Motorola Credit Corp. v. Uzan

• Decision Date: 01 August 2013
• Citation: 978 F.Supp.2d 205
• Parties: MOTOROLA CREDIT CORPORATION and Nokia Corporation, Plaintiffs, v. Kemal UZAN, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

978 F.Supp.2d 205

MOTOROLA CREDIT CORPORATION and Nokia Corporation, Plaintiffs,

v.Kemal UZAN, et al., Defendants.

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

02 Civ. 666(JSR).

Aug. 1, 2013.

Gordon M. Clay, John F. O'Connor, Steven K. Davidson, Steptoe & Johnson, LLP, Howard H. Stahl, Fried, Frank, Harris, Shriver & Jacobson, LLP, Washington, DC, Mishell B. Kneeland, Munsch Hardt Kopf & Harr, P.C., Austin, TX, Jason Brown, Ropes & Gray, LLP, Michael N. Donofrio, Neal N. Beaton, Holland & Knight, L.L.P., New York, NY, for Plaintiffs.

Kenneth M. Bialo, Emmet, Marvin & Martin, LLP, Mark Benjamin Holton, Robert F. Serio, Thomas C. Sheehan, Gibson, Dunn & Crutcher, L.L.P., Dan J. Schulman, Salans FMC SNR Denton Europe LLP, New York, NY, for Defendants.

OPINION

JED S. RAKOFF, District Judge.

On July 31, 2003, this Court awarded plaintiff Motorola Credit Corporation (“Motorola”) damages in the amount of $2,132,896,906 against defendants Kemal Uzan, Murat Hakan Uzan, Cem Cengiz Uzan, Melahat Uzan, Aysegul Akay, and Antonio Luna Betancourt (the “Uzans”), based on the Uzans' diversion of large loans made by plaintiffs to Telsim, a Turkish telecommunications company owned in large part by the Uzans.¹ Since that time, the Uzans—most of whom are fugitives from criminal indictments in Turkey brought as a result of a separate fraud—have failed to participate in this action or pay the judgment against them, and Motorola has engaged in a worldwide, decade-long hunt for the Uzans and their assets.

In response to Motorola's efforts to track down those concealed assets, on February 13, 2013, the Court issued an Order pursuant to Rules 65 and 69 of the Federal Rules of Civil Procedure and N.Y. C.P.L.R. § 5222² that: (1) enjoins the Uzans, their agents, and anyone receiving notice of the Order from transferring or dissipating any Uzan assets until Motorola's judgment is paid in full; and (2) requires any subpoenaed party in possession of property of the Uzans or their agents to immediately freeze and restrain access to such property. See Order Granting Injunctive Relief and Restraining Order (“Injunction and Restraining Order”), No. 02 Civ. 666 (S.D.N.Y. Feb. 13, 2013). Attached to the Court's Order is a list of “Uzan Proxies,” defined as “entities or persons that serve as agents or instrumentalities of or are otherwise controlled, directly or indirectly, by the Uzans.” Id. ¶ 10 & Attach. A. As relevant to the instant dispute, the Jordan Dubai Islamic Bank (“JDIB”), an international commercial bank, is identified in Attachment A as an Uzan proxy.³

On February 14, 2013, Motorola served the Injunction and Restraining Order on the New York branch of Standard Chartered Bank, an international banking group headquartered in the United Kingdom, which has locations, as relevant here, in Jordan and the United Arab Emirates (“UAE”). After conducting a search in New York and globally for assets belonging to the Uzans or their identified proxies, Standard Chartered identified what it claimed were four interbank deposits placed by JDIB at a Standard Chartered branch in the UAE: three recent placements each in the amount of five million Jordanian Dinar, and a fourth in the amount of six million Jordanian Dinar, for a total of 21 million Jordanian Dinar ($30 million).⁴ Decl. of Julian Slow dated May 10, 2013 (“Slow Decl.”) ¶¶ 10, 15. Interbank deposits are short-term transfers of funds from a bank with excess liquidity to a bank facing excess liabilities, which are then repaid at an agreed-upon future date, with interest. Id. ¶¶ 3–4.

After seeking from Motorola clarification regarding the scope of the Injunction and Restraining Order, Standard Chartered froze JDIB's assets on April 26, 2013. On May 8 and 9, 2013, two payments were due to JDIB, but Standard Chartered refused to remit payment. See Decl. of Rakan Shiyab dated May 12, 2013 (“Shiyab Decl.”) ¶ 5; Slow Decl. ¶ 15. Since that time, two other payments came due, and Standard Chartered again refused to remit payment. See Decl. of Jeremy Julian Ronald Trevis dated May 30, 2013 (“Trevis Decl.”) ¶ 4. After Standard Chartered refused to process JDIB's payments, the UAE Central Bank debited from Standard Chartered's account with the Central Bank funds in the full amount of JDIB's assets. See id. ¶¶ 6, 10.

