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FILMS BY JOVE INC. v. BEROV

August 27, 2001

FILMS BY JOVE, INC., AND SOYUZMULTFILM STUDIOS, PLAINTIFFS,
v.
JOSEPH BEROV, NATASHA ORLOVA, THE RIGMA AMERICA CORPORATION, SAINT PETERSBURG PUBLISHING HOUSE AND GROUP DEFENDANTS.



The opinion of the court was delivered by: David G. Trager, United States District Judge.

MEMORANDUM AND ORDER

In December of 1998, plaintiffs Films by Jove ("FBJ") and Soyuzmultfilm Studio ("SMS"*fn1) (collectively, "the plaintiffs" or "the third party defendants") brought this action for copyright infringement, breach of contract, unfair competition and RICO violations against Joseph Berov, Natasha Orlova, Rigma America Corporation and the St. Petersburg Publishing House and Group (collectively, "the defendants"). On May 4, 1999, this court issued a preliminary injunction on consent of the defendants restraining them from reproduction of any motion picture in which plaintiffs own the copyright. On August 10, 2000, plaintiffs moved to hold the defendants in contempt for violating and continuing to violate the court's injunction by selling copyrighted material allegedly belonging to the plaintiffs*fn2 out of their St. Petersburg Publishing House retail stores in Brooklyn. A hearing on that motion was held on August 17 and August 18, 2000, but the issue was left undecided, and the hearing was adjourned until October 10, 2000 after it became apparent that a third party, the Federal State Unitarian Enterprise Soyuzmultfilm Studio ("FSUESMS" or "the third party plaintiff"), would be intervening in the lawsuit as a third party plaintiff, seeking declaratory and injunctive relief necessary to secure its right of operative management*fn3 of the copyrights to the films at issue, which, it claimed, were owned, strictly speaking, by the Russian government.*fn4 On October 10, 2000, the contempt hearing was continued. The defendants, at that time, conceded a violation of the injunction in the event that the plaintiffs do, in fact, possess the copyrights to the animated films sold by the defendants.

This same question of copyright ownership is now before the court. The plaintiffs have moved for summary judgment on this issue, and FSUESMS has cross-moved for summary judgment on its own claims to the copyrights.*fn5 The final resolution of the plaintiffs' contempt motion hinges on the disposition of the question of copyright ownership.

Background

(1)

The parties agree that in 1936, the Soviet government expropriated from the Russian Orthodox Church the premises of the Church of St. Nicholas the Enlightener in Moscow, Russia and founded there a state enterprise*fn6 called Soyuzmultfilm Studio, which, from 1936 until the present, created about 1500 animated motion picture films, many of which became extremely popular.*fn7 See Mem. Law. Supp. Pls.' Mot. Dis. 3D Party Compl. Pursuant to FRCP 12(b)(6) [hereinafter "Pls.' Mot. Dis."] at 2; Notice of Mot. to Dismiss 3D Party Compl. Pursuant to FRCP 12(b)(6) [hereinafter "Pls.' Not. Mot. Dis."] at 2. From 1936 to 1989, Soyuzmultfilm Studio, like virtually all enterprises in the Soviet Union, operated as a state enterprise. See Pls.' Mot. Dis. at 2. Unfortunately, as far as the history of Soyuzmultfilm Studio goes, the parties agree on little else, although their disagreements, as the patient reader will discover, are either disputes as to issues of law or disputes about facts that are not dispositive on any of the issues resolved in this opinion.*fn8

