AKISHEV et al v. KAPUSTIN et al

Filing 395

OPINION. Signed by Judge Noel L. Hillman on 12/8/2016. (tf, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

Ardak Akishev, et al.,

Civil Action No.
13-7152(NLH)(AMD)

Plaintiffs,
v.

OPINION

Sergey Kapustin, et al.,
Defendants.

APPEARANCES:
ANNA V. BROWN
MARIA TEMKIN
BROWN LEGAL CONSULTING LLC
1959 THE WOODS II
CHERRY HILL, NJ 08003
On behalf of plaintiffs/cross-claim plaintiffs
SERGEY KAPUSTIN
307 RIDGEWAY ST.
PHILADELPHIA, PA 19116
Defendant appearing pro se
JON WERNER
LYONS & FLOOD LLP
ONE EXCHANGE PLAZA
55 BROADWAY, SUITE 1501
NEW YORK, NY 10006
On behalf of defendants Michael Hitrinov and Empire
United Lines, Co., Inc.
JEFF H. GOLDSMITH
2050 CENTER AVENUE
SUITE 318
FORT LEE, NJ 07024
On behalf of intervenor DK International Trading Inc.
HILLMAN, District Judge
Presently before the Court is the motion of intervenor DK
International Trading Inc. for relief from the Court’s freeze

order (Docket No. 351), and the motion of defendant Sergey
Kapustin to invalidate the default judgment entered against
him (Docket No. 368).

For the reasons expressed below, both

motions will be denied. 1
BACKGROUND
The history of this case, which the Court has described
as labyrinthine, has been set forth several times.
e.g., Docket No. 358.)

(See,

For context to resolve the two pending

motions, the Court restates the following background:
Procedural history of this case in this Court
Global Auto Enterprise is a group of individuals (four
family members and at least one employee) and affiliated

1

A third motion [Docket No. 347] will also be denied. In his
motion, defendant Sergey Kapustin seeks to disqualify
Plaintiffs’ counsel from pursuing cross-claims he assigned to
the plaintiffs in an attempt to satisfy plaintiffs’ claims
against him. First, nothing in Kapustin’s motion serves to
undermine that assignment. Second, his claim that plaintiffs’
counsel have sought to sell two cars that had been previously
sold to others is undermined by Kapustin’s own statements to
this Court that he owned those cars free and clear. Third,
his apparent disagreement with Plaintiffs’ counsel about the
merits of the cross-claims is suspect as he himself brought
those claims in the first instance and has repeatedly asserted
to this Court that his failure to deliver certain cars to
Europe was the fault of the cross-claim defendants. That he
now suggests otherwise is likely another example of his
repeated efforts to change his position to suit the argument
or the day. Here, as set forth in Plaintiffs’ response, the
attempt to undermine the cross-claims through vague and
unsupported allegations and conspiratorial musings appears to
be in retaliation for Plaintiffs’ efforts to obtain judgment
against his close family members. Whatever the motivation may
be, in the end, this disagreement over the merits of the
cross-claims is just that, a disagreement, and will resolve
itself when the cross-claims are fully litigated. It does not
provide a reason to disqualify counsel.
2

entities owned by the same family members who ran a fraudulent
internet auto sales scheme.

The fraud is commonly known to

law enforcement as a “bait and switch” tactic.

Global Auto

Enterprise targets online and often unsophisticated foreigners
from the former Soviet Union by advertising vehicles slightly
below the market value on its glamorous websites
GlobalAutoUSA.com and EffectAuto.com.

In order to lure the

victims, Global Defendants provided false odometer readings or
did not disclose the mileage at all or withheld the
information that the vehicle had been declared “total loss”
after an accident or flooded by hurricane Sandy with a
“Salvage” title issued.

Rather than disclosing the true

condition of the car, they assured the victims that the cars
were in “excellent” condition.

Most vehicles advertised on

the websites did not actually belong to any Defendants.
Instead, they used images of cars and information about them
gathered from other online car sales sites to advertise these
vehicles as “bait.”

Once Plaintiffs wired the purchase price,

the “switch” part of the fraud began.
Defendants wrote apologetic emails that they were
encountering delays in delivery and refused to issue any
refunds.

These kinds of “lulling” communications are typical

of this type of fraud.

Months later, the buyers were offered

a different car for just a few thousand more.

Buyers - by

then desperate to get anything at all out of the deal - wired
additional money.

Plaintiffs Kondratuk, Borzenko, Maniashin,
3

Lisitsyn, Pukir, Lukyanov, the Yamkoviys were pushed to make
several international wire transfers.
After the switch, even Plaintiffs (Kobin, Telin, Borzenko
and the Zverevs) who were seemingly getting a different car
for the same price also got hit with unloading fees, port
fees, transportation fees, storage fees, customs fees, and
other fees, in excess of several thousand dollars, that were
not previously disclosed to them.

