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Yulia Tymoshenko and John Does 1 Through 50, On Behalf of Themselves v. Dmytro Firtash

March 26, 2013

YULIA TYMOSHENKO AND JOHN DOES 1 THROUGH 50, ON BEHALF OF THEMSELVES AND ALL THOSE SIMILARLY SITUATED, PLAINTIFFS,
v.
DMYTRO FIRTASH, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Wood, U.S.D.J.:

OPINION & ORDER

Former Ukrainian Prime Minister Yulia Tymoshenko ("Tymoshenko") brings this action on behalf of herself and other former government officials (collectively, "Plaintiffs") for arbitrary detention and political persecution, allegedly in violation of their human rights. Plaintiffs' Amended Complaint ("AC") alleges claims under the Alien Tort Statute, 28 U.S.C. § 1350 ("ATS"), the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 ("RICO"), and state law for breach of fiduciary duty and malicious prosecution. [Dkt. No. 23]. Defendants include Ukrainian government officials and corporations (collectively, "the Ukrainian Defendants"), as well as individuals and corporations based in the United States, including CMZ Ventures, LLC ("CMZ"), the Dynamic Group ("Dynamic"), Barbara Ann Holdings, LLC ("BAH"), Vulcan Properties, Inc. ("Vulcan"), and individuals Paul Manafort ("Manafort") and Brad Zackson ("Zackson") (collectively, the "U.S. Defendants").

Presently before the Court is the U.S. Defendants' motion to dismiss the AC pursuant to Federal Rule of Civil Procedure 12(b)(6).*fn1 [Dkt. Nos. 44, 50]. For the following reasons, the U.S. Defendants' motion is GRANTED.

I.BACKGROUND

The AC alleges that Tymoshenko and other former government officials have been subjected to political persecution and arbitrary detention by the current Ukrainian government, headed by President Viktor Yanukovich. This misconduct has been perpetrated by Ukrainian officials in the Yanukovich administration, and masterminded by Defendant Dmytro Firtash ("Firtash"), a Ukrainian billionaire and Yanukovich confidant. The U.S. Defendants' alleged involvement stems from their participation in a "complex racketeering scheme," by which the Ukrainian Defendants laundered money through a series of U.S.-based "shell companies" to fund illegal kickbacks to Ukrainian officials. The following factual allegations are accepted as true for the purpose of this motion to dismiss. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

A.Tymoshenko's Tenure as Prime Minister and the 2009 Gas Negotiations

Tymoshenko first served as Prime Minister from 2004 to 2005, and was appointed for a second term from 2007 to 2010. (AC ¶ 50). She is now the leader of the Batkivshchyna Party, Ukraine's largest opposition party. (Id. ¶ 25). Ukraine relies on natural gas as its principal source of energy, and purchases most of this gas from Gazprom, a Russian monopoly. (Id. ¶ 82). During her first term, Tymoshenko began investigating the structure of Ukraine's natural gas contracts with Gazprom, and specifically the intermediary role played by Defendant RosUkrEnergo AG ("RUE"), (id. ¶ 139), a Ukrainian company that Firtash allegedly controls. (Id. ¶ 31). When she resumed her position as Prime Minister in 2007, Tymoshenko pledged to eliminate RUE from the Russia-Ukraine gas trade, from which RUE profited substantially: it reported profits of $755 million in 2005, and $785 million in 2006. (Id. ¶¶ 92, 140).

In 2009, Tymoshenko negotiated new gas contracts with the Russian government. (Id. ¶ 141). These new contracts eliminated RUE as an intermediary, providing instead for the direct sale of gas from Gazprom, the Russian monopoly, to Naftogaz, a Ukrainian gas monopoly. (Id.). These negotiations resulted in a significant financial loss for RUE and Firtash, who publicly denounced the new contract as "criminal and the most stupid contract in Ukraine's history." (Id. ¶ 143; Ex. 75). Firtash and his associates also filed an arbitration claim with the Stockholm Chamber of Commerce challenging the agreements as illegal. (Id. ¶ 152).

