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Republic of Kazakhstan v. Stati

United States District Court, District of Columbia

March 30, 2019

ANATOLIE STATI, et al., Defendants.



         Plaintiff, the Republic of Kazakhstan (“Kazakhstan”), brought this civil suit against the defendants - Anatolie Stati, Gabriel Stati, and the two companies they own, Ascom Group, S.A. and Terra Raf Trans Traiding Ltd. (the “Stati Parties”) - for alleged violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., and the common law torts of fraud and civil conspiracy. Compl. ¶ 1 [Dkt. # 1]. Kazakhstan claims that defendants obtained an arbitral award from the Stockholm Chamber of Commerce (“SCC”) in Sweden through fraud, and that defendants' subsequent efforts to use legal process to enforce and collect on that arbitral award have been unlawful. Id. ¶¶ 6, 8. Kazakhstan filed this lawsuit while an action to enforce the arbitral award was already pending in this Court, and it seeks damages, attorneys' fees, and an injunction preventing defendants from enforcing the foreign arbitral award in the United States. Id., “Prayer for Relief, ” at 92-93.

         The Stati Parties moved to dismiss the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Plaintiff opposed the motion, and the matter is ripe for decision. For the reasons that follow, the Court will grant defendants' motion and dismiss the ill- advised lawsuit. A RICO civil suit is not a vehicle to challenge non-frivolous litigation, or in this case, a valid and final foreign arbitral award.


         In a related case to enforce the same foreign arbitral award, this Court granted the Stati Parties' petition to confirm the award pursuant to the New York Convention. Anatolie Stati v. Republic of Kazakhstan, 302 F.Supp.3d 187, 209 (D.D.C. 2018).[1] The Court held that Kazakhstan did not establish any of the narrow grounds for denying confirmation of the foreign award. Id. at 202-09. The facts surrounding this case are discussed in detail in that opinion.

         To briefly recap, the Stati Parties initiated arbitration proceedings seeking reparations against Kazakhstan with the Stockholm Chamber of Commerce on July 26, 2010 for the expropriation of their assets, including an unfinished liquified petroleum gas plant (“LPG plant”). Compl. ¶¶ 6, 138. On December 19, 2013, the SCC tribunal found that Kazakhstan violated its obligations under the Energy Charter Treaty, and it issued an award in favor of the Stati Parties in the amount of $497, 685, 101.00, which included $199 million for the LPG plant. Id. ¶¶ 158-59.

         Kazakhstan attempted to nullify the SCC award by instituting proceedings before the Svea Court of Appeal in Stockholm. Compl. ¶ 183. It argued, among other things, that the SCC award was procured by fraud. Id. ¶ 185. The alleged fraud concerned the value of the LPG plant. Id. ¶ 5. According to plaintiff, prior to the initiation of the arbitral proceedings, the Stati Parties “created a number of illegitimate contractual documents with related parties for the purpose of artificially inflating the construction costs of the LPG [p]lant.” Id. ¶ 65. These falsified construction costs, Kazakhstan alleges, were included in financial statements, which were in turn used to fraudulently induce companies, including the state-owned oil and gas company, KazMunaiGas (“KMG”), into bidding $199 million for the LPG plant in 2008. Id. ¶¶ 5, 116, 130-31. Thus, Kazakhstan charges that the Stati Parties misrepresented the value of the LPG plant during the SCC arbitration when they proffered “the fraudulently procured bids, ” the “falsified financial statements, ” “false testimony regarding the amount of the investment in the LPG [p]lant, ” and “expert reports” that restated those figures as evidence. Id. ¶ 152. According to Kazakhstan, based upon this “false evidence” the arbitral panel awarded the Stati Parties $199 million in compensation for the LPG plant. Id.

         Despite what Kazakhstan characterizes as its “detailed and specific allegations regarding [d]efendants' fraudulent scheme, ” the Svea Court of Appeal affirmed the arbitral award on December 9, 2016. Compl. ¶ 188. Kazakhstan then filed a motion to the Swedish Supreme Court seeking to quash the Svea Court of Appeal's judgment due to “grave procedural errors.” Id. ¶ 190. That legal challenge also failed. On October 24, 2017, the Swedish Supreme Court denied Kazakhstan's motion. Stati, 302 F.Supp.3d at 196.