That was also a scheme to

push the victims to cancel the purchase and simply retain the
proceeds.

Global Auto Enterprise refused to release the cars

unless those charges are paid. 2
On April 4, 2014, Plaintiffs filed an Amended Complaint.
On June 3, 2014, Plaintiffs filed their Motion for an Order to
Freeze the Assets of Defendants and Expedited Discovery
Related to Assets pursuant to Federal Rule of Civil Procedure
65 (“Asset Freeze Motion”) representing the funds Plaintiffs
wired to the bank accounts of corporate Global Defendants.

On

September 5, 2014, the Court held an evidentiary hearing on
the Asset Freeze Motion.
On September 23, 2014, to avoid the immediate freeze of
the corporate Global Defendants’ bank accounts, Plaintiffs and

2

In a related version of the fraud, defendants would explain
that unexpected repairs were needed on the car and demanded
payment to cover these costs. As noted below, in yet another
permutation of the extensive fraud scheme and whether he owned
or had access to the car or not, Kapustin, by his own
admission under oath, would often sell the same car to two
different victims.
4

Global Defendants agreed to and the Court entered the Consent
Order, Docket No. 80, to deposit into the registry of the
Court $400,000.00 in monthly installments within 90 days of
the Consent Order and to provide expedited discovery related
to the disposition of Plaintiffs’ funds and Defendants’
assets.
This turned out to be another lulling technique with this
time the Court as the victim as Kapustin would later admit he
had no ability to satisfy the terms of the Consent Order at
the time it was approved by the Court and entered at his
request.

On October 7, 2014, in order to evade his

obligations under the Consent Order, Defendant Sergey Kapustin
filed his Chapter 13 Bankruptcy Petition (Case No. 14-30488).
On October 24, 27, 28, 29 and November 3, 2014, the Court
held evidentiary hearings during which it was established that
while Global Defendants websites www.globalautousa.com,
www.effectauto.com, and www.effectauto.ru (“Websites”)
advertised over 4,000 vehicles as “in stock”, Defendant
Kapustin testified only about 14 vehicles were actually owned
by the corporate Global Defendants, and some vehicles were
sold twice through the Websites to foreign customers using
electronic mail communications and international bank wire
payments.
Based on the evidence presented the Court made its
preliminary finding that plaintiffs had shown by a
preponderance of the evidence that the Global Defendants had
5

committed at least two predicate acts of mail and wire fraud
in the furtherance of a RICO enterprise through a pattern of
racketeering activity conducted operating through the
Internet; on October 27 and October 29, 2014, this Court
ordered that the Defendants’ corporate bank accounts to be
frozen and the Websites to be shut down immediately. (Docket
Nos. 106; 110).
On November 4, 2014, corporate Global Defendants filed
their Chapter 7 bankruptcy petitions (Global Auto Sales (Case
No. 14-32520), Effect Auto Sales, Inc. (Case No. 14-32521), G
Auto Sales, Inc. (Case No. 14-32522) and SK Imports,
Inc. (Case No. 14-32523).

The bankruptcies were subsequently

dismissed for bad faith pursuant to Sections 105(a), 305(a),
349 and 707(a) of the Bankruptcy Code.
On February 17, 2015, Plaintiffs moved for sanctions
against Global Defendants and their counsel (“Sanctions’
Motion”) including entering a default judgment as a sanction
for their continuing litigation misconduct including numerous
fraudulent representations to the Court, dissipation of assets
in order to avoid compliance with the Consent Order,
concealment of assets in foreign jurisdictions, filing
bankruptcy petitions in bad faith for the purpose of invoking
the automatic stay and frustrating this Court’s jurisdiction,
continuing delay resulting in significant prejudice to
Plaintiffs.

6

On April 27, 2015, the Court held an evidentiary hearing
and granted the Plaintiffs’ Sanctions Motion.

On May 27,

2015, Plaintiffs submitted their Application to Assess Damages
for Default Judgment.

On June 29, 2015, the Court held a

hearing on plaintiffs’ motion for default judgment, DK
Internationals’ request to intervene, and other issues related
to defendants’ assets.

On July 2, 2015, the Court issued a

“freeze order” to prevent Kapustin and the Global defendants
from dissipating or otherwise touching their assets in order
to halt defendants’ fraudulent actions.
On September 4, 2015, the Court held an evidentiary
hearing and made the finding that Global Defendants were
responsible for executing and masterminding the “bait and
switch” fraud scheme targeting online and often
unsophisticated foreigners from the former Soviet Union and
other countries by advertising vehicles for sale below the
market value.

