(i) at least $1 billion of the $2.7 billion loaned to Telsim by
plaintiffs is unaccounted for, with some of it admittedly used for
purposes other than those specified in the loan documents, see e.g., Pl.
Ex. 79; tr. 713, 870, 957-959, 1221, 1261, and much of it seemingly
diverted by defendants to the benefit of the Uzan Association
Enterprise, see, e.g., tr. 56-59;
(ii) Telsim's financial condition was increasingly precarious (long
before any alleged "crisis" in the Turkish economy on which defendants
now seek to rely to conceal their fraud), see, e.g., tr. 938-940, and its
prospects for effecting a sale or merger of the company were far more
remote than represented, see, e.g., tr. 42-44, 53, 73-74, 938-940
— facts which the defendants helped conceal from plaintiffs by
withholding important financial data and by preventing plaintiffs from
having meaningful access to third parties familiar with Telsim's merger
prospects, see, e.g., Pl. Ex. 87, 91; tr. 11, 83-84, 86-88; and,
(iii) defendants secretly and fraudulently diluted the value of
plaintiffs' collateral, see Pl. Ex. 14, 36; tr. 89, 466.
This latter event was a particularly raw bit of business that well
illustrates the defendants' fraudulent intent and their willingness to
make use of the Uzan Association Enterprise to achieve their fraudulent
purposes. Prior to the dilution, over 95% of the shares of Telsim were
owned by two Uzan-controlled entities: Rumeli Holding, which owned 21.99%
of the Telsim stock, and Rumeli Telefon Sistemleri A.S. ("Rumeli
Telefon"), which owned a controlling 73.63% of the Telsim stock.
Virtually the entirety of the Telsim stock owned by Rumeli Telefon had,
in turn, been pledged to Motorola and Nokia as collateral for their loans
to Telsim. In inducing the plaintiffs to make ever greater loans, and in
quieting plaintiffs' ever-growing fears about repayment, the Uzans
repeatedly emphasized that, if all else failed, plaintiffs were fully
protected by the value of this collateral. See, e.g., Pl. Ex. 75, 79; tr.
Eventually, however, as plaintiffs slowly learned more and more
suspicious circumstances, it became ever more probable that plaintiffs
would finally demand repayment and/or foreclose on the collateral. When
this at last appeared imminent, the defendants, making use of the
multiple opportunities afforded by the Uzan Association Enterprise to
shift assets and ownership, convened on April 24, 2001, without the
slightest notice to plaintiffs, a specially-called meeting of Telsim's
shareholders, see tr. 81-82. At the meeting, the shareholders issued new
shares that tripled the number of outstanding Telsim shares, but gave the
prior shareholders "preemption rights" to purchase the new shares up to a
level that would enable them to retain proportions of ownership
corresponding to their prior percentages of ownership. Rumeli Telefon,
however, "waived" its preemption rights, whereupon those rights were
transferred to another Uzan-controlled entity, defendant Standard
Telefon, which previously had owned only 0.32% of the Telsim stock.
Standard Telefon then exercised the rights so transferred, thus magically
increasing its percentage of Telsim stock to a controlling 66.48%.
Meanwhile, the Telsim stock retained by Rumeli Telefon (and pledged to
the plaintiffs) was reduced to 24.54% of the total shares, i.e., one
third of the original ownership. See Pl. Ex. 36; see also, tr. 598.
The net effect of this palpable fraud was to hugely dilute the value of
plaintiffs' collateral, as well as effectively divesting them of such
control of Telsim as they might have otherwise achieved if they had
foreclosed on the collateral. Recognizing the fraudulence of their acts,
moreover, the defendants not only kept the events of
April 24 secret from
the plaintiffs (with whom they were in regular contact), see, e.g., tr.
89, 466, 1204, but also did not even tell Telsim's chief financial
officer, Fatih Azami, until several weeks had passed, see tr. 854.*fn2
As this also evidences, Telsim itself was but a pawn in the Uzan
As for defendants' contention the issuance of the new shares was simply
motivated by legal concerns over maintaining a sufficient capitalization
to meet new Turkish investment certificate requirements, both plaintiffs'
and defendants' Turkish law experts testified that, if such
recapitalization was required at all for this purpose, it was not
required, at the earliest, before December 2001, see tr. 610, 985.
Moreover, nothing in the alleged recapitalization requirement required
dilution of the proportionate value of the collateral, let alone keeping
this secret from plaintiffs. The Court rejects the proffered excuse as
itself nothing but a sham.
