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Article United States: Circuit Court Affirms District Court's Decision in Contract Dispute over Ukrainian Stolen Assets

On November 27, 2023, the United States Court of Appeals for the First Circuit affirmed the decision of the United States District Court for the District of Massachusetts to dismiss all breach of contract claims brought by Universal Trading & Investment Company, Inc. (UTICo) against several Ukrainian defendants. The First Circuit also affirmed the District Court’s denial of UTICo’s motion to amend and several discovery-related requests. (Universal Trading & Inv. Co. v. Bureau for Representing Ukrainian Interests in Int’l and Foreign Courts, No. 22-1499, 4–5 (1st Cir. 2023).)

Background to the Decision

In the 1990s, the former prime minister of Ukraine, Pavlo Lazarenko, and his accomplice, Petro Kiritchenko, used the Ukrainian company Cube, Ltd. (Cube), which was reorganized to become United Energy Systems of Ukraine (USEU), to siphon money into a personal offshore account. Cube hired UTICo, a Massachusetts corporation that offers international asset recovery services, to investigate lost assets. UTICo discovered Lazarenko’s fraud and reported it to the Ukrainian Prosecutor General’s Office (UGPO). (Universal Trading at 3–5.)

On May 15, 1998, UTICo and UGPO entered an agreement in which UTICo would help them investigate and freeze or block assets around the world that had been expatriated from Ukraine in exchange for a commission on repatriated assets returned to Ukraine. UGPO executed additional agreements granting UTICo powers of attorney to pursue asset investigations internationally. The agreements did not contemplate investigation in Switzerland, but UTICo recovered evidence from Switzerland during the investigation. Before the May 1998 agreement between Ukraine and UTICo, the Swiss and Ukrainian governments were in communication about Lazarenko and Kiritchenko’s money laundering scheme. The Swiss government launched its own investigation into money laundering or financial crimes that may have occurred in Geneva. This investigation resulted in court judgments that led to the return of funds to Ukraine in three tranches. The first tranche, with 10.6 million Swiss francs (about US$12.2 million), was transferred to the Ukrainian treasury in March 2001. The second tranche, with $4,058,000, was transferred to the Ukrainian treasury in March 2009. The third tranche, with $1,744,989, was transferred to the Ukrainian treasury in April 2002. Another $270 million of assets connected to the money laundering scheme were blocked but had not been returned to Ukraine. (Universal Trading at 6–17.)

In 2010, UTICo sued Ukraine, UPGO, and the Bureau for Representing Ukrainian Interests in International and Foreign Courts (the Ukrainian defendants), claiming that they breached the May 1998 agreement and owed UTICo a commission for its help in blocking and freezing assets around the world. Litigation over the contractual dispute was ongoing until UTICo brought this appeal before the First Circuit in 2023. (Universal Trading at 17–21.)

Dismissal of Claims Relating to Nonrepatriated Assets on the Basis of Ripeness

UTICo appealed the District Court’s dismissal of its breach of contract claim, arguing that the District Court improperly denied UTICo the opportunity to conduct discovery on $260 million in nonrepatriated assets that were unconnected to the Swiss court judgments. The Circuit Court affirmed the dismissal on the grounds that the District Court had made it clear that it was not deciding on the merits of the claims as to those assets because the issue was not ripe until the money was repatriated. (Universal Trading at 22–23.) UTICo would still be able to bring a new lawsuit on those assets if they were later repatriated. (Universal Trading at 24.)

Dismissal of Claims Connected to Recovery of Tranches on Basis of Statute of Limitations

UTICo appealed the District Court’s determination that the statute of limitations barred claims concerning tranches one and three of the repatriated funds. The parties agreed that the statute of limitations began to accrue when the assets were transferred into the Ukrainian treasury. (Universal Trading at 26–27.) Because UTICo commenced the action on November 26, 2010, the Circuit Court determined that the six-year statute of limitation barred any cause of action that accrued before November 26, 2004. (Universal Trading at 27.) Therefore, causes of action related to tranches one and three were time-barred because they were transferred to the Ukrainian treasury in March 2001 and April 2002. (Universal Trading at 27.) Tolling of the statute of limitations was not appropriate “because the return of funds to Ukraine was not inherently unknowable, the Ukrainian defendants did not have an affirmative duty to disclose to UTICo the return of funds to the Ukrainian treasury, and the Ukrainian defendants did not intentionally deceive or conceal the fact that tranches one and three had been returned.” (Universal Trading at 27–28.)

Granting of Summary Judgment on the Merits of the Breach of Contract Claim

UTICo appealed the District Court’s decision to grant summary judgment on the merits of its breach of contract claim related to tranche two. The District Court had granted the Ukrainian defendants’ motion for summary judgment because UTICo failed to show that a reasonable juror could infer that UTICo’s work under the powers of attorney executed by UGPO was helpful to recover the assets in tranche two. (Universal Trading at 33.) The Circuit Court affirmed that the record showed that the Swiss authorities recovered the tranche two assets without meaningful help from UTICo and UTICo did not demonstrate that its investigation and the documents it produced were critical to the Swiss authorities’ prosecution of Kiritchenko. Therefore, the Ukrainian defendants were entitled to summary judgment on the portion of UTICo’s breach of contract claim related to the Swiss assets that were transferred to the Ukrainian treasury. (Universal Trading at 34–35, 41.)

The Appeals Court’s Denial of Motions to Amend

UTICo also sought to appeal the District Court’s denials of its motions to amend its complaints. Over the course of the litigation, UTICo filed three motions to amend, and each was denied by the District Court. The court noted that under Federal Rule of Civil Procedure 15(a), leave to amend should be “freely give[n] when justice so requires.” (Universal Trading at 41.) However, “a district court may deny leave to amend when the request is characterized by undue delay, bad faith, futility, [or] the absence of due diligence on the movant’s part.” (Universal Trading at 42 (citing Nikitine v. Wilmington Tr. Co., 715 F.3d 388, 390 (1st Cir. 2013)).) Finding no abuse of discretion in the District Court’s findings that the motions to amend were untimely or unduly delayed, not well-founded, unrelated to the remaining claims, or futile, the Circuit Court upheld the denials of these three motions.

Sarah Friedman, Law Library of Congress
January 2, 2024

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Chicago citation style:

Friedman, Sarah. United States: Circuit Court Affirms District Court's Decision in Contract Dispute over Ukrainian Stolen Assets. 2024. Web Page. https://www.loc.gov/item/global-legal-monitor/2024-01-01/united-states-circuit-court-affirms-district-courts-decision-in-contract-dispute-over-ukrainian-stolen-assets/.

APA citation style:

Friedman, S. (2024) United States: Circuit Court Affirms District Court's Decision in Contract Dispute over Ukrainian Stolen Assets. [Web Page] Retrieved from the Library of Congress, https://www.loc.gov/item/global-legal-monitor/2024-01-01/united-states-circuit-court-affirms-district-courts-decision-in-contract-dispute-over-ukrainian-stolen-assets/.

MLA citation style:

Friedman, Sarah. United States: Circuit Court Affirms District Court's Decision in Contract Dispute over Ukrainian Stolen Assets. 2024. Web Page. Retrieved from the Library of Congress, <www.loc.gov/item/global-legal-monitor/2024-01-01/united-states-circuit-court-affirms-district-courts-decision-in-contract-dispute-over-ukrainian-stolen-assets/>.