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denying intervention where intervenor's involvement would "substantially delay a litigation that already bears a protracted history"
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00 Civ. 0632 (WHP).
July 20, 2005
Richard K. Bernstein, Esq., Richard K. Bernstein Associates, P.C., New York, NY, Counsel for Plaintiff.
Howard S. Zelbo, Esq., Cleary Gottlieb Steen Hamilton LLP, New York, NY, Counsel for Defendant.
Dennis H. Hranitzky, Esq., Debevoise Plimpton LLP, New York, NY, Counsel for Montreux Partners, L.P.
MEMORANDUM AND ORDER
This action represents one of several efforts worldwide by Compagnie Noga d'Importation et d'Exportation S.A. ("Noga"), asociété anonyme organized under the laws of Switzerland, to recoup the unpaid balances on loans it made to the Russian Government. In this action, Noga seeks to confirm and enforce a Swedish arbitration award with an approximate present value of $67 million against the Russian Federation. Montreux Partners, L.P. ("Montreux"), a New York limited partnership, now moves to intervene pursuant to Rule 24 of the Federal Rules of Civil Procedure. If permitted to do so, Montreux seeks a preliminary injunction in aid of its arbitration proceeding against Noga in France. For the reasons set forth below, Montreux's motion to intervene is denied and its motion for injunctive relief is mooted.
BACKGROUND
As set forth more fully in this Court's prior Memorandum and Order, see Compagnie Noga d'Importation et d'Exportation S.A. v. The Russian Federation, No. 00 Civ. 0632 (WHP), 2002 WL 31106345 (S.D.N.Y. Sept. 19, 2002), this action originates in two loan agreements through which Noga lent approximately $1.4 billion to the Russian Federation (the "Russian Debt") in 1991 and 1992. Citing the Russian Federation's failure to meet its obligations, Noga declared a default in December 1992 and commenced an arbitration in June 1993 before the Arbitration Institute of the Chamber of Commerce of Stockholm, Sweden.
Because the Second Circuit held that "the Russian Federation and the [Russian] Government are not separate `parties'" for purposes of this case, Compagnie Noga d'Importation et d'Exportation S.A. v. The Russian Federation, 361 F.3d 676, 690 (2d Cir. 2004), this Court treats them as the same entity and refers to them interchangeably as "the Russian Federation."
In 1993 and 1994, Noga assigned portions of its claims to the Russian Debt to the three primary banks responsible for financing its earlier loans to the Russian Federation (the "Assignee Banks"). Struggling to fend off its creditors' competing claims, Noga sought protection from a court in Geneva, Switzerland in June 1997. In December 1998, that court approved a debt reorganization agreement (the "Concordat") between Noga and its creditors, which discharged all of Noga's pre-June 1997 debts except for claims by certain preferred creditors, including the Assignee Banks. (Affidavit of Eugene F. Mooney, dated July 11, 2001 ("Mooney Aff.") Ex. 8 § 4.) For these creditors, the Concordat established an order of priority whereby "creditors holding an assignment of the Russian receivable" would be paid ahead of all other creditors once arbitration costs were deducted from any proceeds. (Mooney Aff. Ex. 8 § 4.)
Through an initial award in February 1997 that was supplemented in May 1997 (collectively, the "Arbitration Award"), the Stockholm arbitrators awarded Noga $27,294,000. The parties agree that, including interest, the Arbitration Award has a present value of approximately $67 million. (Russian Federation's Memorandum in Opposition to Motion to Intervene and for Preliminary Injunction, dated Feb. 4, 2005 at 1.) The District Court of Stockholm and the Svea Court of Appeals affirmed the arbitrators' supplemental award.
Noga commenced this action on January 28, 2000 to confirm the Arbitration Award, domesticate the Swedish courts' judgments and enforce each against the Russian Federation. By Memorandum and Order dated September 19, 2002, this Court granted Noga's motion to domesticate the Swedish judgments and granted the Russian Federation's request to apply a set-off to those judgments. 2002 WL 31106345, at *9-11. However, this Court declined to enforce the Arbitration Award against the Russian Federation, holding that the Russian Government — and not the Russian Federation — was the proper party. 2002 WL 31106345, at *8. As such, this Court did not directly confront the Russian Federation's argument that Noga could not bring an action to enforce the Arbitration Award without the Assignee Banks' participation. However, the Court noted that "the language of the Concordat, together with the claim assignments themselves suggests that the Assignee Banks are real parties in interest to this action and that the Russian Federation could be subject to multiple litigations and judgments. It also appears that the Assignee Banks' absence from this action may compromise their ability to protect their interests in the Arbitration Award." 2002 WL 31106345, at *8 n. 6 (citations omitted).