Defendant Kapustin, as owner of corporate

Global Defendants, exercised complete dominion and control
over the corporations and used the corporations as his alter
egos for his own purposes, making all the decisions including
the decisions to defraud Plaintiffs.
The Court further made its finding that Defendant Sergey
Kapustin and the corporate Global Defendants are a group of
RICO persons, Global Companies Enterprise, associated in fact
for the common purpose of engaging in fraudulent conduct
constituting a RICO enterprise defined in 18 U.S.C. § 1961(4)
7

functioning together as a continuing unit, each of them
necessary to accomplish each step or aspect of the fraudulent
scheme.

Defendant Sergey Kapustin and corporate Global

Defendants acted in concert for the shared goal of defrauding
overseas car buyers and receiving profits from the fraudulent
scheme.

This enterprise affected interstate and foreign

commerce because it exported vehicles to foreign countries and
both sent and received funds through banks in the United
States and abroad.
Defendant Sergey Kapustin, who is a person within the
meaning of RICO, managed and participated in conduct of the
Global Companies Enterprise through a pattern of racketeering
activity in violation of 18 U.S.C. §1962(c), including
multiple acts of wire fraud, mail fraud, and financial fraud.
The Court found that Global Defendants engaged in the pattern
of racketeering activity, which included related violations of
18 U.S.C. § 1343 (wire fraud); 18 U.S.C. § 1341 (mail fraud);
18 U.S.C. § 1956 (money laundering); 18 U.S.C. § 1957
(engaging in monetary transactions in property derived from
unlawful activity); 18 U.S.C. § 1952 (Travel Act), and 18
U.S.C. § 1912 (witness intimidation), as included in 18 U.S.C.
1961(1).
The pattern of the racketeering activity began no later
than some time in 2008 resulting in an investigation by
Attorney General for the State of New Jersey Division of
Consumer Affairs of deceptive conduct of Global Auto
8

Enterprise, resulting on November 19, 2010, in the consent
judgment for injunctive relief, civil penalties, legal fees
and restitution to victims.

The scheme continued in 2012 when

Global Defendants committed predicate acts of racketeering
towards Plaintiffs Yamkoviys, and continued through February
2014, when Defendants committed acts of wire fraud (18 U.S.C.
§ 1343) towards Plaintiff Pukir.

Global Defendants continued

the pattern by filing fraudulent bankruptcies.

Global

Defendants’ acts were arranged and ordered so as to exhibit
both a relation between the predicate acts and the threat of
continuing unlawful activity.
Defendants’ acts of mail fraud, wire fraud, and financial
fraud were open-ended and occurring on an ongoing and daily
basis targeting overseas car buyers from GlobalAutoUSA.com and
other websites registered by Global Defendants with the intent
to defraud foreign buyers.

Plaintiffs were directly and

proximately harmed by Global Defendants’ predicate acts of
racketeering, including wire fraud, mail fraud, and Travel Act
violations, which resulted in ascertainable financial losses
to the Plaintiffs.
Background of DK International’s involvement in this case
On November 10, 2014, intervenor DK International 3 was
granted judgment in its favor by the Superior Court of New
Jersey on its claims against Kapustin and its entities,

3

DK International’s motion to intervene was granted on
December 9, 2015. (Docket No. 304.)
9

finding that defendants were engaged in fraudulent business
practices.

DK International had an agreement with the Global

Defendants where DK International would fund vehicles
purchased by the Global defendants, and it would be reimbursed
for those costs, along with half of the profits of the sale of
those vehicles.

Kapustin and the Global defendants failed to

reimburse DK International for $207,932.50.

After a bench

trial, the state court judge entered judgment in DK
International’s favor in that amount, along with $50,000.00 in
punitive damages because of the defendants’ “egregious” fraud.
(Docket No. 351-2 at 5.)

DK International seeks to be

relieved of the Court’s July 1, 2015 order 4 freezing
defendants’ assets so that it may enforce its November 10,
2014 judgment, which was domesticated on May 7, 2015.

(Docket

No. 351.)
Issues currently pending before the Court
DK International seeks relief from the freeze order on
several bases.

An additional basis arose during the pendency

of DK International’s motion when the United States Supreme
Court issued a decision on the extraterritorial reach of the
RICO statute: RJR Nabisco, Inc. v. European Community, 136 S.
Ct. 2090, 2096 (2016).