According to plaintiffs, on December 20, 1989, as part of the ownership liberalization trend that accompanied Glasnost and Perestroika, Soyuzmultfilm Studio became a "lease enterprise" or "rent entity."*fn9 See id. at 2-3. "Many state companies became rent enterprises in the late 1980s and 1990s. In accordance with law, they stopped to be `state-owned', but having in mind a further transition to privately held companies, they acquired another legal status, taking on lease only state buildings and equipment, but keeping their income and products for themselves and thus they received freedom from the state." Pls.' Ex. 15, Decl. of Mila Straupe [hereinafter Straupe Decl."] ¶ 11. The lease enterprise, operating under a ten-year lease agreement concluded with the Soviet State Film Committee known as Goskino,*fn10 paid rent to the state for facilities and equipment, while the copyrights to the films, which, in the plaintiffs' version of the story, originally belonged to the state enterprise, passed by operation of law from the no-longer-existent state enterprise Soyuzmultfilm Studio to the identically-named rent enterprise that took its place. See id. at 3; Pls.' Response to Def.'s and Third Party Pls.' Jnt. Statement Pursuant to Local Rule 56.1 [hereinafter "Pls.' 56.1 Resp."] ¶ 32; Straupe Decl. ¶ 12.

On July 1, 1999, shortly before the lease was due to expire, the rent entity Soyuzmultfilm Studio was again reorganized, this time into a private joint stock company.*fn11 See Straupe Decl. ¶ 12. That corporation, still named Soyuzmultfilm Studio, became the lawful successor to all of the rights and obligations of its predecessor, including, according to plaintiffs, all copyrights and trademarks. See id. The joint stock company, however, did not incorporate into its institutive capital the state-owned material assets, e.g., premises, equipment, furniture, etc., that had been leased to the rent enterprise by Goskino, and those state-owned assets reverted to the state upon the expiration of the lease term. See id. Accordingly, the joint stock company relocated in 1999 from its old offices in the Church of St. Nicholas the Enlightener to a new office in Krasnogorsk, a Moscow suburb. See id.

From the early nineties on, the lease enterprise and SMS, its successor, have had "to put up with a fight in Russia once spearheaded by Goskino and now [Soveksportfilm] and the State Property Ministry to take control of the films produced by the studios of Russia during the USSR." See Sept. 22 Borsten Decl. ¶ 6. The rights of the lease enterprise Soyuzmultfilm Studio and its successor, the joint stock company SMS, among other studios, were vindicated in various court decisions, see Decl. of Rimma Erokhina, Ex. 6, attached to Decl. of Julian Lowenfeld, most definitively in a June 19, 1996 decision of the Commercial Court of Paris, which ruled for Soyuzmultfilm Studio, Mosfilm Studio, Lenfilm Studio and Films by Jove and against Soveksportfilm, finding that economic legislation passed by the USSR in 1986 and thereafter had put an end to the state monopoly on foreign trade, and Soveksportfilm could no longer license films produced by Russian film studios without the agreement of the studios, which were the rightful copyright holders. See Ex. 14, attached to Decl. of Julian Lowenfeld. The French court noted a series of under-the-table transactions that Soveksportfilm had engaged in in order to transfer to itself, without consent, rights to 125 films owned by the studios.*fn12 See id.

Around the same time that SMS was leaving its Church of St. Nicholas the Enlightener location, then-Prime Minister Sergei Stepashin, responding to the demands of Goskino and a faction of approximately fifty people displeased with the leadership of a certain Mr. Skuliabin (spelled elsewhere as "Sculabin"), the director of the lease enterprise Soyuzmultfilm Studio as of 1993,*fn13 issued a decree recommending the creation of a new state enterprise for the exploitation of the Church of St. Nicholas facilities vacated by the joint stock company. See Pls.' Mot. Dis. at 5; Pls.' Ex. 17 (hereinafter "Stephashin Order"); Tr. of Hearing on Aug. 17, 2000 at 20; Decl. of Vitoslav Shilobreev attached to FSUESMS's Order to Show Cause.*fn14 On October 11, 1999, that faction of SMS officers who had been unsuccessful in their attempts to be elected to SMS's governing board proceeded to register the newly-organized "Federal State Unitarian Enterprise Soyuzmultfilm Studio."*fn15 See id.

