Vitaly Smagin v. Ashot Yegiazaryan

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FILED
FOR THE NINTH CIRCUIT
JUL 31 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
VITALY IVANOVICH SMAGIN, Nos. 16-55502
16-56749
Petitioner-Appellee, 17-56467
v. D.C. No.
2:14-cv-09764-R-PLA
ASHOT YEGIAZARYAN, AKA Ashot Central District of California,
Egiazaryan, Los Angeles
Respondent-Appellant.
ORDER
Before: ROGERS,* BYBEE, and WATFORD, Circuit Judges.
The panel judges have voted to deny Smagin’s Petition for Rehearing.
Judges Bybee and Watford voted to deny the Petition for Rehearing En Banc, and
Judge Rogers recommended denying the Petition for Rehearing En Banc.
The full court has been advised of the petition for rehearing en banc and no
judge has requested a vote on whether to rehear the matter en banc. Fed. R. App.
P. 35.
*
The Honorable John M. Rogers, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
Smagin’s petition for rehearing and petition for rehearing en banc, filed July
2, 2018, is DENIED.
Yegiazaryan’s Motion to Modify the Memorandum Disposition is
GRANTED.
The Memorandum Disposition filed May 18, 2018 is amended as follows:
1. At page 6, replace “On August 3, 2017,” with “Smagin also
simultaneously domesticated and enforced the Award in Liechtenstein against
Yegiazaryan’s beneficiary interest in Alpha Trust, which is attached and frozen.
That ruling is now on appeal. In concurrent, separate enforcement proceedings
against Yegiazaryan’s non-beneficiary interests,”
2. At page 6, replace “issued a decision, finding that” with “issued a
decision on August 3, 2017. The Liechtenstein lower court had found that”
3. At page 6, delete “The Court of Appeal concluded that”
4. At page 7, insert “But the Court of Appeals rejected Smagin’s effort to
attach Yegiazaryan’s non-beneficiary interests.” before the sentence beginning
“Relying on this ruling,”
5. At page 7, replace “granted Smagin a freeze order on the Alpha Trust
pending his appeal” with “granted Smagin a stay of its August 2017 ruling,
pending appeal”
2
No future petitions for panel rehearing and rehearing en banc shall be
entertained.
3
FILED
NOT FOR PUBLICATION
JUL 31 2018
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
VITALY IVANOVICH SMAGIN, Nos. 16-55502
16-56749
Petitioner-Appellee, 17-56467
v.
ASHOT YEGIAZARYAN, AKA Ashot D.C. No.
Egiazaryan, 2:14-cv-09764-R-PLA
Respondent-Appellant. AMENDED
MEMORANDUM*
Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding
Argued and Submitted April 11, 2018
Pasadena, California
Before: ROGERS,** BYBEE, and WATFORD, Circuit Judges.
In an arbitration between Vitaly Smagin and Ashot Yegiazaryan, the London
Court of International Arbitration awarded Smagin about $72 million in damages
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable John M. Rogers, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
plus about $20 million in interest and fees (“the Award”). The Award was
confirmed, and Yegiazaryan raises no substantive challenge to the confirmation.
Three orders by the district court are at issue in these consolidated appeals: (1) an
order of attorneys’ fees against Yegiazaryan; (2) a postjudgment injunction against
Yegiazaryan freezing some $115 million; and (3) a turnover order against
Yegiazaryan regarding a Liechtenstein trust that is now the subject of ongoing
proceedings in the Liechtenstein courts. Yegiazaryan appeals those three rulings.
We have jurisdiction under 28 U.S.C. § 1291.
We presume the parties’ familiarity with the facts and procedural history.
1. Attorneys’ Fees
We review an imposition of attorneys’ fees for abuse of discretion. Primus
Auto. Fin. Serv., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997). Where a court
orders the payment of attorneys’ fees without identifying the basis for its authority,
we presume it acted under its inherent powers, id., which requires “mak[ing] an
explicit finding that counsel’s conduct constituted or was tantamount to bad faith,”
id. (citation and internal quotation marks omitted); Fink v. Gomez, 239 F.3d 989,
992 (9th Cir. 2001) (“[A] specific finding of bad faith . . . must precede any
sanction under the court’s inherent powers.”) (citation and internal quotation marks
omitted); see also Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1186
2
(2017). These standards help ensure that attorneys’ fees are ordered “only in
exceptional cases and for dominating reasons of justice.” Beaudry Motor Co. v.