Tymoshenko ran for President in 2009, but, in February of 2010, lost the election to current President Viktor Yanukovych. (Id. ¶ 50). She resigned as Prime Minister on March 4, 2010. (Id. ¶ 51). Once Yanukovych took power, the Ukrainian government-now allegedly comprised of allies of Firtash and RUE, (id. ¶¶ 147-48)-reversed its position in the Stockholm proceeding and conceded that the 2009 gas agreements were illegal. (Id. ¶ 154). In June 2010, the Stockholm tribunal held that some elements of the contracts were illegal, and that Naftogaz owed RUE $3.5 billion worth of natural gas. (Id. ¶ 155). Because Naftogaz is a public entity, the award will be paid by Ukrainian citizens. (Id. ¶ 154). Plaintiffs allege that Firtash and his allies distributed portions of their proceeds from the Stockholm award "to their associates and friendly corporations" in order to "curry favor with them and reward them for their loyalty." (Id. ¶ 159). Firtash and RUE subsequently reestablished their role in the natural gas trade. (Id. ¶¶ 163-64).

B.Reforms and Political Persecution Under the Yanukovych Regime

Since his election, Yanukovych "has consolidated his power through far-reaching 'reforms' of the executive, legislative, and judicial branches and the use of politically-motivated criminal prosecutions" against his opponents-including Plaintiffs-in order to prevent them from regaining political power. (Id. ¶ 52). According to the AC, these reforms "effectively deprived Ukraine of any semblance of judicial independence and impartiality." (Id. ¶¶ 57-58). International commentators have condemned these developments. (See id. ¶¶ 59-60).

The criminal prosecutions against Tymoshenko and other former government officials relate to their conduct while in office, including charges related to the gas negotiations. (Id. ¶ 78; see also ¶¶ 165-80 (detailing charges)). According to the AC, these prosecutions were "both retribution" for damaging Firtash and RUE's financial interests, "as well as an effort by Defendants to eliminate Plaintiffs as political and financial threats in the future." (Id. ¶ 162). Plaintiffs detail numerous allegations regarding the lack of process afforded in these proceedings, including arbitrary travel bans, interference with access to legal counsel, falsified and missing evidence, denial of an impartial tribunal, and inhumane confinement, primarily with respect to violations of Ukrainian law. (See id. ¶¶ 208-60). Plaintiffs' ATS claim, however, focuses on their "arbitrary arrests and prolonged detentions." (Id. ¶ 262).

C.Plaintiffs' Prosecution, Trial, and Incarceration

Tymoshenko has been charged with exceeding her powers as Prime Minister based on her role in negotiating the 2009 gas contracts with Russia. (Id. ¶ 78). The AC alleges that Tymoshenko was detained for interrogation on approximately forty-four occasions, for periods lasting from twenty minutes to ten hours, (id. ¶ 183), including one incident when Tymoshenko was surrounded by "25 to 30 militia guards wearing face masks and black uniforms," (id. ¶ 189).

Tymoshenko was arrested and released on May 24, 2011 for evading pretrial investigation and "deliberate prevention of the establishment of the truth." (Id. ¶¶ 187-91). On August 5, 2011, in the midst of Tymoshenko's trial on the gas charges, the prosecutor in the case-Defendant Lilia Frolova-submitted an application for Tymoshenko's arrest because she had been "disrespectful" while questioning a witness. (Id. ¶ 192). The presiding judge, Judge Kireyev, granted the prosecutor's request, and found that Tymoshenko was obstructing the truth in the case, treating the court and trial participants with disrespect, violating court orders, refusing to mention her place of residence, refusing to confirm in writing that she was notified of the next court hearing, and failing to appear at court on time. (Id. ¶ 193). Judge Kireyev has since rejected more than twenty petitions calling for Tymoshenko's release, "purportedly" because Tymoshenko continues "to make insulting statements to the court," and does "not respond to the remarks of the presiding judge." (Id. ¶ 199). According to Plaintiffs, all of Judge Kireyev's justifications are "insufficient" under Ukrainian law, (id.), and her detention is "politically-motivated," (id. ¶ 196).

