing Authority, 577 N.E.2d at 5.
The Plaintiffs contend that the stamp must signify a seal
because “UPGO does not have any seal other than the one that was
affixed on the contractual documents with UTICo” and because
“[o]ther than that sole official seal, UPGO would be left with no
seal at all, a nonsensical proposition.”
The Plaintiffs
misunderstand the thrust of the modern case law.
Ukraine is able
to signify that a document is under seal; the mere affixing of a
stamp, however, is insufficient to do so.
Had the parties
included, for instance, a recitation that Ukraine’s seal had been
affixed, the stamp would likely have signified a seal.
See
Gildenhorn v. Columbia Real Estate Title Ins. Co., 317 A.2d 836,
841-46 (Md. 1974).
But, I cannot ignore the modern restrictive
trend regarding sealed contractual agreement, by finding as a
matter of law that the 1998 Agreement and other documents on
which UPGO’s stamp is affixed to be sealed documents under G.L.
c. 260, § 1.
I conclude that the relevant documents at issue are
not under seal and consequently the extended statute of
limitations is not appropriate.
Nevertheless, I cannot conclude on this record that the
statute of limitations has run as a matter of law.
“The general
rule in breach of contract cases is that a cause of action
39
accrues when the contract is breached.” Flannery v. Flannery, 429
Mass. 55, 58 (Mass.
1999).
Given the filing of this action in
November 2010 and the six-year statute of limitations, the
question is whether breach occurred before November 2004.
Breach
is commonly understood to occur when a party fails to perform a
contractual duty when it is due.
See generally 23 WILLISTON
ON
CONTRACTS § 63:1 (4th ed. 2012).
According to the Plaintiffs, the Agreement is open-ended
regarding payment, with no particular due date, and they have
brought the action now because Ukraine only just repudiated its
obligation to pay.
Neither party, however, gives serious
attention to the import of a contract with no date assigned to
the payment term, when a cause of action for non-payment would
accrue, or when the statute of limitations would begin to run
under such a contract.
For example, the Defendants simply posit
that, assuming Plaintiffs are correct that UTICo performed under
the contract when it froze certain assets in 1999 and 2000,
payment simultaneously came due.
But that interpretation
altogether ignores the rule that when an “agreement specifie[s]
no time for payment, the law fills that gap; where a contract
fails to specify a time for performance, ‘it is as if ‘within a
reasonable time’ were found in it.’”
Arno v. Arbella Mut. Ins.
Co., No. 03-1301, 2005 WL 2739905, at *1 (Mass. Super. Aug. 26,
2005) (quoting Warren v. Ball, 170 N.E. 2d 341, 344 (Mass.
40
1960)).
Further briefing and consideration of extrinsic evidence
will likely be required to resolve these issues.
In any event, it is sufficient for present purposes that
Plaintiffs believed they had arranged to receive payment, which
satisfied any immediate performance obligations, in the form of
the 1999 Assignment of the chose of action relating to
Kiritchenko’s and Lazarenko’s properties in the United States.
Not until 2007 did the federal court in California declare the
Assignment invalid.
And although the first Ukranian decision
invalidating the Assignment came in 2003, UPGO continued to
defend the Assignment in the Ukranian courts well into the
limitations period, including its August 2005 appeal to the
Supreme Court of the Ukraine.
Viewing these facts most favorably to the Plaintiffs,
Ukraine did not renege on its promise to pay via the Assignment
until well after November 2004.
At the very least, as of
November 2004, Plaintiffs reasonably believed that “negotiations
[with Ukraine as to payment] were ongoing and that no breach had
yet occurred or even would occur.”
Yelle v. United Water
Springfield LLC, 795 F. Supp. 2d 169, 175 (D. Mass. 2011).
At
this stage, then, I cannot say as a matter of law that breach
occurred prior to November 2004.
I will therefore deny the
Defendants’ motion to dismiss with regard to Count Two.
41
3.
