City of Kaz. v. Ablyazov

• Citation: 278 F.Supp.3d 776
• Decision Date: 26 September 2017
• Docket Number: 15–CV–5345 (AJN)
• Parties: CITY OF ALMATY, Kazakhstan and BTA Bank JSC, Plaintiffs, v. Mukhtar ABLYAZOV, Viktor Khrapunov, Ilyas Khrapunov, and Triadou SPV S.A., Defendants.
• Court: U.S. District Court — Southern District of New York

278 F.Supp.3d 776

CITY OF ALMATY, Kazakhstan and BTA Bank JSC, Plaintiffs,

v.Mukhtar ABLYAZOV, Viktor Khrapunov, Ilyas Khrapunov, and Triadou SPV S.A., Defendants.

15–CV–5345 (AJN)

United States District Court, S.D. New York.

Signed September 26, 2017

Peter M. Skinner, Randall Wade Jackson, Matthew Lane Schwartz, Boies, Schiller & Flexner LLP(NYC), New York, NY, for Defendants.

AMENDED MEMORANDUM & ORDER

ALISON J. NATHAN, District Judge:

This complex litigation concerns an alleged conspiracy by which prominent citizens of Kazakhstan purportedly looted billions of dollars from the City of Almaty, Kazakhstan ("Almaty") and BTA Bank JSC ("BTA" and, together with Almaty, the "Kazakh Entities"), a formerly state-owned banking institution based in Kazakhstan, and then laundered the stolen funds around the world, including ultimately by investing in New York City real estate projects. Now before the Court are three motions to dismiss and one motion for joinder. Specifically: (i) crossclaim Defendant Triadou SPV S.A. ("Triadou") moves to dismiss this action in its entirety for lack of subject matter jurisdiction in light of the Court's December 2016 dismissal of the only remaining federal claims; (ii) the Kazakh Entities move for joinder of FBME Bank Ltd. ("FBME") as a party to this action; and (iii) crossclaim Defendants Mukhtar Ablyazov, Viktor Khrapunov, and Ilyas Khrapunov (together, the "Individual Defendants") move to dismiss all claims asserted against them. For the reasons set forth below, Triadou's motion to dismiss is DENIED, the Kazakh Entities' motion for joinder is DENIED, and the Individual Defendants' motions to dismiss are GRANTED in part and DENIED in part.

I. Background

The Court has recounted the factually and procedurally complex background of this case in several prior substantive decisions. It does so again here solely to the extent necessary to contextualize the motions at issue.

A. Factual Allegations

Almaty, the largest city in Kazakhstan, claims that its former mayor Viktor Khrapunov, along with certain associates and family members including his son Ilyas Khrapunov, embezzled approximately $300 million from Almaty between approximately 1997 and 2004, principally by appropriating various public assets for personal use. Dkt. No. 219 ¶¶ 45–55.¹ Often, Almaty claims, this was achieved in one of two ways: fraudulent auctions in which Khrapunov confederates acquired valuable assets at nominal prices; or Viktor Khrapunov's exercise of eminent domain power to seize private property and transfer it to entities owned or controlled by the Khrapunovs. Id. ¶¶ 49–55. BTA, for its part, claims that its former chairman Mukhtar Ablyazov siphoned more than $6 billion out of BTA between approximately 2005 and 2009, primarily through a series of fraudulent loans to valueless entities owned or controlled by Ablyazov himself. Id. ¶¶ 28–33.

The Kazakh Entities further allege that, in order to evade law enforcement, the Individual Defendants—who were related by marriage—joined together to move the stolen funds out of Kazakhstan and to launder them through a series of shell companies, sham transactions, and outwardly-legitimate investments. See, e.g., id. ¶¶ 56–59, 68–72, 77–97. To help accomplish this, the Individual Defendants allegedly created, among other things, a Switzerland-based real estate investment vehicle called SDG Capital, S.A. ("SDG") into which they funneled hundreds of millions of dollars of illicit proceeds before engaging in a sham sale of the company to conceal their continued control. Id. ¶¶ 58, 78–84. The Individual Defendants then purportedly facilitated the creation of several entities under Luxembourg law for the purpose of investing stolen funds in United States-based real estate projects. Id. ¶¶ 86–87. Among these entities was Triadou, a special purpose vehicle wholly owned and controlled by SDG—and thus purportedly by the Individual Defendants. Id.

