In re Hulley Enters., Ltd.

• Decision Date: 19 February 2019
• Docket Number: 18-MC-435 (GWG)
• 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

358 F.Supp.3d 331

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-MC-435 (GWG)

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

Signed February 19, 2019

Steven M. Shepard, Stephanie Nicole Spies, Susman Godfrey LLP, New York, NY, for Hulley Enterprises, Ltd., Yukos Universal Ltd., and Veteran Petroleum Ltd.

OPINION AND ORDER

GABRIEL W. GORENSTEIN, United States Magistrate Judge

Petitioners Hulley Enterprises Ltd., Yukos Universal Ltd., and Veteran Petroleum Ltd. have applied pursuant to 28 U.S.C. § 1782 for leave to serve subpoenas on respondents White & Case, LLP, and on White & Case, LLP's Chairman Hugh Verrier. The subpoenas seek evidence in connection with litigation currently pending in the Court of Appeal of the Hague (the "Dutch Appellate Court"). The application has been fully briefed.¹ For the following reasons, the Court denies petitioners' application.

I. BACKGROUND

A. The Arbitrations and Litigation in the Hague

Petitioners are former shareholders of OAO Yukos Oil Company ("Yukos"), a Russian oil and gas company that was privatized in the mid-1990s. See Pet. Mem. at 1; Resp. Opp. at 5. As of 2003, the petitioners together held an approximately 70% interest in Yukos. Pet. Mem. at 1. Starting in approximately 1998, White & Case represented Yukos and its subsidiaries. Declaration of David Godfrey (annexed as Ex. C to Pet. Mem.) ("Godfrey Decl."), ¶¶ 3-4; Resp. Opp. at 5. That representation continued through approximately 2003 or 2004. Godfrey Decl. ¶ 4; Resp. Opp. at 5; Pet. Mem. at 3. Petitioners assert that during its representation, White & Case conducted a "full due diligence review of [Yukos] and its subsidiaries," Pet. Mem. at 4 (quoting Godfrey Decl. ¶ 7); that White & Case "provided ‘extensive due diligence and other services’ " to subsidiary Menatep Limited, which involved investigating and authenticating the title to Yukos' shares, id. at 5-6 (quoting Godfrey Decl. ¶ 8); and that White & Case provided other services (including giving advice) to Yukos and related entities, Pet. Mem. at 4-7.

In proceedings in Holland, petitioners have alleged that, beginning in 2003, the Russian Federation unlawfully expropriated their investments in Yukos. See Pet. Mem. at 7-8; Resp. Opp. at 5-6. To effectuate this expropriation, the petitioners allege that the Russian Federation "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 Russian state-owned oil and gas companies Rosneft and Gazprom." Pet. Mem. at 7. According to petitioners, as of November 2007, Yukos no longer existed as a legal entity. Pet. Mem. at 8.

In February 2005, petitioners commenced arbitrations in the Hague against the Russian Federation, seeking compensation for the alleged expropriation under the Energy Charter Treaty. See Final Award, In the Matter of an Arbitration Before a Tribunal Constituted in Accordance with Article 26 of the Energy Charter Treaty and the 1976 UNCITRAL Arbitration Rules, Between Hulley Enterprises Limited (Cyprus) and the Russian Federation, July 18, 2014 (annexed as Ex. 2a to Leijten Decl.) ("Final Arbitration Award"), ¶¶ 10-11; see also Meijer Decl. ¶ 9.

In 2007, Russian prosecutors requested documents from White & Case relating, inter alia, to the petitioners' acquisition of shares in Yukos. Pet. Mem. at 9; see Resolution on Conducting a Search (certified translation from Russian), dated May 16, 2007 (annexed as Ex. 7-T to Cotlick Decl.) ("Search Resolution"). White & Case supplied these documents to Russia. Declaration of Dr. Ilia V. Rachkov in Support of Hulley Enterprises Ltd., Yukos Universal Ltd., and Veteran Petroleum Ltd.'s Application for an Order Pursuant to 28 U.S.C. § 1782 to Conduct Discovery for Use in a Foreign Proceeding (annexed as Ex. E to Pet. Mem.) ("Rachkov Decl."), ¶ 31. These documents later found their way into a Russian criminal investigative file, which petitioners refer to as the "mother file." Pet. Reply at 1; see also Second Cotlick Decl. ¶¶ 26-37. Documents in the "mother file" are being used by Russia to challenge arbitration awards in judicial proceedings in the United States, United Kingdom, and Germany. See id. ¶¶ 29-33. Petitioners have not been given access to any documents contained in the "mother file." Id. ¶¶ 38-42. White & Case now represents Russia in proceedings relating to petitioner's claims against Russia arising from Yukos, though not in the proceeding pending in the Dutch Appellate Court. See id. ¶ 27; Meijer Decl.¶ 9. Petitioners allege that White & Case therefore now has access to the "mother file," including its "due diligence" documents from 2002. Second Cotlick Decl. ¶ 27.

