COURT OF CHANCERY OF THE STATE OF DELAWARE
JOHN W. NOBLE 417 SOUTH STATE STREET VICE CHANCELLOR DOVER, DELAWARE 19901 TELEPHONE: (302) 739-4397 FACSIMILE: (302) 739-6179
December 29, 2015
Steven L. Caponi, Esquire Vincent J. Poppiti, Esquire Elizabeth A. Sloan, Esquire Carl D. Neff, Esquire Blank Rome LLP Fox Rothschild LLP 1201 North Market Street, Suite 800 919 North Market Street, Suite 300 Wilmington, DE 19801 Wilmington, DE 19801
Re: VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN Date Submitted: August 11, 2015
Dear Counsel:
Plaintiff VTB Bank (“VTB”), a Ukrainian bank and company,1 brings this
action against Development Max, LLC (“Development Max”), a Delaware limited
liability company, and Navitron Projects Corp. (“Navitron”), a Panamanian
corporation and managing member of Development Max, for fraudulent transfer,
constructive fraudulent transfer, and unjust enrichment and requests that the Court
1 While VTB is based in Ukraine, its majority shareholder is a Russian Open Joint- Stock Company. Verified Compl. (“Compl.” or “Complaint”) ¶ 6. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 2
appoint receiver for Development Max, impose a constructive trust, avoid the
allegedly fraudulent transfers, and award VTB its court costs.
I. BACKGROUND
A. The Parties
Development Max was formed in 1999 and is co-owned by Dmitriy Sviatash
and Vasiliy Poliakov.2 Sviatash and Poliakov were also managing members of
Development Max until 2008, when Navitron, also controlled by Sviatash and
Poliakov, became the managing member.3 In 2006, Development Max and
Navitron co-owned AutoInvestStroy LLC, the “umbrella entity for the AIS
Group.”4 The AIS Group, by 2007, was “one of the largest car retail and car
servicing businesses in Ukraine, holding a 10% share of the automobile market.”5
It purchased cars from manufacturers and sold them through a network of “Retail[]
Sales Centers” including thirty seven centers and fifty five show rooms, the “vast
2 Id. ¶ 11. 3 Id. ¶¶ 2, 11. 4 Id. ¶ 12. 5 Id. ¶ 13. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 3
majority” of which were formed and owned by Development Max.6 The AIS
Group also owned automobile service centers, parts stores, and assembly plants to
supplement its retail sales business.7
B. VTB Lends to Two AIS Group Subsidiaries
In 2007, Poliakov, on behalf of the AIS Group, approached VTB seeking
financing for Private Enterprise RS-Centre (“PERS”) and Inter-Auto LLC (“IA,”
and together with PERS, the “Borrowers”), each an AIS Group subsidiary.8 On
May 26, 2008, VTB and PERS entered into a $30 million Credit Line Agreement
to be fully repaid on or before May 25, 2009 (the “PERS Loan”).9 On June 10,
2008, VTB and IA entered into a similar Credit Line Agreement for $40 million to
be fully repaid on or before June 9, 2009 (the “IA Loan,” and together with the
PERS Loan, the “Car Loans”).10 As security for the Car Loans, the AIS Group
“enter[ed] in a suretyship agreement and pledge[d] both personal and real property
6 Id. 7 Id. 8 Id. ¶ 14. 9 Id. ¶ 15. 10 Id. ¶ 16. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 4
as collateral” (the “Collateral”).11 By January 2009, PERS had drawn down $23.1
million and IA had drawn down $39.9 million.12 “On April 9, 2009, the PERS
Loan and IA Loan were amended, limiting the credit line to US$23.1 million and
US$39.9 million respectively.”13
C. The Alleged Fraudulent Conduct
The Borrowers used the Car Loans to purchase cars from manufacturers.14
VTB alleges that Navitron and Development Max, through their control of the AIS
Group, fraudulently transferred the purchased vehicles through the AIS Group’s
“network of shell companies” to the Retail Sales Centers, and funneled the sale
proceeds back to themselves.15 In February and March 2009, in an attempt to
appease VTB’s concerns regarding repayment of the Car Loans, Sviatash met with
VTB, requested a restructuring of the debt and meetings with VTB officers, and
“promis[ed] to prepare a repayment plan for the loans.”16 The requested officer
11 Id. ¶¶ 15-16. 12 Id. ¶ 19. 13 Id. ¶ 17. 14 Id. ¶ 20. 15 Id. 16 Id. ¶ 21. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 5
meetings, however, never took place, a plan was never produced, and the
Borrowers, shortly thereafter, failed to make payments on the Car Loans.17 During
the summer of 2009, VTB initiated court proceedings in Ukraine to foreclose on
the Collateral, though the AIS Group delayed, and many times failed to appear for,
such proceedings.18
VTB alleges that during the pendency of the Ukrainian proceedings,
Development Max and Navitron, through their control of the AIS Group,
fraudulently transferred the Collateral through a “web of affiliate companies . . .
