In re Hulley Enters. Ltd.

• Decision Date: 05 September 2019
• Docket Number: 18 Misc. 435 (GBD) (GWG)
• Citation: 400 F.Supp.3d 62
• Parties: IN RE: Application of HULLEY ENTERPRISES LTD., Yukos Universal Ltd., and Veteran Petroleum Ltd., for an Order Pursuant to 28 U.S.C. § 1782 to Conduct Discovery for Use in a Foreign Proceeding
• Court: U.S. District Court — Southern District of New York

400 F.Supp.3d 62

IN RE: Application of HULLEY ENTERPRISES LTD., Yukos Universal Ltd., and Veteran Petroleum Ltd., for an Order Pursuant to 28 U.S.C. § 1782 to Conduct Discovery for Use in a Foreign Proceeding

18 Misc. 435 (GBD) (GWG)

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

Signed September 5, 2019

Steven M. Shepard, Susman Godfrey LLP, New York, NY, Stephanie Nicole Spies, Susman Godfrey LLP, New York, NY, for Application of Hulley Enterprises Ltd., Yukos Universal Ltd., and Veteran Petroleum Ltd., for an Order Pursuant to 28 U.S.C. § 1782 to Conduct Discovery for Use in a Foreign Proceeding

MEMORANDUM DECISION AND ORDER

GEORGE B. DANIELS, United States District Judge

Petitioners Hulley Enterprises Ltd., Yukos Universal Ltd., and Veteran Petroleum Ltd. apply for leave to serve subpoenas on Respondents White & Case, LLP ("White & Case") and its Chairman, Hugh Verrier, pursuant to 28 U.S.C. § 1782. (First Am. Appl. By Hulley Enterprises Ltd., Yukos Universal Ltd., and Veteran Petroleum Ltd. for an Order Pursuant to 28 U.S.C. § 1782 to Conduct Disc. for Use in a Foreign Proceeding and Statement in Supp. Thereof, ECF No. 7.) Through these subpoenas, Petitioners seek evidence to use in their litigation against the Russian Federation that is currently pending in the Netherlands (the "Dutch Appellate Proceeding"). (Id. )

Petitioners' application was referred to Chief Magistrate Judge Gabriel W. Gorenstein. (Order of Reference to a Magistrate Judge, ECF No. 28.) On February 19, 2019, Chief Magistrate Judge Gorenstein issued an Opinion and Order (the "Opinion") denying the application.¹ (Opinion, ECF No. 48.) Petitioners filed objections to the Opinion on March 12, 2019. (Pet'rs' Objs. to Judge Gorenstein's Op. and Order ("Pet'rs' Objs."), ECF No. 51.) Subsequently, on April 2, 2019, Respondents filed a response to Petitioners' objections. (Resp'ts' Resp. to Pet'rs' Objs. to Judge Gorenstein's Op. and Order ("Resp'ts' Resp."), ECF No. 52.) Petitioners' objections are overruled, and Chief Magistrate Judge Gorenstein's Opinion is AFFIRMED.²

I. FACTUAL BACKGROUND

A. The Parties.

Petitioners are former shareholders of OAO Yukos Oil Company ("Yukos"), a Russian oil and gas company that was privatized in the mid-1990s. (Mem. of Law in Supp. of Ex Parte Appl. By Hulley Enterprises Ltd., Yukos Universal Ltd., and Veteran Petroleum Ltd. for an Order Pursuant to 28 U.S.C. § 1782 to Conduct Disc. for Use in a Foreign Proceeding ("Pet'rs' Mem."), ECF No. 2, at 1; Mem. of Law in Opp'n to Pet'rs' Appl. For an Order Pursuant to 28 U.S.C. § 1782 to Conduct Disc. for Use in a Foreign Proceeding ("Resp'ts' Opp'n"), ECF No. 19, at 5.) From approximately 1998 through 2004, the law firm of White & Case represented Yukos and certain subsidiaries of GML Ltd. ("GML"), the holding company that controlled the majority ownership of Yukos at the time. (Pet'rs' Mem. at 3–4.)

Petitioners allege that during this representation, White & Case conducted several projects that are "relevant" to refuting certain allegations that the Russian Federation makes in the Dutch Appellate Proceeding. (Id. at 4.) First, White & Case allegedly conducted a due diligence review of Yukos and its subsidiaries (the "Due Diligence Project"), (id. ), which involved "review[ing] copious documentation related, inter alia , to the privatization of Yukos" (id. at 5 (quoting Decl. of David Godfrey ("Godfrey Decl."), ECF No. 2-21, ¶ 7)). Second, in March 2002, White & Case allegedly advised the director of GML on the first of two so-called "Tempo Agreements," under which GML agreed to pay certain fees to a company called Tempo Finance Ltd. and to certain individuals. (Id. ) Third, Petitioners claim that White & Case provided "extensive due diligence and other services" to GML subsidiary Menatep Ltd., including "investigat[ing] the chain of title and ownership of Yukos shares." (Id. (quoting Godfrey Decl. ¶ 8).) Finally, Petitioners allege that White & Case provided legal advice to GML subsidiary MFO Menatep in connection with a settlement agreement entered into with the Russian Federation's Federal Property Fund regarding the privatization of shares in another Russian company. (Id. at 7.)

