WILLIAM H. PAULEY III, United States District Judge:
The United States of America (the "Government") moves to enforce the terms of a Stipulation and Order memorializing a settlement between Prevezon Holdings, Ltd.,
Separately, based on events following execution of the Settlement Agreement, Prevezon seeks discovery into whether the Government interfered with the release of the Dutch asset in question. For the reasons that follow, the Government's motion to enforce the Settlement is granted, and Prevezon's motion for discovery is denied.
On May 12, 2017, the parties entered into the Settlement Agreement to resolve the claims in this action. On May 15, 2017, this Court so-ordered the Settlement Agreement (ECF No. 716), bringing to a close a multi-year saga that arose from an elaborate tax scheme designed to bilk the Russian treasury of approximately $230 million in tax refunds (the "Russian Treasury Fraud"). According to the complaint, members of a Russian criminal syndicate utilized an intricate web of entities to funnel proceeds of the Russian Treasury Fraud to various accounts around the world. A portion of those funds — approximately $1.96 million — was transferred to Prevezon. (Second Amended Complaint, ECF No. 381 ("Compl."), ¶¶ 75-128.) Prevezon invested that money in European real estate, and then allegedly laundered the returns on that investment to purchase a portfolio of Manhattan real estate. (Compl. ¶¶ 105-110, 129-142.)
The Government commenced this action in September 2013. Shortly thereafter, Judge Griesa entered a protective order restraining several of Prevezon's assets in the United States valued in the tens of millions of dollars. (ECF No. 2.) In January 2014, the Government moved to freeze an additional asset, a debt of approximately 3 million euros owed to Prevezon by AFI Europe N.V. (the "AFI Europe Debt"). To effect that freeze, the Government
Under the Settlement Agreement, the Government agreed to "inform the Government of the Netherlands that this matter has been resolved and that the Government withdraws any request for the Government of the Netherlands to continue to restrain the AFI Europe Debt, and shall request that the Government of the Netherlands lift the restraint of the AFI Europe Debt that had been implemented at the request of the United States." (Settlement Agreement ¶ 3.) Further, the Settlement Agreement provides that the "Amended Protective Order shall be deemed modified to allow the release of the AFI Europe Debt." (Settlement Agreement ¶ 3.)
Concomitantly, Prevezon agreed to pay approximately $5.9 million "within 15 business days of the release by the Government of the Netherlands of the AFI Europe Debt." (Settlement Agreement ¶ 3.) The Settlement Agreement further contemplates that after the Government receives Prevezon's payment, the Amended Protective Order "shall be vacated as to all Restrained Properties, the Court shall order the Restrained Properties returned to the Claimants, and the Action shall be dismissed against all Defendants with prejudice." (Settlement Agreement ¶ 11.)
On May 16, 2017 — a day after this Court so-ordered the Settlement Agreement — Hermitage Capital Management Ltd. ("Hermitage") and its founder, William Browder,
On June 1, 2017, the Government informed the Netherlands that this action had been resolved, and that the Government withdrew its request for the Netherlands to restrain the AFI Europe Debt. It further requested the Netherlands to lift the US Restraint from the AFI Europe
On June 14, 2017, with the Government's request still pending, Dutch law enforcement officials sought a meeting with the Government regarding Hermitage's complaint in the Netherlands. The Government acceded to that request and met with Dutch officials on July 19 and 20, 2017. Over the course of those two days, at the Netherlands' request, the Government provided non-confidential information relating to the facts undergirding this action. The Government maintains that it did not disclose any confidential information. Separately, the Government reiterated its request for the Netherlands to lift the US Restraint from the AFI Europe Debt. (Monteleoni Decl. ¶ 9.)
A few months passed with no word from the Netherlands about the fate of the AFI Europe Debt. On October 9, 2017, the Government followed up with the Netherlands on its request. A Dutch official informed the Government that the Netherlands intended "to attempt to release the AFI Europe Debt from the restraint imposed in this case [i.e., the US Restraint] the next day (i.e., October 10, 2017) and simultaneously seize it in connection with its own investigation." (Monteleoni Decl. ¶ 10.) On October 10, 2017, the Netherlands confirmed that it successfully lifted the US Restraint from the AFI Europe Debt and simultaneously seized it in connection with its own investigation. (Monteleoni Decl. ¶ 11.) Thus, the AFI Europe Debt remains frozen, but is now seized pursuant to the Netherlands' restraint.
Based on the Netherlands' release of the US Restraint, the Government took the position that it had satisfied its obligations under the Settlement Agreement as of October 10, 2017. The Government argues that Prevezon should have paid the $5.9 million settlement by October 31, 2017. On October 27, 2017, Prevezon asked the Government for an extension of the payment deadline, explaining that it did not believe it was yet obligated to pay. The Government declined the request. After Prevezon failed to pay, the Government brought this motion to enforce the Settlement Agreement.
