Case of the Day: Ambritz Trading Corp. v. URALSIB Financial Corp.

The case of the day is Ambritz Trading Corp. v. URALSIB Financial Corp. (S.D.N.Y. 2011). Figuring out the players takes a bit of work. The main plaintiff was Ambritz, a Seychelles corporation with its principal place of business in Russia. The defendants were OJSC Financial Corporation URALSIB, a Russian holding company, and several of its subsidiaries (for simplicity’s sake, I am going to refer to the defendants collectively as “URALSIB”). URALSIB acted as Ambritz’s broker. Ambritz’s initial claim was that URALSIB had refused to honor instructions to transfer Ambritz’s funds to an account at Credit Suisse. URALSIB ultimately released the funds, but Ambritz successfully prosecuted a claim for damages in an arbitration. Ambritz sought confirmation of the award in New York but later voluntarily dismissed the action for confirmation, perhaps because the parties had settled.

Ambritz then brought a second claim against URALSIB, this time alleging violations of the RICO statute. In particular, Ambritz alleged that URALSIB would record stock purchases as having occurred at a time of day when the price of a share was higher than at the actual time of execution of the trade and pocket the difference in price.

Ambritz attempted to serve the Russian defendants with the summons and complaint by delivering them to the offices of Auerbach Grayson & Co., a New York broker-dealer. Auerbach had a correspondent relationship with two of the defendant URALSIB subsidiaries, which allowed sophisticated investors to have access to the Russian markets. Auerbach’s receptionist refused to accept service. Ambritz tried the same thing again, and the receptionist then accepted the documents on behalf of all but one of the defendants; but two days later, Auerbach’s lawyer told Ambritz’s lawyer that Auerbach was not authorized to accept service on behalf of any of the defendants.

Ambritz next tried to serve one of the subsidiaries through the New York Secretary of State. Ambritz had some reason to believe that the subsidiary, URALSIB Securities, Ltd., had registered to do business in New York, but the subsidiary asserted that it had merely considered opening a New York office at some point in the past and ultimately had decided against it, and in any case the registration had expired.

Finally, Ambritz tried to serve another of the subsidiaries through a supposed registered agent for service of process in New York, but the subsidiary denied that it had appointed any agent to receive service of process in New York.

The one thing that Ambritz failed to do—perhaps with good reason—was to serve process on the Russian defendants in Russia. (As we have noted before, in the post on the Chabad case and the post on Baldiga v. Joint Stock Co., Russia has unilaterally suspended judicial assistance to the United States under the Hague Service Convention). The defendants moved to dismiss for insufficient service of process. Ambritz did not seek leave to serve the defendants by alternate means, but instead insisted that he had already perfected service.

Judge Scheindlin, properly in my view, dismissed the case. Ambritz pleaded that he had acted with good faith, but of course good faith does not excuse the necessity of serving the defendant with process:

Finally, there is no reason for me to excuse plaintiffs’ failure to effectuate proper service. Plaintiffs should have made some attempt at actually serving defendants and, if that was ineffective, asked this Court to allow an alternative means of service. Moreover, all of the parties were clearly in communication with experienced Russian counsel from whom plaintiffs could have sought advice related to service. In the absence of any actual service, all that plaintiffs proffer to this Court in support of their good-faith effort to serve defendants are affidavits of service stating that certain unnamed receptionists—not even employed by defendants—took plaintiffs’ summons and Complaint. However, I do not find that this meets even the low threshold required to demonstrate a good-faith effort to effectuate service, and, in any event, plaintiffs have not shown that I can or should waive the need for service based on good-faith alone.

Since service via the Convention is not really available in Russia, given Russian intransigence about implementation of the Convention, Ambritz’s reluctance to make use of the Convention is understandable. But there doesn’t seem to be a good reason why Ambritz should have refused to seek leave to serve the defendants by other means, e.g., by service on their US counsel. Ambritz may have thought that a Russian court would be unlikely to enforce a US judgment in such a case, but surely if that’s true, then the Russian court would be equally unlikely to enforce a US judgment based on the attempts at service that Ambritz actually made.

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