Unjust Enrichment
In Count Three of the Complaint, the Plaintiffs claim that
the Defendants have been unjustly enriched by UTICo’s work.
They
allege that, in addition to the assets frozen internationally,
Ukraine was able to seize about twenty industrial plants and an
airline domestically due to the investigation conducted and
evidence gathered by UTICo.
To the extent that the Plaintiffs’ unjust enrichment claim
depends upon the failure to pay for the work resulting in frozen
assets internationally, this claim cannot be pursued as unjust
enrichment.
“The law will not imply a contract where there is an
existing express contract covering the same subject matter.”
Zarum v. Brass Mill Material Corp., 134 N.E.2d 141, 143 (Mass.
1956).
Where there is an suitable remedy at law, “there is no
occasion to invoke equitable remedies.”
Popponesset Beach Ass’n,
Inc. v. Marchillo, 658 N.E.2d 983, 988 (Mass. App. Ct. 1996).
Here, the parties’ 1998 Agreement governs remuneration for work
resulting in misappropriated assets returned to Ukraine; there is
no occasion to maintain a claim of unjust enrichment.
To the extent that the Plaintiffs’ unjust enrichment claim
depends on the Defendants’ “enrichment” through its use of the
evidence provided by UTICo in domestic asset recovery operations,
it is no more successful.
If the acquisition of such information
is governed by the Agreement, then, here again, the claim is one
42
of an express contract and does not sound in unjust enrichment.
If the Plaintiffs contend that this claim is wholly separate
from the Agreement, and that the Defendants must pay them for
information used in domestic operations on an equitable theory of
implied contract, then the claim is time-barred.
Ukraine appears
to have used the information provided in domestic investigations
and prosecutions in approximately 1999 and 2000.6
The statute of
limitations for an unjust enrichment claim is six years at most.7
This case was filed in November, 2010, at which point the claim
for unjust enrichment, to the extent that it can be made
independently of the contract claim, was time-barred.8
6
Although the exact dates of the alleged enrichment are
not clear from the Complaint, this appears to be approximately
when those events are alleged to have occurred. In their
Memorandum in Support of their Motion to Dismiss, the Defendants
note that it appears from the Complaint that UGPO used the
evidence obtained from UTICo to seize assets within Ukraine in
approximately 1999. The Plaintiffs do not contest this date in
their Opposition or otherwise argue that the appropriate statute
of limitations has not yet run.
7
“In Massachusetts the statutes of limitation applicable
to law actions based on contract and tort are also applicable to
suits in equity.” Desmond v. Moffie, 375 F.2d 742, 743 (1st Cir.
1967). “The court must look to the ‘gist of the action’ or the
essential nature of the plaintiff’s claim in determining what
statute of limitations to apply.” Palandjian v. Pahlavi, 614 F.
Supp. 1569, 1577 (D. Mass. 1985). Here, regardless of whether
the tort statute of limitations of three years, see G.L. c. 260,
§ 2A, or the contract statute of limitations of six years, see
G.L. c. 260, § 2, applies, the time for filing has passed and
this claim is time-barred.
8
The tolling theory – that arguably no breach occurred
within the limitations period – applied above to the Plaintiffs’
contract claim, see supra Part IV.C.2, would not apply here. As
43
4.
Fiduciary Duty
In Count Four, the Plaintiffs claim that by failing to
eliminate challenges to the Assignment or to have the Assignment
ratified by the President, the Defendants breached their
fiduciary duty to UTICo.
They allege that such a fiduciary duty
arose because the Defendants were party to the 1998 Agreements
and the 1999 Assignment.
I disagree.
Neither of these contracts
established fiduciary duties owed by the Defendants to UTICo.
A claim for breach of fiduciary duty has four elements:
(1) the existence of a fiduciary duty arising from a relationship
between the parties, (2) the breach of that duty, (3) damages,
and (4) a causal relationship between the breach and the damages.
