Posted: November 28, 2017

Judge Cogan Re-Imposes Sanctions in Case of International Intrigue

Posted by Solomon N. Klein, Litigation Partner

District Judge Brian M. Cogan recently re-imposed sanctions on the defendants in Funk v. Belneftekhim a/k/a Concern Belneftekhim, 14 CV 0376 (E.D.N.Y. Oct. 17, 2017) after the Second Circuit addressed the nuances of sanctioning parties for non-compliances with jurisdictional discovery.

Of course, the term “jurisdictional discovery” is a bit of a misnomer, since a court would need some predicate jurisdiction in order to direct discovery in the first instance. So when it comes to sanctions for non-compliance with jurisdictional discovery, a “half-dozen” is not the same as “six”, though the results may be indistinguishable.

We have previously discussed how the facts alone make this case a worthy read. Plaintiffs (an attorney and his legal assistant that represented investors in a Belarus oil company) alleged that they were drugged, abducted and flown to Belarus, where they were imprisoned and tortured for over a year. Defendants moved to dismiss, claiming sovereign immunity among other grounds. Judge Cogan directed limited jurisdictional discovery on the sovereign immunity defense to determine defendants’ claim that they were agents or instrumentalities of Belarus.

Defendants presented documents in support of their sovereign immunity argument, but repeatedly refused to comply with plaintiffs’ discovery demands relating to jurisdiction. In 2015, Judge Cogen sanctioned defendants by striking their sovereign immunity defense. Funk v. Belneftekhim a/k/a Concern Belneftekhim, 14 CV 0376 (E.D.N.Y. Oct. 20, 2015).

On appeal, the Second Circuit took no issue with the decision to sanction defendants, but nonetheless vacated the striking of the defendants’ sovereign immunity defense. The Second Circuit found that “striking a jurisdictional challenge . . . risks a district court’s exercise of jurisdiction where none may exist.” In other words, by striking a jurisdiction challenge without determining the merits, a court may be improperly creating jurisdiction where no jurisdiction existed.

The Second Circuit then proceeded to explain that there were “alternative[]” sanctions – such as (1) “an evidentiary presumption against defendants that [the] withheld discovery” would have refuted the claim of sovereign immunity, and (2) “prohibiting defendants from offering further supporting evidence” of immunity.

Upon remand, Judge Cogan embraced the Second Circuit’s suggestion and re-imposed sanctions in the form of an evidentiary presumption against defendants – not striking the sovereign immunity defense outright, but with the same effect:

[P]laintiffs presented evidence that the documents defendants relied upon give an incomplete picture of Belarusian. . . . . Plaintiffs also presented affirmative evidence that Belneftekhim or some portion of it is a commercial company owned at least in part by private investors, and therefore not subject to sovereign immunity.

This conflicting evidence created a factual dispute about whether Belneftekhim is actually majority-owned by Belarus, rather than by other companies, private investors, or individual government agents. . . . . The factual dispute necessitated discovery, which defendants refused to provide, thereby preventing me from assessing the validity of the evidence defendants originally submitted.

In light of the sanctions I applied against defendants . . . , their sovereign-immunity claim fails. The evidence that defendants initially submitted, which was significantly undermined by plaintiffs’ response, is now clearly insufficient in light of the evidentiary presumption. Based on that presumption – that the discovery defendants withheld would have disproven the assertions they put forth about Belneftekhim’s ownership structure and its status under Belarusian law – defendants fail to demonstrate that they are entitled to immunity. Because the evidentiary presumption rebuts defendants’ only immunity evidence before the Court, I therefore deny defendants’ motion to dismiss on the grounds of foreign-sovereign immunity.

Posted by Solomon N. Klein, Litigation Partner
Schlam Stone & Dolan LLP

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