DK International has supplemented its

motion to be relieved from the freeze order by arguing that
the default judgment entered against Kapustin and the Global

4

The Freeze Order was dated July 1, 2015, but it was docketed
on July 2, 2015.
10

defendants has been invalidated by the RJR Nabisco case, which
determined that relief under RICO is unavailable to foreign
private party plaintiffs if their damages were not incurred in
the United States.
DK International argues that without any valid default
judgment, there cannot be any valid freeze orders related to
those RICO violations, and the Court should therefore dissolve
the Order freezing defendants’ assets.

(Docket No. 363.)

Kapustin has filed a motion to vacate the default judgment
entered against him on the same basis.

(Docket No. 368.)

Plaintiffs have opposed both motions on all the bases
presented.
DISCUSSION
A.

Subject Matter Jurisdiction

The Court has subject matter jurisdiction over this
action pursuant to 28 U.S.C. § 1331 and 18 U.S.C. § 1964(c).
The Court has supplemental jurisdiction over state law claims
under 28 U.S.C. § 1367.
B.

Analysis

The resolution of the pending motions involves two
separate analyses.

First, the Court must consider the impact

of RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090,
2096 (2016) on this case.

Second, the Court must determine

whether DK International may be permitted to enforce its
November 10, 2014 judgment due to the existence of the July 1,
2015 freeze order.
11

1.
Whether the Court must vacate the default judgment
entered against Kapustin and the Global defendants
pursuant to RJR Nabisco, Inc. v. European Community, 136
S. Ct. 2090 (2016).
DK International and Kapustin have seized upon a succinct
sentence in the Supreme Court’s decision in RJR Nabisco, Inc.
v. European Community, 136 S. Ct. 2090 (2016), to invalidate
the default judgment entered against Kapustin and the Global
defendants for their violations of RICO.

The Supreme Court

held, “Section 1964(c) requires a civil RICO plaintiff to
allege and prove a domestic injury to business or property and
does not allow recovery for foreign injuries.”
136 S. Ct. at 2111.

RJR Nabisco,

These parties argue that because the

foreign plaintiffs suffered their injuries in Russia – i.e.,
they lost their money in Russia for cars that were purchased
in Russia but never delivered to Russia – they have not
incurred a domestic injury to support a private cause of
action under RICO. 5

Putting aside the issue of whether the

RJR Nabisco case applies retroactively, 6 the Court disagrees

5

Although DK International has written two letters to the
Court regarding the applicability of the RJR Nabisco case
(Docket No. 363 and 370), DK International has not been
granted its request to file a supplemental brief to more
formally express its view on RJR Nabisco. As DK International
notes in its second letter (Docket No. 370), the Court has an
independent obligation to assess subject matter jurisdiction,
Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 420 (3d
Cir. 2010), and, under Fed. R. Civ. P. 60(d), the Court may
independently relieve a party from an order. Thus, additional
briefing by DK International on the current issues before the
Court is not necessary.
6

It appears that the decision in RJR Nabisco does apply
retroactively. See Harper v. Virginia Dept. of Taxation, 509
12

with DK International’s and Kapustin’s view that the
plaintiffs have not suffered a domestic injury within the
meaning of the RICO statute.
In RJR Nabisco, the European Community and 26 of its
member states (hereinafter “EC”) sued RJR and numerous related
entities for their alleged participation in a global moneylaundering scheme in association with various organized crime
groups.

EC first sued RJR in the Eastern District of New York

in 2000, alleging that RJR had violated RICO, and the case
spread into several actions over 16 years.

RJR Nabisco, 136

S. Ct. at 2097.
Greatly simplified, the complaint alleges a scheme in
which Colombian and Russian drug traffickers smuggled
narcotics into Europe and sold the drugs for euros that—
through a series of transactions involving black-market
money brokers, cigarette importers, and wholesalers—were
used to pay for large shipments of RJR cigarettes into
Europe. In other variations of this scheme, RJR
allegedly dealt directly with drug traffickers and money
launderers in South America and sold cigarettes to Iraq
in violation of international sanctions. RJR is also
said to have acquired Brown & Williamson Tobacco
Corporation for the purpose of expanding these illegal
activities. The complaint alleges that RJR engaged in a
pattern of racketeering activity consisting of numerous
acts of money laundering, material support to foreign
terrorist organizations, mail fraud, wire fraud, and
violations of the Travel Act. RJR, in concert with the
other participants in the scheme, allegedly formed an
association in fact that was engaged in interstate and
foreign commerce, and therefore constituted a RICO
enterprise that the complaint dubs the “RJR Money–
Laundering Enterprise.” . . .
U.S. 86, 97 (1993) (“When this Court applies a rule of federal
law to the parties before it, that rule is the controlling
interpretation of federal law and must be given full
retroactive effect in all cases still open on direct review
and as to all events, regardless of whether such events
predate or postdate our announcement of the rule.”).
13

These violations allegedly harmed [EC] in various ways,
including through competitive harm to their state-owned
cigarette businesses, lost tax revenue from black-market
cigarette sales, harm to European financial institutions,
currency instability, and increased law enforcement
costs.
Id. at 2098.
The Supreme Court was tasked with answering two
questions: (1) Do RICO's substantive prohibitions contained in
§ 1962, violations of which are subject to criminal penalties,
apply to conduct that occurs in foreign countries? and (2)
Does RICO's private right of action, contained in § 1964(c),
apply to injuries that are suffered in foreign countries?