"A district court has the power to enforce summarily, on motion, a settlement agreement reached in a case that was pending before it."
The Settlement Agreement does not specify which law should govern its interpretation. Although the Second Circuit has not definitively ruled on whether state-law principles apply to a federal court's interpretation of federal settlement agreements, a number of district court cases examining this question have concluded that such disputes are quintessentially of contractual interpretation and wholly governed by state law.
This is a challenging civil case. The events giving rise to the litigation span the globe and read like a John le Carré novel. Its procedural history has been complicated, including discovery abroad, the disqualification of counsel on the eve of trial, the assignment of another judge to try the case, and an ensuing cavalcade of motions leading up to the brink of a jury trial. But the Government's latest motion presents a simple, straightforward issue of contract interpretation: does the Netherlands' release of the US Restraint require Prevezon to pay even though the Netherlands' own restraint continues to encumber the AFI Europe Debt? More specifically, does the phrase "release by the Government of the Netherlands of the AFI Europe Debt" in Paragraph 4 of the Settlement Agreement mean that the AFI Europe Debt must be free of
"When interpreting a contract [under New York law], the intention of the parties should control, and the best evidence of intent is the contract itself."
A contract is unambiguous if its "language has a definite and precise meaning... concerning which there is no reasonable basis for a difference of opinion."
While the parties contend that the Settlement Agreement is unambiguous, the "fact that both parties agree that [the operative contract is] unambiguous does
Prevezon offers a competing interpretation that extends the meaning of "release" to cover the liberation of the AFI Europe Debt from any and all restraints. (
This Court's interpretation of the Settlement Agreement begins with its text.
Despite that, Prevezon broadly construes the term "release" in the following paragraph, claiming that the "AFI Europe Debt is not, and has never been, `released' as the Netherlands imposed a new restraint on that asset simultaneously with lifting the restraint it had imposed at the request of the Government." (Opp. at 9.) The term "release" in Paragraph 4 signifies the commencement of the 15-day period in which Prevezon must make its $5.9 million payment: "Payment shall be due within 15 business days
Prevezon's interpretation neglects to read the disputed term in context.
The structure of the Settlement Agreement provides clarity. The term "release" is not unique to Paragraph 4. The term appears multiple times throughout the Settlement Agreement in reference to the various properties restrained in this action. (
Relevant here, the term "release" appears twice in reference to the AFI Europe Debt. First, it is used in Paragraph 3 to signify the removal of the AFI Europe Debt from the Amended Protective Order once the Government has asked the Netherlands to lift the US Restraint: the "Amended Protective Order shall be deemed modified to allow the release of the AFI Europe Debt." (Settlement Agreement ¶ 3.) The Settlement Agreement then logically lays out the parameters of Prevezon's obligation in the following paragraph. Building off the "release of the AFI Europe Debt" in Paragraph 3, the Settlement Agreement in Paragraph 4 contemplates that Prevezon's $5.9 million payment must be made within 15 days of the "release by the Government of the Netherlands of the AFI Europe Debt." (Settlement Agreement ¶ 4.) It would make little sense for the parties to have ascribed a broader meaning to the "release" that triggers Prevezon's duty to pay when the preceding paragraph specifically focuses on the release of the US Restraint. Absent any language suggesting that the "release" in Paragraph 4 was intended to cover all restraints on the AFI Europe Debt, the term's application must be limited to the US Restraint.
Even though both Paragraphs 3 and 4 reference the same asset, construing the scope of the "release" in Paragraph 3 as narrower than the "release" in Paragraph 4 would run against the well-established rule that "[c]ontract provisions should not be read in isolation; rather, the entire contract must be considered, and all parts of it reconciled."
Adopting Prevezon's view could result in bizarre consequences, namely delaying Prevezon's payment in perpetuity based on some unspecified release that has yet to occur. The Government seeks a $5.9 million payment, and Prevezon wants the AFI Europe Debt. Both objects would remain out of reach indefinitely. Even worse, an unresolved civil forfeiture action would linger, with neither party able to do anything about it absent an agreement to rip up the Settlement Agreement and go to trial.
Moreover, under Prevezon's view, the Government would be obligated to persuade Dutch authorities to dissolve the restraint imposed in connection with their investigation. But the Government lacks the authority to question the Netherlands' law enforcement priorities or decisions, or dictate what the Netherlands chooses to do with an asset located inside its borders.
