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Yukos Capital S.A.R.L. v. Feldman

United States District Court, S.D. New York

February 6, 2017

YUKOS CAPITAL S.A.R.L., et al., Plaintiffs,
v.
DANIEL CALEB FELDMAN, Defendant-Third Party Plaintiff,
v.
DAVID GODFREY, et al., Third-Party Defendants.

          Mary E. Flynn MORRISON COHEN LLP Attorney for Plaintiffs.

          Glenn E. Summers BARTLIT BECK HERMAN PALENCHAR & SCOTT Attorney for Thirrd Party Defendant Marc Fleischman.

          Rishi Bhandari MANDEL BHANDARI LLP Attorney for Defendant-Third Party Plaintiff.

          MEMORANDUM OPINION

          LEWIS A. KAPLAN, DISTRICT JUDGE.

         This case arises out of the forced break up of the Yukos Group (“Yukos Oil”), which at one point was among the largest and wealthiest privately held corporate groups in the Russian Federation and that nation's largest exporter of crude oil. The matter is before the Court on the motion of defendant Daniel Feldman for summary judgment dismissing the amended complaint.

         Facts

         This case's full back story is long, complicated, and in some respects much disputed.[1]For present purposes, it suffices to say only the following.

         The Break Up of Yukos Oil

         In 2006, Yukos Oil was forced into bankruptcy due to various taxes, fees, and penalties imposed by the Russian government - penalties which, in the view of Yukos Oil, were wrongful. A receiver was appointed for the assets of Yukos Oil. He sold many of these to a Russian company, OOO Promnefstroy (“Promnefstroy”), [2] and others to a Russian state-owned entity, Rosneft.[3] Among those assets were a wholly-owned Dutch subsidiary, Yukos Finance B.V. (“Finance”), which the receiver purported to sell to Promnefstroy, and Yukos CIS (“CIS”), which the receiver purported to sell to Rosneft. The sale of Finance to Promnefstroy was challenged in the Netherlands and has been the subject of litigation there since 2007.

         The plaintiffs in this case are direct or indirect subsidiaries of Finance and CIS as well as two foundations and a trust established to protect assets of one or more of the corporate plaintiffs. They here sue Daniel Feldman who, from approximately 2007 to 2014, was a director of several of the plaintiff entities and previously had been employed by the now-defunct Yukos Oil. Plaintiffs claim that Feldman breached his fiduciary duties to them by, inter alia, misappropriating monies for personal gain and disclosing confidential information to plaintiffs' adversary, Promnefstroy.

         The Present Motion

         The amended complaint details a series of alleged schemes whereby Feldman - in many cases while he occupied positions of trust as an officer or director of plaintiffs and in some instances after he ceased serving in those positions - is said to have breached his fiduciary and other duties to the plaintiffs by conveying plaintiffs' confidential information to its adversary Promnefstroy, helping or attempting to help himself to money and other property of the plaintiffs by a variety of means, diverting or attempting to divert corporate opportunities of the plaintiffs for his own benefit, overbilling for travel expense reimbursement, and other means.

         One thread running through much of Feldman's position on this motion is that most if not all of the alleged inappropriate behavior resulted in no demonstrable damage to the plaintiffs.[4]But the parties' positions here may be likened to ships passing in the night.

         Plaintiffs for the most part do not seek to recover damages proximately caused by the alleged misconduct. They instead rest principally on the faithless servant doctrine, which holds that an agent who betrays the agent's principal typically is entitled to no compensation, at least for the period of the agent's disloyalty. Thus, apart from seeking to recover alleged overcharges for travel expense reimbursement, the monetary relief they desire is principally disgorgement of Feldman's compensation for the relevant period.[5] Accordingly, we begin with Feldman's “no damages” argument and then pass to the details of the parties' other contentions with respect to specific alleged schemes.

         Discussion

         A. The Faithless Servant Claim

         Feldman argues that plaintiffs' failure to adduce evidence of “damages . . . allegedly suffered as a result of [his] conduct” “is fatal to [many of] Plaintiff's [sic] claims.”[6] But he is mistaken in light of plaintiffs' reliance on the faithless servant doctrine.

