Daventree Ltd. v. Republic of Azerbaijan, No. 02 Civ. 6356(SHS).

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Writing for the Court: Stein
• Citation: 349 F.Supp.2d 736
• Parties: DAVENTREE LIMITED and Audia Investments Ltd., Plaintiffs, and Oily Rock Group, Ltd., Nominal Plaintiff v. REPUBLIC OF AZERBAIJAN, State Property Committee of Azerbaijan, Nadir Nasibov, Barat Nuriyev, von Meiss Blum, Claude Blum, Hans Bodmer, Rolf Schmid, Andre Wahrenberger, Hyposwiss Schweizerische Hypotheken — und Handelsbank, Theodore Horath and Kurt Buchmann, Defendants.
• Docket Number: No. 02 Civ. 6356(SHS).
• Decision Date: 28 December 2004

349 F.Supp.2d 736 DAVENTREE LIMITED and Audia Investments Ltd., Plaintiffs, and
Oily Rock Group, Ltd., Nominal Plaintiff
v.
REPUBLIC OF AZERBAIJAN, State Property Committee of Azerbaijan, Nadir Nasibov, Barat Nuriyev, von Meiss Blum, Claude Blum, Hans Bodmer, Rolf Schmid, Andre Wahrenberger, Hyposwiss Schweizerische Hypotheken — und Handelsbank, Theodore Horath and Kurt Buchmann, Defendants. No. 02 Civ. 6356(SHS). United States District Court, S.D. New York. December 28, 2004.

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Joseph D. Pizzurro Curtis, Samuel Rosenthal, T. Barry Kingham, Curtis, Mallet-Prevost, Colt & Mosle, L.L.P., New York, NY, for plaintiffs.

OPINION & ORDER

STEIN, District Judge.

 TABLE OF CONTENTS
                 I. BACKGROUND ......................................................................743
                 A. The Parties .................................................................743
                 B. Outline of the Alleged Fraudulent Scheme ....................................744
                 C. The SOCAR Privatization Program .............................................744
                 D. Extortion of Plaintiffs' Investments ........................................745
                 E. The Failure to Privatize SOCAR ..............................................747
                 II. THE SOVEREIGN DEFENDANTS' MOTION TO DISMISS .....................................747
                 A. Subject Matter Jurisdiction Exists Under the FSIA as to the Extortion
                 Claims but not as to the Failure to Privatize Claims ......................747
                 1. Legal Standards: ........................................................748
                 a. Dismissal for Lack of Subject Matter Jurisdiction ...................748
                 b. The Commercial Activity Exception ...................................748
                 c. The Expropriation Exception .........................................749
                 2. The Commercial Activity Exception Applies to the Extortion Claims: ......750
                 3. The Expropriation Exception Does Not Apply to the Failure to
                 Privatize Claims ......................................................751
                 B. Heydar Aliyev Is Not a Necessary Party ......................................751
                 C. Daventree Is an Adequate Representative to Bring this Suit ..................752
                

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 D. The Equitable Defense of Unclean Hands Does Not Require Dismissal of
                 Plaintiffs' Claims ........................................................753
                 E. The Act of State Doctrine Does Not Apply ....................................754
                 F. Dismissal for Forum Non Conveniens Is Not Warranted .........................755
                III. HYPOSWISS DEFENDANTS' MOTION TO DISMISS .........................................757
                 A. Legal Standards .............................................................757
                 1. Dismissal for Lack of Personal Jurisdiction .............................757
                 2. Personal Jurisdiction pursuant to the New York Long-Arm Statute .........758
                 a. CPLR § 302(a)(1) — Transacting Business within New York .............758
                 b. CPLR § 302(a)(2) — Commission of a Tortious Act within New
                 York ..............................................................758
                 c. Imputation of a Co-conspirator's Contacts with New York .............759
                 3. Personal Jurisdiction pursuant to Rule 4(k)(2) ..........................760
                 a. Minimum Contacts ....................................................760
                 b. Reasonableness ......................................................761
                 4. Entitlement to Jurisdictional Discovery .................................761
                 B. Analysis ....................................................................761
                 1. The Hyposwiss Defendants Are Not Subject to Long-Arm
                 Jurisdiction in New York ..............................................761
                 a. CPLR §§ 302(a)(1) and 302(a)(2) Do Not Apply to the Hyposwiss
                 Defendants Directly ...............................................762
                 b. Acts of Putative Co-conspirators Cannot Be Imputed to
                 Hyposwiss Defendants ..............................................762
                 2. Hyposwiss Defendants Are Not Subject to Specific Jurisdiction
                 Pursuant to Rule 4(k)(2) ..............................................763
                 3. Plaintiffs Are Entitled to Jurisdictional Discovery as to Privatbank's
                 Investing Activities in the United States .............................765
                 IV. CONCLUSION ......................................................................765
                

This action arises out of the government of Azerbaijan's program to privatize Azerbaijan's government-owned oil company, the State Oil Company of the Azerbaijan Republic ("SOCAR"). Plaintiffs Daventree Limited ("Daventree") and Audia Investments Ltd. ("Audia") sue on their own behalves, and Daventree also brings this action as a shareholder of and on behalf of nominal plaintiff Oily Rock Group pursuant to Rule 23.1 of the Federal Rules of Civil Procedure. Plaintiffs seek more than $100 million in damages arising out of the allegedly fraudulent and corrupt privatization program.