formed solely to facilitate the fraud” (the “Transfers”).19 VTB argues that the
Transfers could not have occurred absent reliance on “forged and fictitious
documents,” reasoning that Ukrainian law requires, prior to transferring property
subject to a lien, either notary certification that the assets are free from any liens or
consent of the lien holder (which VTB did not provide).20 The Transfers were
effectuated, VTB continues, to “hide the Collateral from VTB,” and “each
17 Id. ¶¶ 21-22. 18 Id. ¶ 23. 19 Id. ¶¶ 2, 24. 20 Id. ¶¶ 24-25. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 6
recipient of the Transfers was owned/controlled by Development Max and/or
Navitron.”21 The Transfers resulted in the AIS Group’s “assets, money, property
and Collateral . . . – including VTB’s loan proceeds – resid[ing] with Development
Max and Navitron” which, given the Borrowers’ insolvency, precluded VTB from
foreclosing on the Collateral.22 VTB alleges that Development Max and Navitron
plan to continue this fraudulent scheme in the future, as evidenced by their
renaming of the “mortgagors, ‘Corporation AIS’, to United KOMP Corporation.”23
II. PROCEDURAL POSTURE
VTB filed the Complaint on April 30, 2013. In response, Development Max
and Navitron filed a Motion to Dismiss on July 31, 2013 seeking dismissal on
grounds of forum non conveniens, among other theories.24 The Court, in a
memorandum opinion issued on April 28, 2014 (“VTB I”), granted the Motion with
respect to VTB’s claim against Navitron, but denied the Motion with respect to
21 Id. ¶ 26. 22 Id. ¶ 27. 23 Id. ¶ 28. 24 Opening Br. of Defs. Navitron Projects Corp. and Development Max, LLC in Supp. of Their Mot. to Dismiss 16. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 7
VTB’s claim against Development Max.25 In denying Development Max’s Motion
to Dismiss, the Court noted that “VTB’s request for a receiver implicates this
Court’s fundamental role in overseeing the conduct of Delaware entities,” and
recognized that “even where, as in this action, the defendant may otherwise suffer
overwhelming hardship if required to litigate in Delaware,” Delaware’s strong
policy favoring this Court’s ability to “oversee and rectify the conduct of Delaware
entities may be so compelling in a particular case that it may militate against
dismissal on forum non conveniens grounds.”26
Recognizing that the Motion to Dismiss briefing improperly implied that
VTB’s claims arose under Delaware law (as opposed to Ukrainian law), the Court
deferred ruling on the remaining grounds to allow the parties an opportunity to
present expert testimony regarding the application of Ukrainian law to the facts of
the case.27 Following the Court’s guidance, the parties each submitted opening and
25 VTB Bank v. Navitron Projects Corp., 2014 WL 1691250, at *12 (Del. Ch. Apr. 28, 2014). 26 Id. at *5, *11. 27 Id. at *12. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 8
rebuttal expert affidavits28 and supplemental briefing on Development Max’s
Motion to Dismiss. 29 Having received the parties’ expert reports and supplemental
briefing, the Court now reconsiders Development Max’s arguments seeking
dismissal on grounds of forum non conveniens.