Noga appealed, and the Court of Appeals vacated one aspect of this Court's Memorandum and Order, finding that the Russian Federation is an appropriate defendant in this action. Noga, 361 F.3d at 690. The Court of Appeals remanded the action "for further development of the record" with the instruction that this Court consider "(i) whether Noga's assignments of its arbitration proceeds to certain of its creditors deprived it of standing to seek confirmation of the arbitral award; and (ii) whether the creditors to whom Noga assigned the arbitration proceeds must be joined as necessary and indispensable parties under Fed.R.Civ.P. 19." Noga, 361 F.3d at 678, 690.
Montreux presents itself as just such a third-party creditor and contends that its intervention would enable this Court to address the issues framed by the Second Circuit. (Montreux's Memorandum in Support of Motion to Intervene and for Preliminary Injunction, dated Dec. 29, 2004 at 9-10.) However, Montreux's interest in the Arbitration Award springs not from Noga's 1993 and 1994 assignments to its lender banks but from a wholly separate arrangement in 2004.
As memorialized in a written agreement dated June 1, 2004 (the "Agreement"), Noga retained Montreux to assist it in collecting the Russian Debt. (Declaration of Michael Straus, dated Dec. 28, 2004 ("Straus Decl.") Ex. A ("Agmt.").) The Agreement instilled Montreux with "sole responsibility to manage and coordinate all matters, acts and things, and to take any action or decision, in the name and on behalf of Noga, for the purpose of, or in connection with, the enforcement and collection of the Russian Debt." (Agmt. § 4.1.) The Agreement required that "[a]ny dispute, controversy or claim arising out of or relating to [it] . . . be settled by arbitration" in Paris, France. (Agmt. §§ 9.1-9.2.)
In consideration of its efforts, Montreux was to receive "an amount equal to 20% of the Fee Base," which Noga "assigned to Montreux." (Agmt. § 5.3.) The Agreement defined "Fee Base" as the "Net Amount Collected," excluding Montreux and Noga's costs and expenses. (Agmt. § 5.2.) "Net Amount Collected," in turn, was defined as "the aggregate amount collected from any third party in total or partial payment of the Russian Debt . . ., less the aggregate amount due on a priority basis to certain preferred creditors of Noga . . . pursuant to § 4 . . . of the [Concordat], which the parties agree for all purposes under this Agreement to be U.S. $100 million." (Agmt. § 5.1.) The Agreement required Noga, "as promptly as possible upon Montreux's request, . . . [to] execute and deliver to Montreux any instruments or documents necessary in any jurisdiction to . . . create, record and make effective as against third parties a first priority security interest in Noga's interest in the Russian Debt." (Agmt. § 5.5.) Either party could terminate the Agreement "with or without cause," effective 30 days after the other party's receipt of a notice of termination. (Agmt. § 8.1.) In the event either side terminated the Agreement, Montreux was entitled to "20% of the Net Amount Collected . . . multiplied by a ratio" that reflects Montreux's expenses relative to "the money spent by or on behalf of Noga from termination to completion." (Agmt. § 8.6.) In contrast to Section 5.3, the Agreement does not describe Montreux's post-termination compensation as an "assignment." (Agmt. § 8.6.) However, the Agreement specifies that Montreux's right to require Noga to provide a security interest in the Russian Debt is unaffected by a termination. (Agmt. § 8.6)
By letter dated November 9, 2004, Noga informed Montreux that it was terminating the Agreement. (Straus Decl. ¶ 15 Ex. B.) Through a rapid-fire exchange of letters spanning six weeks, the parties registered their differing views about whether the Agreement obligated Noga to pay Montreux any portion of the Russian Debt collected after the effective date of Noga's termination. (Straus Decl. ¶¶ 16-23 Exs. C-J.) Montreux contends that its expenses through early December 2004 total $636,894.90 and that this amount should be used to calculate Montreux's proportionate share of the Russian Debt collected thereafter. (Straus Decl. ¶ 24 Exs. C, E, G, I.) Noga counters that the Net Amount Collected is measured as of the date of termination and that, because Noga had not recovered any portion of the Russian Debt when it terminated the Agreement, Montreux is only entitled to reimbursement of its costs and expenses. (Straus Decl. Exs. D, F, H, J.) Additionally, Noga refused Montreux's request for a security interest in the proceeds Noga hopes to collect. (Straus Decl. ¶¶ 17, 19 Exs. D, F.) Montreux claims that Noga breached Sections 5.5 and 8.6 of the Agreement in these regards.