On May 14, 2013, Standard Chartered filed a motion for relief from the Court's Injunction and Restraining Order, and the Court heard oral argument on Standard Chartered's motion on May 24, 2013. On May 30, 2013, the Court issued a “bottom-line” Order, concluding that (i) the assets in question are property of the Uzans or their proxies and not of Standard Chartered, and (ii) New York's “separate entity rule” nevertheless precludes Motorola from restraining assets held by a foreign Standard Chartered branch by service of the Injunction and Restraining Order on Standard Chartered's New York branch. Additionally, because of the risk that Motorola would be irreparably harmed by the release of JDIB's assets, the Court imposed a stay on the release of the restraint on the assets pending an appeal by Motorola and upon Motorola posting a $1 million bond. This Opinion explains the reasons for those rulings.

As an initial matter, Motorola claims that, by failing to object to the Injunction and Restraining Order within fourteen days after receiving it on February 15, 2013, see Injunction and Restraining Order at 5, Standard Chartered waived any and all objections to compliance with the Order. However, even though Standard Chartered did not formally make its motion to modify the Injunction and Restraining Order until May 14, 2013, it is clear that in the meantime Standard Chartered was attempting to cooperate with Motorola's requests in good faith. Thus, for example, in April 2013, Standard Chartered identified and provided to Motorola a substantial number of documents unrelated to the assets at issue here. See Decl. of George R. Calhoun, V dated May 22, 2013 (“Calhoun Decl.”) ¶ 7. Moreover, even though Standard Chartered disputed whether the Court's Order required freezing of JDIB's assets in the UAE, Standard Chartered nonetheless froze the assets to avoid harm to Motorola and only then pressed its objections before the Court. Under these circumstances, it would be inequitable to find that Standard Chartered had waived the objections it has presented here.

Turning to the substantive issues in this case, the first issue that the Court must address is whether the assets in question are property of the Uzans or their proxies and not Standard Chartered. Fundamentally, the parties dispute the nature of the JDIB assets held by Standard Chartered. While Standard Chartered claims, as described above, that the assets are four interbank placements made by JDIB, Motorola claims that, based on a “Master Agreement” entered into between JDIB and Standard Chartered, the JDIB assets are in fact four palladium commodities trades undertaken between Standard Chartered and JDIB for the same total value as the interbank transfers that Standard Chartered claims occurred. See Calhoun Decl. ¶¶ 12–14 & Exs. 7–9. Standard Chartered acknowledges that palladium trades in fact occurred, but it claims that those trades were merely mechanisms to allow its interbank transfers to comply with the prohibition on the payment of interest under Islamic law. See Decl. of Hassan Arab ¶¶ 1–10. That is, Standard Chartered claims that the palladium trades are virtually instantaneous transactions that allow the repayment of the transfers by Standard Chartered to JDIB to be accompanied by a profit on the palladium trade, rather than interest.

It is axiomatic, however, that Standard Chartered is bound by the unambiguous terms of the contracts into which it enters. Given the terms of the contracts here in question, Standard Chartered is effectively estopped from denying that the assets at issue are palladium or the proceeds of trades thereof. In that context, such assets are the property of JDIB merely held by Standard Chartered and may properly be restrained under the Court's Injunction and Restraining Order. See Injunction and Restraining Order at 3 (including as Uzan property to be restrained “any assets, funds, property or debt held in the name of or owed to” the Uzans or their proxies).

Moreover, even if the Court were to accept Standard Chartered's representation that the frozen assets are effectively interbank placements that merely give JDIB the right to demand that Standard Chartered repay funds at some point in the future, this would not distinguish the transfers from run-of-the-mill bank accounts or other debts that may be restrained as a matter of course under N.Y. C.P.L.R. § 5222(b). SeeN.Y. C.P.L.R. § 5222(b) (providing for restraining orders to be served on garnishees owing a “debt to the judgment debtor”); Injunction and Restraining Order at 4 (providing that the order covers “all debts hereafter coming due to the Uzans or the Uzan Proxies”); see also Citizens Bank of Maryland v. Strumpf, 516 U.S. 16, 21, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995) (noting that bank deposits “consist[ ] of nothing more or less than a promise to pay, from the bank to the depositor”). Thus, in either circumstance, the Court finds that the restrained assets are the property of JDIB, an Uzan proxy, not Standard Chartered.

To be sure, Standard Chartered requests that, even if the assets are JDIB's property, the Court should equitably modify the restraint to allow the release of the JDIB assets based on the risk that Standard Chartered could be subject to double liability should the restraint be maintained. SeeN.Y. C.P.L.R. § 5240 (allowing a court to “make an order denying, limiting, conditioning, regulating, extending or modifying the use of any enforcement procedure”). In the ordinary course of domestic banking, N.Y. C.P.L.R. § 5209 discharges a garnishee bank from any “obligation to the judgment debtor to the extent of the payment or...