Norex Petroleum Ltd. v. Access Industries, Inc.

Citations: 304 F. Supp. 2d 570; 2004 U.S. Dist. LEXIS 2245; 2004 WL 305732Docket: 02 Civ. 1499(LTS)(KN)

Court: District Court, S.D. New York; February 18, 2004; Federal District Court

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Norex Petroleum Ltd. filed a lawsuit against Access Industries, Inc. and others, alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) related to a scheme to control the Russian oil industry. Norex claims that the defendants engaged in racketeering and money laundering, specifically targeting its business interests and depriving it of ownership in Yugraneft, a Russian oil company. The complaint details a conspiracy involving corruption and influence over Russian officials, with operations allegedly directed from the U.S. and involving international banking to conceal financial transactions. The defendants, some of whom are U.S. citizens or conduct business in the U.S., moved to dismiss the complaint, citing various grounds including forum non conveniens. The court, after reviewing all arguments, granted the defendants' motion to dismiss.

Norex claims that the Defendants orchestrated an illegal scheme utilizing TNK and corrupt influences from Russian officials to divert oil flows from other companies to TNK, conduct an illegal takeover of Yugraneft, and launder profits through offshore slush funds, resulting in significant tax fraud in multiple jurisdictions. In 1997, after acquiring initial interests in TNK, Access/Renova and Alfa Group allegedly colluded with corrupt officials to redirect oil from Nizhnevartovsk Nefte Gaz (NNG) to TNK, leading to NNG's bankruptcy and asset stripping, which harmed Norex, a creditor. The Defendants are also accused of manipulating bankruptcies of Kondpetroleum and Chernogorneft, subsidiaries of OAO Siberian Far Eastern Oil Co., to acquire assets, including shares of Yugraneft, at below-market prices through corrupt practices and improper payoffs that violated Norex's rights and Russian court decisions. Complaints from BP-Amoco and others resulted in U.S. State Department action against TNK's loan guarantees. Following these proceedings, Chernogorneft failed to repay an oil debt to Yugraneft, and TNK officials threatened Norex's leadership to suppress payment recovery efforts. TNK's power was underscored by statements from its official, German Khan, asserting control over governmental levels and the Supreme Arbitration Court. In June 2001, TNK-NV filed a false complaint to arrest Norex's shares in Yugraneft, resulting in a court injunction that prevented Norex from voting its shares. Despite Norex's votes favoring current management, fraudulent minutes were created to falsely document the election of a TNK affiliate’s officer as general director. Following the shareholders meeting, armed individuals forcibly took over Yugraneft's offices.

Armed security guards from TNK took control of the Yugraneft oil field and its office, cutting off communications. The president of TNK informed employees they must sign new employment agreements with TNK or leave. Yugraneft's management secured a court order against Berman, prohibiting him from acting as general director, and attempted to enforce the order with legal representatives. However, TNK personnel threatened an attorney and pressured the local marshal to expel the Yugraneft representatives. TNK claimed control over the local government and attempted to bribe Yugraneft officers while using intimidation tactics, including false criminal charges, to suppress opposition to the takeover. After seizing Yugraneft, TNK diverted its assets, transferring $40 million to Alfa Bank and selling oil domestically and internationally, with profits funneled through American banks to TNK affiliates, including the Crown Group and offshore entities labeled as 'Slush Fund' companies. These entities utilized fraudulent accounting practices to facilitate tax evasion and bribery of Russian officials, involving significant financial transactions through U.S. banks. 

Prior litigation in Russia has addressed various allegations raised by the plaintiff, including the legitimacy of bankruptcy proceedings and asset transfers, with outcomes unfavorable to the plaintiff's claims. Norex was involved in litigation concerning the transfer of Chernogorneft's interest in Yugraneft, and other cases attempting to contest actions taken against its interests. In June 2001, TNK-NV successfully invalidated a significant portion of Norex's interest based on improper valuation of its capital contribution, although Norex argues it was not properly served in that case despite notifying the court of its service concerns.

Norex claims that it cannot receive fair hearings in Russian courts due to extensive corruption and the influence of powerful oil interests. It recognizes that an adverse decision in the Know-How Case, which it did not appeal, would bar its claims regarding its ownership stake in Yugraneft within the Russian legal system. The time to appeal that decision lapsed just before this case was initiated.

Defendants seek to dismiss the Complaint under the doctrine of forum non conveniens, which allows a court to decline jurisdiction based on convenience and justice. The Court uses a three-step process: (1) assessing the deference owed to the plaintiff's chosen forum, (2) evaluating whether there is an adequate alternate forum, and (3) weighing public and private interests to determine the most convenient forum.

Typically, a plaintiff's choice of forum is respected, especially if it is the plaintiff's home jurisdiction. However, this deference is reduced for foreign plaintiffs, as Norex is a Cypriot corporation with business ties to Canada, claiming that the U.S. is more convenient than Russia. Norex cites the Jay Treaty for substantial deference, but the Court maintains that the connection to the chosen forum is critical. Norex's choice, being outside its home jurisdiction, receives less deference, although the Court acknowledges that the U.S. is more convenient for Norex than Russia based on geographic considerations.