Based on facts subsequently learned, Montreux claims that Noga also breached Section 4.1 of the Agreement, which provides that Montreux would be the exclusive manager of the collection of the Russian Debt. In September 2004, according to Michael Straus, a Managing Member of Montreux, Noga "unilaterally assigned its claims in a London enforcement action against the Russian Federation to its chief executive, Nessim D. Gaon." (Straus Decl. ¶ 25.) Montreux regards this as "secret, self-dealing . . . [that] was plainly executed as a means to deprive Montreux of its rights to any recoveries realized by Noga here in the United States or elsewhere." (Straus Decl. ¶ 27.)
On June 21, 2005, Montreux commenced an arbitration proceeding against Noga in Paris alleging various breaches of the Agreement. (Letter to the Court from Dennis H. Hranitzky, Esq., dated June 23, 2005.) In the arbitration, Montreux seeks an order requiring Noga to effect a first priority security interest for Montreux, rescind the assignment to Gaon and compensate Montreux for damages caused by Noga's alleged breach. (Notice of Arbitration, dated June 21, 2005.)
Montreux now moves to intervene in this action pursuant to Rule 24 as of right or, alternatively, by permission to protect any proceeds Noga may recover from the Russian Federation. If permitted to intervene, Montreux moves for a preliminary injunction (1) preventing the existing parties from settling this action without providing Montreux prior notice; and (2) requiring that a portion of any amount the Russian Federation pays to Noga in this action be held aside until Montreux's rights to those funds can be determined.
DISCUSSION
I. Intervention as of Right
Rule 24(a)(2) allows a non-party to intervene as of right if: (1) its application is timely; (2) the movant claims an interest relating to the property or transaction that is the subject matter of the action; (3) the disposition of the action may impair the protection of that interest; and (4) the interest is not adequately protected by an existing party. Fed.R.Civ.P. 24(a)(2); Brennan v. N.Y.C. Bd. of Educ., 260 F.3d 123, 128-29 (2d Cir. 2001); United States v. Pitney Bowes, Inc., 25 F.3d 66, 70 (2d Cir. 1994). The movant's failure to satisfy any one of these requirements is sufficient cause to deny the motion. Catanzano v. Wing, 103 F.3d 223, 232 (2d Cir. 1996); see Pitney Bowes, 25 F.3d at 70. "Nevertheless, the test is a flexible and discretionary one, and courts generally look at all four factors as a whole rather than focusing narrowly on any one of the criteria." Tachiona ex rel. Tachiona v. Mugabe, 186 F. Supp. 2d 383, 394 (S.D.N.Y. 2002) (citing United States v. Hooker Chems. Plastics, 749 F.2d 968, 983 (2d Cir. 1984)).
The timeliness of Montreux's motion is not contested. However, this Court finds that Montreux lacks a sufficiently direct interest in this action other than the interest it shares with Noga in maximizing any recovery from the Russian Federation.
A non-party seeking to intervene as of right must claim a "direct, substantial, and legally protectable" interest in the subject matter of the action. Wash. Elec. Coop., Inc. v. Mass. Mun. Wholesale Elec. Co., 922 F.2d 92, 97 (2d Cir. 1990) (citingDonaldson v. United States, 400 U.S. 517, 531 (1971)); accord Brennan, 260 F.3d at 129. "An interest that is remote from the subject matter of the proceeding, or that is contingent upon the occurrence of a sequence of events before it becomes colorable, will not satisfy the rule." Wash. Elec. Coop., 922 F.2d at 97;accord Restor-A-Dent Dental Labs., Inc. v. Certified Alloy Prods., Inc., 725 F.2d 871, 874 (2d Cir. 1984). "Intervention . . . cannot be used as a means to inject collateral issues into an existing action." New York News, Inc. v. Kheel, 972 F.2d 482, 486 (2d Cir. 1992) (internal quotation omitted); see United States v. City of New York, 198 F.3d 360, 365 (2d Cir. 1999).
The subject matter of this action is the Arbitration Award that Noga seeks to enforce against the Russian Federation. Montreux does not contend that it is entitled to enforce the award itself. In fact, the termination of the Agreement not only deprived Montreux of its authority to pursue the Arbitration Award on Noga's behalf, but rescinded any assignment Noga had granted Montreux. (Compare Agmt. § 5.3, with Agmt. § 8.6.)
