388 F.3d 39 (2nd Cir. 2004), 03-7792, Motorola Credit Corp. v. Uzan

Docket Nº:03-7792(L), 03-7794(CON), 03-7796(CON), 03-7878(XAP).
Citation:388 F.3d 39
Party Name:MOTOROLA CREDIT CORPORATION and Nokia Corporation, Plaintiffs-Appellees-Cross-Appellants, v. Kemal UZAN, Cem Cengiz Uzan, Murat Hakan Uzan, Melahat Uzan, Aysegul Akay, Antonio Luna Betancourt, Unikom Iletism Hizmetleri Pazarlama A.S., Standart Pazarlama A.S., and Standart Telekomunikasyon Bilgisayar Hizmetleri A.S., Defendants-Appellants-Cross-Appe
Case Date:October 22, 2004
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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388 F.3d 39 (2nd Cir. 2004)

MOTOROLA CREDIT CORPORATION and Nokia Corporation, Plaintiffs-Appellees-Cross-Appellants,

v.

Kemal UZAN, Cem Cengiz Uzan, Murat Hakan Uzan, Melahat Uzan, Aysegul Akay, Antonio Luna Betancourt, Unikom Iletism Hizmetleri Pazarlama A.S., Standart Pazarlama A.S., and Standart Telekomunikasyon Bilgisayar Hizmetleri A.S., Defendants-Appellants-Cross-Appellees.

Nos. 03-7792(L), 03-7794(CON), 03-7796(CON), 03-7878(XAP).

United States Court of Appeals, Second Circuit

October 22, 2004

Argued: June 23, 2004

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[Copyrighted Material Omitted]

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Floyd Abrams (R. Stan Mortenson, Baker Botts, L.L.P., Washington, DC, of counsel), Cahill, Gordon & Reindel, L.L.P., New York, NY, for Defendants Cem Cengiz Uzan and Murat Hakan Uzan.

Nathan Lewin (Robert F. Serio, Gibson, Dunn & Crutcher, L.L.P., New York, NY, of counsel), Lewin & Lewin, L.L.P., Washington, DC, for Defendants Kemal Uzan, Melabat Uzan, Aysegul Akay, and Antonio Luna Betancourt.

Carter G. Phillips (Bradford A. Berenson, of counsel), Sidley, Austin, Brown & Wood, L.L.P., Washington, DC, for Defendants Unikom Iletism Hizmetleri Pazarlama A.S., Standart Pazarlama A.S., and Standart Telekomunikasyon Bilgisayar Hizmetleri A.S.

Howard Stahl (Steven K. Davidson, Charles G. Cole, Bruce C. Bishop, of counsel),

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Steptoe & Johnson, L.L.P., Washington, DC (Craig A. Stewart, Anthony J. Franze, Arnold & Porter, L.L.P., Washington, DC, of counsel), for Plaintiff Motorola Credit Corporation.

Jason Brown (David D. Howe, of counsel), Holland & Knight, L.L.P., New York, NY, for Plaintiff Nokia Corporation.

Before: MINER, CALABRESI, and CABRANES, Circuit Judges.

JOSÉ A. CABRANES, Circuit Judge.

This is an appeal brought by individual and corporate defendants who, the District Court found, swindled two large corporations out of well over $2 billion. 1 On appeal, defendants contend that the District Court lacked jurisdiction over this case and the parties to it on multiple grounds. They argue first that the District Court erred in denying their motion to compel arbitration. In the alternative, and assuming the case was not arbitrable, they claim that the District Court lacked jurisdiction to conduct a trial while an appeal was pending in this Court from the District Court's denial of their motion to compel arbitration; that the District Court abused its discretion by deciding unsettled questions of Illinois law after all the federal claims were dismissed; and that the Illinois claims brought by plaintiffs were not ripe for adjudication. Most defendants also claim that the District Court lacked personal jurisdiction over them.

Defendants also challenge some of the remedies imposed by the District Court after a trial in which they did not participate. Plaintiffs, in turn, cross-appeal on one issue, arguing that the District Court abused its discretion when it denied their motion to reinstate RICO claims that were previously dismissed at the behest of this Court.

For the reasons stated below, we reject each of defendants' challenges to the District Court's jurisdiction over this action, and we dismiss the cross-appeal as meritless. However, we vacate the judgment of the District Court to the extent that it (a) imposed a constructive trust, for the benefit of Motorola Credit Corporation, over 66% of the stock of a company controlled by defendants; (b) permitted plaintiffs to enforce their judgment against 130 nonparties to this litigation; and (c) awarded punitive damages to Motorola Credit Corporation in the amount of $2,132,896,905.66. Having vacated the first two remedies on the principal ground that the District Court did not make sufficiently specific findings to support them, we remand for proceedings consistent with this opinion. We also direct the District Court to reconsider its punitive damage award, which was inconsistent with due process requirements of the Constitution and Illinois law.

