Justice Anil Singh of the New York Commercial Division recently issued two decisions related to the long-running litigation between Russian businessmen Alexander Gliklad and Michael Cherney. Gliklad v. Deripaska, No. 652641/2015, 2017 BL 137121 (N.Y. Sup. Ct. Apr. 25, 2017); Moquinon Ltd. v. Gliklad, No. 650366/2017, 2017 BL 137162 (N.Y. Sup. Ct. Apr. 6, 2017). Both decisions dealt setbacks to Gliklad’s ability to collect after winning a $385 million judgment.

As we previously reported, Gliklad sued Cherney to enforce a $270 million promissory note that Cherney signed in October 2003. Justice Melvin Schweitzer—the original Commercial Division judge assigned to the case—granted summary judgment in Gliklad’s favor in March of 2014 and the court later entered judgment against Cherney in the amount of $385 million. Justice Schweitzer later ordered that Gliklad had “the right to all debts and obligations due and owing to [Cherney], and the right to receive payment thereof, from . . . Oleg Deripaska,” a Russian aluminum tycoon.[1]

Gliklad v. Deripaska

The first ruling handed down recently was in Gliklad v. Deripaska, where Gliklad sought turnover of payments that Deripaska owed to Cherney as a result of an unrelated settlement. Justice Singh held that the Commercial Division lacked jurisdiction over Deripaska, and could not compel him to turn over payments to Gliklad.[2] The court reached this decision after Gliklad and Cherney settled their dispute in December 2016, and it is unclear from the docket whether that settlement preserved Gliklad’s right to pursue turnover of payments that Deripaska owed to Cherney.

First, Justice Singh concluded that the court did not have general jurisdiction over Deripaska (i.e., authority to hear all types of cases involving Deripaska) because Deripaska was not domiciled in New York. Although Deripaska indirectly owned interests in two Manhattan residential properties, Justice Singh found that there was ample evidence that Russia was Deripaska’s fixed and permanent home. Justice Singh noted that Deripaska had a Russian citizenship and residence, a record of voting in Russia, a Russian driver’s license, and Russian bank accounts.[3]

Justice Singh also declined to exercise general jurisdiction over Deripaska by piercing the corporate veil of Basic Element, Inc. (“Basic Element”), a Manhattan-based corporation indirectly owned by Deripaska. Justice Singh noted that a court may pierce the corporate veil to obtain personal jurisdiction over a defendant if there is evidence that the defendant used the corporate form to harm or defraud a party. Here, however, Justice Singh found that there were no allegations that Basic Element was involved in the settlement pursuant to which Deripasko owed Cherney, much less that Deripaska used Basic Element to injure or defraud Gliklad.[4]

Second, Justice Singh concluded that the court lacked specific jurisdiction over Deripaska (i.e., authority over cases arising out of his activities in New York) because there was no factual basis to conclude that Gliklad ever transacted business with Deripaska in New York, or that Deripaska’s activities in New York were substantially related to Gliklad’s turnover claim. Justice Singh added that the settlement agreement between Deripaska and Cherney did not designate New York as the place of performance, and that Deripaska’s shipping of documents to New York was incidental to the settlement agreement and was thus not sufficient to give rise to jurisdiction.[5]

Moquinon Ltd. v. Gliklad

In the second recent decision related to the dispute, Moquinon Ltd. v. Gliklad, Justice Singh addressedissues arising out of a loan that Gliklad obtained to pay for his growing legal fees.[6]

In 2011, Moquinon Ltd. (“Moquinon”) loaned Gliklad $5 million to finance his lawsuit against Cherney. The loan agreement provided for simple interest at 10% per annum, and for “bonus” interest contingent upon the success of Gliklad’s lawsuit. The agreement also provided that, if Gliklad collected any amounts on the underlying promissory note, then the principal amount of the loan and all interest would be payable immediately. Finally, the agreement provided that, before accepting a settlement offer, Gliklad must give Moquinon an opportunity to match the offer by paying Gliklad a cash amount equal to the offer, less principal and interest then due under the loan agreement. If Moquinon matched a settlement offer, then Gliklad would assign to Moquinon his right, title, and interest to the underlying promissory note, and Moquinon would be free to pursue claims based on the note.[7]

In late 2016, Gliklad and Cherney settled. Soon thereafter, Moquinon commenced an arbitration against Gliklad, alleging that Gliklad breached the loan agreement and the duty of good faith and fair dealing by (1) failing to repay the $5 million loan after settling with Cherney, (2) settling his claim for only a fraction of the $385 million judgment entered by Justice Schweitzer, and (3) failing to give Moquinon an opportunity to match the settlement offer and obtain Gliklad’s interest in the note. Moquinon alleged in the arbitration that its damages could be as high as $450 million—the full amount due on the note—depending on how much Gliklad received in the settlement.[8]

Moquinon petitioned the Commercial Division to attach Gliklad’s settlement proceeds in order to secure payment of a potential award in the arbitration.

Justice Singh noted that “[t]he possibility that an arbitration award may be rendered ineffectual absent an order of attachment is sufficient to support the provisional relief of attachment in aid of arbitration,” and that the more stringent requirements for preliminary injunctive relief did not apply in this context.[9]

Justice Singh found that Moquinon adequately demonstrated that an arbitration award would be rendered ineffectual if the court did not attach Gliklad’s settlement proceeds because (1) Gliklad was a nondomiciliary, (2) the settlement proceeds were Gliklad’s sole asset in New York, and (3) Gliklad intended to transfer the proceeds to his attorneys and other individuals.[10]

In determining the appropriate amount to attach, Justice Singh noted that there were “sharply disputed issues of fact” as to whether Moquinon received an opportunity to match, and found it appropriate to enter an order of attachment for only $6 million, which represented the $5 million principal balance of the loan, plus $1 million in simple accrued interest. The court ordered Gliklad to place $6 million of his settlement proceeds in an escrow account. The court also ordered Moquinon to post a $2 million undertaking to pay Gliklad’s damages, including attorneys’ fees, in the event that the court later determines that Moquinon is not entitled to attachment.[11]

It has been a long and winding road for all interested parties in this litigation. We will continue to monitor the case and report material developments.