Meanwhile, the Russian Orthodox Church had initiated a lawsuit to reclaim the property that had been expropriated from it in 1936. See id. According to the plaintiffs — and, it should be reiterated, everything discussed heretofore and postdating the creation of the lease enterprise is the plaintiffs' version of the facts — FSUESMS, faced, by virtue of the Church's claims, with the loss of its only assets, viz., the premises and their facilities, decided to make a unilateral claim that it, and not the joint stock company SMS, was the "real" Soyuzmultfilm Studio. See id. To accomplish this end, FSUESMS, working closely with Goskino and the State Ministry of Property, see Sept. 22 Borsten Decl., advanced the contention that the lease enterprise Soyuzmultfilm Studio either had never existed or, at the very least, had not taken possession of anything other than the material assets of the state enterprise Soyuzmultfilm Studio and further, that the state enterprise had continued to exist in a latent, non-functioning form during the entire pendency of the lease (1989-1999). See Straupe Decl. ¶ 15. FSUESMS then, instead of attempting to register as a new company, requested to register as an amended form of the non-existent state enterprise Soyuzmultfilm Studio. It proceeded to request to register amendments to the extinguished charter of the state enterprise Soyuzmultfilm Studio, which had ceased to exist in 1989. See id. ¶ 16. These amendments were mistakenly and illegally registered by the Moscow City Registration Chamber in October of 1999. See id. ¶ 17. Thus, by the close of 1999, two independent enterprises, SMS and FSUESS, were both registered by the government and both claimed to be the rightful heirs of the state enterprise Soyuzmultfilm Studio and its extensive film library.

So much for the plaintiffs' version of Soyuzmultfilm Studio's colorful history. The defendants and FSUESMS offer a fundamentally different account.*fn16 According to them, the copyrights in the films made by the state enterprise Soyuzmultfilm Studio belonged at all times to the Soviet state and were merely under the operative management of the state enterprise Soyuzmultfilm Studio. See Mem. Law. Opp. Mot. for Partial Sum. J. by Pls./3rd Party Defs. and Supp. Cross-Mot. for Sum. J. by 3rd Party Pl. [hereinafter "FSUESMS's Cross-Mot."] at 2. The state enterprise administered those copyrighted films on behalf of the state and Goskino, the state agency responsible for managing the funding for state film production. See id. at 3.
The creation of the lease enterprise Soyuzmultfilm Studio in 1989 as part of the restructuring of the Soviet economy did not terminate the existence of the state enterprise Soyuzmulfilm Studio. See id. at 4. Rather, the state enterprise had suspended film production during the period of the lease. See id. The lease itself, entered into with the lease enterprise Soyuzmultfilm Studio by Goskino, as the funding entity for state-owned film assets, transferred to the lease enterprise only material assets, viz., the premises and equipment, located at the site of the Church where the state enterprise had heretofore been active. See id. at 3. The copyrights to the state enterprise's film library continued to be owned by the state. See id.
At this point, the narratives of the parties begin to converge. A series of lawsuits ensued between SMS and FSUESMS, with each trying to nullify the registration of the other. Although the validity of corporate registrations and not the ownership of copyrights was the central issue being decided, some of these cases found occasion to address the possession of the copyrights in the state enterprise Soyuzmultfilm Studio's library. The decisions of lower courts,*fn17 which ruled in favor of SMS, found that the right to the copyrights in the films and trademark in the name Soyuzmultfilm Studio, among other intangible assets, passed to the lease enterprise by operation of law and was legitimately transferred to the joint stock company SMS when the lease enterprise sold its assets to that newly-formed entity prior to the expiration of the lease term. See June 5, 2000 Decision, Ex. 19, attached to Decl. of Julian Lowenfeld [hereinafter "Jun. 5 Dec."]; June 24, 2000 Decision, Ex. 20, attached to Decl. of Julian Lowenfeld [hereinafter "Jun. 24 Dec."]. In addition, these decisions found no connection between the 1936 State Enterprise Soyuzmultfilm Studio and its purported 1999 resurrection in the form of FSUESMS. See id. Accordingly, the FSUESMS's registration was cancelled. See id.