Id.

at 2099-2100.
The Supreme Court began its analysis by reviewing the law
of extraterritoriality.

With regard to the first question,

the Supreme Court found that each of RICO's substantive
prohibitions contained in § 1962 requires proof that a RICO
enterprise “engage[d] in, or affect[ed] in some significant
way, commerce directly involving the United States--e.g.,
commerce between the United States and a foreign country.”
Id. at 2015.

In other words, an alleged pattern of

racketeering activity must consist “of predicate offenses that
were either committed in the United States or committed in a
foreign country in violation of a predicate statute that
applies extraterritorially.” 7

Id.

7

The Supreme Court found that EC’s allegations that RJR
violated §§ 1962(b) and (c) did not involve an impermissible
14

The Supreme Court set a different standard for RICO’s
private right of action provided in § 1964(c).

The Supreme

Court’s focus was not on the conduct of the enterprise, but
rather where the private RICO plaintiff suffered his injury.
Even though § 1964(c) allows “[a]ny person injured in his
business or property by reason of a violation of section 1962”
to sue for treble damages, costs, and attorney's fees, the
Supreme Court found that § 1964(c) did not overcome the
presumption against extraterritoriality.

Id. at 2016.

The Supreme Court emphasized that the question presented
was whether a court has authority to recognize a private cause
of action under U.S. law for injury suffered overseas, and
noted that “[n]othing in § 1964(c) provides a clear indication
that Congress intended to create a private right of action for
injuries suffered outside of the United States.”
09.

Id. at 2108,

The Supreme Court observed that “providing a private

civil remedy for foreign conduct creates a potential for
international friction beyond that presented by merely
applying U.S. substantive law to that foreign conduct.”

Id.

at 2106.
For example, to apply U.S. remedies could unjustifiably
permit foreign citizens “to bypass their own less generous

extraterritorial application of RICO, but it did not decide
whether the complaint satisfied any other requirements of
RICO, or whether the complaint in fact made out violations of
the relevant predicate statutes. RJR Nabisco, 136 S. Ct. at
2106 and 2106 n.8.
15

remedial schemes, thereby upsetting a balance of competing
considerations that their own domestic [] laws embody.”
2106-07 (citation omitted).

Id.

The Supreme Court further

observed that even though “a risk of conflict between the
American statute and a foreign law is not a prerequisite for
applying the presumption against extraterritoriality, where
such a risk is evident, the need to enforce the presumption is
at its apex.”

Id. at 2107 (quotations and citation omitted).

Accordingly, the Supreme Court concluded, “Section
1964(c) requires a civil RICO plaintiff to allege and prove a
domestic injury to business or property and does not allow
recovery for foreign injuries.” 8

Id. at 2111.

DK International and Kapustin argue that plaintiffs’ RICO
claims brought pursuant to § 1964(c) are exactly those that
the Supreme Court deemed to be barred by the presumption
against extraterritoriality.

The Court does not agree.

Simply because plaintiffs reside in Russia and never
physically traveled to the United States does not
automatically classify their injuries to be “foreign.”
As the Supreme Court cautioned at the conclusion of RJR
Nabisco, “[t]he application of [the domestic injury] rule in
any given case will not always be self-evident, as disputes

8

The Supreme Court ultimately concluded that the remaining
RICO damages claims rested entirely on injuries suffered
abroad and must be dismissed. RJR Nabisco, 136 S. Ct. at
2111.
16

may arise as to whether a particular alleged injury is
‘foreign’ or ‘domestic.’”

Id. at 2111.

The Supreme Court did

not delve into how injuries are to be classified as foreign or
domestic, but the classification of an injury cannot simply be
based on a plaintiff’s residence. 9

A deeper analysis must be

performed on the facts of each case.
It is true that plaintiffs live in Russia, and several
former USSR Republics, and they never set foot in the United
States.

They shopped from Eastern Europe for cars on the

internet, and wired money from their home countries from
foreign accounts to purchase their cars.

Defendants failed to

ship their cars to Eastern Europe, and defendants failed to
return their money to Eastern Europe.

