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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
|
REPUBLIC OF KAZAKHSTAN Plaintiff, v. ANATOLIE STATI, et al., Defendants. |
) ) ) ) ) Civil Action No. 1:17-cv-02067-ABJ ) ) ) ) ) |
REPUBLIC OF KAZAKHSTAN'S OPPOSITION TO
DEFENDANTS' MOTION TO VACATE ENTRY OF DEFAULT
AGAINST ASCOM GROUP, S.A. AND TERRA RAF TRANS TRAIDING LTD.
Plaintiff Republic of Kazakhstan (“Kazakhstan”) respectfully submits this Opposition to
Defendants’ Motion to Vacate Entry of Default Against Ascom Group, S.A. (“Ascom”) and
Terra Raf Trans Traiding Ltd. (“Terra Raf”) (ECF 13-14).
Defendants attempt to dismiss this case as the “latest chapter” in a multi-year, multi-
jurisdictional dispute concerning the recognition and enforcement of a “duly-rendered” foreign
arbitral award and claim that the conduct at issue “primarily” is “lawful” litigation conduct that
occurred outside of the United States. ECF 14 (“Motion” or “Mot.”) at 2, 5. This characterization
of the Complaint is self-serving and patently incorrect. The conduct at issue is anything but
“lawful.” Indeed, the Complaint alleges that Defendants have and continue to be engaged in a
wide-ranging and sophisticated fraudulent scheme, a significant part of which was carried out in
the United States. See ECF 1(Compl.), ¶¶ 1-2.
Kazakhstan filed this action against Ascom, Terra Raf, and the two individuals who
control those entities, Anatolie and Gabriel Stati, alleging that Defendants, acting in concert with
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others, have and continue to be engaged in a fraudulent scheme to injure Kazakhstan, and other
victims, in their money and property and/or to unjustly enrich themselves. See id. ¶¶ 1-2. To
carry out this scheme, Kazakhstan alleges that Defendants have and continue to be engaged in an
illegal pattern of racketeering consisting of multiple acts of mail fraud, wire fraud, and money
laundering in violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18
U.S.C. § 1961 et seq. Id. ¶ 2. Specifically, Kazakhstan alleges that Defendants fraudulently
obtained a bid for the purchase of a liquefied petroleum gas plant (the “LPG Plant”) by falsifying
costs and financial statements, and fraudulently used that bid as evidence in a subsequent
arbitration against Kazakhstan. Id. ¶¶ 5-6. In addition, during the arbitration, Defendants
concealed the fraud, made affirmatively false representations regarding the amount of their
investment in the LPG Plant, and withheld relevant documents from production, thereby
procuring the arbitral award through fraud. Id. ¶ 7. Defendants continued their fraudulent scheme
by seeking to enforce and/or collect on the award in multiple jurisdictions, including in an action
pending before this Court, Anatolie Stati et al. v. Republic of Kazakhstan, No. 14-1638 (D.D.C.).
Id. ¶ 8.
While Defendants try to minimize the scope and nature of their actions, the conduct at
issue is serious. In proceedings concerning the enforcement of the award pending in London,
England (the “London Proceedings”), the High Court of Justice, Queen's Bench Division,
Commercial Court (the “London Court”) found that these same allegations establish a “sufficient
prima facie case” of fraud and set the matter for a trial on the merits. Id. ¶¶ 214-219. In a
shocking recent move, Defendants have attempted to discontinue their action to enforce the
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award in England altogether. See Exhibit A (Feb. 26, 2018 Notice of Discontinuance).1
Evidently, Defendants want to avoid a trial on their allegedly fraudulent conduct. The Motion
conspicuously fails to reference the London Proceedings.
The Motion likewise misleadingly claims that the “highest level of the Swedish
judiciary” “firmly rejected” Kazakhstan's claim that the arbitral award was procured by fraud.
