Judge: Kevin C. Brazile, Case: 22STCV05116, Date: 2022-09-28 Tentative Ruling

Hearing Date: September 28, 2022

Case Name: SK Rosgosstrakh Pao v. Khachaturov, et al.

Case No.: 20STCV33765

Matter: (1) Motion to Stay

(2) Motion for Approval of Letters of Request 

Moving Party: (1) Defendant Danil Khachaturov

(2) Plaintiff SK Rosgosstrakh Pao

Responding Party: (1) Plaintiff SK Rosgosstrakh Pao

(2) Defendant Danil Khachaturov

Notice: OK

Ruling: The Motion to Stay is denied without prejudice.

The Motion for Approval of Letters is denied without prejudice.

RGS to give notice.

If counsel do not submit on the tentative, they are strongly 

encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic. 

This is an action in which Plaintiff SK Rosgosstrakh Pao (“RGS”), a Russian insurance company, alleges that Defendant Danil Khachaturov, its former president, embezzled RGS’s funds through a fraudulent reinsurance scheme.  

1. Motion to Stay 

Defendant Danil Khachaturov seeks to stay this action in light of the Ukraine-Russia war and U.S. sanctions imposed on RGS as a Russian entity.  Defendant contends these issues make discovery very difficult or impossible. 

“[A] court ordinarily has inherent power, in its discretion, to stay proceedings when such a stay will accommodate the ends of justice.”  (People v. Bell (1984) 159 Cal.App.3d 323, 329.)  “[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.”  (Landis v. North American Co. (1936) 299 U.S. 248, 254.)  “In exercising its discretion the court should consider the importance of discouraging multiple litigation designed solely to harass an adverse party, and of avoiding unseemly conflicts with the courts of other jurisdictions. It should also consider whether the rights of the parties can best be determined by the court of the other jurisdiction because of the nature of the subject matter, the availability of witnesses, or the stage to which the proceedings in the other court have already advanced.”  (Farmland Irr. Co. v. Dopplmaier (1957) 48 Cal.2d 208, 215.)

The Court is not convinced that a stay pending the resolution of the war in Ukraine makes sense.  It is notable that, per 31 CFR § 589.506, lawsuits initiated by sanctioned entities, like Plaintiff, are permitted.  Likewise, the parties are able to obtain U.S. services related to their litigation, like the retention of experts and investigators.  

Defendant first argues that fact witnesses are located in Russia and it is impossible to depose these witnesses because it is dangerous to fly to Russia and Russians cannot fly into the U.S.  Depositions, however, can be done virtually.  

Defendant argues that virtual depositions are not an option because witnesses will not testify freely due threat of reprisal by Putin.  However, the threat of retaliation by Putin would seem to exist even if there were not a war.

Defendant next argues depositions are still problematic because Russia is not a member of the Hague Convention.  But, this too is irrelevant to the Ukraine war and Russian sanctions.

Defendant further argues that it needs experts relating to “Russia’s statute of limitations, corporate-law issues (including the sole beneficial shareholder doctrine), reinsurance practices in Russia, and damages” and that these experts are located in Russia.  Defendant contends that, given U.S. sanctions, it cannot pay experts in Russia.  On this point, however, Defendant has not shown that he cannot find suitable experts in the U.S.  

Defendant next contends, “RGS’s claim of $400 million in transfers spanning nearly six years (FAC, ¶ 33) means that if these transfers actually took place, a forensic accounting analysis may be needed to trace and understand the fund flows. But an OFAC determination prohibits U.S. persons and firms from providing ‘accounting … services to any person located in the Russian Federation.’ ”  This lacks merit as accounting services would be prohibited, “except to the extent provided by law”, (https://home.treasury.gov/system/files/126/determination_ 05082022_eo14071.pdf), which would include, as far as the Court understands, the existence of discovery procedures in this lawsuit.  

Defendant also argues that a “critical feature of Russia’s countermeasures against the U.S. . . . is a May 1, 2022 law barring Russian banks from providing information about clients and their transactions to foreign authorities, including judicial authorities; this new law entitles the banks to inform any requesting authority of ‘the prohibition against providing [such evidence]’ under Russian law.”