The AC also contains allegations regarding the detention of former interior minister Yuriy Lutsenko, who was charged with improperly arranging various work-related benefits for his former official driver. (Id. ¶ 171). He has been detained since his arrest on December 27, 2010, when a district court approved the Ukrainian prosecutor's request to incarcerate Lutsenko as a preventive measure. (Id. ¶¶ 200-01). His detention was justified because Lutsenko "had attempted to evade the [prosecutor's] investigation," a statement which Plaintiffs contend was factually incorrect. (Id. ¶¶ 202-05). The Kyiv Court of Appeals, an intermediate appellate court, affirmed the decision to detain him, and the prosecutor has refused to release him on bail because he is an "alleged flight risk." (Id. ¶ 206).

Plaintiffs characterize the conditions of their confinement as "inhumane." (Id. ¶ 250). "Most of the Plaintiffs," including Tymoshenko, are being held at the "notorious," "overcrowded Lukyanivska prison in Kyiv, which houses almost 50% more [prisoners] than it was designed to accommodate." (Id. ¶¶ 196, 253). Tymoshenko has also become ill while incarcerated, but Judge Kireyev has "repeatedly denied requests to allow Tymoshenko's personal physician to conduct a physical examination," and Tymoshenko refuses to trust prison doctors because she fears for her life. (Id. ¶¶ 256-58).

Due to a host of alleged due process violations, Plaintiffs contend that Tymoshenko's trial has become a "show trial." (Id. ¶ 78). Various commentators, including American and foreign politicians, have condemned Tymoshenko's arrest and called for her immediate release. (Id. ¶¶ 197-98). Judge Kireyev has refused to release Tymoshenko, and the Ukrainian appellate court will not hear the appeal because "preventive measures cannot be challenged under Ukrainian law," leaving Tymoshenko "without a domestic legal remedy to challenge her arbitrary and politically-motivated detention." (Id. ¶ 199).

D.The U.S. Defendants' Role in the Alleged Scheme

The U.S. Defendants are a group of individuals and corporations which Firtash allegedly used to launder money through the United States to finance the Ukrainian Defendants' human rights violations abroad. The AC asserts that RUE invested "a sizable portion" of the billions it earned from natural gas transactions and the Stockholm arbitration "through various investment vehicles in the United States and elsewhere in Europe" in order to put these funds "outside the jurisdiction of Ukrainian courts." (Id. ¶ 95). These transactions were structured to "conceal illegal kickbacks" made to Ukrainian officials and others, enabling Defendants to "carry out their racketeering activity with the mask of legitimacy." (Id.). These investments were made through a "labyrinth of shell companies," including Defendants BAH, CMZ, Dynamic, and Vulcan.*fn2 (Id.

¶ 96). Both Firtash and Defendant Semion Mogilevich have been investigated (and, in Mogilevich's case, indicted) on racketeering charges in the United States. (Id. ¶ 99). Although Firtash is not listed on any of the U.S. Defendants' corporate documents, Plaintiffs claim he was an "undisclosed 'silent partner,'" and cite various communications between Firtash and Manafort, also a Yanukovich political advisor, to evidence this relationship. (Id. ¶¶ 101-05).

Plaintiffs allege that the U.S. Defendants were "never legitimate businesses," and "operated interchangeably as agents under the control of Firtash in furthering his racketeering scheme." (Id. ¶ 109). To support these allegations, Plaintiffs note that CMZ and Dynamic were investigated by the New York State Department of Labor for failure to pay wages, and investigated by the IRS for failure to issue tax forms. (Id. ¶ 110-11). According to the AC, Firtash and Mogilevich wired money to the U.S. Defendants to invest in various real estate projects, but the funding was withdrawn prior ...


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