Case of the Day: VTB Bank v. Mavlyanov

Tom Brady

Update (2/6/18): Marian Dent, a well-informed reader who is based in Russia, has sorted out my confusion on the sanctions issue in the comments below the post.

The case of the day is VTB Bank (PJSC) v. Mavlyanov (N.Y. Sup. Ct. 2018). VTB, a Russian bank, sought recognition and enforcement of a $37 million Russian judgment against Igor Mavlyanov, who had guaranteed payment of a loan VTB made to Torgovo-proizvodstvennaya Kompaniya YASHMA. I have to say I was surprised when I read the name of the case. VTB Bank is on the Ukraine-related sanctions list under Executive Order 13662. Those sanctions, recall, were imposed after Russia illegally annexed Crimea. So there is a question of chutzpah and also a legal question. This really isn’t my field, but I wonder whether a firm subject to these sanctions can be a plaintiff in a US lawsuit? Can a US lawyer provide services to a sanctioned firm? Under Section 1(a) of the Executive Order, “all property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person (including any foreign branch)” of persons subject to the order “are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in.” Ordinarily a judgment is an interest in property. And Section 4 provides that the order prohibits “the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any person whose property and interests in property are blocked,” and receiving funds from the sanctioned person. On the other hand, OFAC has issued a series of directives that specify more particularly what the Executive Order forbids, and it may well be that despite the apparently broad scope of the Executive Order’s quoted language, the Executive Order does not bear on VTB or its lawyers in this case. Or it may be that there is a special rule providing for provision of legal services notwithstanding sanctions. As I said, this really isn’t my field, and I welcome more informed analysis.

Anyway, the court did a fairly standard analysis: Mavlyanov argued that the Russian proceedings denied him due process, but the court rejected the argument. Mavlyanov also suggested that a US judgment might conflict with his pending insolvency proceedings in Russia. The court rejected that argument, too, and I would just add that Mavlyanov could always bring an ancillary bankruptcy proceeding under Chapter 15 of the Bankruptcy Code.

I recently noted the recurring issues that Russia’s unilateral refusal to execute US requests for service of process cause for US litigators. I could make the same point about recognition of judgments. The United States’s liberal approach to international judicial assistance has paid dividends with respect to, say, China. But I haven’t seen any evidence of forward motion with Russia.

2 responses to “Case of the Day: VTB Bank v. Mavlyanov”

  1. Dear Ted, Your confusion is because you are mistaken about the type of sanctions imposed against VTB. VTB is on the Sectoral Sanctions (SSI) list. Sectoral Sanctions are a new type of sanction started especially for the Ukraine related sanctions against Russia. Sectoral Sanctions are mainly against the banking sector, and prevent US companies and individuals from extending credit to the VTB longer than what is now about 14 days (but until recently was longer). However, the SSI list, unlike the Specially Designated Nationals (SDN) list, does not require US parties to seize assets and does not otherwise prevent US parties from dealing with the listed entities altogether. I believe that VTB still regularly trades in dollars and, although I think it closed its New York office, still has many dealings in the US. Best Regards, Marian

    1. That is very helpful, Marian! I knew someone would know the answer to this question. I think the question of chutzpah remains, but you’ve sorted out the legal question very clearly.

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