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Research and Development Center & Teploenergetika, & LLC v. EP International, LLC

United States District Court, E.D. Virginia, Norfolk Division

April 26, 2016

RESEARCH AND DEVELOPMENT CENTER

OPINION AND ORDER

MARK S. DAVIS, UNITED STATES DISTRICT JUDGE.

This matter comes before the Court on Research and Development Center, "Teploenergetika, " LLC's ("Petitioner" or "R&D") Petition for Confirmation of Arbitral Awards and Entry of Judgment. ECF No. 1 [hereinafter "Petition"]. Petitioner requests that the Court confirm and enforce three arbitration awards from the International Commercial Arbitration Court at The Chamber of Commerce and Industry of the Russian Federation ("ICAC"): two of the awards equal $15, 596, 815.42, and are against Respondent EP International, LLC ("EP"); and one of the awards is for $1, 084, 471.80, and is against Respondent Worldwide Vision, LLC ("Worldwide" or, collectively, "Respondents") . With the Petition fully briefed, and oral argument completed, this matter is ripe for consideration.

I. FACTUAL AND PROCEDURAL BACKGROUND

The relationship between the parties began during construction of two natural gas power plants outside of Moscow in Tereshkovo and Kuzhukovo. Opp'n to Petition, 2, ECF No. 9 [hereinafter "Opp'n"]. The power plants were owned by ICFS International, LLC ("ICFS"). Decl. of Alexander Razinski, ¶ 10, ECF No. 10 [hereinafter "First Razinski Decl."]. Zorlu Enerji Elektrik Uretim Anonim Sirketi ("Zorlu Enerji") owned a 51% share of ICFS and was the majority shareholder. Id. ¶ 11. Zorlu Enerji is a subsidiary of Zorlu Holding Anonim Sirketi ("Zorlu Holding"). Id. Invar International, Inc. ("Invar") owned a 24.5% portion of ICFS, and Alexander Razinski ("Mr. Razinski") is Invar's president.[1] Id. ¶ 10.

Power plant construction derailed and a dispute arose between Zorlu Enerji, Zorlu Holding, Invar, and Mr. Razinski in 2011 and 2012 . Id. ¶ 17 . This dispute resulted in multiple suits in various venues, but all suits were resolved during a 2012 arbitration before a panel at the Chamber of Commerce and Industry in Geneva, Switzerland ("2012 Geneva arbitration"). During this 2012 arbitration, Zorlu Enerji and Zorlu Holding alleged counterclaims of fraud, conspiracy, and breach of fiduciary duty against Invar and Mr. Razinski, including allegations that R&D's loans to EP and Worldwide were a means by which Mr. Razinski perpetrated the alleged fraud scheme. Id. Ex. A, Statement of Counterclaim, ¶ 103, ECF No. 10-1. The dispute between the four parties was settled on November 26, 2012. Opp'n at 2; id. Ex. A, Settlement Agreement, ECF No. 9-1 [hereinafter "2012 Settlement Agreement"].[2] The 2012 Settlement Agreement included a comprehensive release of all claims between Zorlu Enerji, Zorlu Holding, Invar, and Mr. Razinski related to the 2012 Geneva arbitration, then-pending litigation in New York, and other potential claims "relating to those matters or their underlying disputes." 2012 Settlement Agreement at 1. The parties also agreed that Invar and Mr. Razinski were to receive a settlement payment of "US$ 15 million." Id. § 2.11; Opp'n at 3. The 2 012 Settlement Agreement further included a provision prohibiting any party from "aiding and abetting" others in prosecuting claims against the other parties to the 2012 Settlement Agreement or their "related entities." Opp'n at 3; 2012 Settlement Agreement §§ 5.1-5.2. "Related entity, " as defined by the 2012 Settlement Agreement, includes "related or affiliated Persons, any other Person over which a Party has control through a direct or indirect interest, any trust of which a Party is a settler or beneficiary, and the administrators ... of the foregoing." Opp'n at 6-7; 2012 Settlement Agreement § 2.10.