The key to this case is

that plaintiffs suffered their injuries the moment they
clicked the computer mouse - on a United States-based website
representing United States-based car dealerships - and ordered
and paid for a car whose condition was materially
misrepresented or did not even exist at all.
If plaintiffs traveled to the United States, went to the
physical location of Kapustin’s purported car dealerships in
New Jersey and Pennsylvania, chose a car, paid for it on the

9

The Supreme Court observed that § 1964(c) of RICO does not
contain specific language like the Clayton Act, which
specifically allows recovery for foreign injuries. RJR
Nabisco, 136 at 2110. But the Supreme Court further noted,
“This does not mean that foreign plaintiffs may not sue under
RICO.” Id. at 2110 n.12.
17

spot, and arranged for the car to be shipped to Eastern
Europe, plaintiffs would have suffered from a clear domestic
injury when Kapustin failed to deliver the car and failed to
return plaintiffs their money.
Plaintiffs’ traveling by way of the internet to
Kapustin’s virtual United States-based car dealerships, where
plaintiffs selected their car, paid for it through a wire
transfer to Kapustin’s U.S. bank, and arranged for shipping
from the United States, should not change their injuries from
domestic to foreign when Kapustin failed to deliver their cars
from the United States or refund their money from the United
States.
This is not a situation where an American car dealership
operated a branch in Russia, either physically or virtually
through a Russian-based website, and defrauded Russian
customers in the same way as Kapustin has defrauded plaintiffs
in this case.

In that scenario, plaintiffs could not lodge a

private RICO action in the United States against the American
car dealership, even if the enterprise met the elements of §
1962, because the customers’ injuries were suffered in Russia.
This scenario is akin to RJR Nabisco, where the European
Community suffered injuries at the hands of United Statesbased RJR Nabisco’s alleged money laundering enterprise.

The

EC suffered injuries in their communities, and not in the
United States, such as competitive harm to their state-owned
cigarette businesses, lost tax revenue from black-market
18

cigarette sales, harm to European financial institutions,
currency instability, and increased law enforcement costs.
RJR Nabisco, 136 S. Ct. at 2098.
To rule this case outside § 1964(c) would allow the
United States to become a haven for internet fraud despite
Congress’ dual intent both to create a private cause of action
under RICO and incorporate predicate acts of mail and wire
fraud which extend expressly to transactions affecting foreign
commerce.

A person responsible for a United States-based

fraudulent scheme to defraud people overseas should not escape
liability under a federal law that permits private causes of
action to redress that fraud simply because the scheme targets
foreign citizens over the internet.
The RJR Nabisco domestic injury requirement derived from
the Supreme Court’s concern that foreign citizens would bypass
their own less generous remedial scheme, and upset the balance
of competing considerations of their own domestic laws.
id. 2106-07.

See

That concern is not present in this case, where

plaintiffs “traveled” to the United States to purchase cars
represented to be located in the United States and were
defrauded in that process.

Plaintiffs should be afforded the

same remedies available to a United States citizen who
purchased a car from defendants in the exact same manner and
were defrauded in the exact same scheme.
Importantly, the Plaintiffs here are not forum shopping.
They have come to the place where they were induced by fraud
19

to send their money and where those ill-gotten proceeds were
realized and retained by Kapustin and the Global Defendants.
While Plaintiffs could have presumably sought relief in their
domestic courts it would have likely been an exercise in
futility and any judgment obtained worthless.

The defendants

have no assets in those countries, operate no businesses
there, and have not traveled there.

Indeed it was the very

remoteness of the victims from the organizers of the scheme
that contributed to the success of the scheme.
In a fraudulent and criminal scheme that crosses borders,
the extraterritoriality analysis should be a two-way street.
The Plaintiffs here could have been anywhere in the world and
actually came from several countries.

Defendants, however,

choose to operate their fraudulent scheme from New Jersey and
Pennsylvania.

The locus delecti of the crimes committed is

the United States.

Nothing in 18 U.S.C. § 1964(c) suggests

Congress intended to exclude a scenario like this one from the
reach of a private victim, even a foreign one.
Consequently, the Court finds that RJR Nabisco, Inc. v.
European Community, 136 S. Ct. 2090 (2016) does not require
this Court to vacate the default judgment entered against
Kapustin and the Global defendants based on their violations
of RICO.

20

2.
Whether DK International is precluded from pursuing
its judgment against Kapustin and the Global defendants
because of the Court’s July 1, 2015 freeze order
As noted above, DK International seeks to be relieved of
the Court’s July 1, 2015 order freezing defendants’ assets so
that it may enforce its November 10, 2014 judgment, which was
domesticated on May 7, 2015.