28 Development Max submitted the Second Affidavit of Gleb Bialyi (Trans. ID 56026500) (“Bialyi Opening Aff.”) and the Third Affidavit of Gleb Bialyi (Trans. ID 56219275) (“Bialyi Rebuttal Aff.”). VTB submitted the Expert Report of Roman Maidanyk (Trans. ID 56024154) (“Maidanyk Opening Aff.”) and the Second Expert Report of Dr. Roman Maydanyk (Trans. ID 56217259) (“Maidanyk Rebuttal Aff.”). 29 On November 12, 2014 Development Max filed its Supplemental Opening Brief in Support of its Motion to Dismiss. VTB responded on December 15, 2014 with an opposition brief. Development Max’s January 5, 2015 reply concluded the briefing on the Motion to Dismiss. Development Max argued for dismissal on forum non conveniens grounds in its supplemental briefing. Development Max, LLC’s Supplemental Opening Br. in Supp. of its Mot. to Dismiss 18-21. VTB, however, in apparent (and reasonable) reliance on the Court’s representation that it may revisit its VTB I forum non conveniens analysis “upon resolution of Development Max’s motion to dismiss under Rule 12(b)(6),” VTB Bank, 2014 WL 1691250, at *12 n.108, considered Development Max’s argument, at least at that time, “dead,” and avoided analysis of the argument’s merits. Pl.’s Opposition to Def.’s Supplemental Opening Br. in Supp. of its Mot. to Dismiss 2. The Court, on May 22, 2015, seeking further guidance on the topic, wrote to the parties requesting additional briefing on the forum non conveniens analysis, to which VTB and Development Max responded by filing additional supplemental briefs on June 4 and July 24, 2015, respectively. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 9
III. CONTENTIONS
VTB argues that Development Max has not met its burden to overcome
Delaware’s “presumption” favoring a plaintiff’s choice of forum, especially given
Delaware’s strong interest in preventing fraudulent use of its entities,30 that
application in Delaware courts of foreign law does not of itself warrant dismissal,31
and that continuing the case in Ukrainian courts will create discovery and personal
jurisdiction burdens not present in Delaware.32 Development Max disputes each of
VTB’s contentions, and further argues that requiring it to litigate in Delaware
would subject it to “overwhelming hardship,” justifying dismissal on forum non
conveniens grounds.33
30 Pl.’s Supplemental Briefing on the Issue of Forum Non Conveniens (“Pl.’s Supplemental Br.”) 5-7. 31 Id. at 8-9. 32 Id. at 10-13. 33 Def. Development Max, LLC’s Supplemental Briefing on the Issue of Forum Non Conveniens 5-17. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 10
IV. ANALYSIS
A. Forum Non Conveniens Standard
Delaware courts generally respect a plaintiff’s choice of forum “unless
equity weighs strongly in favor of the defendant.”34 Dismissal on grounds of
forum non conveniens is a “drastic remedy,” and should be analyzed with caution
as not to deprive a plaintiff of the procedural or substantive advantages the chosen
forum may afford.35 To overcome this burden, a defendant must show that “the
traditional forum non conveniens factors weigh so heavily that the defendant will
face ‘overwhelming hardship’ if the lawsuit proceeds in Delaware.”36 Though the
34 Martinez v. E.I. DuPont de Nemours & Co., 86 A.3d 1102, 1106 (Del. 2014); Ison v. E.I. DuPont de Nemours & Co., 729 A.2d 832, 841 (Del. 1999). 35 Ison, 729 A.2d at 841 (quoting Picketts v. Int’l Playtex, Inc., 576 A.2d 518, 524 (Conn. 1990)). 36 Martinez, 86 A.3d at 1104; accord Ison, 729 A.2d at 838; Kolber v. Holyoke Shares, Inc., 213 A.2d 444, 447 (Del. 1965) (“The dismissal of an action on the basis of the doctrine, and the ultimate defeat of the plaintiff’s choice of forum, may occur only in the rare case in which the combination and weight of the factors to be considered balance overwhelmingly in favor of the defendant.”); Pipal Tech Ventures Private Ltd. v. MoEngage, Inc., 2015 WL 9257869, at *10 (Del. Ch. Dec. 17, 2015) (“My job in evaluating this motion is not to choose the ‘best,’ or even a ‘proper’ forum; instead, it is to respect the Plaintiff’s choice of forum unless the Defendant can show resulting hardship or inconvenience so profound that it overwhelms that choice.”). VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 11