The law on this point is well settled. As the Second Circuit has written:
“New York law with respect to disloyal or faithless performance of employment duties is grounded in the law of agency, and has developed for well over a century. . . .
“Under New York law, an agent is obligated to be loyal to his employer and is prohibited from acting in any manner inconsistent with his agency or trust and is at all times bound to exercise the utmost good faith and loyalty in the performance of his duties. One who owes a duty of fidelity to a principal and who is faithless in the performance of his services is generally disentitled to recover his compensation, whether commissions or salary. * * * It does not make any difference that the services were beneficial to the principal, or that the principal suffered no damage as a result of the breach of fidelity by the agent.”[7]

         Accordingly, any failure by plaintiffs to adduce competent evidence of damages caused by the breaches of duty complained of would be entirely immaterial to their attempt to obtain disgorgement of compensation paid to Feldman during any periods in which he was in breach.[8]

         B. Promnefstroy - 2008-09

         The amended complaint alleges that Feldman in 2008-09 was charged with acting as liaison on behalf the Yukos Group (a term that includes subsidiaries of Finance[9] as well as plaintiffs Yukos Capital, YHIL, the Foundations and Luxtona[10]) in settlement discussions with managers of Promnefstroy.[11] He is said to have had numerous meetings for that purpose, “ostensibly acting as a broker of a possible Yukos Group-Promnefstroy settlement and negotiating for the benefit of the Yukos Group.”[12] In fact, however, plaintiffs allege that he actively sought a secret cash payoff from Promnefstroy for attempting to broker a deal and secretly shared Yukos Group confidential information with Promnefstroy and its managers in an effort to procure the payoff.[13]

         Feldman argues that this claim should be dismissed because (1) there is no evidence that Feldman actually conveyed any confidential information and, in any case, (2) any claims for breach of contract or breach of fiduciary duty are time barred.[14]

         The first of these contentions is rejected on the basis of the faithless servant doctrine.

         The second contention fails as well. The determination of the prescriptive period applicable in New York to claims of breach of fiduciary duty and of the time at which such a claim accrues can be complex undertakings, undertakings that none of the parties has even approached.[15]Fortunately, no complex analysis is necessary here. The applicable prescriptive period is not less than six years.[16] Feldman did not cease to be a director of YHIL until September 2012, a director of Yukos Capital until October 2014, and an officer of the Foundation until 2014. Insofar as the running of the prescriptive period with respect to earlier breaches of duty otherwise might have begun, it was tolled with respect to each of these entities until Feldman's respective positions of trust with each ended.[17]As this action was brought less than six years after the date of each of those terminations, Feldman's limitations defense is entirely without merit.

         C. Promnefstroy - 2015

         By the time this action was commenced on June 25, 2015, Feldman had left or been ousted from all of his positions with the plaintiffs and their affiliates.[18] Almost immediately after he was sued here, he allegedly entered into a cooperation agreement with Promnefstroy and affiliates. Under that agreement, Promnefstroy provided Feldman with the law firm of Bailey & Glasser - which represented Promnefstroy, then and earlier including in one instance in a proceeding against Feldman - to defend Feldman in this case and agreed to pay Feldman's legal fees in this action. Feldman promised (with certain exceptions) to “provid[e] complete and truthful information regarding his role and actions related to the Various Yukos Entities” and allegedly provided privileged and confidential information to Bailey & Glasser.[19] Indeed, the cooperation agreement contemplated that Feldman would assert counterclaims against the plaintiffs here and gave Promnefstroy the right to terminate its agreement with Feldman in the event Feldman dropped any counterclaims against plaintiffs without its consent.[20] Thus, the essence of plaintiffs' position is that Feldman agreed to convey privileged and confidential information to Promnefstroy by means of turning it over to Promnefstroy's counsel and, moreover, agreed to serve as something of a cat's paw to assert litigation pressure against plaintiffs in order to serve Promnefstroy's interests. To this it must be added that plaintiffs moved to disqualify Bailey & Glasser, which then withdrew as counsel of record for Feldman. Under a revised cooperation agreement, Promnefstroy provided Feldman with his current counsel of record.[21]

         Promnefstroy now seeks summary judgment dismissing plaintiffs' claims with respect to these events, essentially on the theory that Bailey & Glasser “did not even have time to review the materials it had collected from Feldman before turning them over to Feldman's new counsel” and, in any case, did not provide documents concerning Yukos to Promnefstroy[22] It points to the testimony of a Bailey & Glasser 30(b)(6) witness and, in addition, of an executive of one of the owners of Promnefstroy, who denied that Promnefstroy had received any documents from Feldman's attorneys.

         In view of the fact that these events all post-dated the end of Feldman's employment by the plaintiffs, the legal position here is somewhat different. There is no evidence of the payment of any compensation to Feldman post-employment so the faithless servant doctrine has no bearing. Plaintiffs, in order to recover, therefore bear the burden of proving injury caused by a breach of duty. Moreover, as these are issues on which plaintiffs would bear the burden of proof at trial, plaintiffs must adduce admissible evidence sufficient to raise a genuine issue of fact for trial in order to withstand summary judgment.[23]

         The circumstances here persuade the Court that plaintiffs have raised a genuine issue of material fact. Plaintiffs and Promnefstroy long have been engaged in a struggle over control of former overseas (i.e., non-Russian) assets of Yukos Oil. They have been at sword's point. Upon Feldman's being terminated and sued by plaintiffs, Promnefstroy came to his rescue by agreeing to pay for his legal defense in exchange for information and, indeed, by designating its own lawyers, Bailey & Glasser, to represent Feldman. The legal defense obviously was something of value to Feldman, giving rise to the inference that Feldman delivered, or promised to deliver, something of value to Promnefstroy in return. The evidence, given Feldman's history as an insider with the plaintiffs, permits the inference that the value that Feldman had to transfer to Promnefstroy was inside information of the plaintiffs. Thus, it is reasonable to infer that transmission of whatever he knew and any interesting documents he possessed was at least part of the consideration for Promnefstroy's agreement to provide him with a defense. Promnefstroy's designation of Bailey & Glasser as Feldman's counsel makes that inference even more persuasive than otherwise would have been so. And while a trier of fact might credit the denials of Bailey & Glasser and Promnefstroy, it would not be obliged to do so. Accordingly, summary judgment with respect to this claim will be denied.

         D. The Bonus Scheme

         Feldman mounts a series of often fact-specific attacks on the other schemes plaintiffs allege. Some fail for reasons to which the Court already has alluded. But there is another problem with at least some of those attacks, and it is illustrated by Feldman's position with respect to what plaintiffs call the Bonus Scheme.

         The starting point for the plaintiffs' so-called bonus scheme allegations are the facts that one of the foundation plaintiffs is the sole shareholder of YHIL and Feldman was one of YHIL's directors from 2006 until September 2012.[24] In or about 2011, Nelson English, a director of certain Yukos Group entities, made a presentation to the foundations' board in support of his effort to obtain a multimillion dollar bonus for his role in developing and selling a Yukos Group asset. The foundations decided to award English a much smaller bonus than he sought, to delay making the award, and to keep the relatively small size of the intended future award from him for some time. In the same time frame, Feldman, secretary to the foundations' board, became privy to the fact that an entity called GML, which had been the majority shareholder in Yukos Oil prior to its expropriation, had given the foundations a letter in which it offered to pay the foundations a share of the value of any assets GML might recover through litigation. The money was intended for use by the foundations as a bonus pool for persons who contributed to the success of the litigation.

         Feldman, in breach of his obligations to the foundations, allegedly disclosed the foundations' action with respect to English and the substance of the GML letter concerning bonuses to fellow YHIL directors including Martin Parr, as well as others (together, the “Non Foundation Group”), and promoted the idea that the Non Foundation Group, like English, might well be treated unfairly by the Foundations. Accordingly, he proposed to the Non Foundation Group that it set up a bonus pool for itself. Among other things, he retained New York counsel and, through the New York lawyers and on an anonymous basis, British Virgin Islands (“BVI”) counsel to advise with respect to the possible establishment of a trust into which the Non Foundation Group could divert $50 to $75 million from YHIL and its subsidiaries without the foundations' knowledge or approval and then cause the trust to distribute money to themselves. He initially paid over $30, 000 in legal fees out of his own pocket.

         In the end, some of those whom Feldman approached declined to go along with the scheme, which therefore failed. Feldman then billed and obtained reimbursement from YHIL for the legal fees, allegedly under false pretenses.

         Feldman now seeks dismissal of the claim relating to these events essentially on three grounds. First, no bonuses of the sort that Feldman proposed ever were paid and the proposed trust never was created. Second, the retention of the law firms Feldman hired for the purpose of obtaining advice concerning the use of a trust was approved by the entire YHIL board.[25] Third, the YHIL board approved the reimbursement of at least some of the legal fees with knowledge of their purpose. Finally, ...


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