Abko Props., Inc., 780 F.2d 751, 756 (9th Cir. 1986) (citation omitted). The
district court granted Smagin’s request for attorney’s fees without entering any
finding on bad faith. This was an abuse of discretion.
We vacate the award of attorneys’ fees and remand for the district court to
reconsider the award under the appropriate standard. If the district court enters an
award of attorneys’ fees, it shall state the source of its authority and enter detailed
findings of fact setting forth the basis for its award. See Primus, 115 F.3d at 648.
2. Postjudgment Injunction
The district court entered judgment for Smagin on March 31, 2016. On
October 13, 2016, Smagin sought ex parte emergency postjudgment injunctive
relief, identifying a California state court asset freeze in unrelated family law
proceedings involving Yegiazaryan that was to expire the next day. The state court
asset freeze restrained Yegiazaryan from transferring or dissipating monies he
received as an award from the unrelated “Kerimov” arbitration. Those funds were
allegedly placed in a Monegasque bank account held by the “Alpha Trust,” which
Yegiazaryan formed under Liechtenstein law in 2015 in anticipation of receipt of
the Kerimov funds. Dr. Thomas Wilhelm of CTX Treuhand AG serves as Trustee
3
of the Alpha Trust, and Yegiazaryan enjoys various rights as Protector, Settlor,
Asset Manager, and Beneficiary. The district court found that Smagin would be
“left without protection from Mr. Yegiazaryan’s duplicity,” in light of evidence of
Yegiazaryan’s practice of moving and concealing assets, and so the court ordered
that he and those under his control refrain from any action to “transfer, assign,
conceal, diminish, encumber, hypothecate, or dissipate or in any way dispose of”
the Kerimov funds. Yegiazaryan appeals.
The palette of remedies available to a court is a product of that court’s
jurisdiction. Here, Smagin brought a Petition to Confirm the Award against
Yegiazaryan in California, where Yegiazaryan now lives. Where a district court
exercises in personam jurisdiction over a judgment debtor and where it identifies a
real risk that without injunctive relief, the judgment debtor might dissipate or
secret away funds, courts have upheld narrowly tailored postjudgment remedial
measures of this sort under its “ancillary enforcement jurisdiction.” Peacock v.
Thomas, 516 U.S. 349, 356 (1996); Ex parte Flippin, 94 U.S. 348, 350 (1876)
(“Process subsequent to judgment is as essential to jurisdiction as process anterior
to judgment, else the judicial power would be incomplete and entirely inadequate
to the purposes for which it was conferred by the Constitution.”) (citation omitted);
see Hilao v. Estate of Marcos, 95 F.3d 848, 854–55 & n.11 (9th Cir. 1996) (noting
4
cases that “upheld the use of contempt in the enforcement of money judgments”
where “state law allowed that procedure”); Sec. Tr. & Sav. Bank v. S. Pac. R. Co.,
6 Cal. App. 2d 585, 589 (Cal. Ct. App. 1935) (“The power to enforce their decrees
is necessarily incident to the jurisdiction of courts. Without such power, a decree
would in many cases be useless. All courts have this power, and must necessarily
have it; otherwise they could not protect themselves from insult, or enforce
obedience to their process. Without it they would be utterly powerless.”) (internal
quotation marks and citation omitted).
Certainly this power is to be exercised carefully. See Hilao, 95 F.3d at 855(noting that even in light of (1) the large “size of the judgment” of nearly $2
billion; (2) the “prominent figures” as litigants; (3) the distant location of assets;
and (4) the “uncooperativeness of the judgment debtor,” such are not “exceptional
circumstances . . . that would justify a federal court’s use of a procedure other than
a writ of execution to enforce a money judgment”). Here the district court
identified a clear, case-specific risk that Yegiazaryan might evade the court’s
jurisdiction or contravene its judgment by funneling the Kerimov funds through a
5
reshuffled deck of shell companies and bank accounts across the Caribbean,
Cyprus, Monaco, Liechtenstein, or whatever other amicable havens he finds.1
We affirm the district court’s postjudgment injunction.