“overwhelming hardship” standard is an “appropriately high burden,” it is “not
intended to be preclusive.”37 While Delaware courts generally defer to a plaintiff’s
choice of forum, “foreign plaintiffs . . . are routinely accorded far less deference in
their choice of forum than are citizens or residents.”38 Indeed, in dismissing a case
on forum non conveniens grounds, the United States Supreme Court reasoned that
“[b]ecause the central purpose of any forum non conveniens inquiry is to ensure
that the trial is convenient, a foreign plaintiff’s choice deserves less deference.”39
B. Application
Delaware courts assess the forum non conveniens inquiry pursuant to the six
Cryo–Maid40 factors:
37 Martinez, 86 A.3d at 1105 (“The evolution of the adjective ‘overwhelming’ in this context is consistent with the distinction between preclusive and stringent.”); accord Pipal, 2015 WL 9257869, at *5 (“The moving defendant need not show that it is factually or financially impossible to mount a defense in this jurisdiction. Rather, to overcome a plaintiff’s jurisdictional choice, a moving defendant must demonstrate that such a choice is overwhelmingly inappropriate and inconsistent with the administration of justice.”). 38 Lisa, S.A. v. Mayorga, 2009 WL 1846308, at *9 n.41 (Del. Ch. June 22, 2009) (alteration in original) (quoting In re Nash v. McDonald’s Corp., 1997 WL 528036, at *3 (Del. Super. Feb. 27, 1997)), aff’d, 993 A.2d 1042 (Del. 2010). 39 Piper Aircraft Co. v. Reyno, 454 U.S. 235, 256 (1981). 40 See Gen. Foods Corp. v. Cryo–Maid, Inc., 198 A.2d 681 (Del. 1964). VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 12
(1) the relative ease of access to proof; (2) the availability of compulsory process for witnesses; (3) the possibility of the view of the premises; (4) whether the controversy is dependent upon the application of Delaware law which the courts of this State more properly should decide than those of another jurisdiction; (5) the pendency or nonpendency of a similar action or actions in another jurisdiction; and (6) all other practical problems that would make the trial of the case easy, expeditious and inexpensive.41
This Court, in VTB I, denied Development Max’s motion to dismiss on
forum non conveniens grounds. In its analysis, the Court first determined that each
of the first five Cryo–Maid factors either favored Development Max or was
neutral. To briefly summarize: (1) “the vast majority of the evidence necessary for
Development Max to defend the fraudulent transfer and unjust enrichment claims
would be not in Delaware but rather in Ukraine, and most likely written in
Ukrainian”; (2) “all relevant witnesses reside outside Delaware and, in all
likelihood, in Ukraine, where the alleged conduct occurred”; (3) while the ability
to view the premises slightly favors litigation in Ukraine, the availability of video
recording largely neutralizes this factor; (4) Ukraine has the most significant
relationship to the fraudulent transfer and unjust enrichment claims, necessitating
41 Taylor v. LSI Logic Corp., 689 A.2d 1196, 1198-99 (Del. 1997). VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 13
application of Ukrainian law; and (5) because no similar action is pending in
another jurisdiction, this factor is neutral.42 In denying Development Max’s
motion, however, the Court afforded due consideration to the Delaware Supreme
Court’s statement that the “Other Practical Considerations” factor is “neither
hollow in meaning nor rigid in application.”43 The VTB I Court reasoned that
Development Max’s request for appointment of a receiver implicated “this Court’s
fundamental and immutable responsibility to supervise the entities chartered and
formed under Delaware law,” and that
Delaware’s public interest in having this Court oversee and rectify the conduct of Delaware entities may be so compelling in a particular case that it may militate against dismissal on forum non conveniens grounds even where, as in this action, the defendant may otherwise suffer overwhelming hardship if required to litigate in Delaware.44