In 2012 and 2013, Triadou, acting at the direction of the Individual Defendants, invested funds allegedly embezzled from the Kazakh Entities in several New York City real estate projects, including the Flatotel and the Cabrini Medical Center, with prominent New York-based real estate developer Joseph Chetrit and several of his corporate affiliates (the "Chetrit Entities"). Id. ¶¶ 88–97, 111–13. Funding for these investments was allegedly wired to escrow accounts maintained by counsel for the Chetrit Entities in the United States from accounts held by a Dubai-based private contracting entity called Telford International Limited ("Telford") (which was allegedly controlled by the Individual Defendants) in FBME, which is a Tanzanian-headquartered financial institution with operations primarily in Cyprus. Id. ¶¶ 21, 78, 98–106, 111–13. The Kazakh Entities allege that Telford's FBME accounts—which were managed by Eesh Aggarwal, a close financial advisor to Ablyazov—contained and were used to "covertly move and invest" funds stolen by Ablyazov from BTA, and that FBME "had a history of moving funds for Aggarwal and Ablyazov with no questions asked." Id. ¶¶ 99–102. True to form, the Kazakh Entities assert, FBME executed direct transfers to the Chetrit Entities' counsel "despite their blatant indicia of money laundering." Id. ¶ 105. The Kazakh Entities further allege that, in order to consummate these transactions and ensure concealment of the stolen funds, Triadou accepted contract terms on at least one investment that were unreasonably favorable to Chetrit and the Chetrit Entities. See, e.g., id. ¶¶ 97, 148.

In 2014, facing mounting law enforcement pressure abroad and litigation initiated by Almaty in federal court in California, Ablyazov and the Khrapunovs allegedly caused Triadou to liquidate its real estate assets in New York so that stolen funds could be removed from the United States and hidden once again. Id. ¶¶ 114–123. To that end, Triadou—acting at the direction of the Individual Defendants—engaged in a sham transaction with the Chetrit Entities whereby Triadou assigned its interest in the Flatotel to the Chetrit Entities and released its entitlement to equity in the Cabrini Medical Center in exchange for a "fraction of the fair market value of the properties" and personal bribery payments to at least one Triadou executive. Id.

Since 2009, BTA has initiated multiple proceedings in the U.K. premised on Ablyazov's purported embezzlement and has secured numerous judgments against Ablyazov and his associates (the "U.K. Judgments"), leading to awards of over $4 billion in damages, asset freeze and receivership orders, and sanctions against Ablyazov for violations of the same. Id. ¶¶ 35–41. As of the filing of the Amended Crossclaims, Ablyazov had been sentenced to 22 months imprisonment for contempt of court in the U.K. and was detained in a French prison pending extradition proceedings. Id. ¶¶ 38–42. The Khrapunovs, for their part, were residing in Switzerland and facing multiples charges in Kazakhstan arising from purported theft of public property and money laundering, among other things. Id. ¶¶ 62–63. The Kazakh government had secured the assistance of the Swiss authorities in its ongoing efforts to prosecute those charges, and the Public Prosecutor of Geneva had ordered Swiss accounts and assets affiliated with the Khrapunovs frozen. Id. ¶¶ 64–65. Kazakhstan, moreover, had formally requested the extradition of at least Viktor Khrapunov. Id.

B. Procedural Posture

This litigation began as an interpleader action against Triadou and Almaty brought in New York State Supreme Court by the Chetrit Entities, which claimed to face multiple liability under their 2014 assignment agreements with Triadou. Dkt. No. 25 ¶¶ 11–17. Almaty removed the action to federal court on July 9, 2015. Dkt. No. 1.

In its answer to the interpleader complaint, Almaty asserted counterclaims against the Chetrit Entities, crossclaims against Triadou, and third-party claims against Ablyazov, the Khrapunovs, and Joseph Chetrit, including claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18U.S.C. § 1961 et seq. , and various claims under New York State law. Dkt. No. 49. All claims brought by or against the Chetrit Entities or Chetrit were ultimately resolved through dismissal or settlement.

On June 21, 2016, the Court granted a motion by Almaty and BTA to formally join BTA, the Khrapunovs, and Ablyazov to the pending dispute between Almaty and Triadou, and largely denied a motion by Triadou to dismiss the Kazakh Entities' crossclaims, while reserving judgment on whether the RICO claims were impermissibly extraterritorial pending supplemental briefing on the impact of the Supreme Court's then-recent decision in RJR Nabisco, Inc. v. European Cmty. , ––– U.S. ––––, 136 S.Ct. 2090, 195 L.Ed.2d 476 (2016). See generally Dkt. No. 174 (the "June 21 Decision").

Approximately one week after issuance of the June 21 Decision, the Individual Defendants appeared in the litigation for the first time and submitted letters requesting leave to move to dismiss the Kazakh Entities' claims against them, with Ablyazov, at least, representing that he had not been properly served with process prior to the Court's June 21 Decision. See Dkt. Nos. 177–81. The parties' ultimately consented to the filing of the Individual Defendants' proposed motions, and the Court entered a jointly proposed briefing schedule on July 25, 2016. Dkt. No. 200.

On July 29, 2016, the Court conducted an initial pretrial conference and entered a Civil Case Management Plan and Scheduling Order (the "Scheduling Order"). See Dkt. No. 205. The Scheduling Order provided, among other things, that "[a]mended pleadings may not be filed and additional parties may not be joined except with leave of the Court" and that "[a]ny motion to amend or join parties shall be filed within 30 days from the date of this Order." Id. at 2.

The Individual Defendants filed motions to dismiss on August 17, 2016 in accordance with the parties'...