Universal Trading & Inv. Co. v. Bureau for Representing Ukrainian Interests in Int'l & Foreign Courts

• Decision Date: 19 September 2012
• Docket Number: Civil Action No. 10–12015–DPW.
• Citation: 898 F.Supp.2d 301
• Court: U.S. District Court — District of Massachusetts
• Parties: 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.

898 F.Supp.2d 301

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.

United States District Court, D. Massachusetts.

Sept. 19, 2012.

Stephen F. Reardon, Law Offices of Stephen F. Reardon, PC, Revere, MA, for Plaintiffs.

David G. Hetzel, Robert M. Shaw, Holland & Knight, Boston, MA, Peter H.F. Bekker, Brussels Belgium, Pro Hac, Vice, for Defendants.

MEMORANDUM AND ORDER

DOUGLAS P. WOODLOCK, District Judge.

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 plaintiffUniversal Trading and Investment Company, Inc.(“UTICo”) is a Massachusetts corporation that engages in international asset recovery operations.PlaintiffFoundation 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 defendantUkranian 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 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.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 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.”

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.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...