Hanover Ins. Co. v. Sutton, 705 N.E.2d 279, 288-89 (Mass. App.
Ct. 1999).
The Plaintiffs’ claim of breach of fiduciary duty
stumbles at the threshold: the Defendants owed no fiduciary
duties to UTICo.
The 1998 Agreement making UTICo the agent for Ukraine did
not establish such a duty; the fiduciary duties in an agency
relationship travel in the opposite direction.
times, owes some duties to its agent.
“A principal, at
However, there is no
to the legal contract claims, it can be argued the plaintiffs
were to be paid for their work pursuant to the 1998 contract
through the 1999 Assignment and thus no claim for breach accrued
at least so long as UPGO continued to defend the assignment.
There are no such allegations that the Plaintiffs believed, or
had reason to believe, that they had been paid for their work
under a separate contract implied in equity.
44
authority to support the position that the principal owes his
agent a fiduciary duty.”
Stavaridis v. Dynamic Mach. Works,
Inc., 2 Mass. L. Rptr. 446, 446, No. 911276E, 1994 WL 879484, at
*3 (Mass. Super. July 29, 1994) (internal citation omitted).
Here, while the 1998 Agreement established fiduciary duties owed
by UTICo to Ukraine, it did not establish the opposite.
The 1999 Assignment purportedly transferring Ukraine’s chose
in action to UTICo did not establish fiduciary duties owed by
Ukraine.
An assignment is insufficient to create a fiduciary
relationship.
Yamins v. Zeitz, 76 N.E.2d 769, 772 (Mass. 1948)
(“Counsel for the plaintiff properly concedes that the mere
relation of the assignor and the assignee of a lease does not,
without more, give rise to a confidential relationship.”).
The
Plaintiffs offer no additional reason to find that a fiduciary
relationship exists.
Because the Plaintiffs have not pled facts sufficient to
demonstrate that the Defendants owed UTICo a fiduciary duty, I
will dismiss Count Four.9
9
I note the Defendants additionally contend that the claim
is time-barred by the three year statute of limitations that
ordinarily governs claims of breach of fiduciary duty. However,
the Plaintiffs include among their allegations that the
Defendants breached their fiduciary duties by failing to apprise
UTICo of the Ukrainian court decisions and by failing to support
UTICo in the United States litigation in a timely manner.
UTICo’s appeals in the United States litigation were concluded in
2010, the same year that this case was filed. Thus, if the
failure to support UTICo with an amicus brief had constituted a
breach of fiduciary duties, the claim would not have been timebarred.
45
5 & 6. Misrepresentation and Negligence
In Counts Five and Six of the Complaint, the Plaintiffs
claim that the Defendants are liable for misrepresentation and
for negligence due to their failure to inform UTICo in a timely
manner of the Ukrainian Supreme Court decision and the subsequent
municipal court decision.
As I have noted, however, the
Plaintiffs have not shown that their injury was caused by the
Defendants’ failure to give them timely notification of the
Ukrainian court decisions.
It was the disposition of Universal
Trading & Investment Co. v. Kiritchenko that denied UTICo the
right to proceed based on the Assignment of the chose in action.
The opinions in
Universal Trading & Investment Co. v.
Kiritchenko did not rely on the decisions from the Ukrainian
courts.
See supra Part II.C.
The Plaintiffs contend that they may nevertheless pursue
these claims because “UTICo learned of the disposition in the
Lazarenko[] matter only after the adverse judgment” and “[t]he
criteria of Rule 60(b) are entirely different from submitting
evidence at a pre-judgment stage.”
While such an argument might
be compelling in the context of an opinion rendered solely in
accordance with the customary standard under Rule 60(b), here
Judge Chesney made clear in her opinion that it would have made
no difference even if the decisions had been received by the
court prior to the initial judgment.
46
She stated that the
“[P]laintiff failed to show any failure to disclose those
decisions affected, in any manner, this Court’s determination of
the issues addressed in the Summary Judgment Order.”