The freeze order provided:

1. Defendants and their agents, employees, attorneys,
independent contractors, officers, directors, successors,
assigns and affiliates, including Preor Oy, which is
controlled by the Defendants, and all persons who receive
actual notice of this Order by personal service, mail,
email, facsimile transmission or otherwise, are
immediately ENJOINED from removing, withdrawing, drawing
upon, pledging from, transferring, setting off,
receiving, changing, selling, assigning, liquidating, or
otherwise disposing of Defendants’ interest in, directly
or indirectly, in any assets located in the United States
and in foreign countries, including but not limited any
motor vehicles, real estate, cash funds, funds held in
any bank accounts in the United States and foreign
countries in the amount of up to $1,500,000.00 (one
million five hundred dollars).
2. Any assets, located in the United States and in
foreign countries, including but not limited any motor
vehicles, real estate, cash funds, funds, incoming wires,
transfer funds and deposits in the names of, or subject
to control by Defendants, directly or indirectly, or
through their agents, employees, attorneys, independent
contractors, officers, directors, successors, assigns and
affiliates, including Preor Oy, located in the United
States and foreign countries in the amount of up to
$1,500,000.00 (one million five hundred dollars) shall be
FROZEN AND RESTRAINED until further Order of this Court.
This Order shall also apply to all persons aiding,
abetting, or acting in active concert, participation or
under the control of Global Defendants.
(Docket No. 229 at 4-5.)

21

DK International argues that the freeze order is improper
for several reasons, 10 but primarily it argues that it should
not be interpreted to prevent it from executing its judgment
against the assets of Kapustin and the Global defendants,
which are being held by Michael Hitrinov a/k/a Michael
Khitrinov and Empire United Lines Co., Inc. (“EUL
defendants”).

The EUL defendants are in possession of 15

vehicles purportedly belonging to Kapustin and the Global
defendants, and DK International’s writ of execution was
served by the New York County Office of the Sheriff on August
13, 2015 upon the EUL defendants. 11

DK International argues

that it should be permitted to retrieve those vehicles to

10

One of DK International’s arguments is that the freeze order
is improper under the Supreme Court’s decision in Grupo
Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527
U.S. 308, 332-33 (1999), where the Supreme Court held that a
plaintiff who is sued for breach of contract seeking damages,
a remedy at law, could not obtain a preliminary injunction
against the assets of a debtor, against whom it had no
judgment, that would be in effect until the resolution of the
plaintiff’s claims. The Grupo Mexicano case is
distinguishable from the situation here, where the freeze
order was issued after two years of litigation which evidenced
a circus of fraudulent acts performed by Kapustin, including
lying to the Court, violating court orders, and fraudulently
filing bankruptcies. The Grupo Mexicano decision does not
preclude the Court from imposing sanctions on a defendant or
imposing equitable relief to prevent the defendant from
committing further fraud.
11

Plaintiffs argue that the writ of execution is invalid
because it was served on the EUL defendants, which have
physical possession of the vehicles but do not have ownership
of the vehicles. The Court does not need to opine on the
validity of the writ of execution at this time.
22

satisfy its judgment against Kapustin and the Global
defendants.
By way of background as to how the EUL defendants came to
possess the 15 vehicles in dispute, the Global entities had
filed an action in the U.S. District Court for the Eastern
District of New York (the “EDNY action”) for breach of
contract, conversion, and replevin against the EUL defendants
for their continued possession of the vehicles.

The Global

entities then filed cross-claims against the EUL defendants in
this case.

The cross-claims asserted in this case were

identical to the claims in the EDNY action, but were limited
to the vehicles purchased by five plaintiffs.
The Global entities also alleged that the EUL defendants
seized the vehicles located at the time in Elizabeth, New
Jersey without any legal or equitable right.

The EDNY action

was dismissed, and the Global entities then amended their
cross-claims here to include all claims in the EDNY action,
including replevin of the Elizabeth Vehicles, and to include
Sergey Kapustin as a plaintiff individually.

Thus, through

the assignment of the Global entities’ claims against the EUL
defendants, the 21 plaintiffs who were victims of Kapustin’s
and the Global entities’ fraud are now prosecuting the claims
of the Global entities against the EUL defendants.
The pending claims against the EUL defendants are in
their infancy. (See Docket No. 377.)

Plaintiffs have alleged

in their most recent complaint that “the Empire Defendants are
23

unlawfully holding 15 vehicles either belonging to Crossclaim
Plaintiffs or contracted to customers.

The Empire Defendants

have previously represented to the Court that the vehicles
were located in their warehouse in Elizabeth, New Jersey (the
‘Elizabeth Vehicles’).

The titles to the Elizabeth Vehicles

are currently in registry of this Court pursuant to the Order,
dated July 14, 2015 (ECF 237).

