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Segal v. Firtash

United States District Court, S.D. New York

September 9, 2014

ILYA SEGAL, et al., Plaintiffs,
DMITRY FIRTASH, et uno, Defendants.


RICHARD J. SULLIVAN, District Judge.

Plaintiffs Ilya Segal, Vadim Segal, and Dancroft Holdings Ltd. ("Dancroft") originally brought this action in New York State Supreme Court, New York County, against Defendants Dmitry Firtash and Public Joint Stock Company Commercial Bank Nadra ("Nadra"). Defendants removed the action to this Court on the basis of diversity jurisdiction. Now before the Court is Plaintiffs' motion to remand for lack of subject matter jurisdiction. For the reasons set forth below, the motion is denied.


A. Facts[1]

This case involves a series of financial and legal transactions that allegedly took place in Ukraine. Plaintiffs Ilya Segal and Vadim Segal (collectively, the "Segals") are United States citizens residing in New York. (Compl. ¶¶ 6-7.) Plaintiff Dancroft is a Cyprus corporation owned and operated by the Segals, ( Id. ¶ 8.) In 2005, "the Segals, through [Dancroft], created [Kakhovka Prom Agro ("Kakhovka")], a limited liability company currently registered in... Ukraine." ( Id. ¶ 9.) In 2006, Kakhovka started constructing a soybean processing plant. ( Id. ¶ 23.) To finance this undertaking and other projects, Kakhovka negotiated a number of loans with Defendant Nadra, a Ukrainian bank. ( Id. ¶¶ 16, 24-26.) In 2008, Nadra came under the effective control of Defendant Dmitry Firtash, a Ukrainian citizen. ( Id. ¶¶ 10, 27.)

In 2009, Nadra sought to renegotiate the terms of "loans Kakhovka and other companies associated with the Segals had taken out" (the "Kakhovka Loans"). (Compl. ¶ 29.) On July 1, 2009, Firtash and other Nadra representatives hosted a meeting with Vadim Segal and his attorney, Sergey Sukholinsky-Mestechkin ("Sukholinsky"), in one of Firtash's offices. ( Id. ¶¶ 30-32.) At the meeting, the parties agreed that Vadim Segal would buy the Kakhovka Loans from Defendants for less than fifty percent of their nominal value and, in addition, buy "the right of demand for another two... groups of loans [apparently unrelated to Kakhovka]" for fifty percent of those loans' outstanding amounts. ( Id. ¶¶ 34-35). In return, Defendants agreed that the "payments by the Segal[s'l companies to Nadra, " presumably under the Kakhovka Loans, "[would be] suspended." ( Id. ¶ 39.) Firtash and one of his associates stated to Vadim Segal and Sukholinsky that, in order for the agreement to receive judicial approval, Nadra would first need to sue Kakhovka and some of the Segals' other companies, and that Firtash could "influence" the speed with which the Ukrainian court would act. ( Id. ¶¶ 37-38.) The Complaint does not explain why the parties believed the agreement needed judicial approval, why judicial approval depended on the institution of a lawsuit, and whether the "influence" alluded to by Firtash referred to bribery or some other form of corruption.

In August 2009, Nadra filed suit against Kakhovka in the Commercial Court of the Kyiv Region in Ukraine. (Compl. ¶ 44.) Shortly after the suit was filed, Sukholinsky met with Firtash's associates, who informed him that everything was going according to the plan discussed at the July 1 meeting. ( Id. ¶¶ 47.)

Sometime in the fall of 2009, one of Firtash's associates, Valentyna Zhukovskaya, summoned Vadim Segal to her office and informed him that Firtash did not plan to honor the terms of the July 1 agreement. (Compl. ¶¶ 48-50.) Zhukovskaya demanded that Kakhovka pay all outstanding debts to Nadra immediately, or face a restructuring of the loans that would result in an annual interest rate of over twenty percent. ( Id. ¶¶ 50-51.) Vadim Segal rejected these demands and left. ( Id. ¶ 52.) In the spring of 2010, Vadim Segal met with Firtash, who reiterated that he and Nadra would not honor the terms of the July 1 agreement. ( Id. ¶ 54.)

