Leon et al v. Shmukler et al

Filing 114

ORDER ADOPTING REPORT AND RECOMMENDATIONS ; adopting Report and Recommendations as to 104 Sua Sponte - Report and Recommendations; re: 108 Motion to Strike: For the reasons set forth in the attached Memorandum and Order, plaintiffs' objec tions to Magistrate Judge Bloom's Report and Recommendation are overruled, and the Report and Recommendation is adopted in its entirety. Plaintiffs' motion for substitute service is denied, and defendant Shmukler is dismissed from this action without prejudice.This action is recommitted to Magistrate Judge Bloom for all remaining pretrial matters. Ordered by Chief Judge Roslynn R. Mauskopf on 11/26/2020. (Mauskopf, Roslynn)

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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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ABL VENTURE CAPITAL, LLC, and OS RESEARCH,
LLC
MEMORANDUM AND ORDER
13-CV-3185 (RRM) (LB)

Plaintiffs,
- against IGOR SHMUKLER, THINOMENON, INC., and
GENNADY MEDNIKOV,

Defendants.
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ROSLYNN R. MAUSKOPF, Chief United States District Judge.

Before the Court is the Report and Recommendation of Magistrate Judge Lois Bloom
(R&R, Doc. No. 104), which recommends denying plaintiffs’ motion for substitute service on
defendant Igor Shmukler, and dismissing Shmukler from this action without prejudice. Plaintiffs
object to those recommendations. (Objections (Doc. No. 105).) For the reasons set forth below,
the objections are overruled, the R&R is adopted in its entirety, the motion for substitute service
is denied, and defendant Shmukler is dismissed from this action without prejudice.
BACKGROUND
I.

Procedural History
The Court assumes the parties’ familiarity with the extensive factual and procedural

background of this case, now in its sixth year of litigation. On June 4, 2013, predecessor counsel
to plaintiffs filed the original complaint. It arises from defendants’ alleged use of software and
other properties in violation of an operating agreement they executed with ABL Venture Capital,
LLC, which had invested in OS Research, a software developer founded by defendant Igor
Shmukler. (Compl. (Doc. No. 1) at ¶¶ 27–38).) In response to orders by Judge Bianco,

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predecessor counsel amended the complaint once on October 7, 2014, and current counsel
amended the complaint twice, on November 4, 2016, and again on December 20, 2016. During
the pendency, plaintiffs have been unable to locate and serve defendant Shmukler, who left the
United States for Russia sometime before the commencement of this action. (Compl. at ¶ 37);
(Mednikov Dep. (Doc. No. 88-6) at 7–9 (Document pagination) (admitting that Shmukler had
moved to Russia.)
On January 31, 2019 – five years after commencement of the case, and over three years
after its current counsel first appeared in this action – plaintiffs filed a Motion for Substituted
Service on Defendant Igor Shmukler. (Pls.’s Mot. (Doc. No. 88-7).) They argued that, because
Russia has stopped completing service of process from U.S. Courts by mail, and because Russia
does not permit service by mail under its laws, service was not possible under Federal Rule of
Civil Procedure 4(f). (Pls.’s Mot. at 7.)1 Plaintiffs asked that the Court therefore exercise
discretion under 4(f)(3) to permit service “by other means not prohibited by international
agreement.” Plaintiffs asked the Court to permit service by e-mail (Id. at 8–11) or by personal
service upon defendant Mednikov and his counsel, arguing that there was ample evidence that
Mednikov was in close contact with Shmukler and would be able to convey notice of the lawsuit
to him. (Id. at 13.) Moreover, plaintiffs argued that Rule 4(m)’s requirement of timely service
does not apply to service on an individual in a foreign county. (Id. at 12.) Subsequently, on
April 12, 2019, defendants Gennady Mednikov and Thinomenon, Inc. served a Rule 26(f)
disclosure, which showed that Shmukler was now residing in Ukraine. (Defs.’ Further Letter
(Doc. No. 102) at 4 (PDF Pagination).) Mednikov and Thinomenon requested a pre-motion
conference to present oral arguments, (Letter Mot. (Doc. No. 96)), and, on May 17, 2019, the

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Unless otherwise indicated, page numbers refer to pagination assigned by the Electronic Case Files (ECF) System.

