Rual Trade Ltd. v. Viva Trade LLC

• Decision Date: 28 April 2008
• Docket Number: Case No. 07-C-1015.
• Citation: 549 F.Supp.2d 1067
• Parties: RUAL TRADE LTD., Plaintiff, v. VIVA TRADE LLC, Vladimir Romanov, Roman Romanov and Ukio Bankas Investicine Group, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

549 F.Supp.2d 1067

RUAL TRADE LTD., Plaintiff, v. VIVA TRADE LLC, Vladimir Romanov, Roman Romanov and Ukio Bankas Investicine Group, Defendants.

Case No. 07-C-1015.

United States District Court, E.D. Wisconsin.

April 28, 2008.

COPYRIGHT MATERIAL OMITTED

Booker T. Coleman, Jr., Kelly H. Twigger, Natalie R. Remington, W. Stuart Parsons, Quarles & Brady LLP, Milwaukee, WI, for Plaintiff.

Amelia L. McCarthy, David J. Turek, Gass Weber Mullins LLC, David E. Frank, Mark A. Cameli, Sarah A. Huck, Reinhart Boerner Van Deuren SC, Milwaukee, WI, David G. Liston, Hagit M. Elul, John Fellas, Hughes Hubbard & Reed LLP, New York, NY, for Defendants.

DECISION AND ORDER

LYNN ADELMAN, District Judge.

Plaintiff Rual Trade Ltd. ("Rual") brought this action in state court asserting breach of contract and related claims against defendants Viva Trade LLC ("Viva"), Vladimir Romanov ("Vladimir"), Roman Romanov ("Roman") and Ukio Bankas Investicine Group ("UBIG"). I will refer to the Romanovs and UBIG together as the "Lithuanian defendants." Defendants removed the case pursuant to 9 U.S.C. § 205, which authorizes the removal of cases relating to arbitration proceedings under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("the Convention"), an international treaty to which the United States is a party. Rual now moves for a default judgment against Viva, and Viva and the Lithuanian defendants bring separate motions to dismiss Rual's complaint.

I. BACKGROUND

Rual, a British Virgin Islands corporation, is a subsidiary of Russian Aluminum, a Russian entity which is the world's largest aluminum manufacturer. UBIG is a Lithuanian investment company and the majority shareholder of the Birac Alumina Refinery, a producer of alumina (the principal ore in aluminum) located in Bosnia-Herzegovina. Vladimir is the chairman of UBIG's board, and Roman is Vladimir's son and a UBIG board member. Viva is something of a mystery. It was organized in 2003 as a Wisconsin limited liability company. Rual alleges that it has one named member, an Irish entity which has dissolved, and no named managers. Its 2005 annual report lists a British Virgin Islands address. According to evidence presented by Rual, Viva was established by a Delaware company that sets up business entities at the behest of a Latvian company that sets up business entities. The Latvian company then sold it to Rita Matuziene, a Lithuanian attorney and a UBIG board member, who bought it on behalf of an unnamed client. Rual asserts that the Lithuanian defendants are Viva's true owners and that they use it as a shell corporation to escape liability. The Lithuanian defendants state that Viva is an alumina distributor owned by Eduard Mitelman, a citizen of Lithuania and Belarus. Viva has submitted no information about its business.

Rual's suit arises out of commercial transactions that occurred in Eastern Europe in 2003 and 2004. In 2003, Rual negotiated an agreement to purchase alumina from the Birac refinery. Rual alleges that it primarily negotiated with Vladimir and that it believed that it was dealing with UBIG, but at the last minute, Vladimir named Viva as the seller. Roman signed the contract (the "supply contract") on behalf of Viva. In January 2004, just before Rual was scheduled to receive its first shipment of alumina, Vladimir demanded that Rual pay more and the parties amended the supply contract to include a higher price. Soon after, Rual received a portion of its first shipment, but Vladimir stated that he could not deliver more alumina because the Birac refinery needed repairs. As a result, Rual entered into a Memorandum of Understanding with UBIG requiring Rual to invest $3.5 million in UBIG and loan UBIG another $3.5 million for the purpose of making repairs to the refinery. Vladimir signed the memorandum on behalf of UBIG. Subsequently, allegedly at Vladimir's request, Rual entered into a superceding Memorandum of Understanding ("the MOU"), with Viva replaced as the seller. Roman signed on behalf of Viva. According to Rual, in April 2004, it gave Viva the $3.5 million investment. In May 2004, Rual and Viva entered into a "Loan Agreement" governing the $3.5 million loan and subsequently Rual advanced Viva the money. However, Rual asserts that Viva did not use the investment or loan payments to repair the Birac refinery and did not deliver the alumina required by the supply contract or repay the loan.¹

In December 2004, Rual commenced arbitration proceedings in Stockholm and was awarded $5,663,510 against Viva for Viva's breach of the supply contract. Rual attempted to bring the Romanovs into the arbitration, but the arbitrator found that, unlike Viva, they were not parties to the contract and therefore had not agreed to arbitrate any disputes. Rual also attempted to bring a claim that the defendants had misused its $3.5 million investment and $3.5 million loan, and had failed to repay the loan, but the arbitrator found that the parties to the MOU had not agreed to arbitrate disputes arising out of the MOU in Stockholm.² In 2006, Rual converted the $5,663,510 arbitration award against Viva to a judgment in the United States but has been unable to collect.

