By Louis M. Solomon
Investment Bank AG, et al. v. Holme Roberts & Owen, LLP, et al., Case No. 01-CV-1677 (Denver Colo. District Court June
2011), is an example of international litigation in a U.S. court making its way
through trial and decision. The decision should be read in conjunction
with the discussion we just had in the context of the Second Circuit's reversal of the District Court's decision in Chevron,
which preliminarily found the Ecuadorian legal system so arguably corrupt as to
justify an injunction against enforcement of an Ecuadorian judgment. We anticipated
negative judicial reaction to that finding by courts in the U.S., which
has come in the form of a question from the Third Circuit as well as, now, a
reversal (with opinion to follow) from the Second Circuit.
Creditanstalt (the plaintiff is CAIB) involved claims of breach of
contract by an investment bank operating in Russian in the 1990s. CAIB
engaged the defendants here as legal counsel "for due diligence and proposed
acquisition of the Moscow based securities house" "Active". Other
work was apparently also done by HRO, and the issue in the case was the liability
of HRO with respect to whether warnings were properly given by HRO to CAIB in
connection with a transaction with Gazprom, a large oil and gas company
originally owned by the Soviet Union with "a very close cooperation between
Gazprom and the Kremlin". The claims tried related to alleged bad or
incomplete advice by the law firm, HRO, which allegedly damaged CAIB when
various significant problems arose relating to Gazprom.
Noteworthy aspects of the trial
court's decision include:
First, the trial court applied
Russian law, relying on experts on non-U.S. who apparently came and
Second, in describing the
Russian legal system, the court stated:
Russia was an emerging market and
its legal system was imperfect, ambiguous, and constantly in flux.
Plaintiffs' expert on Russian law, Professor Alexander Makovsky, agreed that,
in Russia, the rules were made as they went along. . . . Certain practices
that would be illegal or unethical in other countries 'flourish and
are considered appropriate business practice' in Russia' . . . Corruption was
widespread in Russia at the time and was well-known in the business community"
In a remarkable finding, the Court
relied on a provision in a contract "contemplating the need to pay bribes to
the extent they were required in the 'ordinary course of business and/or
customary practice in Russia'". The Court concluded that
"Plaintiffs were aware that operating in Russia involved many risks, including
arbitrary and corrupt actions by the Russian government".
The Court did not discuss whether
knowledge of such risks should or should not have been an appropriate
phenomenon on which to base the Court's rulings. That is, on
whom should the risk of loss be placed in an instance where a client
relies on the rule of law in a non-U.S. jurisdiction, or whether a U.S.
court can, by taking evidence, conclude that a non-U.S. jurisdiction's laws are
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