The Court will next assess whether there is an adequate alternate forum, which means determining if defendants can be served and if the forum allows for litigation of the case's subject matter.

An identical cause of action is not required in an alternative forum for a forum non conveniens dismissal, as established by the Second Circuit, which noted that the absence of a RICO statute in a foreign country does not preclude such a dismissal. The Defendants are willing to submit to the jurisdiction of Russian courts, satisfying the first prong of the alternative forum test. The Plaintiff contends that Russia is an inadequate forum due to: (1) lack of a cause of action for the claims, (2) inadequate court procedures, and (3) perceived corruption. Both parties have submitted expert opinions on the adequacy of the Russian forum. The Plaintiff has moved to strike the declarations of Defendants' experts, Alexey Kostin and Paul B. Stephan III, citing Federal Rule of Evidence 702, which governs the admissibility of specialized evidence. However, Federal Rule of Civil Procedure 44.1 allows for consideration of relevant material, including expert testimony, when determining foreign law. The Court will consider the declarations as informative for assessing Russian legal issues.

The Plaintiff's objections to the declarations focus on their alleged lack of practical experience and understanding of barriers in Russian courts. The Court considered these criticisms alongside the experts’ credentials in evaluating Russia's adequacy as a forum. Defendants' experts assert that claims similar to the Plaintiff's RICO claims could be pursued in Russia, such as fraud or civil conspiracy. Professor Stephan suggests that damages could be claimed in Russian arbitrazh courts, while Kostin notes that claims could also be filed in general jurisdiction or criminal courts. The Plaintiff's expert, Sergey B. Zaitsev, acknowledges possible claims under the Russian Civil Code but argues that remedies are practically unavailable due to a prior Russian court ruling that voided the Plaintiff's interest in a company. It is noted that the Plaintiff was aware of these proceedings but chose not to participate, allowing the opportunity for appeals to lapse. Claims barred in Russian courts would similarly be barred in this Court, which would defer to the Russian decision unless it violated fundamental procedural fairness. Zaitsev also points out that the Plaintiff could have pursued a collateral attack based on newly revealed circumstances under Russian law, even after other avenues were time-barred.

A petitioner can challenge a decision within nine months of discovering new circumstances, as outlined in Article 309, which is a valid path for appellate review. Norex, however, may be barred from utilizing this option because the new circumstances cited have been known for over nine months, suggesting a strategic delay by the Plaintiff. Articles 311(2) and (3) of the Arbitrazh Procedure Code permit the reversal of judicial acts based on corruption, contingent upon a prior criminal conviction, making their application rare, although they align with the Plaintiff's claims in court.

Experts suggest that the Plaintiff could still pursue claims in Russian courts under various laws, despite some claims being time-barred. The doctrine of forum non conveniens does not necessitate a guarantee of success in claims, merely the existence of a cause of action. The Plaintiff argues that procedural differences between U.S. and Russian courts demonstrate the inadequacy of the Russian forum, citing limited live testimony and restrictive discovery processes.

Contrarily, Defendant's expert highlights procedural protections in Russian civil and arbitrazh systems, such as an adversarial model, notification of hearings, evidence presentation rights, and witness obligations, which are acknowledged by the Plaintiff's experts, albeit with skepticism regarding their practical application. However, a foreign court is not required to mirror U.S. procedures to be deemed adequate. The Court concludes that the procedural differences do not render the Russian forum inadequate.

Additionally, the Plaintiff asserts that widespread corruption within the Russian judiciary undermines fair hearings, supported by a declaration from a retired judge citing historical and systemic issues. This corruption is claimed to prevent Norex from receiving a fair trial against influential Defendants in Russia.

Pashin's declaration claims that Russian courts do not adhere to fair treatment principles, referencing a hearsay account from a newspaper about a court official's alleged admission of bribery. However, Pashin fails to provide sufficient evidence of pervasive corruption that would justify an American court rejecting all Russian court decisions as illegitimate, nor does he demonstrate corrupt influences affecting the judicial decisions relevant to this case. Zaitsev argues that corruption exists in the Know-How Case decisions, asserting they contradict Russian law and suggesting undue influence. His primary evidence includes his analysis of treaties, the application of provisional remedies by Russian courts, and appellate decisions overturning similar lower court rulings. Additionally, the Plaintiff cites risk factors in U.S. securities law disclosure documents and a speech by President Putin addressing corruption in the court system to argue for the inadequacy of the Russian legal forum. The Court reiterates that it is not its role to oversee the integrity of another sovereign's judicial system. The generalizations and hearsay do not substantiate claims of systemic corruption in Russian courts, and the evidence does not warrant dismissing the Russian legal proceedings challenged by Norex. The Court finds that Defendants have demonstrated the existence of an adequate alternative forum. 