Eventually, plaintiffs learned of the dilution, and, with their
suspicions now fully aroused, began investigating whether they had indeed
been defrauded. See, e.g., tr. 90-97, 103, 467-468. Defendants retaliated
by use of fear and extortion, and thereby violated another RICO
predicate, the Hobbs Act, 18 U.S.C. § 1951. Specifically, the
defendants arranged for a lawyer for the Uzan family to initiate Turkish
criminal proceedings against the executive hierarchy of both Motorola and
Nokia, accusing them, in a sworn complaint that is frivolous on its face
and unsupported by a single credible fact of record, of making "explicit
and armed threats to kill" the Uzan family. Pl. Ex. 99. Attempting to
utilize the fear thereby engendered (especially since several of the
executives so accused were within Turkish jurisdiction), see tr.
1067-69, the defendants then informed plaintiffs that, if only plaintiffs
would agree to defer seeking repayment of the overdue loans, defendants
would arrange to have the criminal charges dropped, see tr. 90-93. As
this testimony (which the Court fully credits) well illustrates, this was
a classic extortion scheme in clear violation of the Hobbs Act. See,
e.g., United States v. Abelis, 146 F.3d 73, 82 (2d Cir. 1998).*fn3
From the foregoing alone (and there is much more), it is clear that
defendants have for several years now conducted the affairs of the Uzan
Association Enterpirse through a pattern of racketeering activities and
have thereby directly and proximately injured plaintiffs, who not only
relied to their detriment on defendants' false representations but who
have now seen their monies diverted from Telsim and the Telsim shares on
which they ultimately relied for repayment diluted to a small fraction of
their former value.
Moreover, defendants' open-ended racketeering scheme continues apace,
threatening still further injury to plaintiffs'
business and property.
For example, as recently as January of this year, the defendants
arranged, in another unannounced Telsim shareholders' meeting, for the
voting rights of the remaining Telsim shares pledged to plaintiffs to be
diminished, while the voting rights of the unencumbered shares were
greatly increased, thus further reducing plaintiffs' opportunity for
recovery (and further increasing the need for injunctive relief by this
Court).*fn4 See Pl. Ex. 39, see also, tr. 610-615.
This step was taken, moreover, in the teeth of defendants' repeated
promises — never fulfilled — to restore plaintiffs' collateral
to its original status. See, e.g., tr. 89, 90, 101, 467-469, 861; see
also, Pl. Ex. 100, 101. Indeed, the Court finds that defendants, by
repeatedly making these representations even during the course of this
litigation while taking no actions to fulfill their pledge and instead
offering sham excuses and false testimony, have carried their fraud into
the court itself.
Under these circumstances, it is clear that plaintiffs are likely to
suffer severe further injury if the Court does not grant the requested
injunctive relief necessary to preserve the status quo and prevent any
further diversion or diminution of the assets available for repayment.
See, e.g., Brenntag, 175 F.3d at 249, Republic of Phillippines v.
Marcos, 806 F.2d 344, 356 (2d Cir. 1986) ("preliminary injunctions are
proper to prevent a defendant from making a judgment uncollectable").
In short, plaintiffs, having clearly demonstrated that they are
substantially likely to succeed on their RICO claim under Count III, and
having further demonstrated that, in the absence of the requested
relief, they are likely to suffer severe injury, are fully entitled to
the relief here sought.*fn5
Defendants, however, in addition to challenging the availability of
private injunctive relief under RICO (as discussed supra) also argue that
the plaintiffs lack standing at this time either to bring their RICO
claims or to seek injunctive relief predicated on those claims, because
they have not exhausted their legal remedies
against Telsim nor thereby
ascertained precisely what their RICO damages will be, see First
Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 768 (2d Cir. 1994) In
First Nationwide, however, the plaintiff sought to bring a RICO claim
against the very borrower on whose collateral the plaintiff had not yet
fully foreclosed and as to whom ordinary collection proceedings were far
from completed. Here, by contrast, the borrower (Telsim) is not a party
at all, and the named defendants, who are accused, inter alia, of
fraudulently inducing the plaintiffs to extend the $2.7 billion in loans
and of diverting it to their benefit, are independently liable for this
known and certain sum, regardless of whether plaintiffs pursue their
alternative remedies against Telsim or not. Similarly, even the portion
of the injunctive relief relating to Telsim stock is relief sought, as a
practical matter, not from Telsim, but from the current owners of the
stock and from those who, by controlling the Uzan Association
Enterprise, are in a position to divert Telsim's monies and diminish the
value of plaintiffs' collateral. See GICC Capital Corp. v. Technology
Fin. Group, Inc., 30 F.3d 289, 293 (2d Cir. 1994) ("when a corporation
fraudulently is caused to issue debt and stripped of its assets in a
manner that obviously will leave the creditors unpaid, those creditors
have [RICO] standing"); see also In re Merrill Lynch Ltd. P'ships
Litig., 154 F.3d 56, 59 (2d Cir. 1998) (distinguishing First Nationwide
on other grounds).