Kiritchenko, No. C-99-3073, 2008 WL 2445073, at *2.
Given Judge Chesney’s explicit statements that the
submission of the later Ukrainian court decisions would have made
no difference and that her decision was based on her own
independent analysis of Ukrainian law, the Plaintiffs have not
made a plausible claim that the Defendants’ alleged
misrepresentation and negligence caused them any injury.
The
Plaintiffs have not established that they have standing to raise
either the misrepresentation or the negligence claim.
I will
therefore dismiss Counts Five10 and Six11 of the Complaint.
10
The Defendants also contend that Count Five fails
because the Complaint does not allege a misrepresentation, but
rather a failure to disclose. “However, Massachusetts law allows
negligent misrepresentation claims to be predicated upon a
failure to disclose.” First Marblehead Corp. v. House, 473 F.3d
1, 9 (1st Cir. 2006). The parties have insufficiently briefed
whether the Defendants were under a duty to exercise reasonable
care to disclose the Ukrainian court decisions to UTICo. I will
not decide the issue, having determined that the claim fails
regardless for the reasons discussed above.
11
The Defendants also contend that Count Six fails because
the Complaint does not allege any loss beyond the purely
economic. The Massachusetts Supreme Judicial Court has “affirmed
that purely economic losses are unrecoverable in tort and strict
liability actions in the absence of personal injury or property
damage.” FMR Corp. v. Boston Edison Co., 613 N.E.2d 902, 903
(Mass. 1993). In briefing, the Plaintiffs contend that the loss
was more than purely economic, because as a result of the
repudiation of the Assignment, the assets were released to
criminals, who have been accused of, among other things, contract
47
7.
Declaratory Judgment
In Count Seven of the Complaint, the Plaintiffs claim that
they are entitled to declarations that (1) UTICo is not subject
to Ukrainian jurisdiction and no Ukrainian court decisions
concerning it will be recognized in Massachusetts and (2) the
April 30, 1999, Power of Attorney empowering UTICo to “organize
and implement in the USA the legal work” to recover the
California real estate was in force until at least the denial of
UTICo’s petition for certiorari by the United States Supreme
Court in 2010.
The first of these requests does not present an
actual case or controversy to this Court; it will therefore be
dismissed.
The Declaratory Judgment Act provides that “[i]n a case of
actual controversy within its jurisdiction . . . any court of the
United States . . . may declare the rights and other legal
relations of any interested party seeking such declaration,
whether or not further relief is or could be sought.”
§ 2201(a).
28 U.S.C.
Declaratory Judgment Act jurisdiction must, however,
be compatible with the case or controversy requirement under
Article III.
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118,
murders. These facts are not alleged in the Complaint.
Moreover, they do not relate to loss caused to the Plaintiffs.
The Plaintiffs have not established that they have in any way
been harmed by contract murders and other unpleaded crimes. The
economic loss doctrine provides a second basis for the dismissal
of Count Six.
48
126 (2007).
The Supreme Court has required that the dispute
resolved by declaration be “‘definite and concrete, touching the
legal relations of parties having adverse legal interests’; and
that it be ‘real and substantial’ and ‘admi[t] of specific relief
through a decree of a conclusive character, as distinguished from
an opinion advising what the law would be upon a hypothetical set
of facts.’” Id. at 127 (internal citation omitted, alteration in
original).
The Plaintiffs present no actual case or controversy
requiring a determination of whether Ukrainian courts have
jurisdiction over UTICo.
The Plaintiffs have not shown that
there is a case pending in Massachusetts in which a Ukrainian
court decision regarding UTICo might be recognized or that the
Defendants are otherwise engaged in attempts to attain
recognition in Massachusetts of a Ukrainian court decision
regarding UTICo.
The Plaintiffs do not respond to the
Defendants’ challenge to this component of their declaratory
judgment claim, and they have not alleged facts that demonstrate
an actual claim or controversy on this point.