See Mot. at 1. That is not accurate. The Swedish Supreme Court determined that the Svea Court
of Appeals, the intermediate appellate court, did not make a “grave procedural error” when
rendering its decision, and neither court made factual findings regarding the merits of
Kazakhstan's fraud allegations. See Republic of Kazakhstan's Resp. to November 6, 2017
Minute Order (ECF 65), No. 14-1638 (D.D.C.). The merits of Kazakhstan's fraud allegations
thus have yet to be adjudicated.
Ascom's and Terra Raf's failure to timely respond to the Complaint is therefore not
surprising. Ascom and Terra Raf evidently ignored service of the Complaint and failed to contact
their U.S. counsel upon receiving it. The defaults, in other words, were willful. What is more,
Ascom and Terra Raf have not presented meritorious defenses, or the verified answer required
by LCvR 7(g), and Kazakhstan would be prejudiced if the defaults are set aside. Accordingly,
good cause does not exist to vacate the entries of default, and this Court should deny the Motion.
This Court may only set aside the entries of default against Ascom and Terra Raf for
“good cause.” Fed. R. Civ. P. 55(c). Whether good cause exists is a decision committed to the
sound discretion of this Court. Int'l Painters & Allied Trades Union & Indus. Pension Fund v.
H.W. Ellis Painting Co., Inc., 288 F. Supp. 2d 22, 25–26 (D.D.C. 2003) (citing Keegel v. Key
1 Kazakhstan has filed an application to set aside this Notice of Discontinuance and undersigned counsel ↩
understands that a hearing on this application will be held by the English court on April 1, 2018.
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West & Caribbean Trading Co., 627 F.2d 372, 373 (D.C. Cir. 1980)). In exercising that
discretion, this Court must consider whether (1) the default was willful; (2) the alleged defenses
are meritorious; and (3) a set-aside would prejudice Kazakhstan. Id. All three factors weigh
against vacating the defaults, and in favor of denying Defendants' Motion.
The boundary of willfulness lies between a negligent filing error (which is excusable) and
a deliberate decision to default (which is not). Id. at 26 (citing Gucci Am., Inc. v. Gold Ctr.
Jewelry, 158 F.3d 631, 634 (2d Cir. 1998)). Defendants proffer two reasons that purportedly
show that their defaults were not willful, but both compel the opposite conclusion—that
Defendants' failure to timely respond to the Complaint was inexcusably deliberate.
First, Defendants claim there was a “misunderstanding by Terra [Raf] and Ascom
concerning service.” Mot. at 4. But that assertion is wholly unsupported by a declaration from
Defendants or their counsel. And the Motion is silent as to the basis for the purported
“misunderstanding.” Indeed, Defendants admit that Ascom received its service package from the
Moldovan Judicial Court of Chisinau (which they do not and cannot argue was improper service
under the Hague Convention), and did nothing in response, not even consult counsel. Id. at 2
(Defendants' counsel claim that they learned of service not from Ascom, but from Kazakhstan's
filing of requests for default). This is not plausible, or at minimum is inexcusable, given that
Ascom is involved in multiple legal proceedings around the world against Kazakhstan
concerning these same matters, including the related case before the Court, and in those
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proceeding is using the same law firm (King & Spalding).2 Indeed, Defendants' counsel
acknowledged in a November 13, 2017 filing in the related action before this Court that they
were aware of this action and represented to the Court that Defendants would answer the RICO
complaint when it was served. See Petitioners' Suppl. Submission in Opp. to Mot. for
Reconsideration (ECF 66), No. 14-1638 (D.D.C.), at 10 n.2 (“Petitioners will answer the RICO
case if and when it is served”). In sum, Ascom was properly served, willfully chose not to
respond and there is no excuse for its conduct. Int'l Painters, 288 F. Supp. 2d at 26-27 (finding
willfulness because defendant “had no basis to ignore its obligations to file an answer”); see also
United States v. Ponte, 246 F. Supp. 2d 74, 81 (D. Me. 2003) (finding willfulness where
defendant had knowledge of complaint and refused to retain counsel).