         Although the Swedish Supreme Court decision extinguished Kazakhstan's hope of vacating the final arbitral award, the legal battle to resist the award's enforcement rages on in several jurisdictions across Europe and the United States where the Stati Parties initiated enforcement proceedings to collect on the award.[2] Compl. ¶¶ 194-247. This suit, for alleged RICO violations, is the latest chapter. In its 93-page complaint, plaintiff accuses defendants of engaging in a “sophisticated and wide-ranging illegal pattern of racketeering, ” based upon its efforts to fraudulently inflate the value of the LPG plant, both prior to and during the SCC arbitration, and its ongoing litigation activities to enforce and collect on the SCC award. Compl. ¶¶ 2, 5-18.

         Plaintiff filed this suit on October 5, 2017. See Compl. Defendants moved to dismiss the complaint on April 20, 2018, arguing that plaintiff failed to state a claim, Defs.' Mot. to Dismiss [Dkt. # 19] (“Defs.' Mot.”); Mem. of P. & A. in Supp. of Defs.' Mot. to Dismiss [Dkt. # 19-1] (“Defs.' Mem.”). Plaintiff filed its opposition to the motion on May 25, 2018, see Rep. of Kazakhstan's Mem. of P. & A. in Opp. to Defs.' Mot. [Dkt. # 26] (“Pl.'s Opp.”), and defendants filed their reply on June 11, 2018. See Reply of Defs.' Mot. to Dismiss [Dkt. # 28] (“Defs.' Reply”).[3]

         The Court finds that plaintiff failed to state a RICO claim based upon a “scheme” that amounts to a protracted legal dispute over an LPG plant. Accordingly, the Court will dismiss the RICO claims with prejudice, and it declines to exercise supplemental jurisdiction over the common law claims of fraud and civil conspiracy.


         “To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In Iqbal, the Supreme Court reiterated the two principles underlying its decision in Twombly: “First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. And “[s]econd, only a complaint that states a plausible claim for relief survives a motion to dismiss.” Id. at 679, citing Twombly, 550 U.S. at 556.

         A claim is facially plausible when the pleaded factual content “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. A pleading must offer more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of action, ” id., quoting Twombly, 550 U.S. at 555, and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.

         In evaluating a motion to dismiss under Rule 12(b)(6), a court must “treat the complaint's factual allegations as true and must grant plaintiff ‘the benefit of all inferences that can be derived from the facts alleged.'” Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000) (internal citation omitted), quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979); see also Am. Nat'l Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. Cir. 2011), quoting Thomas v. Principi, 394 F.3d 970, 972 (D.C. Cir. 2005). Therefore, when considering a motion to dismiss, a court must construe a complaint liberally in the plaintiff's favor. Kowal v. MCI Commc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). Nevertheless, the court need not accept inferences drawn by the plaintiff if those inferences are unsupported by facts alleged in the complaint, nor must the court accept plaintiff's legal conclusions. Id.; see also Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). In ruling upon a motion to dismiss for failure to state a claim, a court may ordinarily consider only “the facts alleged in the complaint, documents attached as exhibits or incorporated by reference in the complaint, and matters about which the Court may take judicial notice.” Gustave-Schmidt v. Chao, 226 F.Supp.2d 191, 196 (D.D.C. 2002), citing EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 624-25 (D.C. Cir. 1997).


         I. The RICO Claims

         In Count I and II of its complaint, Kazakhstan alleges that the Stati Parties violated the RICO statute, 18 U.S.C. § 1962(c), by engaging in a pattern of racketeering activity involving mail fraud, wire fraud, and money laundering, as well as a conspiracy to commit those offenses, 18 U.S.C. § 1962(d). Compl. ¶¶ 253-87.[4] Plaintiff alleges that defendants engaged in fraud to inflate the value of the LPG plant to enrich themselves, concealing the ...

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