I therefore will
dismiss Count Seven to the extent that it relates to the
requested declaration regarding Ukrainian jurisdiction over and
Ukrainian court decisions concerning UTICo.
The Plaintiffs do, however, argue that the declaration
related to the Power of Attorney touches directly on the legal
49
obligations of the Defendants to UTICo, namely on whether the
Defendants have an obligation to pay UTICo for the legal work
related to the Kiritchenko litigation.
In their Reply Brief, the
Defendants concede that “[w]ere Plaintiffs’ other claims to
survive, there could theoretically be need to decide how long the
alleged powers of attorney were effective, assuming . . . it
could effect the damages calculation.”
In light of the
Defendants’ concession, and the fact that Count Two for breach of
the 1998 Agreements has survived, I will not dismiss the
declaratory judgment claim to the extent that it relates to the
April 30, 1999, Power of Attorney.
D.
The Foundation
The Complaint states that the Foundation is a Massachusetts
non-profit that “has an interest in the outcome of this action”
because “UTICo made commitments to allocate a substantial portion
of the fees for the work described herein to the Foundation’s
charitable work, including funding of orphanages in Ukraine.”
Compl. ¶ 2.
That is the only discussion in the Complaint of the
role of the Foundation in the controversy.
The Complaint
requests relief for the Foundation based only on Counts One and
Two for breach of contract.
The Foundation is not a party to the Agreements or any
contract with the Defendants.
The Plaintiffs claim that the
Foundation is a third-party beneficiary to the Agreements between
50
UTICo and the Defendants.
“In order to prevail under this theory
the plaintiff[s] must show that the defendant[s] and [UTICo]
intended to give [the Foundation] the benefit of the promised
performance.
We look at the language and circumstances of the
contract for indicia of intention.
definite.”
The intent must be clear and
Anderson v. Fox Hill Vill. Homeowners Corp., 676
N.E.2d 821, 822 (Mass. 1997) (internal citations omitted).
Here,
neither the language nor the circumstances of the contract
indicate the intent of the parties to the contract to give the
Foundation the benefit of the promised performance.
The language in neither the 1998 Agreement nor any other
document described in the Complaint indicates such an intent.
The Agreement does not mention the Foundation and does not
mention how the commission earned by UTICo would be spent.
Nor
is such discussion found in any of the Powers of Attorney or
letters that the Plaintiffs raised in the Complaint or attached
to their briefing.
The circumstances of the contract are similarly devoid of an
indication of an intent to benefit the Foundation.
The
Plaintiffs allege in their Opposition that in 2003 UTICo
communicated to then Prime Minister of Ukraine Victor Yanukovich
that it was going to make a contribution to the orphanages in
Ukraine through its charitable affiliate and that this
communication was acknowledged.
Assuming that this is true, this
51
argument does not begin to establish the intent of the parties to
benefit the Foundation.
A conversation about how UTICo planned
to spend its compensation conducted five years after the
Agreement was executed demonstrates nothing about the intent of
the parties at the time, and certainly demonstrates nothing about
the knowledge or intent of the Defendants at the time of contract
formation.
The Plaintiffs have adduced no facts in support of the
contention that the Foundation is a third-party beneficiary to
the 1998 Agreement or to any other contract between UTICo and the
Defendants.
Nor have the Plaintiffs contended that the
Foundation has standing to pursue this suit based on any other
ground.
I therefore will dismiss all claims to the extent that
they are raised by the Foundation.
V.
CONCLUSION
For the reasons set forth above, the Defendants’ motion to
dismiss (Dkt. No. 27) is GRANTED in part but DENIED as to Count
Two with respect to Plaintiffs’ claim for reimbursement for their
recovery efforts and as to Count Seven to the degree a
determination of the duration of the April 30, 1999 Power of
Attorney may be implicated in a resolution of Count II.
/s/ Douglas P. Woodlock
DOUGLAS P. WOODLOCK
UNITED STATES DISTRICT
52
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