As to Terra Raf, it asserts that it “did not believe that [Federal Express delivery]
constituted good service under Gibraltar law.” Id. at 2. As a threshold matter, this assertion is
wholly unsupported: there is no declaration from Terra Raf attesting to this “belief” and the
Motion includes no explanation of the basis for it. Moreover, Terra Raf's apparent “belief” is
incorrect as a matter of law.³ Finally, simply believing service was improper does not excuse
2 King & Spalding represents the Stati Parties in two U.S. actions concerning the enforcement of the award. See ↩
Anatolie Stati et al. v. Republic of Kazakhstan, No. 14-cv-1638 (D.D.C.); Anatolie Stati et al. v. Republic of
Kazakhstan, No. 17-cv-05742 (S.D.N.Y). King & Spalding also represents the Stati Parties in multiple U.S. actions
seeking discovery pursuant to 28 U.S.C. § 1782 for use in foreign proceedings concerning the attachment and
enforcement of the award. See, e.g., In re Application of Anatolie Stati et al. for an Order Directing Discovery from
Bank of New York Mellon Corporation Pursuant to 28 U.S.C. § 1782, No. 1:14-mc-000425 (S.D.N.Y.); In re
Application of Anatolie Stati et al. for an Order Directing Discovery from State Street Corporation Pursuant to 28
U.S.C. § 1782, No. 1:15-mc-91059 (D. Mass.); In re Application of Anatolie Stati et al. for an Order Directing
Discovery from Union Bancaire Privee Asset Management LLC Pursuant to 28 U.S.C. § 1782, No. 1:18-mc-77
(S.D.N.Y.); In re Application of Anatolie Stati et al. for an Order Directing Discovery from Amundi Investments
USA Pursuant to 28 U.S.C. § 1782, No. 1:18-mc-00078 (S.D.N.Y.); In re Application of Anatolie Stati et al. for an
Order Directing Discovery form Euroclear Bank Pursuant to 28 U.S.C. § 1782, No. 1:18-mc-00079 (S.D.N.Y.).
Further, King & Spalding represents the Stati Parties in multiple foreign proceedings concerning the attachment and
enforcement of the award.
3 Defendants claim that there is a “debate” as to whether service by Federal Express meets the requirements of the ↩
Hague Convention. Mot. at 4 n.2. There is no debate. Defendants cite one case, from the Northern District of
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Terra Raf's failure to respond to the Complaint. If that were the case, every defendant could
come to court and use an unsupported, incorrect, subjective “belief” to avoid a properly-entered
default. This would make a mockery of the good cause standard and the Federal Rules of Civil
Procedure's detailed timing requirements for answering a complaint. “A defendant who chooses
to ignore a purported service of process does so at his own risk.” Paramount Packaging Corp. v.
H. B. Fuller Co. of N. J., 190 F. Supp. 178, 181 (E.D. Pa. 1960) (a defendant cannot ignore
service of process in mistaken belief process is invalid and then ask court to set aside default for
“good cause”). Here, Terra Raf's default was plainly willful. See Safdar v. AFW, Inc., 279
F.R.D. 426, 433 (S.D. Tex. 2012) (finding willful default when defendant decided not to respond
to suit, without hiring an attorney, based on his own conclusion that he had not been properly
served).
