City of Almaty, Kazakhstan v. Sater

Background

The City of Almaty and BTA Bank JSC alleged that Mukhtar Ablyazov and Viktor Khrapunov stole billions of dollars from them and moved approximately $440 million through shell companies and bank accounts. According to the first amended complaint, Felix Sater, Daniel Ridloff, and companies they controlled helped launder the funds through several transactions, including transactions involving World Health Networks, Creacard S.A., a former mental-health facility in Syracuse, New York, and the Tri-County Mall debt in Cincinnati, Ohio.

The plaintiffs asserted claims for unjust enrichment, money had and received, fraud, and conversion under New York law, as well as unlawful-means conspiracy under English law. Sater, Ridloff, and related entities moved to dismiss. They argued that their relationship with the plaintiffs was too indirect to support the restitution claims, that the fraud allegations did not show reliance by the plaintiffs, that New York rather than English law governed the conspiracy claim, and that many claims were filed too late.

Claims Allowed to Proceed

The court held that the allegations stated claims for unjust enrichment and money had and received. Although the defendants did not have direct business dealings with the plaintiffs, the complaint alleged that they knowingly received stolen funds as part of a money-laundering scheme. The court concluded that this alleged knowing receipt created a sufficiently close connection under New York law.

The court also concluded that the plaintiffs stated a conversion claim. Conversion is the intentional control of specific property belonging to another person in a way that deprives that person of its use. The defendants did not dispute that the complaint adequately alleged conversion; they argued only that the claim was untimely.

Fraud Claim

The court dismissed the fraud claim. Under New York law, fraud requires a false statement or material omission, an intent to induce reliance, justifiable reliance by the plaintiff, and injury. The fraud claim focused on alleged misrepresentations in the bid package for the Tri-County Mall transaction. The complaint alleged that the seller’s real-estate adviser relied on the bid package and that this reliance caused harm to the plaintiffs.

The court held that this was reliance by a third party, not by the plaintiffs themselves. The court therefore found that the complaint did not satisfy the reliance element of fraud. It did not decide whether the alleged statements and omissions could otherwise have supported a fraud claim by the plaintiffs.

Unlawful-Means-Conspiracy Claim

The court dismissed the claim for unlawful means conspiracy under English law. The plaintiffs did not identify a parallel New York cause of action, so the claim could succeed only if English law governed. Applying New York’s choice-of-law rules, the court determined that New York had the greatest interest in regulating the alleged conduct because the alleged fraudulent schemes and acts of conversion occurred in New York. The court found that none of the defendants’ alleged conduct occurred in the United Kingdom and that the United Kingdom’s asset-freezing orders did not change the result.

Timeliness

The court agreed with the defendants about the applicable limitations periods: three years for conversion, six years for money had and received, and three years for the plaintiffs’ unjust-enrichment claim. The court reasoned that the unjust-enrichment claim was based on the alleged taking of property and sought compensatory and punitive damages, making it more like a property-damage claim than an equitable claim.

However, the court declined to dismiss the claims as untimely. Under equitable estoppel, a defendant may be prevented from asserting a time limit when the defendant’s separate deceptive conduct caused the plaintiff to delay filing suit. The court found that the plaintiffs’ allegations about concealed transactions, the confidential settlement concerning the Tri-County Mall proceeds, and Sater’s communications with the plaintiffs’ investigators were sufficient at the pleading stage to plausibly support equitable estoppel. The court noted that the plaintiffs would need stronger evidence later in the case.

Disposition

Judge Alison J. Nathan granted the Sater Defendants’ motion to dismiss as to the fraud and unlawful-means-conspiracy claims and dismissed those claims with prejudice. The court otherwise denied the motion, leaving the unjust-enrichment, money-had-and-received, and conversion claims undismissed. The order resolved Docket Number 105.