Beyond all this, Motorola is independently entitled to the injunctive
relief it here seeks by virtue of its Illinois state and common law
claims against defendants, including, inter alia, claims for common law
fraud (Count V), promissory fraud (Count VI), and civil conspiracy (Count
VII).*fn6 From the foregoing recitations, it is clear that plaintiffs
have shown a likelihood of success under each of these claims, and
neither side questions the fact that Illinois law empowers courts to
impose the full range of injunctive relief to prevent irreparable harm.
See, e.g., Caterpillar, Inc. v. Jerryco Footwear, Inc., 880 F. Supp. 578,
587 (C.D.Ill. 1994); People ex rel. Hartigan v. Dynasty System Corp.,
128 Ill. App.3d 874 (Ill.App.4th Dist. 1984). Moreover, the Illinois
claims are in no way subject to such limitations as may arguably exist
with respect to the RICO claims by virtue of First Nationwide. See,
e.g., Bank of Ravenswood v. City of Chicago, 717 N.E.2d 478, 483-84
(Ill.App. 1st Dist. 1999) ("cause of action accrues at the time [the
plaintiff's] interest is invaded; the mere fact that the extent of its
damages is not immediately ascertainable does not postpone the accrual of
a plaintiffs claim"); see also Austin v. House of Vision, Inc.,
101 Ill. App.2d 251, 256 (Ill.App. 1st Dist. 1968) ("Illinois courts
have held that an action sounding in tort accrues at, and limitations
begin to run from, the date on which there is a wrongful invasion of
personal or property rights, regardless of the time when the full extent
of the injury or damages sustained is ascertained").
While defendants offer a hodgepodge of other objections to plaintiffs'
motion for preliminary injunctive relief — all of which have been
considered, and rejected, by the Court — only a few deserve mention
First, defendants renew their argument, previously rejected by the
Court in its Order dated February 15, 2002, that, under the doctrine of
Grupo Mexicano, supra, this Court lacks authority to issue a preliminary
injunction preventing petitioners from disposing of their assets pending
adjudication of plaintiffs' claim for damages. Grupo Mexicano, however,
was addressed to the situation where an unsecured creditor seeks to
restrain the general assets of its debtor in aid of collecting the debt.
Since the Judiciary Act of 1789 conveyed to federal courts only the
equity jurisdiction exercised by the High Court of Chancery in England at
that time, and since, at that time, a general unsecured creditor was not
entitled to such a prior restraint of a debtor's assets, the Supreme
Court held in Grupo Mexicano that a federal court lacked power to issue
such an injunction. Grupo Mexicano, 527 U.S. at 318 ff. By contrast,
however, as the Supreme Court in Grupo Mexicano further indicated, such
equitable remedies are available, both historically and now, to creditors
possessing a lien or equitable interest in the property at issue, see
Grupo Mexicano at 329-33, and subsequent decisions have expressly so
held. See Wishnatzki & Nathel, Inc. v. H.P. Island-Wide, Inc., 2000 WL
1610790, *1-2 (S.D.N.Y. October 27, 2000) (and cases there cited); see
also Deckert v. Independence Shares Corporation, 311 U.S. 282, 289 (1940)
Here, the portions of plaintiffs' requested preliminary relief that
defendants chiefly challenge — i.e., the transfer to this Court's
registry, in aid of a proposed constructive trust, see Compl. at ¶
337, of the Telsim shares held by defendant Standart Telekom that are
pledged as collateral for plaintiffs' loans, as well as restraints on
defendants' ability to further transfer or dilute the stock — are
equitable remedies sought in aid of preserving an asset in which the
plaintiffs have an acknowledged equitable interest. Accordingly, the
doctrine of Grupo Mexicano poses no bar to the requested relief.