Petitioner R&D is a Russian limited liability company, headquartered in Belgorod, Russia, and currently owned by Stramol Finance Limited. Petition ¶ 1; Pet'r's Reply in Support of Pet. for Confirmation, 4n.l, ECFNo. 26 [hereinafter "Pet'r's Second Reply"]. Petitioner was engaged as a consultant and subcontractor during the power plant construction by Zorlu Industrial ve Energy Tesisleri Inshaat Tijaret ("Zorlu Industrial"), a wholly-owned subsidiary of Zorlu Holding.[3] Opp'n at 4; First Razinski Decl. ¶¶ 9, 13. Petitioner's only sources of revenue were contracts related to the power plant construction. First Razinski Decl. ¶ 9. R&D's power plant contracts with Zorlu Industrial were terminated in early 2011, and, shortly thereafter, Zorlu Industrial sued R&D for return of money it had paid R&D pursuant to the contracts. Id. ¶¶ 13, 15. Zorlu Industrial prevailed in its lawsuit. Id. ¶ 15. Following the lawsuit, R&D was placed in receivership because it no longer had any revenue from its power plant contracts. Id. ¶ 16. R&D is currently engaged in bankruptcy proceedings in Russia. Pet'r's Second Reply, Ex. A, Vershinin Decl. ¶ 1, ECF No. 26-1 [hereinafter "Vershinin Decl."]. Zorlu Industrial is R&D's majority creditor, holding 59.55% of R&D's debt, and it appears that R&D also has five minority bankruptcy creditors. Id.

Respondents EP and Worldwide are both Virginia limited liability companies. Petition ¶¶ 2, 3. Alexander Razinski is the majority member of both Respondents. First Razinski Decl. ¶¶ 6, 7. From 2006 to 2009, Worldwide was the majority member of R&D. Id. ¶ 8. Worldwide transferred its ownership of R&D to Stramol Finance Limited in 2009.[4] Opp'n at 4. During the period in which Worldwide was R&D's majority member, R&D made two loans to EP: a loan in 2007 for $8 million, reflecting an initial loan of $7 million and an additional $1 million loan, and a loan in 2008 for $5 million. Petition ¶ 7; id. Ex. A, 2007 Loan Agreement, ECF No. 1-1; id. Ex. B, 2008 Loan Agreement, ECF No. 1-2. During that same period, R&D also made one loan to Worldwide in 2009 for $1.8 million, reflecting an initial loan amount of $300, 000 and an additional $1.5 million in loans. Id. ¶ 7; id. Ex. C, 2009 Loan Agreement, ECF No. 1-3. Each loan document dictated that, should a dispute arise, the dispute would be submitted to arbitration at the ICAC. Id. 1 8. EP and Worldwide defaulted on each of these loans. Id. ¶ 9.

The defaulted loans to EP and Worldwide were addressed by a meeting of Petitioner R&D's bankruptcy creditors on February 19, 2013. During that meeting, two resolutions were adopted, by a majority vote of R&D's bankruptcy creditors, not to file claims on the defaulted loans against EP and Worldwide in the ICAC arbitration and not to pay duties, fees, or expenses for representation in the ICAC arbitration regarding such claims. Vershinin Decl. ¶ 2. The resolutions were proposed by Zorlu Industrial and adopted by a majority of creditor votes, largely due to Zorlu Industrial's 59.55% share. Id. ¶ 1 (describing the voting percentages of R&D's creditors) . However, R&D's minority creditors objected and applied to the Arbitration Court of Belgorod to annul the resolutions. Id. ¶ 2. The resolutions were annulled by Judgment of the Arbitration Court of Belgorod on August 23, 2013, finding that the resolutions violated the minority creditors' rights and impeded the exercise of the bankruptcy manager's power. Id. Stramol Finance Limited, R&D's majority member, appealed the Arbitration Court's Judgment, and the Judgment was affirmed by the Ninth Court of Appeal on November 28, 2013. Id. The Ninth Court of Appeal's affirmation of the Judgment "enabled the Bankruptcy Manager to pay the arbitration charge, " and R&D's Bankruptcy Manager filed claims on its behalf against EP and Worldwide at the ICAC arbitration in December 2013 . Id.; Petition ¶ 9; Opp'n at 4. Shortly thereafter, on February 20, 2 014, R&D's bankruptcy creditors met again. Opp'n, Ex B. Translation, ECF No. 27-1. Following the legal proceedings noted above, and after the Bankruptcy Manager filed claims against EP and Worldwide in the ICAC arbitration, Zorlu Industrial proposed that the filing fee should be paid to ICAC and certain funds should be paid to legal counsel for the ICAC proceedings. Id. The creditors present at the February 20th meeting unanimously adopted Zorlu Industrial's proposal, again, largely due to Zorlu Industrial's large percentage of the votes available. Id.