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Court referred both the Motion for Substitute Service and the Motion for a Pre-Motion
Conference to Magistrate Judge Lois Bloom.
On May 21, 2019, Judge Bloom held a conference on plaintiffs’ Motion for Substitute
Service. At that conference, she noted that the case had been pending for six years without
service on Shmukler. (Hearing Tr. (Doc. No. 101) at 2–3 (PDF pagination).) She also noted that
plaintiffs had not followed up on indications in Mednikov’s 2012 deposition that Shmukler
sometimes visited the U.S., had not hired an investigator to attempt to locate Shmukler, and had
not attempted to find where his phone was registered – in sum, that plaintiffs had made no effort
to serve Shmukler. (Id. at 3–6.) Judge Bloom therefore denied plaintiffs’ motion, and entered an
additional order as follows:
Plaintiffs shall serve defendant Shmukler within sixty (60) days, by July
22, 2019. The Court warns plaintiffs’ counsel that, if plaintiffs do not serve
defendant Shmukler within 60 days and do not demonstrate significant efforts to
serve defendant Shmukler, I shall recommend that this case should be dismissed
against Shmukler. Plaintiffs shall file proof of service on Shmukler by July 29,
2019.
Plaintiffs, on July 14, 2019, submitted a half-page letter to the Magistrate Judge which made no
attempt to describe the efforts, if any, plaintiffs had made to serve Shmukler, stating only:
“Despite a diligent effort to do so, service on defendant Shmukler could not be perfected.”
(Letter Mot. Requesting Schedule (Doc. No. 98).) Plaintiffs then requested a schedule for
briefing a new Motion for Substitute Service. (Id.) Responding to a letter of Mednikov and
Thinomenon on July 15, 2019, plaintiffs insisted that they could produce proof of attempted
service and were “prepared to do so if requested by the Court,” but that the proper forum for
such proof was a further Motion for Substitute Service. (Pls.’s Further Letter (Doc. No. 100).)
In a final exchange of letters, Mednikov and Thinomenon informed the Court that they had
already, in April, provided Shmukler’s Ukraine address, (Defs.’s Letter 3 (Doc. No. 102)), and
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defendants replied that they had not yet verified the address and renewed their request to file a
Motion for Substitute Service, (Pls.’s Letter 3 (Doc. No. 103.) Plaintiffs did not, in any of these
letters, file any proof service, as previously requested by Judge Bloom.
II.

The Report and Recommendation
In a Report and Recommendation dated August 20, 2019 (the “R&R”), Judge Bloom

recommended that plaintiffs’ request for a briefing schedule on a renewed Motion for Substitute
Service be denied. She also recommended, sua sponte, that Shmukler be dismissed from the
action without prejudice. (R&R (Doc. No. 104).) With respect to the latter recommendation,
Judge Bloom found that plaintiffs had failed to show a significant effort justifying lack of
service. First, she held that their assertion in the July 14, 2019 letter, that they had made
“diligent efforts” but had been unable to serve Shmukler, did not amount to a “significant
showing” that they had attempted service. (Id. at 4 (PDF pagination).) Second, she found that
plaintiffs had made no attempt to serve Shmukler at the Ukraine address provided by defendants.
(Id.) Third, she noted that the July 14, 2019, letter was submitted more than a week prior to July
22, 2019 – the 60-day deadline for attempting service – and inferred that plaintiffs had given up
on service before they needed to. (Id.) Judge Bloom reiterated that she had asked plaintiffs in
her May 21, 2019, order to file proof of service or to show cause for failing to serve and had
never indicated that she would grant an opportunity to move again for substitute service. (Id.)
In a footnote, Judge Bloom explained that, even though Rule 4(f), for service on a foreign
individual, does not incorporate the time limitations of Rule 4(m), 4(m)’s provision for sua
sponte dismissal still applies where plaintiffs fail to effectuate service in the foreign country
within 90 days. (See id., n. 3.)

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III.

Objections to the R&R
On September 3, 2019, plaintiffs objected to the R&R recommending dismissal.

