Republic of Kaz. v. Chapman

• Docket Number: Index No. 652522/20,444,2022-04277
• Decision Date: 13 June 2023
• Citation: 2023 NY Slip Op 03211
• Parties: Republic of Kazakhstan, Plaintiff-Appellant, v. Daniel Chapman et al., Defendants-Respondents.
• Court: New York Supreme Court — Appellate Division

2023 NY Slip Op 03211

Republic of Kazakhstan, Plaintiff-Appellant, v. Daniel Chapman et al., Defendants-Respondents.

Index No. 652522/20, Appeal No. 444, No. 2022-04277

Supreme Court of New York, First Department

June 13, 2023

Norton Rose Fulbright U.S. LLP, New York (Felice B. Galant of counsel) and Norton Rose Fulbright U.S. LLP, Washington, DC (Matthew H. Kirtland of the bar of the State of Maryland and the bar of the District of Columbia, admitted pro hac vice of counsel) for appellant.

Faegre Drinker Biddle & Reath LLP, New York (Clay J. Pierce of counsel), and Akin Gump Strauss Hauer & Feld LLP, New York (Stephen M. Baldini of counsel), for respondents.

Before: Oing, J.P., Singh, Moulton, Scarpulla, Shulman, JJ.

Order Supreme Court, New York County (Andrew Borrok, J.), entered August 29, 2022, which granted defendants' motion to dismiss this action alleging conspiracy to commit fraud aiding and abetting fraud, and English law-based unlawful means conspiracy, unanimously affirmed, with costs.

This action arises in the aftermath of an arbitration award by the Swedish Chamber of Commerce in December 2013, under the Energy Charter Treaty, rendered against plaintiff in favor of nonparties Anatolie Stati, Gabriel Stati, Ascom Group, S.A. and Terra Raf Trans Trading Ltd. (together, the Statis), plaintiff's efforts to annul that award in Sweden, the efforts of the Statis to enforce the award in several jurisdictions, and plaintiff's efforts to defeat enforcement (see Stati v Republic of Kazakhstan, 302 F.Supp.3d 187, 191-193 [D DC 2018], affd 773 Fed.Appx. 627 [2d Cir 2019], cert denied 140 S.Ct. 381 [2019]; see also Republic of Kazakhstan v Stati, 380 F.Supp.3d 55, 59-65 [D DC 2019], affd 801 F Appx 780 [DC Cir 2020]). Plaintiff alleges that this arbitration was the result of fraud during the underlying transaction - the construction of a liquefied petroleum gas plant - and that the award itself was procured by fraud on the tribunal. Plaintiff also alleges that the Statis committed numerous other acts of fraud, which were not addressed in the arbitration award. Defendants are not alleged to have participated in any of these frauds.

Defendants or their predecessors-in-interest held notes issued by a subsidiary company owned by the Statis in Kazakhstan, under which the Statis defaulted on interest payments, and they agreed to a separate agreement while the arbitration was pending to share proceeds from the arbitration in lieu of receiving the principal and interest due on the notes. Plaintiff alleges that defendants did so with knowledge of the Statis' fraud. Plaintiff further alleges that, following the initial award, defendants funded the Statis' litigation and assisted them with their litigation strategy. Plaintiff contends that this litigation assistance facilitated the Statis' fraud. Plaintiff further alleges that defendants communicated with the Statis about government and media relations, that they made false statements to the public through a website and press releases, and that they made or threatened to make false statements to the U.S. Government.

We hold that the doctrine of collateral estoppel bars this action. Plaintiff has litigated the fraud alleged herein before Swedish arbitrators, the Swedish (Svea) Court of Appeal, and the District Court for the District of Columbia, which enforced the arbitral award under the Federal Arbitration Act. Plaintiff's purportedly "new" evidence thus relates to this same fraud claim plaintiff has been pursuing for over a decade, including allegations that the Statis diverted funds, inflated construction costs, used funds that should have been sequestered as collateral, and paid their companies inflated prices for drilling services.

These allegations cannot undermine the preclusive effect of the earlier decisions. "There is a well-settled rule prohibiting challenges to arbitral awards on the basis of newly discovered evidence... Without such a rule, the arbitration award would be the beginning rather than the end of the controversy and the protracted litigation which arbitration is meant to avoid would be invited" (Matter of Hirsch Constr. Corp. [Cooper], 181 A.D.2d 52, 55 [1st Dept 1992][internal quotation marks and citation omitted], lv denied 81 N.Y.2d 701 [1992] [rejecting challenge to arbitration award on the basis of "newly discovered evidence which was not before the arbitrators"]; Matter of DiNapoli v Peak Automotive, Inc., 34 A.D.3d 674, 675 [2d Dept 2006], citing Matter of Hirsch; see also Restatement [Second] of Judgments, § 27, comment c [1982] ["(I)f the party against whom preclusion is sought did in fact litigate an issue of ultimate fact (i.e., an issue requiring application of law to fact) and suffered an adverse determination, new evidentiary facts may not be brought forward to obtain a different determination of that... (issue)"]; Karaha Bodas Co., L.L.C. v Perusahaan Pertambangan Minyak Da Gas Bumi Negara, 500 F.3d 111, 122 [2d Cir 2007]).

Even if collateral estoppel did not apply to all of plaintiff's claims, those claims would still warrant dismissal for failure to state a cause of action (CPLR 3211 [a] [7]). The aiding and abetting fraud and conspiracy to commit fraud claims fail, since the complaint does not include detailed allegations of an underlying fraud (see CPLR 3016 [b]; Habberstad v Revere Sec. LLC, 183 A.D.3d 532 533 [1st Dept 2020]; Kovkov v Law Firm of Dayrel Sewell, PLLC, 182 A.D.3d 418, 419 [1st...