However, these decisions*fn18 were vacated by the Federal Arbitrazh Court for the District of Moscow, which premised its conclusions on the failure of the lower courts to consider evidence that the copyrights and other non-material assets of the state enterprise Soyuzmultfilm Studio may have belonged to the state at the time that Goskino concluded the lease agreement with the lease enterprise and that these assets, consequently, never passed to either the lease enterprise or to the joint stock company:

The lease enterprise "Studio Souzmultfilm" [sic] was established on the basis of a rent agreement without the right to purchase all the property of the enterprise, which was state-owned. Moreover, the composition and the quantity of the property subject to be rented out was not identified, because the transference-acceptance act was never recorded and documents listing the property were never produced.
In the process of transferring the leased enterprise to a joint-stock company it was necessary to separate the property of the enterprise from the property owned by the state and include in a separate balance sheet. Furthermore, the separate balance sheet was worked out independently by the leased enterprise, without the participation of the owner, who leased out the enterprise. This balance was then not presented to the owner for approval.
The Court when settling the dispute did not consider the fact if the act of transference can be considered accurate, which defined the size of the Charter capital of the joint-stock company and identified the size of the property owned by the state. The issue is if the leased enterprise has the right to independently and without the approval of the property owner to transfer according to the act of transference to the joint-stock company the property that does not belong to it. The Court also ignored this fact.

The decision reached by the Court that the Charter capital did not include state-owned property was based on incomplete evidence.

The conclusions of the Court that the property acquired in 1990-91 was not state-owned was not based on factual evidence.

Aug. 18 Dec.*fn19

Importantly, on September 19, 2000, the Higher Arbitrazh Court of the Russian Federation denied SMS a further appeal at the current time but instructed, for the purposes of remand, that the August 18, 2000 opinion of the Federal Arbitrazh Court for the District of Moscow, quoted above, is not a binding view of the evidence in the case, and the lower court should allow SMS to argue its position on remand. Arifulin Letter, Ex. 7, attached to Decl. of Paul Stephan.
On remand, the Moscow Region Arbitrazh Court issued an opinion on December 26, 2000 in the suit by FSUESMS, the Ministry of State Property of the Russian Federation and Goskino against SMS. That opinion, by and large, reinstated and expanded upon the earlier lower court findings:
According to Article 486 of the RSFSR Civil Code which was in effect at the time of the transformation of the state enterprise, "Film Studios Soyuzmultfilm" into a lease enterprise with the identical name, the copyrights to a film belong to the enterprise that shot the film.

According to Article 498 of the RSFSR Civil Code, copyrights of an organization do not have term limitation. When the organization is transformed the copyrights shall be transferred to the successor organization.

Therefore, copyrights to animated films created by the state enterprise "Film Studios Soyuzmultfilm" were transferred by operation of law to its successor — [l]ease enterprise "Film Studios Soyuzmultfilm." A lease enterprise with an identical name became the successor of rights of the state enterprise "Film Studios Soyuzmultfilm" according to the existing laws, i.e., Article 16 of the. . . Fundamental Principles [of] [L]egislation and Union Republics on Lease.

Copyrights were not and could not be transferred by the lease agreement because they had been transferred by operation of law and cannot be limited by an agreement.

Therefore, the copyrights of the lease enterprise are not related to the issues of the lease agreement, and the expiration of that agreement does not cause the copyrights of the [l]ease enterprise "Film Studios Soyuzmultfilm" to expire.

At the time of the transformation of the [l]ease enterprise into a [shareholding] company[,] the lease enterprise had the copyrights to its animated film[s] by law.

Pursuant to Article [486] of the RSFSR Civil Code, copyright in the animated feature films belonged to "Film Studios Soyuzmultfilm" and not to Goskino USSR or any other representative of the state.

According to RSFSR Article 496 the copyrights to the animated feature films made by "Film Studios Soyuzmultfilm" belonged to the Studio without time limit, and upon its reorganization, the copyrights went to [l]ease enterprise "Film Studios Soyuzmultfilm" also with no term limitations.

