Universal Trading &Amp; Investment Co. v. Bureau for Representing Ukrainian Interests in Int'l

Citation727 F.3d 10
Decision Date12 August 2013
Docket NumberNo. 12–2283.,12–2283.
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)
PartiesUNIVERSAL TRADING & INVESTMENT CO., INC., Foundation Honesty International, Inc., Plaintiffs, Appellees, v. BUREAU FOR REPRESENTING UKRAINIAN INTERESTS IN INTERNATIONAL AND FOREIGN COURTS; Ukrainian Prosecutor General's Office; Ukraine, Defendants, Appellants.


David G. Hetzel, with whom Robert M. Shaw and Holland & Knight LLP, were on brief for appellants.

Stephen F. Reardon, with whom Law Office of Stephen F. Reardon, was on brief for appellee Universal Trading & Investment Co., Inc.

Before LYNCH, Chief Judge, TORRUELLA and HOWARD, Circuit Judges.

TORRUELLA, Circuit Judge.

We are asked to review a district court's assertion of jurisdiction over a matter involving a foreign sovereign, the Republic of Ukraine, and its agencies and instrumentalities (the “Ukrainian defendants), following an alleged failure of those agencies and instrumentalities to pay for asset recovery work performed by a private entity, Universal Trading & Investment Co., Inc. (UTICo). Since we find that the Ukrainian defendants' transactions with UTICo constitute commercial activity exempt from immunity under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1604, we affirm the district court's exercise of jurisdiction over UTICo's breach of contract claim.

I. Background

The following facts are alleged in UTICo's complaint and were accepted as true by the Ukrainian defendants for the purposes of the motion to dismiss. In our review, we accept as true all well-pled facts alleged in the complaint and draw all reasonable inferences in UTICo's favor. Santiago v. Puerto Rico, 655 F.3d 61, 72 (1st Cir.2011).

A. Factual Background

Plaintiff UTICo is a Massachusetts corporation that engages in international asset recovery operations. Defendants Ukraine, the Ukrainian Prosecutor General's Office (UPGO), and the Bureau for Representing Ukrainian Interests in International and Foreign Courts (the Bureau) are charged in UTICo's complaint with a breach of contract for services UTICo allegedly rendered to them, but which remain uncompensated. This tale of international dimensions begins when UPGO turned to UTICo for assistance to recover assets expatriated from Ukraine by United Energy Systems of Ukraine (UESU), its principals (including former Ukrainian Prime Minister Pavlo Lazarenko (“Lazarenko”) and Lazarenko's assistant, Petro Kiritchenko (“Kiritchenko”)), and its parent company, United Energy International, Ltd.1 UPGO is the prosecutorial agency in Ukraine, and the 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.2

The service agreements (“Agreements”) between UPGO and UTICo at issue in this appeal arose in the context of UTICo's prior work investigating Cube, Ltd. (“Cube”), which was reorganized to become UESU. UESU, through the intervention of Lazarenko, had been awarded a lucrative government contract to handle the import of natural gas for distribution and delivery in Ukraine, and the proceeds collected by UESU for resale of natural gas had been converted through UESU's parent company accounts and then hidden in UESU's principals' secret accounts. In the course of UTICo's independent collection case against Cube/UESU, it uncovered evidence of Lazarenko's involvement in the control of UESU, and it had contacted UPGO and other Ukrainian agencies to report the uncovered fraudulent relationship. Ukraine's account agencies subsequently estimated that the total proceeds misappropriated from Ukraine by UESU amounted to over $2 billion. It was based on this and other of UTICo's discoveries that UPGO, in 1998, “expressed interest in contracting UTICo for continued investigation of the whereabouts of UESU-related assets and for the freezing of those assets, particularly those appropriated by Lazarenko, anywhere in the world that they might be found.” Prior to its outreach to UTICo, the complaint alleges, UPGO had little success in its efforts to collect evidence in foreign jurisdictions in its investigations and prosecutions of Ukrainian nationals, most importantly in its attempts at asset recovery.

UTICo and UPGO reached their first agreement on May 15, 1998, when the Ukrainian Deputy Prosecutor General, Nikolai Obikhod, traveled to New York and discussed the terms of UTICo's provision of its services with UTICo's representatives (“May Agreement”). That agreement stated as follows:

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 the 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 was addressed to the President of UTICo, Y.A. Lambert, and bore the UPGO letterhead, including the Coat of Arms of Ukraine, as well as the signature of B. Ferents, the Acting Prosecutor General of Ukraine. It was delivered to UTICo's office in Massachusetts.

According to the complaint, the May Agreement was executed as the “first framework agreement” that was followed by 14 additional contractual instruments between UTICo and UPGO. The most prominent of these instruments is an agreement dated October 2, 1998, in which the newly confirmed Prosecutor General, Mikhailo Potebenko, confirmed the May Agreement (“October Agreement”). That Agreement, also addressed to Y.A. Lambert as President of UTICo, states:

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 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 October Agreement letter also bore the UPGO letterhead, including the Coat of Arms of Ukraine, and the signature of the new Prosecutor General. It was delivered to UTICo by Ukrainian officials during the Ukrainian Prime Minister's trip to Washington, D.C.

Other instruments included Powers of Attorney (“POAs”) granted by UPGO to UTICo and/or attorneys selected by UTICo to pursue a series of investigations and actions on its behalf in multiple jurisdictions outside of Ukraine. Specifically, they granted UTICo and its selected attorneys authority to investigate and bring legal actions to reveal and secure the freezing of assets in a variety of jurisdictions, including, inter alia, the United States, the British Virgin Islands, the Bahamas, Panama, and Barbados. UTICo used these POAs to accomplish its asset recovery work on behalf of Ukraine.

UTICo claims that it was instrumental in freezing hundreds of millions of dollars for Ukraine through uncovering fraud engaged in by the principals of UESU and providing evidence vital to the prosecution of Lazarenko, Kiritchenko, and others. For example, it states in the complaint that 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 allegedly provided evidence to UPGO allowing UPGO to freeze over $100 million of assets held in Eurofed Bank in Antigua, Lithuania, and Switzerland in 1999 and 2000. Further, UTICO claims it collected evidence in the Bahamas, Panama, Cyprus, Nauru, the Isle of Man, Jersey, St. Kitts, and the Cayman Islands, which UPGO then used to prosecute claims for stolen assets in excess of $1 billion in Ukraine.

B. Procedural History

On November 26, 2010, UTICo filed its complaint in the instant action. The Ukrainian defendants accepted UTICo's facts as true when they filed a motion to dismiss the complaint on grounds, inter alia, that they were entitled to immunity under the FSIA.

The district court denied defendants' motion to dismiss in part, allowing UTICo's breach of contract claim pertaining to the 1998 Agreements to go forward on grounds that jurisdiction could be asserted over that claim under the commercial activity exception to the FSIA. See Universal Trading & Inv. Co. v. Bureau for Representing Ukrainian Interests in Int'l & Foreign Courts ( Universal I ), 898 F.Supp.2d 301 (D.Mass.2012). Specifically, the court found that, while “the Agreement's language is ambiguous,” and “extrinsic evidence will be necessary to establish the parties' intent,” plaintiffs had stated a claim for breach of contract that was not jurisdictionally barred by the FSIA. Id. at 314–16, 319–20. In finding that the commercial activity exception applied to UTICo's breach of contract claim, the court stated:

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...

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