The Court therefore determined that, pursuant to the sixth Cryo–Maid
factor—practical problems affecting the trial’s ease, speed, and expense—“[i]t
cannot be said to cause overwhelming hardship under these circumstances to
require Development Max, an entity formed under the laws of the State of
42 VTB Bank, 2014 WL 1691250, at *8-10. 43 Martinez, 86 A.3d at 1112. 44 VTB Bank, 2014 WL 1691250, at *11. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 14
Delaware and alleged to have engaged in pervasive fraudulent conduct, to defend
its actions before this Court.”45 The “circumstances” referred to, however, include
the Court’s determination that Development Max may have properly stated a claim
under Ukrainian law for fraudulent transfer, necessitating the appointment of a
receiver, thereby implicating Delaware’s interest and “fundamental role in
overseeing the conduct of Delaware entities.”46
Stated another way, the VTB I Court’s determination, on which the above
reasoning relies, that Delaware’s interest in overseeing its entities warrants denial
of Development Max’s motion to dismiss on forum non conveniens grounds,
recognizes that the Complaint may adequately state a claim for fraudulent transfer
under Ukrainian law that can be said to amount to “gross mismanagement” under
Delaware law.47 The Court, however, never affirmatively so held, and, in fact,
45 Id. at *12. 46 Id. at *5, *12. 47 While VTB’s fraudulent transfer and unjust enrichment claims are, under Delaware’s choice of law regime, appropriately analyzed under Ukrainian law, id. at *9-10, the question of whether to appoint a receiver is, pursuant to the internal affairs doctrine, governed by Delaware law. Id. at *5. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 15
expressly acknowledged its assumption:48 “The parties did not present expert
affidavits or testimony on these areas of Ukrainian law, and the Court cannot
resolve whether the allegations of the Complaint state a claim or whether they are
subject to (or satisfy) the particularity pleading standard without guidance from
qualified, Ukrainian law experts.”49 Thus, the question here is whether VTB’s
allegations state a claim under Ukrainian law adequate to justify the appointment
of a receiver under Delaware law.
As stated above, the Court, since issuing VTB I, has received from each
party opening and rebuttal expert affidavits analyzing the application of Ukrainian
law to the facts of this case.50 Upon review of such affidavits, however, the Court
finds itself, as indicated in its May 22, 2015 letter to the parties, experiencing
difficulty “[a]pplying the law of Ukraine to the facts in the Complaint.”51 The
positions taken by the experts are in many instances diverging and in others
48 Id. at *12 (“The allegations of Development Max’s systemic and systematic fraudulent conduct . . . may state reasonably conceivable claims for fraudulent transfers under Ukrainian law . . . .” (emphasis added)). 49 Id. 50 See supra note 28. 51 Letter to Steven L. Caponi, Esquire and Austen C. Endersby, Esquire Regarding the Forum Non Conveniens Issue 3 (May 22, 2015). VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 16
irreconcilable. For example, Development Max’s expert, Gleb Bialyi, refutes the
existence of an unjust enrichment cause of action under Ukrainian law, stating that
“Ukraine does not recognize judicially-created causes of action [or] . . . claims
sounding in equity.”52 To the extent that Ukraine’s recently-enacted 2011
Corruptive Practices Act would create criminal liability for “unlawful enrichment,”
Bialyi continues, any civil challenge “could not be brought separately” from the
criminal case, and no other Ukrainian laws support a claim for unjust enrichment. 53
VTB’s expert, Roman Maidanyk, however, states that “[a]ccording to Art. 1212 of
the Civil Code of Ukraine [(“Art. 1212”)], unjustly acquired property is property
(including money) acquired or preserved by [a] person at the expense of another