However, there is apparently an exception to obtain documents through “permission from the Bank of Russia.”  (Scolnick Decl. ¶ 19.)  If Plaintiff, a Russian entity, wants to maintain this lawsuit, then it should authorize the bank at issue to provide documents.  If this cannot be done, then the issue can be examined through an IDC or an appropriate sanctions motion, rather than through a broad stay.  

Defendant also argues that “the parties are bound to encounter significant roadblocks at each step of this litigation— from accessing documents to interviewing and deposing witnesses—and they will require the Court’s assistance in resolving the many difficult, legally murky issues that are certain to arise along the way.”  The Court may set an OSC re: appointment of discovery referee, as Plaintiff is an insurance company and Defendant is apparently worth $2 billion.  (https://www.forbes.com/profile/danil-khachaturov/ ?sh=ce0db8d3c95b.)

Finally, Defendant contends this case should be stayed because Plaintiff will never be able to obtain a license from OFAC to obtain settlement funds or enforce a judgment.  But, this is somewhat of a separate issue from whether Plaintiff should currently be able to pursue the merits of this case. 

In sum, the Motion to Stay is denied without prejudice.  

2. Motion for Approval of Letters of Request

RGS seeks for the Court to approve letters of request to Swiss authorities pursuant to the Hague Convention for the production of documents from VP Bank (Switzerland) LTD and Credit Suisse (Switzerland) AG.  These documents are bank records for Stalis, SA and Hansa Reinsurance Brokers AG, which are apparently dissolved entities.  RGS specifically seeks all account records from January 1, 2011, until December 31, 2017, and all documents relating to who opened and closed such accounts.  RGS contends that Defendant transferred millions of dollars from RGS to Stalis and Hansa.  

Defendant opposes the Motion, arguing that RGS is seeking to avoid international sanctions to access financial information it otherwise would not be able to obtain for unknown purposes; RGS should have its own bank documents demonstrating fraudulent transfers; the letters may create international friction as the Swiss value privacy for their bank accounts; given existing sanctions, it is unlikely RGS can pay the Swiss for its document production; and RGS improperly demands “ ‘an explanation of reasons why [VP Bank and Credit Suisse] are unable to respond completely and a statement of whatever documents, knowledge, information or belief [they] possess’ [ ], ignoring that Swiss authorities reject ‘Letters of Requests for the purposes of obtaining pre-trial discovery’ that require ‘indicat[ing] what documents relating to the case are or were in [the target’s] possession or … disposal.’ ”

“The Hague Evidence Convention provides for gathering evidence in one contracting state for use in another (i) by letters of request (or letters rogatory), addressed by the court of the requesting state to a Central Authority designated by the requested state, seeking assistance in obtaining evidence through compulsory process, Subsection (2)(a); and (ii) by commissions issued by the court to consular officers of the requesting state, or to specially appointed persons, directing them to take evidence in a foreign state, generally without compulsory process, Subsection (2)(b). Execution of letters of request from courts of another contracting state is required under the Convention, Chapter I. However, since taking evidence is a function regarded by many states as an official act of the foreign state, the Convention provides that contracting states may refuse to permit execution of commissions in their territory, or may give permission subject to conditions, Chapter II. Contracting states may opt out of Chapter II in its entirety, or with respect to one or more of its articles.”  (Restatement (Third) of Foreign Relations Law § 473 (1987).)

Before the Court requests international assistance for a sanctioned entity, the Court would like some evidence that Stalis, SA and Hansa Reinsurance Brokers AG have any relevance to this lawsuit.  Counsel for Plaintiff submits a declaration indicating that investigation and discovery have led Plaintiff to believe Stalis and Hansa are involved, but nothing specifically is provided for the Court.

The Court also notes that the request that “Incomplete responses must be accompanied by an explanation of reasons why YOU are unable to respond completely and a statement of whatever documents, knowledge, information or belief YOU possess with respect to each request” seems improper because, as Defendant points out, Swiss authorities reject when “a person is required to indicate what documents relating to the case are or were in his/her possession or keeping or at his/her disposal”.  (https://www.hcch.net/en/instruments/ conventions/status-table/notifications/?csid=561&disp=resdn.)  The letters are also not provided with appropriate translations.  (Ibid.)

The Motion is denied without prejudice.

RGS to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic.