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Funk v. Belneftekhim

United States District Court, E.D. New York

November 17, 2017




         This is a state-law tort suit brought by two U.S. citizens against Belarusian oil and holding company Belneftekhim, its U.S. subsidiary, Belneftekhim U.S.A., and 50 unnamed individuals for damages relating to plaintiffs' abduction and torture. Plaintiffs Vladlena Funk and Emanuel Zeltser moved for sanctions against defendants based on their failure to comply with Court-ordered discovery on whether Belneftekhim qualifies as an agency or instrumentality of a foreign state under the Foreign Sovereign Immunities Act. Defendants, in turn, have renewed their motion to dismiss the amended complaint on numerous grounds.

         For the reasons stated below, I grant plaintiffs' motion for sanctions and deny defendants' motion to dismiss.


         The Court has previously discussed at length the allegations underlying this suit, see Funk v. Belneftekhim, No. 14-cv-0376, 2015 WL 6160247, at *1-3 (E.D.N.Y. Oct. 20, 2015), and will not repeat them here. Plaintiffs originally filed suit in New York state court in 2012; defendants removed to federal court in January 2014 and moved to dismiss the complaint arguing, inter alia, that this Court lacked subject-matter jurisdiction. Plaintiffs then cross-moved to remand to state court. In December 2014, this Court reserved decision on both motions and ordered discovery on two narrow factual questions on threshold issues. The one relevant here is whether Belneftekhim qualifies as an “agency or instrumentality of a foreign state” under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1603(b).[1]

         The parties were unable to agree on a discovery plan, so on February 2, 2015, the Court set one: The parties were to serve all written discovery requests, including document requests, interrogatories, and deposition notices, by February 9, with responses or objections filed by February 20. All depositions were to be taken by March 9. In the discovery schedule order, the Court also instructed the parties to file any supplemental motions on the jurisdictional issue by March 20. The Court later granted the parties' joint motion to extend the deadline to file supplemental motions to April 3.

         During the two months that followed, defendants did not provide any documents or make available any of the deponents plaintiffs requested. But they did file an extensive supplement to their motion to dismiss on March 23, 2015. The supplement included arguments about the disputed jurisdictional question, but also included new arguments on entirely unrelated issues. Attached to the supplemental motion were 17 provisions of Belarusian law and a declaration by Dmitry Gvozdev, who identified himself as the head of Belneftekhim's Legal Department. Gvozdev declared that Belneftekhim was and is owned entirely by the Belarusian government, that it was not a joint-stock company, and that it had not issued shares. His declaration referenced the attached 17 provisions, which included resolutions by the Council of Ministers, [2]presidential decrees, and portions of the civil code that purportedly established that Belneftekhim is either owned by or an organ of Belarus.

         Gvozdev cited extensively to the resolution by the Council of Ministers that established Belneftekhim in 1997 (Resolution No. 359, dated April 17, 1997) and the resolution that approved Belneftekhim's charter (Resolution No. 788, dated June 27, 1997). According to Gvozdev's declaration, Belneftekhim's charter and various subsequent presidential decrees establish that: Belneftekhim's assets are national property; Belneftekhim's head, a chairperson, is appointed or dismissed directly by the Council of Ministers, with the approval of the President; and that Belneftekhim must submit its operational and accounting records to the Belarusian government.

         Gvozdev also cited Presidential Decree No. 289 (dated May 5, 2006), which he stated established that state organizations subordinate to the Council of Ministers are “included in the system of national organs of state administration, ” and which he said lists Concern Belneftekhim as one of those subordinate state organizations. Gvozdev cited another resolution of the Council of Ministers, No. 903 (dated June 18, 2001), as declaring that the government sets the number of employees and the budget for those employees' salaries for state organizations. He also cited Resolution No. 156 (dated February 17, 2012) and various presidential decrees as reserving certain state functions for Belneftekhim alone, including, among other things, setting excise duties for certain goods and licensing wholesale and retail trade in petroleum products.

         Citing the Gvozdev declaration, the referenced provisions of law, and a 2013 U.S. Congressional Research Service Report which referred to Belneftekhim as a “state-owned oil and petrochemicals firm, ” defendants argued that Belneftekhim is wholly owned by the foreign state of Belarus, because it has not issued shares and because all of its assets are property of the Belarusian Government. Defendants also argued that Belneftekhim is an organ of Belarus based on the five factors in Filler v. Hanvit Bank, 378 F.3d 213 (2d Cir. 2004): (1) whether the foreign state created the entity for a national purpose; (2) whether the foreign state actively supervises the entity; (3) whether the foreign state requires the hiring of public employees and pays their salaries; (4) whether the entity holds exclusive rights to some right in the foreign country; and (5) how the entity is treated under foreign law.

         Defendants argued that Resolution No. 359, which established Belneftekhim, shows that it was created for a national purpose; that Belarus actively supervises Belneftekhim because the Council of Ministers and the President directly appoint its chairperson and deputy chairs and the Resolution requires Belneftekhim to submit operational and accounting records; that the Belarusian government regulates Belneftekhim's employees by setting their number and compensation; that Belneftekhim has the exclusive right to perform certain functions like setting excise duties and prices for petroleum products and licensing wholesale and retail trade in petroleum products; and that, as a “concern, ” Belneftekhim is considered a national organ under Presidential Decree No. 289.

         In response, plaintiffs submitted their own supplemental filing, which included an affidavit by Russian legal expert Alexander Fishkin. Fishkin's affidavit challenged both the completeness of defendants' representation of Belarusian law and the accuracy of defendants' translations.

         Fishkin's affidavit claimed that defendants' “eclectic selection” of administrative edicts were only a portion of the relevant laws and that they do not reflect subsequent amendments. For example, Fishkin pointed out that Resolution No. 359 indicates that it has been amended at least three times between 1997 and 2006, but that defendants did not provide any of these amendments. Fishkin claimed that shortly after Resolution No. 359 was passed on April 17, 1997, it was amended to include the following language:

To accept the suggestion of State Concern on Oil and Chemistry . . . on the inclusion in this concern the open stock societies and the leased enterprises in accordance with the Annexes 1 and 2. Belarus State Concern on Oil and Chemistry shall implement, in accordance with law, the management of the shares of those joint-stock companies included in the concern [and] appoint state representatives in the organs of their governance.

         ECF 45-1, at 8 (brackets in original).[3] Fishkin pointed out that this later-added language seriously undermined defendants' argument that Belneftekhim was not made up of joint-stock companies (at least in part), and that omissions like this one undermined the credibility of all of defendants' representations of Belarusian law.

         Fishkin also alleged that even the portions of laws that defendants did provide were not reliable. For example, he noted that the original 1997 version of Resolution No. 359 referred to establishing Belneftekhim

[w]ith the purpose of improving [State] management of the petrochemical sector of the Republic of Belarus, securing domestic and foreign investments within the framework of [sic] privatization program the Council of Ministers of the Republic of Belarus and implementation of a unified economic technical and technological policy in the respective industries . . . .

         ECF 45-1, at 9 (emphasis added). Fishkin pointed out that the version supplied by defendants omits the emphasized language, and adds the bracketed term “State.” Fishkin stated that he could not find this original version of Resolution No. 359 in any Belarusian legal databases (although he did not provide any additional proof of its existence).

         Fishkin also noted that although Belneftekhim's website states that it manufactures over 500 types of petrochemical and chemical products (Gvozdev stated the same thing in his declaration), nothing in Resolution No. 788, which defendants cite as Belneftekhim's charter, mentions anything about Belneftekhim manufacturing products, but instead refers to Belneftekhim conducting market research and providing assistance or certification to enterprises. Fishkin posited that in reality, there are two different “arms” of Belneftekhim: a governmental arm, which is the subject of the legal provisions defendants provided, and a separate, purely commercial arm, which is comprised of individual joint-stock companies and which sells equity interests to private investors. Fishkin concluded that the commercial arm of Belneftekhim, at least, is not owned or controlled solely by the Belarusian government.

         Fishkin also claimed that the translations of Gvozdev's declaration and of the provisions of Belarusian law he cited were faulty to the point of being misleading or inaccurate. First, Fishkin pointed out that defendants did not submit a certificate setting forth the translator's qualifications, nor did the translator's cover page state that the certifying individual personally translated the documents. Next, Fishkin pointed out that the translations were nearly incomprehensible in English, suggesting that they were reverse translations, that is, that they were originally drafted in English to track the requirements of the relevant legal test, then translated into Russian, and then back to English.

         Next, Fishkin posited that the translation misrepresented Gvozdev's qualifications - his title was not akin to chief legal counsel, as “Head of the Legal Department” might convey, but instead referred to a middle-management employee in charge of a small section within the legal department, someone who reports to a deputy chief. To support his conclusion that Gvozdev was not the equivalent of chief counsel, Fishkin noted that, as of a search conducted January 30, 2015, he could not find Gvozdev's name in the register of lawyers for the Minsk region where Belneftekhim is located.

         Fishkin also claimed that Gvozdev's declaration that “Belneftekhim is not a business entity (a joint-stock company) and has not issued shares” really should have been translated as “Belneftekhim is not an administrative entity.” Fishkin noted that what he claimed was an incorrect translation conveyed a very different meaning, one much more favorable to defendants' theory. Fishkin also stated that whether Belneftekhim had issued shares is completely irrelevant to whether it is owned by member companies or individuals, because many large Belarusian companies do not issue shares, but instead issue “vouchers” or “units of interest, ” which are functionally the same thing. Fishkin also took issue with the translation of Gvozdev's declaration that:

Concern ‘Belneftekhim' includes, with rights of independent legal entities, a number of organizations producing crude oil, refining, transporting and selling petroleum, chemical and petrochemical products, several scientific, research, construction, repair and start-up and setting up organizations.

         ECF 45-1, at 5, quoting ECF 34-3, at ¶ 4 (emphases added). Fishkin stated that the Russian-language version of Gvozdev's declaration states that Belneftekhim is “comprised of organizations, ” not that it “includes, with rights of independent legal entities, a number of organizations, ” and that “start-up and setting up organizations” should actually be “commissioning projects, ” which refers to engineering companies which perform certain electrical techniques and procedures.

         Plaintiffs had also previously submitted a declaration by reporter Viktor Lushin, stating that during an interview in October 2006, Belneftekhim executives told him that Belneftekhim “was a commercial company owned by private investors and not by the government of Belarus, ” and that media “mischaracteriz[ations]” of Belneftekhim as “government owned” had made it difficult “to solicit private foreign investments.”

         Based on Fishkin's affidavit and the reporter's declaration, plaintiffs argued that defendants had failed to make out a prima facie case that Belneftekhim is an agency or instrumentality of Belarus, because the evidence that defendants produced that may have supported their arguments was incomplete and unreliable. Plaintiffs argued that, even assuming some portion of Belneftekhim is a governmental entity, there is also a large, purely commercial consortium with the same name that is profit-driven, that sells equity interests, and that operates without any national purpose - and that entity is not an agency or instrumentality of Belarus. Plaintiffs argued that, regardless of whether Belneftekhim had issued shares, none of defendants' evidence established that Belarus owns a majority of the entity Belneftekhim, and that without evidence on what proportion of the entity was what they called the “commercial arm, ” the Court could not determine if the entire entity was actually an organ of or majority owned by Belarus.

         Because defendants failed to produce discovery prior to filing their supplemental submission, the parties stipulated that by May 12, 2015, they would either agree on the discovery to be produced, or bring the discovery dispute to the Court's attention. At defendants' request (but with plaintiffs' consent), this deadline was extended to June 3, 2015. The parties' joint discovery-dispute letter, filed with the Court on June 3, 2015, was essentially a motion to compel by plaintiffs, based on defendants' failure to produce discovery in accordance with the Court's December 31, 2014 order.

         On July 9, 2015, this Court ruled on the discovery dispute. First, the Court noted that many of plaintiffs' interrogatories and document requests sought information that defendants intended to use in support of their claims, and so defendants acted appropriately by providing only those provisions of Belarusian law on which they intended to rely. But the Court admonished defendants for refusing to provide any documents or a Rule 30(b)(6) witness in response to plaintiffs' seventh interrogatory, which sought information about Belneftekhim's ownership and structure. Specifically, the seventh interrogatory asked defendants to “[i]dentify all subsidiaries of Concern Belneftekhim, stating for each whether it is wholly or partly owned by Concern Belneftekhim, and whether it is owned in part by any private investor(s) and, if owned in part by any private investor(s), identify the private investor(s) and the percentage of their respective ownership.” The Court ordered defendants to produce the documents by July 31, 2015, and to permit a deposition by August 21, 2015.

         The day before the documents were due, defendants filed a notice of appeal from the July 9 discovery order. While that appeal was pending, plaintiffs moved for sanctions based on defendants' failure to comply with the July 9 order. On August 13, 2015, this Court granted plaintiffs' motion and imposed monetary sanctions of a single $5, 000 payment to plaintiffs, and $2, 000 per day to the Court until defendants complied with the discovery order. The next day, defendants filed a notice of appeal from the August 13 sanctions order. Defendants also filed a motion to stay the proceedings in this Court pending the resolution of their two appeals. This Court denied the motion to stay, reiterating - as it had in the past - that defendants' appeals were not subject to the collateral-order doctrine, and were therefore frivolous. That day, plaintiffs again moved for sanctions based on defendants' failure to provide discovery and failure to pay the previously imposed sanctions.

         On October 6, 2015, the Second Circuit dismissed both of defendants' interlocutory appeals for lack of appellate jurisdiction because the Court's orders were “not final or immediately appealable.” Despite this Court's denial of their motion to stay, defendants did not provide any discovery or pay the accruing sanctions during the two months that their frivolous ...

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