Republic of Kaz. v. Chapman
| Decision Date | 10 February 2022 |
| Docket Number | 21-CV-3507 (JGK) |
| Parties | REPUBLIC OF KAZAKHSTAN ET AL., Plaintiffs, v. DANIEL CHAPMAN ET AL., Defendants. |
| Court | U.S. District Court — Southern District of New York |
The plaintiffs, the Republic of Kazakhstan ("Kazakhstan") and Outrider Management, L.L.C. ("Outrider"), brought this action in the New York State Supreme Court against the defendants, Daniel Chapman Argentem Creek Holdings LLC ("Holdings"), Argentem Creek Partners LP ("Partners"), Pathfinder Argentem Creek GP LLC ("Pathfinder"), and ACP I Trading LLC ("ACP"). ECF No. 1-1. The plaintiffs alleged that the defendants committed frauds that resulted in Kazakhstan's being forced to arbitrate a meritless action, and in Outrider's entering into an agreement that was ultimately to its detriment. Id. The defendants removed the case to this Court on the grounds that the Federal Arbitration Act provided for removal. ECF No. 1.
Three motions are now before the Court: the defendants' motion to dismiss Kazakhstan's claims, ECF No. 53; the defendants' motion to compel arbitration of and dismiss Outrider's claims, ECF No. 57; and the plaintiffs' motion to remand the action to the New York State Supreme Court, ECF No. 61. For the following reasons, the plaintiffs' motion to remand is granted as to the claims by Kazakhstan and denied as to the claims by Outrider. The defendants' motion to dismiss Kazakhstan's claims is denied without prejudice. The defendants' motion to compel arbitration of and dismiss Outrider's claims is granted insofar as it seeks to compel arbitration of Outrider's claims, and denied insofar as it seeks to dismiss them.
This case arises out of investments by a Moldovan family, the Statis, in oil and gas assets in Kazakhstan. In 2000 Kazakhstan granted to two companies owned by the Statis the right to "explore and develop various oil and gas fields located in the country." Stati v. Republic of Kazakhstan, 302 F.Supp.3d 187, 192 (D.D.C. 2018), aff'd, 773 Fed.Appx. 627 (D.C. Cir. 2019).[1]
In 2006-07, as part of the financing of those projects, the Statis issued a series of notes (the "Notes") through their company Tristan Oil Ltd. Second Amended Complaint (the "Complaint"), ECF No. 47, ¶¶12-16. In the Complaint, the plaintiffs allege that Black River Asset Management LLC ("Black River"), of which Mr. Chapman was a Senior Managing Director, and Outrider purchased some of these Notes. The Complaint alleges that Holdings and Partners, two of the named defendants, are spin-offs from Black River and that Black River no longer exists. Id. ¶¶ 11-12. The plaintiffs allege that Partners is the general manager of ACP, and that ACP is controlled by Mr. Chapman. Id. The plaintiffs allege that the Statis "engag[ed] in multiple fraud[s]" to embezzle the funds obtained from the Note issuance. Id. ¶ 20. On July 1, 2010, the Statis defaulted on the Notes.
Three weeks later, the Statis brought an arbitration against Kazakhstan, alleging that Kazakhstan had "engaged in a campaign of harassment and illegal acts" which "destroy[ed] both the market value and alienability of" the Statis' investments, and which culminated in Kazakhstan's unilaterally terminating the Statis' mineral rights, "the illegal expropriation of [the Statis'] Kazakh investments, and the subsequent commandeering of [the Statis'] offices by" Kazakh officials. Stati, 302 F.Supp. at 192-93.
The plaintiffs allege that Mr. Chapman learned of the frauds in 2011, but that "rather than taking legal action against the Statis, Chapman decided to conspire with and support the Statis in the perpetuation of their fraudulent scheme." Compl. ¶ 30.
In 2012, some of the holders of the Notes "signed an agreement with the Statis to share in the proceeds of any arbitral award against" Kazakhstan "[i]n exchange for forbearing from prosecuting legal claims . . . against the Statis" (the "Sharing Agreement"). Compl. ¶¶ 31, 33; see Baldini Decl. in Support of Mot. to Dismiss Ex. 3, ECF No. 34-3, Sharing Agreement. The signatories included Outrider and Black River. Compl. ¶ 31. The plaintiffs allege that Mr. Chapman encouraged holders of the Notes to "enter into the Sharing Agreement and thereby align with the Statis rather than exercise their legal rights against the Statis or pursue alternative courses of action." Compl. ¶ 32.