B. The Arbitration in the Netherlands.

According to Petitioners, beginning in 2003, the Russian Federation unlawfully expropriated Petitioners' investments in Yukos. (Id. at 7.) Among other tactics, the Russian Federation allegedly "claimed that Yukos owed back taxes of approximately $27 billion; froze Yukos's bank accounts; seized Yukos's assets; forced the company into bankruptcy; and transferred its assets to [certain] Russian state-owned oil and gas companies." (Id. )

In February 2005, each of the three Petitioners commenced a separate arbitration against the Russian Federation in the Hague, seeking compensation under the Energy Charter Treaty for the alleged expropriation. (Id. at 1, 7.) The Russian Federation raised several objections in these arbitrations, including that Petitioners engaged in "illegal and bad faith conduct" from the privatization of Yukos in the mid-1990s to its liquidation in November 2007, and that Petitioners' "unclean hands" therefore deprived them of protection under the Energy Charter Treaty. (Decl. of Marnix Leijten ("Leijten Decl."), Ex. 2a (Hulley Enterprises Ltd. Arbitral Award), ECF No. 2-2, ¶¶ 1273, 1281.)

On July 18, 2014, the arbitral tribunal (the "Arbitral Tribunal" or "Tribunal") entered three awards in Petitioners' favor (the "Arbitral Awards" or "Awards"). (Leijten Decl., Ex. 2a (Hulley Enterprises Ltd. Arbitral Award); Leijten Decl., Ex. 2b (Yukos Universal Ltd. Arbitral Award), ECF No. 2-2; Leijten Decl., Ex. 2c (Veteran Petroleum Ltd. Arbitral Award), ECF No. 2-2.) The Tribunal found that while the Russian Federation "ha[d] not explicitly expropriated Yukos or the holdings of its shareholders, ... the measures that [the Russian Federation] has taken in respect of Yukos ... have had an effect ‘equivalent to nationalization or expropriation.’ " (Leijten Decl., Ex. 2a (Hulley Enterprises Ltd. Arbitral Award), ¶ 1580.) Accordingly, the Tribunal concluded that the Russian Federation had breached its obligations under Article 13 of the Energy Charter Treaty, (id. ¶ 1585), and ordered the Russian Federation to pay Petitioners over $50 billion in damages, (see id. ¶ 1888(f) (awarding approximately $39.97 million to Hulley Enterprises Ltd.); Leijten Decl., Ex. 2b (Yukos Universal Ltd. Arbitral Award), ¶ 1888(f) (awarding approximately $1.85 million to Yukos Universal Ltd.); Leijten Decl., Ex. 2c (Veteran Petroleum Ltd. Arbitral Award), ¶ 1888(f) (awarding approximately $8.20 million to Veteran Petroleum Ltd.)).

C. The Enforcement Proceedings.

Petitioners subsequently commenced proceedings, including in the United States and in the United Kingdom, to recognize and enforce the Arbitral Awards. (Pet'rs' Mem. at 3.) White & Case, which ceased representing Yukos and the GML subsidiaries in approximately 2004, (id. at 4), currently represents the Russian Federation in these enforcement proceedings, (id. at 3).

According to Petitioners, White & Case gained access to certain documents relating to the Due Diligence Project through its current representation of the Russian Federation. Specifically, in May 2007, while the arbitrations were pending, Russian prosecutors requested documents from White & Case relating, inter alia , to the Due Diligence Project (the "May 2007 Search"). (Pet'rs' Mem. at 9.) Petitioners allege that White & Case "surrendered" these documents to the prosecutors "voluntarily," (id. ), and that these documents are now part of a Russian criminal investigative file that the Russian Federation is using to challenge the Arbitral Awards in the enforcement proceedings, (Pet'rs' Reply Mem. of Law in Supp. of Appl. for an Order Pursuant to 28 U.S.C. § 1782 to Conduct Disc. for Use in a Foreign Proceeding, ECF No. 30, at 1). Petitioners allege that they do not have access to any documents in the criminal investigative file, but that White & Case has access—including to the documents relating to the Due Diligence Project—as counsel for the Russian Federation in the enforcement proceedings. (Id. at 1, 11, 14.)

D. The Litigation in the Netherlands.

In November 2014, the Russian Federation filed an action in the District Court of the Hague (the "Dutch District Court") seeking to set aside the Arbitral Awards. (Id. at 11.) On April 20, 2016, the Dutch District Court set aside the Awards, finding that the Russian Federation was not bound by the Energy Charter Treaty and that the Arbitral Tribunal therefore lacked jurisdiction over the Russian Federation. (Leijten Decl., Ex. 3 (Dutch District Court Judgment), ECF No. 2-2.) Because the Dutch District Court vacated the Awards on this jurisdictional ground, it did not reach the issue of Petitioners' alleged unclean hands. (See Decl. of Rob S. Meijer ("Meijer Decl."), Ex. 16 (Dutch Appellate Court Ruling), ECF No. 22-16, ¶ 4.4.8.)

On July 18, 2016, Petitioners appealed the Dutch District Court's ruling to the Court of Appeal of the Hague (the "Dutch Appellate Court"). In its Statement of Defense filed on November 28, 2017, the Russian Federation raised several grounds for affirming the annulment of the Arbitral Awards. (Leijten Decl., Ex. 4 (Statement of Defense), ECF Nos. 2-2–2-19.) One of these grounds, "Public Policy Ground 6," was that enforcing the Awards would violate public policy by "legitimizing and upholding [Petitioners'] fraudulent, corrupt and illegal activities." (Leijten Decl., Ex. 4 (Statement of Defense), ECF No. 2-16, ¶ 1201.) Petitioners argued that Public Policy Ground 6 was improperly raised as a defense, claiming, among other things, that "the assertions were not put forward in the arbitration in due time" and that "the Russian Federation ha[d] waived its right to base its claim on the unclean hands argument, or has forfeited this right." (Meijer Decl., Ex. 16 (Dutch Appellate Court Ruling), ¶¶...