In Magomedov et al. v. Lebedev et al.,[i]  an opinion dated February 19, 2019, Justice Saliann Scarpulla of the Commercial Division dismissed most claims related to a Russian oil joint venture as time-barred under the statute of limitations.  The case also raises the issue of waiver of personal jurisdiction by bringing related lawsuits within New York.

BACKGROUND

The billion dollar dispute arose out of business dealings between long-time associates who have owned shares in Russian oil companies since privatization in the 1990s.  Specifically, Plaintiffs Magomed Magomedov and Akhmed Bilalov owned a 5.37% stake in a Russian oil company, NNG.  Defendant Leonid Lebedev also owned a 5.13% interest in NNG.  Defendants Leonard Blavatnik and Viktor Wekselberg owned a 40% interest in a related company, TNK.  Blavatnik and Wekselberg’s interest in TNK was contingent upon obtaining a controlling interest in NNG.[ii]

By combining Plaintiffs’ interest in NNG, along with Lebedev’s interest, Blavatnik and Vekselberg could obtain the required majority control of NNG.[iii]  As a result, Plaintiffs and Lebedev entered into a 1997 Joint Venture, which provided that Lebedev and Plaintiffs would, “share in profits and losses, and would not sell or take unilateral action regarding their respective shares in NNG without unanimous consent.”[iv]

In 1997, Vekselberg offered $90,000,000 for Plaintiffs’ interest in NNG—an offer Plaintiffs declined after consulting with Lebedev.  Later, in 1999, Plaintiffs sold their 5.37% interest in NNG to Oleg Kim.  Lebedev participated in those negotiations, but he did not sell his own interest to Kim.[v]  According to Plaintiffs, prior to the sale to Kim, Lebedev negotiated in secret with Blavatnik and Wekselberg to sell both his interest in NNG and to secure Plaintiffs’ interest in NNG, in exchange for a stake in a different joint venture (“Defendants’ Joint Venture”).  Blavatnik and Wekselberg eventually purchased the NNG shares Plaintiffs sold to Kim.[vi]

In 2014, Defendants’ Joint Venture became the subject of a lawsuit brought by Lebedev in New York against Blavatnik and Vekselberg.  That same year, according to Plaintiffs, Lebedev met with Magomedov and agreed to split any recovery from the Lebedev action in exchange for Magomedov’s assistance in the litigation.   However, that agreement was never executed, despite attempts from 2014 through 2016.

Plaintiffs asserted claims against Lebedev for (1) breach of fiduciary duty based on the 1997 Joint Venture; (2) fraud; (3) anticipatory breach of the 1997 Joint Venture; (4) breach and anticipatory breach of the 2014 Agreement to provide assistance in litigation; (5) unjust enrichment; and (6) conversion.[vii]

PERSONAL JURISDICTION DEFENSE

Lebedev argued that Plaintiffs’ action should be dismissed for lack of personal jurisdiction over him in New York.  First, Justice Scarpulla determined that general jurisdiction did not exist because Lebedev was not a domiciliary of New York.  Neither party disputed this determination.[viii]

Next, the Court considered whether jurisdiction existed pursuant to New York’s long arm statute—CPLR § 302.  With respect to claims related to the 2014 Agreement to assist in the related litigation, the Court determined that it had jurisdiction over Lebedev pursuant to CPLR § 302(a)(1).  Under CPLR § 302(a)(1), the court has long-arm jurisdiction if “defendant ‘transact[ed] any business within the state or contract[ed] anywhere to supply goods or services in the state[.]’”[ix]

Justice Scarpulla determined that Lebedev transacted business in New York by  hiring New York Counsel and contracting with Plaintiffs for assistance in the New York litigation.[x]  As such, the Court determined that a claim for breach of that contract to assist in litigation pending in New York was sufficiently related to business transacted in New York to give rise to jurisdiction.[xi]

Turning to the other claims, relying on First Department precedent, New Media Holding Co., LLC v. Kagalovsk,[xii]  the Court determined that Lebedev waived his jurisdictional defense by filing suit against Blavatnik and Vekselberg in New York. 

In New Media, the First Department held that personal jurisdiction is waived when a defendant brought suit in New York on a related claim.  Thus, Justice Scarpulla determined Lebedev had waived personal jurisdiction because his claims against Blavatnik and Vekselberg necessarily related to his joint venture with Plaintiffs.[xiii]

STATUTE OF LIMITATIONS

Next, the Court turned to Lebedev’s statute of limitations defense.  Lebedev argued that, with the exception of the claims for breach of the 2014 Agreement, that each of the claims were barred by the statute of limitations.[xiv]

Justice Scarpulla quickly determined that any claim for anticipatory breach of the 1997 Joint Venture was just “a disguised claim for breach of the 1997 Joint Venture that is subject to an expired six-year statute of limitations period.”[xv]

The remaining claims for fraud and breach of fiduciary duty raised more complex issues.  Each claim was subject to a two-year discovery rule pursuant to CPLR § 213(8).  However, Plaintiffs had alleged that they discovered Lebedev’s fraud in February 2014, more than two years before they brought suit.  Despite admitting this, Plaintiffs argued that Lebedev was deceptive in negotiating the 2014 Agreement, and that this delayed them from bringing suit and therefore equitable estoppel should apply.[xvi]

In resolving the equitable estoppel claim, Justice Scarpulla reasoned that Plaintiffs, who were sophisticated business people, represented by counsel since 2004, failed to exercise due diligence in bringing their claims.[xvii]  Specifically, the Court found that Lebedev’s delay in executing the 2014 Agreement for assistance in the litigation should have prompted Plaintiffs to file suit.  Accordingly, the Court dismissed Plaintiffs’ fraud, breach of fiduciary duty, conversion, unjust enrichment, and anticipatory breach of the 1997 Joint Venture claims as time-barred.

The Court upheld Plaintiffs’ remaining claim for anticipatory breach of the 2014 agreement.