In the present action, Rual contends that the Lithuanian defendants used Viva as their alter ego and, as a result, are liable for the obligations that it incurred. Rual brings claims against all defendants for breach of contract, theft by fraud and unjust enrichment and, in addition, claims against the Lithuanian defendants for intentional misrepresentation and personal liability as Viva's agents.

II. SUBJECT MATTER JURISDICTION³

In order for a federal court to have jurisdiction over a case, Article III of the Constitution must confer power to hear the case, and Congress must enact a statute authorizing the court to exercise such power. Article III § 2 provides that federal courts may decide cases arising under "Treaties." In the present case, some of Rual's claims and Viva's defenses are related to an arbitration proceeding under the Convention. As indicated, the Convention is a treaty. Thus, the case is within Article Ill's grant of jurisdiction. See Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 491-92, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983) (stating that the Constitution's "arising under" language is broad enough to encompass cases in which the plaintiffs claims are not based on federal law but are intimately connected to federal law); Int'l Armor & Limousine Co. v. Moloney Coachbuilders, Inc., 272 F.3d 912, 915 (7th Cir.2001) (same). Further, 9 U.S.C. § 203 provides that "[a]n action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States." This provides a statutory basis for jurisdiction. Certain Underwriters at Lloyd's London v. Argonaut Ins. Co., 500 F.3d 571, 581 n. 9 (7th Cir.2007). Thus, I have subject matter jurisdiction over the case.

III. RUAL'S MOTION FOR DEFAULT JUDGMENT

Rual brought this action in state court, and Viva failed to timely respond. Rual moved for a default judgment, after which Viva appeared and asked for more time to respond. The state court gave Viva more time but also left open the possibility that it would grant Rual's motion. Subsequently, defendants removed after which Rual filed a motion for default judgment in this court. I will treat the parties' state court motions as effectively terminated and address the motion that Rual filed in this court. I apply federal law to such motion. Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers, 415 U.S. 423, 436-37, 94 S.Ct. 1113, 39 L.Ed.2d 435 (1974); Fed.R.Civ.P. 81(c)(1).

Under Fed.R.Civ.P. 55(b), I have discretion with respect to granting a default judgment. In exercising discretion, I consider such factors as the possibility of prejudice to the plaintiff, the merits of the claims, the sufficiency of the complaint, the sum of money at stake, the possibility of a factual dispute, whether the default was due to excusable neglect and the strong policy favoring deciding cases on the merits. 55 Moore's Federal Practice — Civil § 55.31[2]. Further, I may analyze the issue as if it involved the question of good cause for setting a default aside. Id.; see also Sims v. EGA Prods., Inc., 475 F.3d 865, 868 (7th Cir.2007) (outlining the good cause standard). Generally speaking, it is desirable to resolve cases on their merits. Yong-Qian Sun v. Bd. of Trs., 473 F.3d 799, 811 (7th Cir.2007).

Based on the foregoing principles, I will deny Rual's motion for default judgment. Viva appeared soon after Rual moved for default judgment, Rual was not prejudiced by the delay, and Rual's claims involve more than $10 million and a number of defendants. Further, Viva has presented a meritorious defense, i.e., one "good at law," Bieganek v. Taylor, 801 F.2d 879, 882 (7th Cir.1986). Namely, Viva asserts that all of plaintiffs claims against it must be arbitrated under the Convention.⁴ The existence of a meritorious defense is relevant both to setting aside a default and granting default judgment. While Viva has not argued that its neglect of the state court's deadlines was excusable, this factor alone is insufficient to support granting default judgment.⁵ Thus, I will deny Rual's motion.

IV. MOTIONS TO DISMISS

Both the Lithuanian defendants and Viva ask me to dismiss the action based on forum non conveniens. The Lithuanian defendants also contend that I lack personal jurisdiction over them and that Rual's complaint fails to state a claim against them. Viva also contends that Rual's claims against it must be arbitrated.

A. Forum Non Conveniens

I may address a motion to dismiss based on forum non conveniens before addressing personal jurisdiction. Sinochem Int'l Co. v. Malay. Int'l Shipping Corp., ___ U.S.___, 127 S.Ct. 1184, 1188, 167 L.Ed.2d 15 (2007). A federal district court has discretion to dismiss a case on the ground of forum non...