Plaintiffs assert federal claims based on the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, and on the Alien Tort Claims Act (ATCA), 28 U.S.C. § 1350, as well as various New York state law claims. For simplicity's sake, the defendants will be classed into four groups: first, "the Sovereign defendants," consisting of the Republic of Azerbaijan and the State Property Committee of Azerbaijan ("SPC");¹ second, "the Azeri individual defendants," consisting of Nadir Nasibov and Barat Nuriyev; third, "the vMB Defendants," consisting of the law firm of von Meiss Blum ("vMB") and its partners Claude Blum, Hans Bodmer, Rolf Schmid and Andre Wahrenberger; and finally, "the Hyposwiss defendants," consisting of Hyposwiss Privatbank, Ltd., formerly Hyposwiss Schweizerische Hypotheken — und Handelsbank,

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(" Privatbank"), and two officers of that bank — Theodore Horath and Kurt Buchmann. Currently pending are separate motions of the Sovereign defendants and the Hyposwiss defendants to dismiss all claims asserted against them.

The Sovereign defendants contend that plaintiffs' ATCA and pendent New York state law estoppel and unjust enrichment claims² must be dismissed pursuant to Rules 12(b)(1), 12(b)(3), and 12(b)(7) of the Federal Rules of Civil Procedure — for lack of subject matter jurisdiction, for improper venue and for failure to join a necessary party, respectively. The Hyposwiss defendants seek dismissal of plaintiffs' civil RICO claims and the ATCA claim pursuant to Rules 12(b)(2) and 12(b)(6) — for lack of personal jurisdiction and for failure to state a claim upon which relief may be granted.

For the reasons set forth below, the Sovereign defendants' motion to dismiss is granted in part and denied in part. Specifically, plaintiffs' claims alleging takings in violation of international law, promissory estoppel, equitable estoppel, and unjust enrichment (counts six, nine, ten and eleven in the Complaint) are dismissed.

The Hyposwiss defendants' motion to dismiss for lack of personal jurisdiction is also granted in part and denied in part. Specifically, because this Court finds that it cannot exercise personal jurisdiction over individual defendants Horath and Buchmann under either the relevant New York long-arm statute or Rule 4(k)(2) of the Federal Rules of Civil Procedure, all claims against those defendants are dismissed pursuant to Rule 12(b)(2). Moreover, because an issue of jurisdictional fact exists as to whether general jurisdiction exists over defendant Privatbank pursuant to Rule 4(k)(2), that defendant's motion to dismiss is denied without prejudice to its renewal pending conclusion of jurisdictional discovery.

I. BACKGROUND

The following facts are as alleged in the Complaint:

A. The Parties

Plaintiffs Daventree, Audia, and Oily Rock are three foreign corporations. Daventree is organized under the laws of Cyprus, which is also its principal place of business. (Compl. at ¶¶ 20-22). Audia and Oily Rock are organized under the laws of British Virgin Islands, where they have their respective principal places of business. (Id.) Both Daventree and Audia were shareholders of Oily Rock at the times relevant to this action. (Id. at ¶ 24). Currently, only Daventree remains an Oily Rock shareholder. (Id.)

Defendant Azerbaijan, a sovereign state and former member state of the Soviet Union, is located on the Caspian Sea and has extensive oil and gas reserves. (Compl. at ¶ 4). Heydar Aliyev was, at all times relevant to this action, the President of Azerbaijan and his son, Ilham Aliyev, was the First Vice President of SOCAR. (Id. at ¶¶ 28-29). The Azeri individual defendants, Nadir Nasibov and Barat Nuriyev, were the Chairman and the Deputy Chairman of the SPC. (Id. at ¶¶ 30-31).

Providing legal representation at various times and for several parties, vMB is a Swiss law firm that allegedly "controlled and operated numerous secret Swiss accounts"

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for laundering the proceeds of the racketeering activities. (Compl. at ¶ 32). The partners of vMB — Messrs. Bodmer, Blum, Schmid, and Wahrenberger — all citizens of Switzerland, have been named as defendants as well. (Id. at ¶ 33). As the business agent and corporate secretary of Oily Rock, Bodmer allegedly played a central role in the racketeering scheme, acting as a "hub" for all the other defendants by arranging complex financial transactions and leading global expeditions in pursuit of foreign investors for the Azeri privatization program. (Id. at ¶ 34). In addition, Bodmer is alleged to have been a member of the board of directors of Privatbank — a Swiss bank — exercising control over that bank's illegal activities. (Id.) The remaining vMB defendants similarly assisted the racketeering enterprise by participating in communications with investors and transfers of cash. (Id. at ¶¶ 35-38). Finally, defendant Privatbank, together with its President — Horath — and its...