Thus Goskino of the Russian Federation could not have transferred copyrights of the animated movies of "Film Studios Soyuzmultfilm" to the Lease Enterprise for lease because Goskino never had those rights to begin with.

[FSUESMS's] argument that the copyrights to the animated films belong to [it] has no foundation, based on the submitted documents and oral arguments of both sides in the lawsuit, because, pursuant to Articles 23, 37 of the RSFSR Civil Code and Article 11 of the Fundamentals of Civil Legislation USSR and Republics, a state enterprise, after leasing out an enterprise and complex of facilities and property, could not exist anymore, and could no longer be a legal person at the same time because it did not have its own property and legal capacity.

When leasing out an enterprise (state property) [takes] place in accordance with paragraph 4, Article 16 of the Fundamental Principles on Lease, which established full succession of rights to the state enterprise assumed by the [l]ease [e]nterprise, then according to Article 37 of the RSFSR Civil Code[,] this action shall constitute an actual reorganization of a state enterprise. Dec. 26, 2000 Dec., Ex. 8, attached to Decl. of Paul Stephan [hereinafter "Dec. 26 Dec."].

The December 26 decision was affirmed on appeal on January 22, 2001. However, on April 20, 2001, well after the motion in this case had been submitted, the Federal Arbitrazh Court for the District of Moscow, the same court that had earlier remanded the case, issued a ruling overturning the December 26, 2000 and January 22, 2001 decisions. See Apr. 20, 2001 Ruling [hereinafter "Apr. 20 Dec."], attached to Aff. of Vladimir Zlobinsky of May 9, 2001.
That ruling began the core of analysis by noting that Article 59 of the Civil Code of the Russian Federation provides that the act transferring property from one owner to another is the document that "defines the scope of rights and obligations being transferred to the respective recipient of rights." Id. at 5. But, in this case, because that transfer document is signed only by the deputy director of the lease enterprise and not signed at all by the general director of the joint stock company, it is "not deemed [to be] indisputable evidence establishing succession rights" from the lease enterprise to the joint stock company.

Accordingly, the court goes on to analyze the transfer in more detail:

At the time of the creation of the leased enterprise "Film Studio Soyuzmultfilm" on the basis of the assets of the film studio, no determination was made as to the specific property to be transferred for lease and no property transfer and acceptance act was made. Therefore, it is impossible to determine which property was leased, and therefore impossible to determine the rights of the leased enterprise in respect of the state property subsequently transferred to the joint stock company.
According to paragraph 1.2 of Charter of the leased enterprise the leased property remains property of the state. It is being utilized by the lessee.

According to Article 295 of the Civil Code of the Russian Federation an enterprise has no right to sell the real property it is utilizing, to lease it . . . or to otherwise dispose of it without the owner's consent.

Therefore, the court's conclusion that the property transfer act is not subject to approval by the State Property Ministry, which acts for the property owner, is not based in law. The consent of the owner of state property was never obtained[;] the evidence is missing in this case.

Therefore, the leased enterprise, in violation of the aforementioned legal requirements, disposed of the state property by transferring it to the joint stock company.

Id. at 6. The court went on to nullify the joint stock company's registration. See id. at 7. As yet, although SMS represented at oral argument that they are appealing the decision to the Higher Arbitrazh Court of the Russian Federation, see Oral Arg. at 66, there has been no word about whether that court will accept the appeal or what the result of any such appeal will be.
However, this situation was significantly complicated by the other series of decisions in the case, the opinions on remand in the suit by SMS against FSUESMS. On January 25, 2001, the lower court refused to nullify FSUESMS's registration and found that
the succession of rights of the lease enterprise from the state enterprise, as stipulated in Item 4, Article 16 of the Fundamentals of USSR law "On Leasing," arises not as a result of the conversion of the state enterprise into the lease enterprise, but by the operation of the agreement on lease of the property complex which definition is given in Article 132 of the Civil Code of the Russian Federation. Because the succession of rights is based on the lease agreement, it has a temporal nature and is restricted by the terms of such agreement. The succession of the lessee from a state enterprise can not continue after termination of the lease agreement because the lessee in this event, in accordance with Article 664 of the Civil Code of the Russian Federation, is obliged to return the leased property of the state. In this case the term of the agreement on the lease of the property complex of the state enterprise expired on December 20, 1999.