person (injured person) without sufficient legal basis . . . [and] must be returned to
the injured [person],” and that Art. 1212 “is sufficiently similar to the American
concept of unjust enrichment.”54 Further, with respect to VTB’s fraudulent
52 Bialyi Opening Aff. 8. 53 Id. at 8-18 (emphasis removed). 54 Maidanyk Opening Aff. 5, 7. Bialyi disputes Maidanyk’s interpretation of Art. 1212, stating that it “addresses acquired property, not unjustly acquired property,” and that Art. 1212 does not apply to the facts of this case because VTB’s allegations are insufficient to find that that Development Max “(i) acquired VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 17
conveyance claim, while the experts agree (though through divergent reasoning)
that Article 234 of the Civil Code of Ukraine governing “Sham Transactions”
would not provide VTB a successful cause of action, they disagree as to the
viability of a potential claim under Article 235 of the Civil Code of Ukraine
(“Art. 235”). Art. 235 invalidates transactions in which the parties “formally enter
into one contract, but in fact intend to create [a] legal relationship of a different
nature.”55 Maidanyk, VTB’s expert, suggests that VTB may successfully claim
under Art. 235 that the AIS Group’s transfer of the Car Loan proceeds through
affiliates and eventually to Development Max and Navitron constituted an invalid
“simulated” transaction, the true nature of the transfer being a gift rendered
unlawful by the conditions imposed by VTB on the Car Loan proceeds.56 In
contrast, Bialyi, Development Max’s expert, states that money lent by a bank is no
longer the bank’s property (though it may have a right to repayment) and that
property of VTB without sufficient legal ground, (ii) kept or stored VTB’s property; and (iii) is in possession of VTB’s property.” Bialyi Rebuttal Aff. 1-3. Further, Bialyi, in his Opening Affidavit, suggests that Art. 1212 is more closely akin to the common law concepts of replevin or conversion as opposed to unjust enrichment. Bialyi Opening Aff. 16. 55 Maidanyk Opening Aff. 9-10. 56 Id. at 12. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 18
therefore the money did not belong to VTB at the time of the Transfers, that this
transaction is not actionable under Ukrainian law as it may be under Delaware’s
fraudulent transfer law, and that Art. 235 would not allow the Court to invalidate
both the “superimposed ‘deceptive’ transaction and the underlying transaction left
in its wake”—the parties would remain bound to the underlying transaction (here,
the “gift”).57 The inconsistencies, unfortunately, continue.58
Given the civil law structure of the Ukrainian legal system (reducing the
precedential value of Ukrainian court decisions),59 the absence of a direct
counterpart under Ukrainian law to Delaware’s fraudulent transfer and unjust
enrichment causes of action, and the experts’ starkly divergent opinions regarding
the applicability of the Civil Code of Ukraine to the facts of this case—indicating
57 Bialyi Rebuttal Aff. 5-7. 58 For example, Bialyi stated that the Complaint must “set forth a factually detailed statement of circumstances giving rise to the claim,” and that VTB’s failure to attach certain documents to the Complaint may result in its refusal and return, Bialyi Opening Aff. 32-33, while Maidanyk states that the appropriate pleading standard is more relaxed, requiring only a “description of the circumstances on which the claims are based,” and that the Ukrainian courts “rarely refuse to accept [documents required to be attached to the complaint], supplied during the hearing, unless they are irrelevant or unreliable.” Maidanyk Rebuttal Aff. 11 (emphasis removed). 59 Bialyi Opening Aff. 6; Maidanyk Opening Aff. 5. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 19
unsettled foreign law and its uncertain application to the facts—the Court holds
that Ukraine, as opposed to Delaware, is the proper forum in which to litigate this
dispute. The above considerations mandate this conclusion on two grounds.
