International Law

CHOOSE YOUR JURISDICTION WISELY

By David Beker

The latest chapter in the saga of OAO NK Yukos Oil Company (Yukos) was written by the Honorable Colleen Kollar-Kotelly, United States District Judge in the District of Columbia, on November 26, 2007. Yukos was a company founded by the Russian government in 1993 by consolidating certain state-owed producing, refining and distribution entities. By 2003, Yukos?s combined production of natural gas and oil rivaled ChevronTexaco and Total. Its market capitalization was estimated to exceed $30 billion and it was outperforming its Russian competitors. Yukos was also paying significant dividends to its shareholders, including holders of Yukos American Depository Receipts (ADRs).

Plaintiffs in Allen, et al v. Russian Federation, et al, (Civil Action No. 05-2077) 2007 U.S. Dist. LEXIS 86164 (November 26, 2007), allege that the Russian Federation ?launched its assault on Yukos and the individuals responsible for owning or running Yukos.? The Plaintiffs claim that as a result of the actions of the Russian Federation and persons and entities related to the Russian Federation, their ADRs became worthless because the Russian Federation expropriated the assets of Yukos by seizing a majority of Yukos shares, transferring Yukos?s most valuable assets to commercial activities controlled by the Russian Federation and diverting to state-controlled entities all remaining benefits of owning an interest in Yukos.

The Court specifically noted that the allegations contained throughout the Plaintiff?s 116 page Complaint tell a troubling story if proven true. However, the Court noted that United States District Courts are courts of limited jurisdiction and, therefore, concluded that it could not reach the merits of the Plaintiff?s complaint. The Court found that the Russian Federation and its wholly owned subsidiary were immune from suit under such claims under Foreign Sovereign Immunities Act, 28 U.S.C. §§1602, et seq. (FSIA). Furthermore, the Court found that the senior Russian government officials made all of their statements (and/or misstatements) in their official capacities and, thus, were also immune from suit under FSIA. Finally, the Court dismissed the claims against the two companies that are indirectly owned by the Russian Federation and the three executives of those companies based on the Court?s lack of personal jurisdiction.

While the Court?s detailed analysis of the Foreign Sovereign Immunities Act and the constitutional limitations on personal jurisdiction are interesting for lawyers who practice in this field, the broader lesson for plaintiffs seeking to recover their assets from persons and entities abroad is that choosing one or more jurisdiction(s) to commence litigation to recover assets is a difficult decision that should only be made after a thorough analysis of all of the relevant facts and law.

Full post as published by International Asset Recovery Law Blog on January 03, 2008 (boomark / email).