Furthermore, even if (contrary to fact) such relief were not available
under the Court's general equitable powers conveyed by the Judiciary Act
of 1789, it would be available under the specific grant of power given by
Congress under § 1964(a) of RICO, which expressly provides that the
"district courts of the United States shall have jurisdiction to prevent
and restrain violations of section 1962 of this chapter by issuing
appropriate orders, including, but not limited to: ordering any person to
divest himself of any interest, direct or indirect, in any enterprise;
[and] imposing reasonable restrictions on the future activities or
investments of any person; . . . ." Finally, because Illinois law, as
previously noted, clearly permits such injunctive relief, it would be
available in a federal court that, as here, has jurisdiction over an
Illinois claim. See Grupo Mexicano, 527 at 319 n. 3 (noting that this
argument was not there preserved).
Second, defendants argue that this entire case is simply an "end run"
around the contractual agreements between plaintiffs and Telsim to submit
any disputes to arbitration in Switzerland, and that, consequently, this
Court has no jurisdiction to entertain this action. But, as the foregoing
findings of fact make evident, plaintiffs have already demonstrated a
clear likelihood of success on their contentions, inter alia, that the
Telsim contracts were induced by fraud and that the instant defendants,
rather than Telsim, were the real parties in interest, operating outside
the confines of Telsim and using it simply as a front. Consequently, the
arbitration provisions of the Telsim contracts are a total irrelevancy.
Furthermore, even if this were not so, the arbitration clause in the
contract between Motorola and Telsim expressly provides that "nothing in
this section will prevent either party from resorting to judicial
proceedings if . . . interim relief from a court is necessary to prevent
serious and irreparable injury to one party or to others." Def. Ex. 5.
While the situation with respect to Nokia is more complicated, both
because Nokia, though the real party in interest, made its loans via an
intermediary, ABN-AMRO Bank, N.V. ("ABN"), and also because the
corresponding contracts do not contain as explicit a grant as the
above-quoted clause, nevertheless, "entertaining an application for a
preliminary injunction in aid of arbitration is consistent with the
court's power . . ." Borden, Inc. v. Meiji Milk Products, Co.,
919 F.2d 822, 826 (2d Cir. 1990).
Third, all defendants except Cem Cengiz Uzan (who concedes the Court's
personal jurisdiction) argue that the Court lacks personal jurisdiction
over them and therefore lacks jurisdiction to impose any restraint upon
them. But the Complaint adequately alleges personal jurisdiction, and
this is sufficient until the matter is properly challenged on an
evidentiary basis. Defendants, indeed, propose to mount such a
challenge, but on their own volition have chosen to schedule the briefing
and argument of that motion for several weeks hence. For them to raise
the same objection here is therefore premature.
That said, it may also be noted that, even at the hearing on the
preliminary injunction, plaintiffs adduced considerable evidence
indicating their personal jurisdiction over all defendants, both under
RICO, see 18 U.S.C. § 1965, and under the applicable law of New
York. Among much else, there was ample evidence that most of the
individual defendants reside in New York, have New York driver's
licenses, maintain New York bank accounts, and do business in New York,
as well as serving as principals for the corporate defendants. See Dixon
v. Mack, 507 F. Supp. 345, 350 (S.D.N.Y. 1980).
Furthermore, even if any defendant succeeds in convincing the Court, in
the forthcoming motion practice on personal jurisdiction, that the
plaintiffs have failed to carry their burden of establishing personal
jurisdiction over that particular defendant, so that that defendant must
be dismissed from the lawsuit, even that defendant may still be subject
to the injunctive relief already granted to the extent that he, she, or
it is acting in concert with a defendant properly before the Court.
Fourth, defendants argue that injunctive relief must be denied because
of plaintiffs' failure to join two parties allegedly indispensable to the
granting of such relief, namely, Telsim and Rumeli Telefon. But while
these two entities will undoubtedly figure in this lawsuit, they are in
no sense indispensable to a lawsuit that neither seeks relief from them
nor threatens to affect them more than tangentially. In particular, the
Telsim shares that are the focus of the contested injunctive relief are
owned by Standart Telekom and controlled by the Uzan family. More
generally, even to the extent that Telsim and Rumeli Telefon are
indirectly implicated in this lawsuit, the Court sees little reason to
conclude that their interests will not be more than adequately
represented by the individual defendants in this suit who, as majority
shareowners in both corporations, have heavily aligned interests.*fn7
Accordingly, for the foregoing reasons, the Court hereby reaffirms its
Orders of May 9 and May 10, 2002 granting plaintiffs' requested relief.