First, as explained above, the Court’s forum non conveniens analysis in
VTB I concluded that the only factor favoring VTB (and the factor the Court rested
its decision on) was the “other practical problems” factor, given VTB’s request for
appointment of a receiver and Delaware’s policy favoring oversight by its courts of
Delaware entities.60 A corollary of the difficult application of complex, unsettled
Ukrainian law to the facts of this case, however, is this Court’s inability to appoint
a receiver based on such law.61 Appointment of a receiver, especially to a solvent
corporation, is an “extraordinary remedy.”62 The Delaware standard for
60 VTB Bank, 2014 WL 1691250, at *11-12. 61 As stated, though the question of whether to appoint a receiver is governed by Delaware law, the question of whether the Delaware standard for appointment of a receiver has been met is based on whether Development Max violated Ukrainian law. See supra note 47. 62 TVI Corp. v. Gallagher, 2013 WL 5809271, at *5 (Del. Ch. Oct. 28, 2013); Pope Invs. LLC v. Benda Pharm., Inc., 2010 WL 5233015, at *10 (Del. Ch. Dec. 15, 2010) (“Because a receiver constitutes extraordinary relief, it might make sense to require [the plaintiff] to pursue a less drastic remedy that might allow it to collect VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 20
appointment of a receiver requires “a showing of fraud, gross mismanagement,
positive misconduct by corporate officers, breach of trust, or extreme
circumstances showing imminent danger of great loss which cannot otherwise be
prevented.”63 In light of the extraordinary nature of and strong showing of
misconduct necessary to justify this relief, there are significant difficulties with
appointing a receiver for Development Max under the circumstances of this case.
Consequently, while Delaware’s interest in overseeing its entities remains, “[o]ne
of the principal [remedies] this Court [utilizes to] uphold[] the integrity of
Delaware law”—appointment of a receiver64—is no longer controlling. Indeed, the
Court’s denial in VTB I of Development Max’s motion to dismiss on grounds of
forum non conveniens relied on the Court’s potential appointment of a receiver
should Development Max’s conduct, analyzed under Ukrainian law, so require.65
on its judgment while allowing [the defendant] to continue operations, before seeking a receiver.”). 63 Zutrau v. Jansing, 2013 WL 1092817, at *5 (Del. Ch. Mar. 18, 2013). 64 VTB Bank, 2014 WL 1691250, at *11. 65 Id. at *12 (“There may be situations in which Delaware’s interest in hearing a request for the equitable appointment of a receiver for a Delaware entity does not outweigh the hardship that litigating in Delaware would entail. Based on the VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 21
Thus, with the uncertainty in applying Ukrainian law, the weight the VTB I Court
afforded the “other practical problems” Cryo–Maid factor is no longer appropriate.
Considering the five remaining Cryo–Maid factors in accordance with the Court’s
analysis in VTB I,66 Development Max has satisfied the “overwhelming hardship”
standard and is therefore entitled to dismissal on forum non conveniens grounds.67
allegations against Development Max, however, the Court cannot reach that conclusion here at this time.”). 66 See supra text accompanying note 42. 67 Additionally, the fact that Development Max was likely created for a proper purpose reduces, to some extent, Delaware’s interest in its oversight. Development Max was formed in 1999, yet its allegedly fraudulent conduct—improper diversion of the Car Loan proceeds and Collateral—did not begin until 2007. Compl. ¶¶ 11, 14. While VTB alleges that Development Max was formed and used to effectuate the alleged fraud, Pl.’s Supplemental Br. 2, such statements are conclusory and, without more, insufficient to support such an inference. In essence, while Delaware is interested in preventing use of its entities to engage in fraud or other misconduct, such interest is enhanced where the fraud or misconduct extends to the formation or dissolution of the entity, which implicates a governmental agency— the office of the Secretary of State—into the improper scheme. Pipal, 2015 WL 9257869, at *10 (denying a defendant’s motion to dismiss on forum non conveniens grounds where the individual wrongdoers “created a Delaware entity to hold, market, and monetize the purloined asset . . . in contravention of Indian law . . . [and] the Delaware Uniform Trade Secrets Act” (emphasis added)); cf. Matthew v. Fläkt Woods Gp. SA, 56 A.3d 1023, 1027-28 (Del. 2012) (maintaining jurisdiction over a non-Delaware entity under conspiracy theory of personal jurisdiction because Delaware’s long-arm statute extends to anyone who “[t]ransacts any business . . . in the State,” quoting 10 Del. C. § 3104(c)(1), and VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 22