The ICAC notice of proceedings was timely delivered to Respondents via DHL, pursuant to ICAC Rule § 16.5, which permits notification "by courier against receipt." Petition ¶ 10; Rules of the ICAC § 16.5, available at https://mkas.tpprf.ru/en/documents/. Despite receiving notice, Respondents EP and Worldwide did not participate in the ICAC arbitration proceedings in any way. Id. ¶ 11. Pursuant to ICAC rules and procedures, three awards were rendered in favor of Petitioner R&D against EP and Worldwide. Id. On September 25, 2014, ICAC arbitrators entered judgment against EP, in favor of R&D, for $6, 512, 462.79, including interest and costs. Id. ΒΆ 12; id. Ex. E, Sept. 25, 2014 Judgment, ECF No. 1-5. On September 26, 2 014, ICAC arbitrators entered judgment against Worldwide, in favor of R&D, for $1, 084, 471.80, including interest and costs. Id. ¶ 13; id. Ex. G, Sept. 26, 2014 Judgment, ECF No. 1-7. Finally, on October 3, 2014, ICAC arbitrators entered judgment against EP, in favor of R&D, for $9, 084, 352.63, including interest and costs. Id. ¶ 14; id. Ex. I, Oct. 3, 2014 Judgment, ECF No. 1-9.

On August 13, 2015, Petitioner R&D timely filed in this Court its Petition for Confirmation of Arbitral Awards and Entry of Judgment to enforce the three ICAC awards. ECF No. 1. Respondents EP and Worldwide filed their Opposition to Confirmation of Arbitral Awards on September 25, 2015, arguing that enforcement of the ICAC arbitral awards should be refused because 1) EP and Worldwide were unable to present their case at arbitration, and 2) enforcement of the three arbitral awards would be contrary to the public policy of the United States. ECF No. 9. R&D filed its Brief in Support of Petition for Confirmation on November 3, 2015. ECF No. 18 [hereinafter Pet'r's First Reply]. First, R&D argues in response, that there were alternatives available that would have allowed Respondents to participate in the ICAC arbitrations and, to the extent that such alternatives were insufficient to allow Respondents to participate in the arbitrations, Respondents waived such argument because they did not raise such defense during the arbitrations. Id. at 8-9. Second, with respect to Respondents' public policy defense, R&D primarily argues that Respondents waived their public policy defense due to their failure to raise such arguments at the ICAC arbitration. Id. at 5. The parties further agreed to, and submitted, additional briefing on the issue of confirmation and enforcement of the ICAC arbitral awards. Resp. to Pet'r's First Reply, ECF No. 2 0; Pet'r's Second Reply, ECF No. 26. The parties then appeared before the Court for oral argument on December 16, 2015. At the December 16th hearing, the Court ordered further briefing from the parties regarding Respondents7 newly raised res judicata public policy argument. Respondents filed their Supplemental Memorandum on December 31, 2015. Resp'ts' Suppl. Mem. of Law, ECF No. 31. Petitioner filed its Response to Respondents' Supplemental Memorandum on January 12, 2016. Pet'r's Resp. to Resp'ts' Suppl. Br., ECF No. 36. Respondents filed their final Rebuttal Brief on January 19, 2016. Resp'ts' Rebuttal to Pet'r's Opp'n to their Suppl. Mem. of Law, ECF No. 38.

II. LEGAL STANDARD

Petitioner seeks recognition and enforcement of the three ICAC arbitration awards under a portion of the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 201-208, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 [hereinafter "New York Convention"]. The FAA allows for recognition and enforcement of foreign arbitral awards in district courts. 9 U.S.C. § 2 03. ("An action or proceeding falling under the [New York] 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 action or proceeding . . . .").

The FAA provides that:

Within three years after an arbitral award falling under the [New York] Convention is made, any party to the arbitration may apply to any court having jurisdiction under this chapter for an order confirming the award as against any other party to the arbitration. The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.

9 U.S.C. § 207 . The New York Convention broadly applies to "arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought." New York Convention, Art. 1.1. Both the United States and the Russian Federation are signatories to the New York Convention.[5]

The New York Convention allows for recognition and enforcement of an arbitral award to be refused if the party against whom the ...


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