Finally, other provisions in the Settlement Agreement support the view that the "release" in Paragraph 4 refers only to the removal of the US Restraint. Paragraph 11, which governs every other restrained property except the AFI Europe Debt, provides that following receipt of the $5.9 million payment, "the Amended Protective Order shall be vacated as to all the Restrained Properties, [and] the Court shall order the Restrained Properties returned to the Claimants." (Settlement Agreement ¶ 11.) This provision contrasts the Government's obligations with respect to the AFI Europe Debt vis-à-vis the other restrained properties. While the Government must return the latter group of assets to claimants, it is only required to request the release of the US Restraint on the AFI Europe Debt. By agreeing to return the restrained properties in Paragraph 11, the Government must ensure that the properties remain free of any third party restraints until they are transferred back to claimants. The same cannot be said for the AFI Europe Debt because it is located abroad within the Netherlands' jurisdiction. The Settlement Agreement sensibly accounts for this difference, limiting the
Accordingly, this Court concludes that the term "release" in Paragraphs 3 and 4 of the Settlement Agreement is unambiguous and refers specifically to the release of the US Restraint.
Prevezon urges this Court to consider the business purpose and economic realities underlying the Settlement Agreement. According to Prevezon, both parties were cognizant of the risk that the Netherlands may not release the AFI Europe Debt even if Prevezon made its $5.9 million payment. If that risk materialized, Prevezon claims that it would in effect pay $5.9 million plus the €3 million value of the AFI Europe Debt, resulting in a near $9 million payment to resolve this case. (Mot. at 15.) Thus, Prevezon argues, the Settlement Agreement was designed to mitigate this risk by "specifying that the AFI Europe Debt must be released to Prevezon" before it is required to pay $5.9 million. (Mot. at 15.)
This is a curious argument to make in view of an even greater risk that Prevezon would have faced absent settlement — a five week jury trial with the threat of losing nearly $14 million in forfeited property. Prevezon argues that avoiding the loss of the AFI Europe Debt was the principal reason behind its decision to enter into the Settlement Agreement, but that one-sided view ignores the "business purposes sought to be achieved
Prevezon requests an opportunity to conduct "discovery into a potential counterclaim for breach of the covenant of good faith and fair dealing" on the basis that the Government "acted to frustrate Prevezon's legitimate expectations regarding the Settlement." (Mot. at 21.) Specifically, Prevezon believes that the Government "actively
"[G]overnment officials are presumed to act in good faith."
Prevezon alleges generally that the Government met with Dutch investigators for two days to discuss the Netherlands' investigation, fully aware that the Netherlands was considering its own seizure of the AFI Europe Debt. The inequity in all of this, according to Prevezon, is that the Government failed to inform Prevezon of either the Government's direct cooperation with Dutch authorities or the Netherlands' intention to re-seize the AFI Europe Debt. Prevezon believed the Settlement Agreement was designed to "release
But these allegations fall short of the proof that a party must offer to assert a violation of the covenant of good faith and fair dealing, let alone obtain discovery on such a claim. The Government's assistance in providing non-confidential information to Dutch authorities about a case that has been well-publicized for several years is not an act of bad faith. This Court doubts that Prevezon was oblivious to the possibility that Browder had contacted other law enforcement agencies about the subject matter of this action, or that such agencies were conducting their own investigations based merely on the attention this case received. Thus, Prevezon knew, or should have known, that any of its assets, including the AFI Europe Debt, could be confiscated by other parties under any number of scenarios.
Moreover, that the Government voluntarily provided some assistance to the Netherlands' request is unsurprising. The Department of Justice and its foreign counterparts regularly cooperate in international law enforcement matters.
None of the circumstances here suggest any unusual conduct or animus by the
Accordingly, Prevezon's request for discovery on its potential claim for breach of the covenant of good faith and fair dealing is denied.
The Government seeks pre-judgment interest on Prevezon's payment dating back to October 31, 2017, the date on which Prevezon was first obligated to pay $5.9 million. "The question of an award of interest before judgment is governed by New York law."
New York law provides that "[i]nterest shall be recovered upon a sum awarded because of a breach of performance of a contract," N.Y. C.P.L.R. § 5001(a), and such interest is computed "from the earliest date the cause of action existed," N.Y. C.P.L.R. § 5001(b), at a rate of 9% per annum. N.Y. C.P.L.R. § 5004. Because Prevezon failed to make its payment, at the latest, by the fifteenth day following the Netherlands' release of the US Restraint, pre-judgment interest shall be computed from October 31, 2017 to the date judgment is entered.
For the foregoing reasons, the Government's motion to enforce the Settlement Agreement is granted. Separately, Prevezon's application for discovery is denied. The Clerk of Court is directed to enter judgment in favor of the Government, and calculate pre-judgment interest at a rate of 9% per annum. The Clerk of Court is further directed to terminate the motion pending at ECF No. 743.