Second, Defendants argue that “a miscommunication between Defendants and counsel”
excuses their failure to timely respond. Mot. at 4.4 This is yet another blanket assertion
Illinois, that stated, in dicta, that Federal Express was not a “postal channel” (the term used in the Hague
Convention). NSM Music, Inc. v. Villa Alvarez, 02 C 6482, 2003 WL 685338 (N.D. Ill. Feb. 25, 2003). That view
has not been endorsed by any court in the United States District Court for the District of Columbia, and has been
flatly rejected by other courts. See Bidonthecity.com LLC v. Halverston Holdings Ltd., 12 CIV. 9258 ALC MHD,
2014 WL 1331046, at *8 (S.D.N.Y. Mar. 31, 2014) (narrowly construing “postal channel” to exclude FedEx “seems
contrary to one of the stated goals of the Service Convention”); TracFone Wireless, Inc. v. Unlimited PCS Inc., 279
F.R.D. 626, 631 (S.D. Fla. 2012) (“the Court concludes that FedEx is a permissible postal channel under Article
10(a)”); Power Integrations, Inc. v. Sys. Gen. Corp., No. C 04-02581 JSW, 2004 WL 2806168, at *2 n. 3 (N.D. Cal.
Dec. 7, 2004) (rejecting argument that FedEx does not constitute “postal channel” under the Hague Convention); R.
Griggs Group Ltd. v. Filanto SPA, 920 F. Supp. 1100 (D. Nev. 1996) (concluding that Federal Express was a “postal
channel” for purposes of analyzing whether service was proper under Hague Convention); cf. Lexmark Int'l, Inc. v.
Ink Techs. Printer Supplies, LLC, 1:10-CV-564, 2013 WL 12178588, at *4 (S.D. Ohio Aug. 21, 2013) (“the Court
finds that service of process by international courier is permitted under the Hague Convention”); In re Hawker
Beechcraft, Inc., 486 B.R. 264, 284 (Bankr. S.D.N.Y. 2013) (concluding that service by overnight international
courier complied with Article 10(a) of the Hague Convention); Wong v. Partygaming Ltd., No. 1:06–CV–2376,
2008 WL 1995369, at *3 (N.D. Ohio May 6, 2008) (finding service complied with Article 10(a) where plaintiffs
sent a copy of the complaint to each defendant via DHL). The other case cited by Defendants, SignalQuest, Inc. v.
Tien-Ming Chou, 284 F.R.D. 45 (D.N.H. 2002), does not weigh in on the purported “debate” regarding service under
the Hague Convention. SignalQuest concerned sufficiency of service under the Federal Rules.
4 Defendants' reliance on cases regarding miscommunication among counsel, are thus inapplicable. See Kusi v. ↩
British Airways Corp., 1997 WL 420334, at *1 (D.D.C. July 17, 1997) (miscommunication between inside and
outside counsel); see also Wingate Inns Int'l, Inc. v. P.G.S., LLC, 2011 WL 256327, at *4 (D.N.J. Jan. 26, 2011)
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unsupported by a declaration from Defendants, which conveniently mirrors the language of the
case law cited in the Motion. Cf. id. And, in any event, the Motion itself makes clear that there
was no “miscommunication.” Defendants evidently did not communicate with counsel at all
until Kazakhstan sought the entries of default.5 Mot. at 2. The resulting default thus was not the
result of any miscommunication, but of the parties' willful decision not to respond to the
Complaint. Ponte, 246 F. Supp. 2d at 81 (finding willfulness where defendant had knowledge of
complaint and refused to retain counsel); United States v. Dimucci, 110 F.R.D. 263, 268 (N.D.
Ill. 1986) (denying motion to vacate entry of default where the only “good cause” they presented
for their actions was the alleged failure of their former counsel to keep them informed about the
case); cf. Keith v. Melvin L. Joseph Const. Co., 451 A.2d 842, 846 (Del. Super. Ct. 1982)
(finding defendant's conduct culpable when defendant failed to consult an attorney upon service
of process, even though he had one on retainer).
Defendants, in moving to set aside a default, were required to submit “a verified answer
presenting a defense sufficient to bar the claim in whole or in part,” as required by Local Rule
7(g), and assert a meritorious defense that they may prove at trial. Nat'l Rest. Ass'n Educ. Found.
v. Shain, 287 F.R.D. 83, 87 (D.D.C. 2012) (citing Whelan v. Abell, 48 F.3d 1247, 1259 (D.C. Cir.
(retained out of state counsel advised no formal action required). It is true that “default judgments were not designed
as a means of disciplining the bar at the expense of the litigants' day in court,” Jackson v. Beech, 636 F.2d 831, 836
(D.C. Cir. 1980), but, here, the default was the result of the parties themselves, not their counsel.
5 Defendants emphasize their counsel's “expeditious” action once counsel became aware of the entries of default. ↩
Mot. at 4-5. It is entirely irrelevant to the willfulness analysis that Defendants' attorneys performed legal services
after they learned of the case. Relevant are Defendants' actions. Jackson, 636 F.2d at 836. And, here, Defendants
deliberately chose not to inform counsel when they were served.
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1995)). Defendants conspicuously did not submit a verified answer with their Motion.6 This
violation of Local Rule 7(g) alone compels denying the Motion.
Even if this Court decides not to deny the Motion for failure to comply with Local Rule
7(g), the result is the same because Defendants failed to present a meritorious defense. ““In order
to make a sufficient showing of a meritorious defense, the defendant must present evidence of
facts that, if proven at trial, would constitute a complete defense.”” Gillespie v. Capitol
Reprographics, LLC, 573 F. Supp. 2d 80, 87 (D.D.C. 2008) (quoting New York v. Green, 420
F.3d 99, 109 (2d Cir. 2005) (emphasis added)). Defendants merely argue that meritorious
defenses exist, but conclusory arguments are not evidence of facts. Cf. Mot. at 5 (“Defendants
have yet to fully prepare their defenses to this action”); id. (“the complaint fails to allege, even
prima facie, a cognizable RICO case); id. (“the complaint . . . is subject to a series of threshold
legal defenses”). Defendants' explanations that “the vast majority of conduct complained of
occurred outside the United States” and the RICO “pattern” consisted of “attempts to seek
judicial relief,” while less general, still fall well short of presenting a “meritorious defense.”
Defendants thus have provided no means by which this Court may assess their purported
defenses, much less conclude they are meritorious. See Nat'l Rest. Ass'n Educ. Found., 287
F.R.D. at 87-88 (denying motion to set aside default where defendants failed to supply any
factual basis for their laundry-list of affirmative defenses); see also Maine Nat. Bank v. F/V
6 Defendants rely on Acree v. Republic of Iraq, 658 F. Supp. 2d 124, 128 (D.D.C. 2009), to attempt to excuse their ↩
failure to comply with Local Civil Rule 7(g). Mot. at 5 n.3. Indeed, the Acree court decided not to deny the
defendant's motion to set aside entry of default for failure to comply with Local Civil Rule 7(g), and considered the
merits of the motion instead. Id. at 128. But, the court's lenience was based on the “established presumption against
granting default judgment against foreign nations.” Id. Defendants, here, are not foreign nations. And, in any event,
the defendant in Acree showed good cause to set aside the entry of default, as the failure of Iraq, the defendant, to
respond to the complaint was inadvertent—attributable to the effect of war, reconstruction, and governmental
reorganization. Id. at 130. Defendants, here, have not demonstrated such good cause. This Court should not allow
Defendants to file a motion to dismiss in sixty days; doing so would only reward Defendants' failure to inform their
counsel of this lawsuit.
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Cecily B. (O.N. 677261), 116 F.R.D. 66, 69 (D. Me. 1987) (general denials or conclusory
statements that defenses exist are insufficient to demonstrate existence of meritorious defense, as
factor favoring setting aside default).
The third factor, prejudice to Kazakhstan, also supports denial of the Motion.