Nor is Montreux a judgment creditor of Noga. Cf. In re Holborn Oil Trading Ltd. v. Interpetrol Bermuda Ltd., 658 F. Supp. 1205, 1209 (S.D.N.Y. 1987) (permitting a judgment creditor of defendant's affiliate to intervene). Rather, Montreux's asserted interest springs from its breach of contract claims seeking a share of whatever proceeds Noga recovers from the Russian Federation. (Agmt. § 8.6.) As such, Montreux's interest in this action has not yet crystallized. See Restor-A-Dent, 725 F.2d at 874 (holding that the intervenor's "interest must be direct, as opposed to remote or contingent"). Indeed, Montreux's contractual dispute with Noga lacks a direct relationship to the Arbitration Award and is wholly collateral to this action. See City of New York, 198 F.3d at 365 (intervention inappropriate whether the putative intervenor's interests "are only collaterally related to the subject matter" of the action); see also Wash. Elec. Coop., 922 F.2d at 98 (denying intervention because disposition of the case would "not operate to bar under the doctrines of res judicata or collateral estoppel any future attempts by" the proposed intervenor to pursue its claims). Montreux thus moves to intervene not to advance the underlying litigation but to raise a new issue concerning how much of any recovery Noga must allocate to Montreux.
It bears noting that Montreux stipulated that the Assignee Banks are entitled to $100 million on a priority basis, and that Montreux cannot collect anything until the Assignee Banks are paid this amount out of the aggregate sum that Noga obtains from the Russian Federation. (Agmt. § 5.1.)
To the extent Montreux claims that it has a contractual right to a security interest in the Arbitration Award, such an interest is likewise insufficient. Montreux does not have a legally protectable security interest in the Award. (Straus Decl. ¶¶ 17, 19 Exs. D, F.) While its right to demand the requisite documents from Noga is currently in arbitration, Montreux's interest is contingent on the arbitrators adopting Montreux's interpretation of the Agreement and therefore too remote to justify Montreux's intervention in this action. See Restor-A-Dent, 725 F.2d at 875 (finding the proposed intervenor's interest non-direct because it depends both on plaintiff's successful recovery in the action and resolution of a second litigation to determine the proposed intervenor's rights);Katz v. Berisford Int'l PLC, No. 96 Civ. 8695 (JGK), 2000 WL 1760965, at *5 (S.D.N.Y. Nov. 30, 2000) ("The possibility that a party will establish an interest in a judgment through a pending lawsuit in another court is a contingent interest.").
In any event, Montreux and Noga share a mutual interest in maximizing Noga's recovery. Given Noga's ardent efforts to arbitrate and litigate this dispute over the past thirteen years, this Court has every reason to believe that Noga will continue to further that interest, leaving Noga and Montreux to wrangle later over the proper division of any recovered monies. See Wash. Elec. Coop., 922 F.2d at 98 ("WEC and VDPS may have differing motives . . .; the former wants the money back for itself, while the latter wants to assure that money due consumers is returned to them. However, a putative intervenor's interest is not inadequately represented merely because its motive to litigate is different from that of a party to the action.").
Accordingly, Montreux lacks a direct and legally protectable interest in the Arbitration Award that is the subject matter of this action.
II. Permissive Intervention
Montreux also seeks permissive intervention under Rule 24(b)(2), which authorizes a Court to allow a party to intervene after timely application if the "applicant's claim or defense and the main action have a question of law or fact in common." Fed.R.Civ.P. 24(b)(2). District Courts are vested with full discretion to decide whether to permit intervention in such circumstances. In exercising its discretion, however, a court is to "consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties." Fed.R.Civ.P. 24(b);accord Comer v. Cisneros, 37 F.3d 775, 801 (2d Cir. 1994). The court may consider other relevant factors, including (1) "the nature and extent of the [intervenor's] interests"; (2) whether the existing parties adequately represent those interests; and (3) whether allowing intervention would "significantly contribute to full development of the underlying factual issues in the suit and to the just and equitable adjudication of the legal questions presented." United States Postal Serv. v. Brennan, 579 F.2d 188, 191-92 (2d Cir. 1978) (internal quotations omitted).
Montreux's breach of contract claims against Noga share no common questions of law or fact with this action. Moreover, permitting Montreux to intervene would freeze this action pending the conclusion of the Paris arbitration. If Montreux were successful in the arbitration, this Court would once again be presented with a motion to confirm and enforce a foreign arbitration award. Montreux's intervention would thus substantially delay a litigation that already bears a protracted history. See Wash. Elec. Coop., 922 F.2d at 98-99 (affirming the District Court's refusal to grant permissive intervention that "would unduly complicate and further delay the litigation").
Accordingly, this Court denies Montreux permission to intervene under Rule 24(b)(2).
CONCLUSION
For the foregoing reasons, Montreux Partners, L.P.'s motion to intervene in this action is denied. Montreux's motion for a preliminary injunction is denied as moot.SO ORDERED.