Discussion of January 25, 2001 decision within Decision of April 3, 2001, Ex. B, attached to Decl. of Anya Zontova, at 2.

On appeal, the conclusion of the January 25, 2001 decision, viz., that the registration of the FSUESMS was not to be nullified, was upheld, but the appellate court, in a decision issued on April 3, 2001 specifically took issue with the bases for the January ruling:

After examining all the case materials, including the arguments of appeals claims and listening to the representatives of the appellants participating in the case, the Appeals Court concluded that the Lower Court rightfully denied to satisfy the demands of the appealed claims[. H]owever, the Appeals Court cannot agree with the conclusions by the Lower Court in its decision denying the appeal. Thus, the Appeals Court considers as wrongful the Lower Court's statement that the succession of rights of the lease enterprise that was based on the lease agreement, has a temporal nature and is restricted by the term of such agreement. The Lower Court's conclusion does not comply with the law which was in effect at the time of concluding the agreement on the lease of the property complex of the state enterprise of December 20, 1989

Item 4, Article 16 of the Fundamentals on Leasing stipulates that a lease enterprise becomes the successor of material rights and obligations of the state enterprise leased by it, including its right to use land and other natural resources.

After signing the agreement, the organization of lessees receives in the established order the property of the state enterprise and acquires the status of a lease agreement.

The fact of signing the lease agreement determines the formation of a lease enterprise. As it takes place, the activity of the state enterprise ceases through the conversion resulting from the formation of a lease enterprise on the basis of a state enterprise (Article 16 of the Fundamentals on Leasing.)
Thus, after signing the agreement of December 20, 1989 by the USSR State Committee on Cinematography and the labor collective of [the state enterprise Soyuzmultfilm Studio], the activity of the state enterprise . . ., created by decree #246/001 of June 10, 1936, ceased. By operation of law, the successor of rights of this enterprise became the lease enterprise [Soyuzmulfilm Studio], which later was converted into the joint stock company [Soyuzmultfilm Studio] and continues to be such at the present time.

The Lower court's conclusion about the resumption of activity of the state enterprise [Soyuzmultfilm Studio] after the lease agreement ended, and returning to it the rights and obligations which have been passed on to the lease enterprise is erroneous, because the existing law does not stipulate the implementation of such a legal construct.

The succession of rights is tightly linked with the legal capacity of a legal entity. It is an integral property of a legal entity, not of a leased property complex. Therefore when the property is returned after the agreement ended, there is no automatic return of the succession of rights and obligations.

In addition, as it was mentioned previously, the state enterprise [Soyuzmultfilm Studio] ceased its activity by operation of law, for which reason any resumption of specifically its activity is impossible. Apr. 3, 2001 Dec., Ex. B, attached to Decl. of Anya Zontova [hereinafter "Apr. 3 Dec."] at 4-5.

The Appeals Court, however, went on to conclude that although SMS inherited the rights of the state enterprise after the expiration of the lease term, this did not mean that FSUESMS was invalidly registered. "The registration of the newly formed [FSUESMS] does not violate the Plaintiff's civil rights and interests protected by law," the court wrote. Id. at 5. FSUESMS's charter, the court found, did not specifically stipulate that it had inherited the rights of the state enterprise Soyuzmultfilm Studio, and a mere reference in Item 1.1 of that charter to the Order of 1936, which had created the state enterprise Soyuzmultfilm Studio, was not grounds to invalidate the registration. Id.
That decision, in turn, was appealed to the Federal Arbitrazh Court for the District of Moscow, the same court responsible for the April 20, 2001 reversal of lower court rulings in the suit brought by FSUESMS and others against SMS. This time, however, in a decision issued on June 4, 2001, the court affirmed the decision below. It summarized the holding below as follows:
The Appeals Court has established that on December 20, 1989, the labor collective of the state enterprise [Soyuzmultfilm Studio] concluded the agreement with the USSR State Committee on Cinematography on the lease of the state enterprise property (case file 30-33, Vol. 1) after the signing of which, the activity of the state enterprise [Soyuzmultfilm Studio], created by decree of No. 246/001 of June 10, 1936 ceased.