In July 2014, the Hague Arbitral Tribunal (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." Final Arbitration Award ¶ 1580 (internal quotation marks omitted). 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 over $ 50 billion in damages to petitioners, see id. ¶ 1888 (award to petitioner Hulley); Final Award, in the Matter of an Arbitration Before a Tribunal Constituted in Accordance with Article 26 of the Energy Charter Treaty and the 1976 UNCITRAL Arbitration Rules, Between Yukos Universal Limited (Isle of Man) and the Russian Federation, dated July 18, 2014 (annexed as Ex. 2b to Leijten Decl.), ¶ 1888(f) (award to petitioner Yukos Universal Ltd.); Final Award, in the Matter of an Arbitration Before a Tribunal Constituted in Accordance with Article 26 of the Energy Charter Treaty and the 1976 UNCITRAL Arbitration Rules, Between Veteran Petroleum Limited (Cyprus) and the Russian Federation (annexed as Ex. 2c to Leijten Decl.), ¶ 1888(f) (award to petitioner Veteran Petroleum Limited); see also Meijer Decl., ¶ 3.

Several months after the Tribunal's decision, in November 2014, the Russian Federation sought to have the judgment set aside by filing an action in Dutch district court. Leijten Decl. ¶ 7; Meijer Decl. ¶ 15. On April 20, 2016, the Dutch district court set aside the awards, holding that the Russian Federation was not bound by the Energy Charter Treaty, and accordingly that the Tribunal lacked jurisdiction over the Russian Federation. See Leijten Decl. ¶ 8; Meijer Decl. ¶ 19; see also"Dutch District Court Judgment," dated Apr. 20, 2016, Unofficial Translation (annexed as Ex. 3 to Leijten Decl.) ("Dutch District Court Judgment"). In July 2016, the petitioners appealed the district court's judgment in the Dutch Appellate Court. Leijten Decl. ¶ 9; Meijer Decl. ¶ 19. That appeal is still pending.

B. The Instant Application

Petitioners filed the instant application pursuant to 28 U.S.C. § 1782 on September 17, 2018, seeking evidence to refute allegations by the Russian Federation that petitioners have "unclean hands" because of the manner in which Yukos was privatized in the mid-1990s, and the way in which petitioners acquired their Yukos shares. In this application, petitioners seek discovery under section 1782 from White & Case relating to its representation of Yukos and related entities between 1998 and 2004.

In particular, petitioners state that they seek documents from the case files of Yukos and seven other "Identified Clients": Menatep Limited, MFO Menatep, Eastern Oil Company ("VNK"), OAO Tomskneft, Chemical & Mining Universal Limited, Pecunia Limited, and Veteran Petroleum Trust. Attachment to Document Subpoena to White & Case (annexed as part of Ex. 2 to Shepard Decl.) ("Attachment to Proposed White & Case Document Subpoena"), 3, 7-8. The term "Identified Clients" also includes petitioners and "GML Limited (formerly known as Group Menatep Limited)." Id. at 3. White & Case, however, states that it has no record of having represented petitioners and certain other "Identified Clients." Paradise Decl. ¶ 2.²

Petitioners' request seeks documents, inter alia, relating to what it terms the "Yukos Shares Due Diligence Project," see Attachment to Proposed White & Case Document Subpoena at 7, and any other documents contained in the "case files" of Yukos and the other specified entities "that relate to any investigation of the ‘title’ to Yukos Shares," or which "relate to the Tempo Agreements," id. at 8. As explained further in section VI.D below, the "Tempo Agreements" are alleged by Russia to have been a vehicles used by petitioners to pay bribes in connection with their acquisition of the Yukos shares.

Petitioners seek to use these documents to refute the Russian Federation's allegations that at the time Yukos entered into the so-called "Tempo Agreements," Yukos' "external advisors" opined that the agreements "made no economic sense." Pet. Mem. at 32 (citing Leijten Decl. ¶¶ 23-24). Petitioners expect that the information contained in White & Case's due diligence files will "show[ ] that the Yukos privatization, related transactions, and subsequent transfers of shares, were lawful." Id. at 2.

Petitioners also seek to serve subpoenas to take a deposition of White & Case under Fed. R. Civ. P. 30(b)(6), see Subpoena to Testify at a Deposition in a Civil Action: White & Case LLP (annexed as Ex. 3 to Shepard Decl.) ("Proposed 30(b)(6) Subpoena"), and to take the deposition of Hugh Verrier, see Subpoena to Testify at a Deposition in a Civil Action: Hugh Verrier (annexed as Ex. 4 to Shepard Decl.) ("Proposed Verrier Subpoena"), who was the head of White & Case's Moscow office between 1998 and 2007, Verrier Decl. ¶ 2, and was the assigned billing partner on the...