(Objections (Doc. No. 105).) In their objections, plaintiffs explained for the first time their
efforts to serve Shmukler. First, according to a report prepared for plaintiffs’ predecessor
counsel dated May 1, 2014, a process server of Preemptive Process Servers, Inc. had been unable
to locate Shmukler at any domestic or foreign address, or by running a New York DMV abstract
report, Department of Defense report or New York Board of Elections report. (Id. at 5.)
Immediately after the conference with Judge Bloom on May 21, 2019, plaintiffs hired Stephen
Hellinger, an experienced private investigator, who concluded that Shmukler was not in the
United States, that he owned no property in the United States, and that the Ukrainian address
could not be located, although he was able to locate “business interests” of Shmukler’s. (Id.)
Plaintiffs’ objections do not include a declaration from Hellinger, but they append screenshots
purporting to contain the results of his report. These screenshots include: (1) Shmukler’s
LinkedIn profile, (Ex. C (Doc. No. 105-3) at 1–4); (2) a search from an unknown website, with
results for “Igor Shmukler” and “Diophant Technologies,” (id. at 5–6); (3) a search result from
“scorestorybook.ee,” a credit reporting website, for Igor Shmukler, (id. at 7); (4) Igor Shmukler’s
software developer profile at GitHub.com (id. at 8–11); (5) an additional credit search result
from the website Bisnode.ee, (id. at 12–18). Additionally, plaintiffs represent that they sent a
person alleged to have “contacts with Ukrainian nationals,” Maksim Volkov, to verify the
Ukraine address, but he found Igor Shmukler was not associated with that address. (Id. at 5–6.)
Plaintiffs also allude to a second investigation, the results of which had not yet been received at
the time of the objections. (Id. at 6.) Plaintiffs then reiterated their contention that Shmukler

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was paying for Mednikov’s counsel and that Mednikov was taking directions from Shmukler, as
he admitted in a 2014 deposition. (Id. at 7.)
Plaintiffs also objected to Judge Bloom’s interpretation of Rules 4(f) and 4(m), arguing
that 4(f) makes the time limit of 4(m) inapplicable. (Id. at 6.)
In a supplemental objection, plaintiffs claim that, in “Mednikov’s Response to Plaintiffs’
Demand for Interrogatories dated August 2, 2019,” Shmukler was listed as one of the
“individuals answering or assisting in the answering of interrogatories on behalf of defendants,”
but the supplemental objection does not attach these Interrogatories or otherwise indicate their
location in the record. (Supplemental Objections (Doc. No. 107).)
DISCUSSION
I.

Standard of Review
The Court reviews objections to a Report and Recommendation de novo. See United

States ex rel. Coyne v. Amgen, Inc., 243 F. Supp. 3d 295, 297 (E.D.N.Y. 2017), aff’d sub nom.
Coyne v. Amgen, Inc., 717 F. App’x 26 (2d Cir. 2017). A court will not consider new evidence
submitted in the objections unless the party offers compelling reason or justification for the
failure to present such evidence to the Magistrate Judge. Fischer v. Forrest, 286 F. Supp. 3d
590, 603 (S.D.N.Y. 2018), aff'd, 968 F.3d 216 (2d Cir. 2020); see also Robinson v. Keane, No.
92-CV-6090, 1999 WL 459811 at *4 (S.D.N.Y. June 29, 1999) (“These issues were not raised
before the Magistrate Judge and therefore were not addressed by him; accordingly, they may not
properly be deemed ‘objections’ to any finding or recommendation made in the Report and
Recommendation.”); Abu–Nassar v. Elders Futures, Inc., No. 88-CIV-7906, 1994 WL 445638 at
*4 n.2 (S.D.N.Y. Aug. 17, 1994) (“If the Court were to consider [new arguments in an
objection], it would unduly undermine the authority of the Magistrate Judge by allowing litigants