I. FACTUAL BACKGROUND

The following facts are drawn principally from our Court's previous opinion in this case, Motorola Credit Corp. v. Uzan, 322 F.3d 130 (2d Cir. 2003) (" Uzan I "), and from the District Court's opinion, Motorola Credit Corp. v. Uzan, 274 F.Supp.2d 481 (S.D.N.Y.2003) (" Uzan II "). Plaintiff Motorola Credit Corporation ("Motorola") is the financing affiliate of Motorola, Inc., which manufactures and services cellular telecommunications systems. Plaintiff Nokia Corporation ("Nokia") is another major telecommunications manufacturer. The individual defendants are members and a

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close associate of the Uzan family of Turkey, which controls, inter alia, companies called Telsim and Rumeli Telefon. Neither Telsim nor Rumeli Telefon is a party to this action. The Uzans also control companies called Standart Telekomunikasyon Bilgisayar Hizmetleri A.S. ("Standart Telekom"), Unikom Iletism Hizmetleri Pazarlama A.S., and Standart Pazarlama A.S. These companies are defendants in this action.

In 1998, Motorola lent Telsim $360 million to purchase cellular infrastructure and equipment from Motorola Ltd. (a separate entity), and $200 million to enable Telsim to acquire a 25-year nationwide cellular license for Turkey. As collateral, Rumeli Telefon, which then owned approximately 73.5% of Telsim, pledged 51% of Telsim's outstanding shares. In subsequent years, Motorola provided significant additional financing--eventually totaling approximately $2 billion--and the collateral pledged by Rumeli Telefon as security for the loan was increased to 66% of Telsim's outstanding shares. Each of Motorola's relevant agreements (the "Motorola Agreements") provides that it "shall be governed by and interpreted in accordance with the internal laws (without regard to the laws of conflicts) of Switzerland," and that the parties agree to arbitrate any dispute that "arises hereunder, or under any document or agreement delivered in connection herewith," before a three-person arbitration panel in Switzerland in accordance with the International Arbitration Rules of the Zurich Chamber of Commerce. Uzan II, 274 F.Supp.2d at 507.

Also in 1998, Nokia entered into a smaller but similar arrangement with Telsim and Rumeli Telefon. The initial loan was extended by ABN-AMRO Bank N.V., on behalf of Nokia and backed by the credit of Nokia. As security, Rumeli Telefon pledged 5% of Telsim's outstanding shares. In subsequent years, Nokia extended additional financing to Telsim, approximately $800 million in all, and Rumeli Telefon increased the pledged interest to 7.5% of Telsim's outstanding shares. Each of the relevant agreements (the "Nokia Agreements") provides that it "shall be governed by, and shall be construed in accordance with Swiss law," Uzan I, 322 F.3d at 133, and that the parties agree to arbitrate all disputes "arising between the Parties out of or in connection with this Agreement" before a three-member arbitration panel in Switzerland in accordance with the International Arbitration Rules of the Zurich Chamber of Commerce, Uzan II, 274 F.Supp.2d at 508. Of these loans from Motorola and Nokia, Telsim has repaid approximately $200 million since 1998, and only $5 million since mid-2000.

The District Court found that the defendants made numerous false statements designed to induce Motorola and Nokia to extend the loans at issue in this case. These false statements included, inter alia, "material false statements regarding the business practices and finances of Telsim, the value and security of the collateral, the uses to which prior loan proceeds had been put, the status of other financing for Telsim, the existence and value of offers to purchase part or all of Telsim, and the status of negotiations with third parties" to sell control of Telsim. Id. at 577.

The District Court also found that, at a special shareholders meeting of Telsim convened on April 24, 2001, the defendants substantially diluted the value of the collateral pledged to Motorola and Nokia. At the meeting, the shareholders tripled the number of outstanding Telsim shares. Although current shareholders were afforded preemption rights to purchase the newly issued shares, Rumeli Telefon (the largest shareholder) waived these rights. The Telsim shareholders then transferred

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Rumeli Telefon's waived preemption rights to defendant Standart Telekom (another Uzan-controlled company), which exercised those rights. As a result of this transfer, Standart Telekom raised its stake in Telsim from 0.32% to 66.48%, while Rumeli Telefon's holding (all of which had been pledged to Motorola and Nokia) was reduced from 73.63% to 24.54%.

On January 4, 2002, the Uzans staged another meeting of Telsim shareholders. At that meeting, the defendants passed a resolution that created privileged "Class A" shares, held by the Uzans, that were unencumbered by any pledge to Motorola or Nokia, and that gave Class A shareholders the authority to elect four of Telsim's five directors. Under Turkish law, these changes became effective when the resolution was duly registered in May 2002.

The District Court found that, in addition to diluting and destroying the plaintiffs' collateral, defendants filed false criminal charges against plaintiffs' senior executives, claiming that the executives engaged in "explicit and armed threat[s] to kill," blackmail, and kidnap members of the Uzan family. These charges were later dismissed by the Turkish criminal court on the ground that they lacked a factual basis.

The District Court's extensive findings are laid out in its meticulous 173-page opinion granting a judgment to Motorola and Nokia totaling more than $4 billion. For the purposes of this appeal, however, these detailed findings are for the most part irrelevant because the appeal is based principally on challenges...

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