Defendants' deliberate decision to delay the proceedings prejudices Kazakhstan. While “[d]elay
in and of itself does not constitute prejudice,” prejudice arises “from delay's attendant dangers:
loss of evidence, increased difficulties of discovery, or an enhanced opportunity for fraud or
collusion.” Dullea v. Pension Benefit Guarantee Corp., 320 F.R.D. 100, 101 (D.D.C. 2016)
(quoting KPS & Assocs., Inc. v. Designs by FMC, Inc., 318 F.3d 1, 15 (1st Cir. 2003)); Flanagan
v. Islamic Republic of Iran, 190 F. Supp. 3d 138, 159 (D.D.C. 2016); Acree, 658 F. Supp. 2d at
128–29. Defendants' willful delay enhances their opportunity to perpetuate their fraudulent
scheme by seeking to enforce and/or collect on the fraudulently obtained arbitral award in
multiple jurisdictions, Compl. ¶ 8, and so prejudices Kazakhstan.
In addition to the delay caused by Defendants' default, and putting aside Defendants'
willful intent to avoid this litigation and their initial decision not to involve U.S. counsel,
Kazakhstan has incurred significant fees and costs in serving Defendants, seeking entries of
default when Defendants failed to respond to the Complaint, and in responding to the Motion.
Courts in this District have found that such circumstances demonstrate the possibility of
prejudice. Nat'l Rest. Ass'n Educ. Found., 287 F.R.D. at 87.
The prejudice factor, in any event, is less significant than the other two factors, and the
Court “has discretion to deny a motion to vacate if it is persuaded that the default was willful and
that the defaulting party has no meritorious defenses.” Id. (quoting Int'l Painters, 288 F. Supp. 2d
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at 31 (citing SEC v. McNulty, 137 F.3d 732, 738 (2d Cir. 1998))). Such is the case here, as
detailed above, and this Court should accordingly deny the Motion.
Defendants argue that vacating the defaults would manifestly serve the interests of
justice. Mot. at 6. On the contrary, vacating the defaults would reward deliberate disregard for
this Court and the U.S. judicial system.
Defendants maintain, specifically, that all four Defendants intend to contest this case
together, and “[f]orcing Terra [Raf] and Ascom to separately respond to a 93-page complaint
before their co-defendants are even served” would be “a wanton waste of resources.” Mot. at 7.
First, the defaults against Ascom and Terra Raf may be maintained even if the case proceeds as
to the individual defendants—Anatolie and Gabriel Stati. See Carter v. D.C., 795 F.2d 116, 137
(D.C. Cir. 1986) (the D.C. Circuit bars entry of a default judgment against one of several
defendants only if, as a matter of law, no one defendant may be liable unless all defendants are
liable).
Second, Anatolie and Gabriel Stati control Ascom and Terra Raf, and therefore had full
knowledge of the lawsuit as early as November 2017, when the entities received the Complaint.
Mot. at 2. Yet, when both entities were properly served, Anatolie and Gabriel Stati willfully
chose to not have their companies file an answer. Accordingly, any purported concern about the
“wanton waste of resources” that may stem from not being able to respond to the Complaint
together ring hollow. If Defendants were actually concerned about the efficient use of resources,
Anatolie and Gabriel Stati would have consulted their counsel after their companies -- Ascom
and Terra Raf -- were served, and would have timely filed an answer or responsive pleading.
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Having not done this, they cannot now, after deliberately refusing to follow the Rules, protest
about supposed judicial inefficiencies.
For the foregoing reasons, Kazakhstan respectfully requests this Court deny Defendants'
Motion to Vacate Entry of Default Against Ascom Group, S.A. and Terra Raf Trans Traiding
Ltd.
Dated this 16th day of March, 2018
Respectfully Submitted,
/s/ Matthew H. Kirtland
Matthew H. Kirtland (D.C. Bar No. 456006)
Kara P. Wheatley (D.C. Bar No. 975541)
Rebecca E. Bazan (D.C. Bar No. 994246)
NORTON ROSE FULBRIGHT US LLP
799 9th St. NW, Suite 1000
Washington, D.C. 20001
Telephone: (202) 662-0200
Facsimile: (202) 662-4643
ATTORNEYS FOR PLAINTIFF
REPUBLIC OF KAZAKHSTAN