Next, the Court addresses the public and private interests based on the Gilbert factors. Public interests include local dispute resolution, avoiding conflicts of laws, managing court congestion, and preventing juror burdens from irrelevant cases. The Plaintiff emphasizes U.S. connections in its claims, arguing for a strong U.S. interest in preventing fraud facilitated through its banking system. However, besides general allegations of U.S. involvement and one specific threat made in the U.S., the Plaintiff's identified connections primarily relate to financial channels used in alleged money laundering and tax fraud. The core of the Plaintiff's claims is based on allegations that Defendants improperly control Russian entities and assets through fraud and violence involving Russian individuals and institutions.

The case primarily concerns issues of Russian law and public interest, making the Russian forum more appropriate for resolution. The viability of the Plaintiff's claims about concealed assets through offshore entities hinges on demonstrating that the activities in Russia were illegitimate. American jurors would have limited interest, as most parties are non-U.S. persons and the events occurred in Russia, resulting in an unjustifiable burden on U.S. jurors. The need to apply Russian law favors the Russian forum, as the case involves allegations of actions prohibited under Russian law. While the application of foreign law alone does not warrant dismissal, it strongly supports the Russian venue. Court congestion is neutral, as no evidence suggests U.S. courts are more congested than Russian courts.

The first private interest factor, regarding access to proof, also favors Russia, given that relevant documents are likely located there, including those related to corrupt activities and court decisions. The Plaintiff's focus on evidence related to 'Slush Funds' and tax fraud introduces a neutral factor, as those documents are internationally dispersed. While banking evidence tied to American institutions could favor the U.S. forum, it is secondary to the primary issues involving the Illegal Scheme, which necessitates examination of Russian events. Additionally, many documents are in Russian and would require translation for U.S. litigation, presenting a burden that further supports proceeding in Russia. Overall, the public and private interest factors collectively favor the Russian forum.

Ease of access to sources of proof favors adjudication in Russia, as the majority of witnesses and evidence related to the allegations of money laundering and wire fraud are located there. Specifically, the Plaintiff cites numerous witnesses outside Russia, including 187 bank custodians, but this contrasts with the substantial involvement of individuals and entities within Russia tied to the central allegations. Previous cases, such as Base Metal, have dismissed similar claims regarding the relevance of foreign witnesses in financial transactions. The Plaintiff's focus on witnesses involved in Russian corruption, including alleged bribes and coercive actions, highlights the difficulty of compelling their testimony in the U.S., underscoring the impracticality of bringing them to New York even if they were willing. While the Plaintiff identifies a few witnesses in the U.S. and Canada, their locations do not significantly favor the American forum, as most are in neutral or less relevant jurisdictions. Concerns about the unwillingness of witnesses to travel to Russia do not substantially support the case for the U.S. forum, as established precedents indicate that fears of persecution or unfair treatment in the alternative forum are insufficient to declare it inadequate. Overall, the critical issues and sources of proof strongly align with Russia rather than the U.S.

Plaintiff claims that its chairman faces illegitimate criminal charges in Russia, leading both him and the corporate president to refuse to testify in this lawsuit due to fears of further prosecution. The court, referencing the Base Metal case, notes it cannot assess the validity of these charges and that the witnesses' reluctance to return to Russia does not justify retaining the lawsuit in the U.S. Furthermore, while third-party witnesses allege victimization from an armed takeover related to the case, this does not show that key witnesses would be unavailable in Russia or shift the balance of convenience towards the U.S. The court highlights that Russian courts typically do not allow live testimony, making witness travel a neutral factor. However, since the central allegations stem from Russian events, witness availability and transportation costs favor the Russian forum. The Plaintiff's assertion that some Defendant companies regularly operate in the U.S. does not alter the conclusion that the evidentiary center of gravity lies in Russia. Overall, both public and private interest factors support the Russian forum, leading to the dismissal of the case on forum non conveniens grounds. Plaintiff's motions to strike expert declarations are denied, and all other pending motions are deemed moot. The Clerk is instructed to enter judgment dismissing the case. Notes clarify the identity of the Plaintiff's parent company and categorize the defendants involved.

OAO Alfa Bank and various associated entities, including Alfa Capital Markets and Crown Commodities, are identified as defendants in a legal matter involving allegations of fund laundering related to an illegal scheme. The TNK Defendants, which include individuals like Joseph Bakaleynik and German Khan, are also implicated. Additionally, companies referred to as the "Slush Fund" Companies, such as LT Enterprises Limited and Eastmount Properties Limited, are noted for their alleged involvement in the laundering activities, with Astons Corporate Management cited as the entity managing these companies. 

Professor Stephan, an expert in Soviet and post-Soviet law, has contributed opinions in similar cases, while Professor Kostin holds a significant academic and professional position in Russian law. The excerpt references a case, Films By Jove, Inc. v. Berov, which discusses perceptions of corruption within the Russian judicial system, suggesting that while concerns exist, the evidence presented did not warrant a blanket condemnation of the judiciary. Other legal precedents are mentioned to provide context to the arguments being made.