Crossclaim Plaintiffs seek

injunctive relief from this Court in the form of an order
compelling Defendants to immediately release the Elizabeth
Vehicles, which are unlawfully held by the Empire Defendants,
into the registry of this Court.

Crossclaim Plaintiffs have

further been forced to bring the instant lawsuit in order to
recoup for lost profits and lost business suffered by
Crossclaim Plaintiffs as a result of the Defendants’ breach of
contract and other fraudulent and illegal activities, which
have resulted in direct and consequential damages in excess of
$1,000,000.”

(FACCC, Docket No. 274 at 2.)

In the EDNY action, and presumably in this action if they
are eventually compelled to file an answer to the FACCC, the
EUL defendants have denied Kapustin’s and the Global
defendants’ right to those vehicles.

Those assets were

encumbered by the EDNY litigation, and they are currently
encumbered by this litigation. 12

12

Because the ownership of the

The EDNY litigation was dismissed without prejudice on
October 1, 2015. On October 9, 2015, plaintiffs filed their
cross-claim complaint. For eight days, the vehicles were not
subject to litigation. The titles were, however, in this
24

subject vehicles is in dispute, any right of DK International
to those vehicles is currently inchoate.
Relatedly, and most importantly for the resolution of DK
International’s current motion, is that the freeze order
cannot be read to freeze assets (1) that do not belong to any
of the defendants, or (2) where the possessory interest in
those assets is in dispute. 13

The vehicles DK International

seeks to recover to satisfy its judgment currently fall in the
second category, and if the EUL defendants prevail in the
dispute between them and the cross-claim plaintiffs, the
vehicles will fall into the first category.

Only if the

cross-claim plaintiffs prevail on their claims against the EUL
defendants will the vehicles be subject to the freeze order. 14

Court’s registry, where they had been since July 14, 2015,
which predates DK International’s writ of execution.
13

The freeze order also does not prevent a judgment lien
holder from having a writ of execution served onto defendants’
assets. The freeze order merely prevents the disposition of
any asset while the order is in effect. The priority of an
asset’s liens is a separate issue. Indeed, had the Court not
entered the freeze order, more of defendants’ assets would
have dissipated through Kapustin’s fraudulent actions, leaving
no assets for a judgment lien holder to attach. The Court
notes, however, that even with the freeze order, it appears
that Kapustin’s fraudulent conduct has persisted, and known
and hidden assets have been further dissipated. The Court’s
retention of several vehicle titles at the early stage in this
case has caused those vehicles to apparently be one of the
only assets available to DK International and other parties
harmed by Kapustin. But DK International is not precluded
from seeking to enforce its judgment on defendants’ other
assets that may exist.
14

DK International argues that the Kapustin and the Global
defendants’ assignment of their claims to the plaintiffs
violated the freeze order. To the extent that the freeze
25

Accordingly, because the Court has determined that the
vehicles held by the EUL defendants are not subject to the
freeze order, DK International’s motion to be relieved of the
freeze order to pursue those vehicles must be denied.

DK

International is entitled to pursue the execution of its
judgment as appropriate under the laws governing a judgment
creditor’s lien on a debtor’s property, including property
that is subject to a pending legal dispute. 15
CONCLUSION
The domestic injury requirement for a private cause of
action under RICO announced in RJR Nabisco, Inc. v. European
Community, 136 S. Ct. 2090 (2016) does not affect the validity
of the default judgment entered against Kapustin and the
Global defendants because plaintiffs have suffered domestic
injuries.

With the default judgment intact, the July 1, 2015

freeze order based on defendants’ RICO violations remains
intact.

The freeze order was not improperly entered, and it

does not preclude DK International from its rights to enforce

order does not apply to inchoate claims, the assignment was
not in violation of the freeze order because the defendants’
claims are pending. The continuing viability of the freeze
order will need to be addressed, however, if and when the
currently inchoate claims become choate.
15

The Court placed into the registry the titles of the
“Elizabeth vehicles” as a measure to protect those assets from
Kapustin’s extensive and continuing fraudulent actions.
Unless DK International informs the Court otherwise, the
Court’s retention of these titles does not prohibit a judgment
lien holder’s rights to that property as set forth by the
applicable state law governing those rights.
26

its judgment under the appropriate law governing attachment of
a debtor’s assets.

Based on these findings, the Court must

deny both DK International’s motion for relief from the freeze
order and Kapustin’s motion to vacate the default judgment.
An appropriate Order will be entered.

Date: December 8, 2016
At Camden, New Jersey

s/ Noel L. Hillman _
NOEL L. HILLMAN, U.S.D.J.

27