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Statute of Frauds is Not a Bar to Russian Oligarch’s Claims Against Fellow Russian Billionaire Investors Over Breach of Joint Venture Agreement

Posted in Arbitration, Breach of Contract, Breach of Fiduciary Duty, Fraud, Motion to Dismiss, New York, Preliminary Injunction, Scarpulla, Saliann, Statute of Limitations

In a December 2, 2015 Commercial Division decision by Justice Scarpulla, the court consolidated and decided the defendants’ motion to dismiss the amended complaint and the plaintiff’s motion seeking a preliminary injunction to restrain the defendants from pursuing arbitration in London and from commencing any other foreign proceeding.

The action arose out of the investment activities of three Russian oligarchs, the plaintiff, Leonid Lebedev (“Lebedev”) and the defendants, Viktor Vekselberg (“Vekselberg”) and Leonard Blavatnik (“Blavatnik”). In 1997, Vekselberg and Blavatnik owned approximately 40% of the shares of a privatized Russian oil and gas company (“TNK”). They approached Lebedev, who owned equity in TNK and in a key production company, seeking his assistance in gaining a controlling interest in TNK by means of a joint venture. Lebedev claims that in exchange for a 33.33% interest in the joint venture, he transferred $25 million dollars and his equity holdings in TNK and the production company (a contribution allegedly valued at $133 million dollars) to the defendants.

According to Lebedev, the defendants failed to fulfill their obligations under the joint venture agreement, and so they re-negotiated a new joint venture agreement in 2001, which included certain key terms including that Lebedev would have a 15% share of the joint venture, but was ultimately only signed by Lebedev and Vekselberg, not Blavatnik. In 2003, the defendants entered into a separate 50/50 joint venture between TNK and British Petroleum Plc (“BP”), in which they allegedly concealed Lebedev’s ownership interest in TNK from BP due to negative publicity concerning Lebedev at the time and the belief that such negative press would lead BP to abandon the deal. The TNK-BP partnership was very successful, and was sold in 2013 for $55 billion in cash and other consideration. After the sale, Lebedev commenced this action, asserting causes of action for breach of contract, breach of the joint venture agreement, breach of fiduciary duty, and fraud, to recover his purported share of the sale proceeds, which he claims to be 3.75% of TNK-BP, or approximately $2 billion dollars.

The defendants first argued in their motion to dismiss that Lebedev’s breach of contract and breach of fiduciary duty claims are barred by the Statute of Frauds, as the joint venture agreement and the alleged oral agreement by Blavatnik could not be performed within one year because they provided that payments would be made to Lebedev for an indefinite period of time. The court held that the Statute of Frauds does not bar Lebedev’s claims based on the agreements, because “it is entirely possible that the contract could be fully performed and terminated within one year.” Further, the Statute of Frauds does not bar the claims arising from the joint venture agreement claim because “absent any definite term of duration, an oral agreement to form a partnership or joint venture for an indefinite period creates a partnership or joint venture at will,” and therefore the Statute of Frauds does not apply (internal citation omitted).

Next, the court addressed the portion of the defendants’ motion arguing that the claims should be dismissed based on the statute of limitations. The court held that the breach of the joint venture agreement claims were subject to a six year statute of limitations, which began to run on the date of the alleged breach, the sale of TNK-BP in 2013, and thus was timely. However, the causes of action based on fraud were not timely, since they also were subject to a six year statute of limitations, and started accruing when Lebedev could have discovered the defendants’ fraud with reasonable diligence. Here, Lebedev learned that his share of the joint venture was concealed from BP in 2003. Such concealment by the defendants put Lebedev on notice that his interest in the joint venture may not be honored, triggering the running of the statute of limitations.

Finally, the court addressed Lebedev’s motion for a preliminary injunction to restrain the defendants from pursuing an arbitration that they commenced in London. The court stated that a preliminary injunction restraining another suit may be issued where the other suit was not brought in good faith. Lebedev argued that the defendants brought the arbitration in bad faith, since it raises issues identical to those in this action. The court held that since the arbitration was technically between different parties than the instant action (although concededly the companies involved in the arbitration were acting for Blavatnik and Vekselberg on the one hand, and Lebedev on the other), the issues were not identical and therefore there was no evidence that the arbitration was brought in bad faith. As such, Lebedev’s motion was denied.

Lebedev v Blavatnik, Sup Ct, NY County, December 2, 2015, Scarpulla, J., Index No. 650369/2014