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the option of waiting until a report is issued to advance additional arguments.”). In addition,
arguments raised in opposition by Mednikov and Thinomenon, will not be considered because
they do not have standing to assert the defense of lack of notice on defendant Shmukler’s behalf.
Madu, Edozie & Madu, P.C. v. SocketWorks Ltd. Nigeria, 265 F.R.D. 106, 114 (S.D.N.Y. 2010).
Judge Bloom dismissed the case sua sponte under Rule 4(m) and not in response to a motion by
defendants or any defense asserted by them, and the Court need only consider the face of the
R&R and any valid evidence in the record to determine whether dismissal was warranted.
II.
Plaintiffs’ Failures to Comply with Rule 4(m) and with Magistrate Judge Bloom’s
Order
Rule 4(f), governing service in a foreign country, does not itself include any time limit.
Rule 4(m), governing service in general, specifies that
If a defendant is not served within 90 days after the complaint is filed, the
court – on motion or on its own after notice to the plaintiff – must dismiss the
action without prejudice against that defendant or order that service be made
within a specified time. But if the plaintiff shows good cause for the failure, the
court must extend the time for service for an appropriate period.
Subdivision 4(m) “does not apply to service in a foreign country under Rule 4(f).” However,
“[a]lthough Rule 4(m) creates an exception for service in a foreign country pursuant to
subdivision (f) . . . this exception does not apply if . . . the plaintiff did not attempt to serve the
defendant in the foreign country.” USHA (India), Ltd. v. Honeywell Intern., Inc., 421 F.3d 129,
133–34 (2d Cir. 2005)); see also Montalbano v. Easco Hand Tools, Inc., 766 F.2d 737, 740 (2d
Cir. 1985) (finding 4(f) inapplicable and applying time limit of 4(m) where the plaintiff “ha[d]
not exactly bent over backward to effect service” in the foreign country.)
Here, there was no attempt within 90 days of the filing of the complaint to serve the
defendant in a foreign country. Plaintiffs’ attempt to assert the investigation of their predecessor
counsel is unavailing. That investigation apparently included only a background check and other
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investigations focused on the United States, including a check with the Department of Defense
and New York Board of Elections. However, predecessor counsel knew, apparently as early as
2012, that Shmukler was no longer resident in the United States, yet never attempted to serve
him abroad. Current counsel made no further attempt to serve Shmukler or ascertain his
whereabouts when they took over the case in November 2014, or on either of the two occasions
that counsel amended the complaint. (Mednikov Dep. at 7–9 (document pagination), (Compl. at
¶ 37).) Judge Bloom was entirely correct in recommending that the claims against Shmukler be
dismissed without prejudice pursuant to Rule 4(m). Not only did plaintiffs not “bend over
backwards” to effect service, Montalbano, 766 F.2d at 740, but the investigative efforts in
evidence were utterly perfunctory and cursory, with nothing done to expand that effort once
counsel knew that Shmukler was residing abroad.
Before issuing her recommendations, however, Judge Bloom generously granted
plaintiffs one more chance either to serve Shmukler at his foreign abode or to demonstrate
“diligent efforts” to do so. In response, plaintiffs made no showing of any effort to serve
Shmukler. Instead, approximately one week before the deadline for service had run, plaintiffs
sent a half-page letter containing the entirely conclusory assertion that “[d]espite a diligent effort
to do so, service on defendant Shmukler could not be perfected.” (Letter Mot. Requesting
Schedule (Doc. No. 98).) Judge Bloom was correct in disregarding this unsupported assertion
and in recommending dismissal of the claims against Shmukler.
Plaintiffs now assert, for the first time in their objections, what they claim are attempts to
serve Shmukler. However, plaintiff never provided this information to Magistrate Judge Bloom,
nor explained why they did not do so. Most important, the information belatedly provided, even

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if it were to be considered, does not offer any reason to overturn Magistrate Judge Bloom’s
recommendations.
In their eleventh hour submission, plaintiffs describe attempts by a certain individual with
contacts in Ukraine to ascertain Shmukler’s whereabouts there. However, these assertions are
unsworn, and as such, hold little, if any, weight. Plaintiffs also append screenshots apparently
gathered by what plaintiffs claim is an experienced private investigator, Stephen Hellinger, yet
once again, these assertions are unsworn. Most important, these appear to be screenshots of
publicly available websites, easily replicated through a few web searches. As such, they hardly
demonstrate significant effort to find the whereabouts of Shmukler, and could have easily been
undertaken long ago. Plaintiffs also point to a third investigation, of unknown scope, using
unknown methods, that they claim was outstanding at the time of plaintiffs’ objections. Nor did
plaintiffs append as an exhibit the Interrogatories which, they claim, proves that Shmukler is
closely involved in the case, and therefore proves that service on Mednikov or his counsel would
suffice.
Whether alone or taken together, and even assuming they are true, these threadbare
showings hardly give rise to good cause to excuse the lack of service to date, or to extend the
time for service. Nor does plaintiffs’ belated unsworn and unsupported proffer justify their
failure to undertake these steps earlier, or raise evidence of them with Judge Bloom, particularly
after generous allowances by Judge Bloom made clear both in court and in her order, and six
years after this action was filed. As such, the Court therefore will not consider this information,
and even if it did, finds it insufficient under the requisites of Rule 4.

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CONCLUSION
For the foregoing reasons, plaintiffs’ objections to Magistrate Judge Bloom’s Report and
Recommendation are overruled, and the Report and Recommendation is adopted in its entirety.
Plaintiffs’ motion for substitute service is denied, and defendant Shmukler is dismissed from this
action without prejudice.
This action is recommitted to Magistrate Judge Bloom for all remaining pretrial matters.
.
SO ORDERED.
Roslynn R. Mauskopf

Dated: Brooklyn, New York
November 26, 2020

____________________________________
ROSLYNN R. MAUSKOPF
Chief United States District Judge

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