Second, as the Delaware Supreme Court recently held in Martinez, an
“implicit and logical corollary of the fourth Cryo–Maid factor”—whether the case
implicates Delaware law more properly decided by Delaware courts—is that
“important and novel issues of other sovereigns are best determined by their courts
where practicable.”68 To that end, where “[t]his Court is being asked to decide
complex and unsettled issues of [foreign] law,”69 it will consider “the defendant’s
interest in obtaining an authoritative ruling from the relevant foreign courts on the
legal issue on which its liability hinges, as distinguished from a predictive, non
authoritative ruling by our courts.”70 As stated, application of Ukrainian law, as
interpreted by the parties’ experts, to the facts of this case is far from
straightforward. The Civil Code of Ukraine contains no direct counterpart to
Delaware’s unjust enrichment and fraudulent transfer laws, and the parties’ expert
affidavits submit diverging interpretations regarding its appropriate application to
finding that the Delaware co-conspirator’s filing of a certificate of cancellation as part of the conspiracy constituted such a transaction of business). 68 Martinez, 86 A.3d at 1109-10. 69 Hupan v. All. One Int’l, Inc., 2015 WL 7776659, at *8 (Del. Super. Nov. 30, 2015). 70 Martinez, 86 A.3d at 1111. VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 23
the facts.71 Therefore, Development Max would benefit from an authoritative
ruling from Ukrainian courts. The Martinez court reinforced its reasoning with a
reminder that “plaintiffs who are not residents of Delaware, whose injuries did not
take place in Delaware, and whose claims are not governed by Delaware law have
a less substantial interest in having their claims adjudicated in Delaware.”72 Here,
VTB is a Ukrainian bank whose injuries occurred in Ukraine and whose claims are
governed by the laws of Ukraine. It therefore has a “less substantial” interest in
adjudicating its claims in Delaware.73
71 The Pipal court, in denying a motion to dismiss on forum non conveniens grounds, noted that while Indian law governed “at least . . . one of the claims,” its application to the issues was “settled” and alternative causes of action required application of Delaware law to the facts of the case. Pipal, 2015 WL 9257869, at *8. The Pipal court concluded, therefore, that while the factor “slightly favors” dismissal, “this factor would be more persuasive if unsettled issues of Indian law were presented.” Id. at *9. 72 Martinez, 86 A.3d at 1111. 73 The Court notes further that though Development Max is a Delaware entity, its operation of the AIS Group takes place solely in Ukraine. Id. at 1108 (though the defendant—E.I. du Pont de Nemours and Company, Inc.—itself obviously had a strong connection to the State of Delaware, the Court, in granting the defendant’s motion to dismiss on forum non conveniens grounds, agreed with the trial court’s reasoning that “the Defendant’s state of incorporation ha[d] no rational connection to the cause of action” where the claims arose out of the plaintiffs’ exposure to asbestos while working in the defendant’s Argentinean textile plants); Pipal, 2015 VTB Bank v. Navitron Projects Corp. C.A. No. 8514-VCN December 29, 2015 Page 24
V. CONCLUSION
For the reasons above, the Court grants, without prejudice, Development
Max’s Motion to Dismiss on forum non conveniens grounds.
IT IS SO ORDERED.
Very truly yours,
/s/ John W. Noble
JWN/cap cc Register in Chancery-K
WL 9257869, at *9 (“While the Plaintiff asserts correctly that Delaware has a ‘powerful interest’ in preventing Delaware entities from being used as a vehicles for wrongdoing, it is India that has an interest in preventing theft of assets in India, and in redressing breaches of contract occurring there.” (footnote omitted)). The Court’s ability to oversee and manage the conduct and effectiveness of a receiver for Development Max alleged to operate through a “web” of companies in Ukraine is less than certain, further reducing the appropriateness of this remedy in Delaware. Pipal, 2015 WL 9257869, at *1 (denying the defendant’s motion to dismiss on forum non conveniens grounds, reasoning in part that, though the allegedly fraudulent activity took place in India (including the development and ultimate theft of a computer application), the wrongdoers “placed the stolen application . . . into a Delaware corporation, . . . [which] marketed the application in the United States and abroad, and has solicited and received investments based on the representation that it owns the [application]”).