The successor of rights of this state enterprise by operation of law became the lease enterprise [Soyuzmultfilm Studio,] which later was converted into the joint stock company [Soyuzmultfilm Studio].

The succession of rights, in the opinion of the Appeals Court, is tightly linked with legal capacities of a legal entity. It is an integral property of a legal entity, not a leased property complex. Therefore when the property is returned after the agreement ended, there is no automatic return of the succession of rights and obligations.

However, the act of the registration by MRC of the [FSUESMS] on November 10, 1999, disputed by the Plaintiff, in the Appeals Court's view, does not violate the rights and interests of the Plaintiff, because the [FSUESMS] is a newly formed entity on the basis of the state property and does not affect the civil rights of the [joint stock company Soyuzmultfilm Studio] and its interests protected by law.

June 4, 2001 Dec., Ex. A, attached to Decl. of Anya Zontova [hereinafter "Jun. 4 Dec."] at 2-3.

The FSUESMS, according to the court, appealed the ruling in order to alter what the court described as "the motivational part" of the ruling, id. at 3, in other words, the reasoning underlying the decision, while SMS appealed the ruling that had allowed FSUESMS's registration to stand. See id. The court refused both appeals:
The case materials show that on December 20, 1989 between USSR State Committee on Cinematography (lessor) and the labor collective of "Kinostudiya Soyuzmultfilm" (lessee) the lease agreement was concluded, under which the film studio were given for a lease use, for the term of 10 years, the main and circulating assets (equipment, appliances and other commodity and material assets) which were in the film studio's balance sheets at the moment the agreement became effective, as well as the monies received from the centralized sources of funding under the plans of major construction work and material and technical procurement for the 12th and 13th five-year periods (Items 1.1, 5.6 of the Agreement). Pursuant to Item 1.2 of the Agreement, the leased property remains state property and in the economic management of the lessee. As this took place, the composition and the quantity of the leased property was not determined, because the receipt and transfer acts were not executed, and the documents identifying that property were not made.

The executive committee of the Moscow Sverdlovskiy regional council registered by the Decision of November 14 1990 the Charter of the lease enterprise [Soyuzmultfilm Studio] which was adopted on January 4, 1990 at the conference of the film studio labor collective.

Item 4, Article 16 of the Fundamentals of USSR law "On Leasing" stipulates that a lease enterprise becomes the successor of property rights and obligations of a state enterprise that was leased by it, including its rights to dispose of the land and other natural resources.

Thus, the Appeals Court has made the rightful conclusion that after signing the lease agreement, the activity of the state enterprise [Soyuzmultfilm Studio] created by decree No. 246/001 of June 10, 1936 ceased.

On October 11, 1999, a new legal entity was formed, the [FSUESMS].

This enterprise was created on the basis of the Order of the Russian Federation Government of June 30, 1999 No. 1038-R (Vol. 1, case file 80) in connection with the expiration in December 1999 of the term of the December 20, 1989 agreement with the labor collective of [Soyuzmultfilm Studio], on the lease of the film studio's assets which were in state property.

Pursuant to Article 13 of the Civil Code of the Russian Federation, a non-normative act of a state body or a local government body is subject to being invalidated by the court in the event this act simultaneously does not comply with the law or other legal acts and it violates a legal entity's rights and interests protected by law. The court fully and thoroughly investigated the circumstances of the case, evaluated in the aggregate the arguments collected regarding the case, and came to a rightful conclusion that the registration of the newly formed [FSUESMS] does not violate the civil rights and interests of [SMS] protected by law.

In the Charter of the newly formed enterprise, the succession of rights from the state enterprise ...


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