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10th Circuit denies arbitration bid by Ukrainian oligarch in RICO suit

An investment manager seeks to recoup $100 million it invested in Ukrainian egg producers before the Russian invasion of Crimea in 2014.

(CN) — The 10th Circuit on Wednesday rejected a Ukrainian oligarch’s effort to send a RICO lawsuit he faces in the U.S. District of Wyoming to arbitration.

Gramercy Distressed Opportunity Fund, an investment manager based in Greenwich, Connecticut, sued Ukrainian oligarch Oleg Bakhmatyuk and Wyoming businessman Nicholas Piazza under the Racketeer Influenced and Corrupt Organizations Act in 2021, claiming they schemed to interfere with Gramercy’s ability to recover an investment in Ukrainian egg producers following Russia's annexation of Crimea.

A federal judge denied Piazza and Bakhmatyuk's motions to dismiss the suit in favor of arbitration. Piazza and Bakhmatyuk each filed an appeal and Gramercy counter-appealed, so the 10th Circuit consolidated the cases.

Piazza's underlying motion to dismiss the case under the Federal Arbitration Act included a request for dismissal with prejudice on the merits. This move, a 10th Circuit panel found, constituted legal gamesmanship that should not be encouraged.

"A defendant should not be permitted to see whether the district court is receptive to its merits arguments before deciding whether to appeal the denial of a request to compel arbitration,” U.S. Circuit Judge Harris Hartz wrote for the panel in the 8-page order. “Our approach does not set a trap for unwary litigants."

The George W. Bush appointee additionally quoted the April 14 Supreme Court decision in Axon Enterprise Inc. v. Federal Trade Commission penned by Associate Justice Neil Gorsuch. Gorsuch sat on the 10th Circuit before being appointed to the highest court by Donald Trump.

"For parties, complex jurisdictional tests complicate a case, eating up time and money as they litigate, not the merits of their claims, but which court is the right court to decide those claims. For courts, jurisdictional rules mark the bounds of their adjudicatory authority,” Gorsuch wrote. “Judges therefore benefit from straightforward rules under which they can readily assure themselves of their power to hear a case."

Under the 10th Circuit’s two-prong test, devised in the 2009 case Conrad v. Phone Directories Co., the panel found Piazza’s motion was not stylized as a straightforward Federal Arbitration Act motion, and that the issues presented were not ones that could only exclusively be decided by an arbitrator.

Per Gramercy’s appeal brief, the fund purchased $100 million in debt notes on the London and Irish Stock Exchange for major Ukrainian agricultural companies Avangardco and UkrLandFarming in 2010 and 2013. When Russia invaded Crimea in 2014, Ukraine's currency plummeted and the companies suffered enormous losses. In the aftermath, the Ukrainian government began investigating Bakhmatyuk’s business dealings, prompting him to flee the country and devise the racketeering scheme, Gramercy claims.

“From November 2019 until at least May 2020, Bakhmatyuk — with Piazza’s help — transferred at least 100 of the companies’ subsidiaries to a newly formed Wyoming corporation, defendant TNA Corporation Solutions, and the value of the transferred entities and other assets was approximately $872.5 million,” Gramercy says in court documents.

In their own briefs, Bakhmatyuk and Piazza countered that Gramercy was a "sophisticated vulture capitalist," suing after it failed to renegotiate the business deal to recoup its own losses. Moreover, the businessmen argued, the District of Wyoming has no jurisdiction in the case, because the parties agreed to settle all disputes through arbitration in London.

While Gramercy agreed to arbitration over the notes, it claims Piazza and Bakhmatyuk weren’t clearly defined parties to the notes since neither man signed them. As the agricultural companies’ majority shareholder and CEO, however, Bakhmatyuk argued he was a party to Gramercy’s arbitration agreement.

Even so, the panel found the court's "clear bright-line rules" discourage it from second-guessing jurisdiction.

Barack Obama appointee U.S. Circuit Judge Carolyn B. McHugh and Trump-appointed U.S. Circuit Judge Joel M. Carson rounded out the panel.

The case has been remanded to Senior District of Wyoming Judge Nancy Freudenthal, appointed by Obama.

Attorneys representing the parties did not respond to requests for comment by press time.

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Categories / Appeals, Business, Financial, International

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