In 2013, the arbitral tribunal issued an award in the Statis' favor against Kazakhstan in the amount of $497, 685, 101. Stati, 302 F.Supp. at 193. The award was upheld by the Swedish Supreme Court against arguments by Kazakhstan that the award was fraudulently obtained. Id. at 196. Courts in Belgium, Italy, and the Netherlands have rejected Kazakhstan's arguments about fraud. The United States District Court for the District of Columbia confirmed the award, Id. at 209, and the Court of Appeals for the District of Columbia Circuit affirmed that judgment. Stati, 773 Fed.Appx. at 627. Kazakhstan has not yet paid any of the arbitral award.
The plaintiffs brought this action against the defendants in the New York State Supreme Court. Kazakhstan and Outrider each allege three claims against all the defendants: civil conspiracy to commit fraud, aiding and abetting wrongful conduct, and unlawful means under English law. The plaintiffs allege the following relationship among the defendants:
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Compl. ¶ 11.
The defendants sought from the United States District Court for the District of Columbia an antisuit injunction enjoining this suit from proceeding in the New York State Supreme Court, which was denied. Stati v. Republic of Kazakhstan, No. 14-cv-1638, ECF No. 172 (D.D.C. Mar. 19, 2021). The defendants then removed the case to this Court on the grounds that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, as implemented at 9 U.S.C. §§ 201-208 (the "Convention"), provided for removal. The defendants now move to dismiss Kazakhstan's claims. The defendants also move to compel arbitration of and to dismiss Outrider'' s claims on the basis of an arbitration clause in the Sharing Agreement. The plaintiffs move to remand the action to the New York State Supreme Court on the grounds that this Court lacks subject matter jurisdiction.
For the following reasons, the plaintiffs' motion to remand is granted as to the claims by Kazakhstan and denied as to the claims by Outrider. The defendants' motion to dismiss Kazakhstan's claims is denied as moot. The defendants' motion to compel arbitration of and to dismiss Outrider's claims is granted insofar as it seeks to compel arbitration of Outrider's claims, and denied insofar as it seeks to dismiss them.
The plaintiffs move to remand the claims in this case back to the New York State Supreme Court, where the case was initially brought. Kazakhstan and Outrider stand in very different positions because Outrider is party to the Sharing Agreement, which contains an arbitration provision, and the defendants do not move to compel arbitration of Kazakhstan's claims. Therefore, the claims of Kazakhstan will be treated separately. The Court will deal initially with the motion to remand Kazakhstan's claims to the New York State Supreme Court.
On a motion to remand for lack of subject matter jurisdiction, the defendant bears the burden of establishing the propriety of removal. Calif. Pub. Emps.' Ret. Sys. v. WorldCom, Inc., 368 F.3d 86, 100 (2d Cir. 2004). Courts assume the truth of non-jurisdictional facts alleged in the complaint, but may consider materials outside the complaint, such as documents attached to a notice of removal or a motion to remand that convey information essential to the court's jurisdictional analysis. See BGC Partners, Inc. v. Avison Young (Canada), Inc., 919 F.Supp.2d 310, 312 n.3 (S.D.N.Y. 2013).
To hear a case removed from state court, a federal court must have both subject matter jurisdiction and removal jurisdiction. Holzer v. Mondadori, No. 12-cv-5234, 2013 WL 1104269, at *6 (S.D.N.Y. Mar. 14, 2013). The defendants argue that the Federal Arbitration Act - more specifically, 9 U.S.C. §§ 203 and 205 - provides both subject matter and removal jurisdiction over the claims brought by Kazakhstan, because of the claims' relation to the arbitral award in the dispute between Kazakhstan and the Statis.
Chapter 2 of the Federal Arbitration Act enforces the Convention. See 9 U.S.C. § 201. There is no dispute that the Kazakhstan arbitral award is covered by the Convention. 9 U.S.C. § 202, entitled "Agreement or award falling under the Convention," provides:
An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, . . . falls under the Convention.[2]
Section 203, entitled "Jurisdiction; amount in controversy," provides:
An action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States. The district courts of the United States . . . shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy.
Section 205, entitled "Removal of cases from State courts," provides:
Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to [federal court] .... The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal.
In this case, the parties do not...
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