A series of complicated legal proceedings and transactions in Ukraine then ensued. (Compl. ¶¶ 58-106.) As a result of these proceedings, Nadra seized control of the soybean plant owned by Kakhovka. ( Id. ¶¶ 75-77, 89.) Firtash also caused criminal proceedings to be brought against Kakhovka and the Segals in Ukraine. ( Id. ¶¶ 92-106.)

B. Procedural History

Plaintiffs filed the Complaint in New York State Supreme Court, New York County, on July 17, 2013. (Compl.) The Complaint asserts causes of action for breach of contract, fraud, unjust enrichment, injurious falsehood, intentional infliction of emotional distress, conspiracy to commit fraud, concerted action liability, and aiding and abetting liability. ( Id. ¶¶ 107-152.) On November 4, 2013, Defendants removed the action to this Court on the basis of diversity jurisdiction. (NOR at 2.) In their Notice of Removal, Defendants argued that Plaintiff Dancroft was fraudulently joined to the action and must be ignored for purposes of diversity jurisdiction. ( Id. at 2-19.) Plaintiffs filed their Amended Complaint on November 20, 2013. (Am. Compl.)

On December 20, 2013, Plaintiffs filed the instant motion to remand, arguing that Dancroft was not fraudulently joined and that Dancroft's presence in this case defeats diversity jurisdiction. (Doc. No. 21.) The motion was fully briefed on January 31, 2014. In deciding the motion, the Court has considered Plaintiffs' memorandum (Doc. No. 24 ("Mem.")), Defendants' opposition (Doc. No. 25), and Plaintiffs' reply (Doc. No. 30).


A defendant in an action pending in state court may remove that action to federal court only if the pending action could have originally been brought in federal court on the basis of either federal question jurisdiction or diversity jurisdiction. See 28 U.S.C. § 1441(b). "In light of the congressional intent to restrict federal court jurisdiction, as well as the importance of preserving the independence of state governments, federal courts construe the removal statute narrowly, resolving any doubts against removability." Lupo v. Human Affairs Int'l, Inc., 28 F.3d 269, 274 (2d Cir. 1994) (citation omitted). If the removing party is invoking diversity jurisdiction, it is that party's burden to demonstrate, by a preponderance of the evidence, that complete diversity among the parties existed not only at the time of removal, but also when the state complaint was filed. See Blockbuster, Inc. v. Galena, 472 F.3d 53, 56-57 (2d Cir. 2006) ("We generally evaluate jurisdictional facts... on the basis of the pleadings, viewed at the time when defendant files the notice of removal."); United Food & Commercial Workers Union, Local 919, AFL-CIO v. CenterMark Properties Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994) ("[W]here [the] basis of removal is diversity[, ] then diversity of citizenship must exist at [the] time [the] action was filed in state court as well as at [the] time of removal." (citation omitted)); id. at 305 ("Where, as here, jurisdictional facts are challenged, the party asserting jurisdiction must support those facts with competent proof and justify [its] allegations by a preponderance of [the] evidence." (citation and internal quotation marks omitted)). A case may be remanded back to state court "[i]f the record... does not reflect diversity." Vasura v. Acands, 84 F.Supp.2d 531, 535-36 (S.D.N.Y. 2000); see also 28 U.S.C. § 1447(c) ("If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.").


The parties do not dispute that if this were truly a suit by two United States citizens residing in New York (the Segals) and a Cyprus corporation (Dancroft) against two Ukrainian citizens (Firtash and Nadra), diversity jurisdiction would not lie, since "the presence of aliens on two sides of a case destroys diversity jurisdiction." Corporation Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786, 790 (2d Cir. 1980). Defendants contend, however, that the Court must disregard the presence of Dancroft because it was fraudulently joined to defeat diversity. Specifically, Defendants argue that the Complaint does not adequately allege Dancroft's claims for breach of contract, fraud, unjust enrichment, or injurious falsehood, and that Dancroft's claims for conspiracy, concerted action liability, and aiding and abetting liability fail as a ...

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