3. Turnover Order
Smagin also simultaneously domesticated and enforced the Award in
Liechtenstein against Yegiazaryan’s beneficiary interest in Alpha Trust, which is
attached and frozen. That ruling is now on appeal. In concurrent, separate
enforcement proceedings against Yegiazaryan’s non-beneficiary interests, the
Princely Court of Appeal of the Principality of Liechtenstein (the “Liechtenstein
Court of Appeal”) issued a decision on August 3, 2017. The Liechtenstein lower
court had found that under the Declaration of Trust, Yegiazaryan was sole
“Settlor,” sole “Protector,” sole “Beneficiary,” and sole “Asset Manager” with
“expressly transferable” so-called protector rights, and an “all-encompassing
position of power” and “veto right.” Yegiazaryan “had not really given up his
assets,” because he “directed and controlled the entire management of Alpha Trust
1
We also reject Yegiazaryan’s claim that the injunction constitutes a
violation of his due process rights because it freezes some $20 million more than
the amount of the judgment. Yegiazaryan had fair notice that injunctive relief of
this form could issue when Smagin first applied for such on September 16, 2015.
Although high in absolute terms, it appears to be a reasonable and measured
cushion that extends by its terms only to Yegiazaryan’s and his agents’ actions vis-
à-vis the Kerimov funds.
6
(formally also) due to his position as protector, for that position allowed him at his
sole discretion to appoint or remove the trustee without any reason, and the entire
management of the trust by the trustee required the prior express consent of the
protector.” Smagin v. Yegiazaryan, et al., 08 EX.2016.5802, Order No. 36
(Princely Court of Appeal Aug. 3, 2017) (Liecht.). But the Court of Appeals
rejected Smagin’s effort to attach Yegiazaryan’s non-beneficiary interests. Relying
on this ruling, Smagin applied to the district court for a turnover order under
California law, seeking an order commanding Yegiazaryan to turn over the assets
of the Alpha Trust. The district court issued the turnover order on September 20,
2017, noting that the California Enforcement of Judgments Law permits a
judgment creditor with a writ of execution to obtain a turnover order, which shall
be issued upon “a showing of need for the order,” for which a refusal to pay a
judgment qualifies. CAL. CIV. PROC. CODE § 699.040(b). The district court further
held that such an order may expand to all of “the debtor’s interest in the property in
the possession or under the control of the judgment debtor or a third person”
without limit as to property type or location, because the court’s jurisdiction is over
Yegiazaryan himself. In November 2017, the Liechtenstein Court of Appeal
granted Smagin a stay of its August 2017 ruling, pending appeal to the Princely
Supreme Court of Liechtenstein.
7
The parties dispute whether a turnover order under California law may
properly reach assets such as those held in the Alpha Trust. Under California law,
a turnover order is a postjudgment creditor’s remedy, available after a writ of
execution is issued that directs the debtor to transfer specified property to a levying
officer under penalty of contempt. CAL. CIV. PROC. CODE § 699.040. It is a broad
remedy that can reach property under the control of the judgment debtor or a third
party. Id. § 699.080(a). But California law excludes the interests of trust
beneficiaries from execution. Id. § 699.720 (“The interest of a trust beneficiary [is
not] . . . subject to execution.”). Instead, California law provides for a specific
mechanism, a § 709.010 petition, which can be used to seek enforcement of a
judgment against a beneficiary’s interest in a trust:
[A] judgment debtor’s interest as a beneficiary of a trust is subject to
enforcement of a money judgment only upon petition under [§ 709.010] by a
judgment creditor to a court having jurisdiction over administration of the
trust.
Id. § 709.010(b). “By its plain terms, the enforcement procedures of Code of Civil
Procedure section 709.010 are the only means available for a judgment creditor to
enforce a money judgment against [a beneficial] interest in a trust.” FirstMerit
Bank, N.A. v. Reese, 242 Cal. App. 4th 408, 412 (Cal. Ct. App. 2015). This is
because “the [California] Legislature specifically excluded interest in a trust from
levy by writ of execution.” Id.; see also Pratt v. Ferguson, 3 Cal. App. 5th 102,
8
116 (Cal. Ct. App. 2016) (“A lien on a judgment debtor’s interest in a trust must be
sought by means of a petition filed in the court having jurisdiction over
administration of the trust.”). The parties’ litigating positions thus center on the
question of whether Yegiazaryan’s control over the Alpha Trust renders it outside
the terms of § 709.010 and thus a proper subject of a turnover order.
We find a turnover order premature here, and we vacate the district court’s
order under principles of international comity, that is, “the recognition which one
nation allows within its territory to the legislative, executive or judicial acts of
another nation, having due regard both to international duty and convenience, and
to the rights of its own citizens or of other persons who are under the protection of
its laws.” Mujica v. AirScan Inc., 771 F.3d 580, 597 (9th Cir. 2014) (citation
9
omitted).2 We exercise here “adjudicatory comity,” that is, “discretion of a
national court to decline to exercise jurisdiction over a case before it when that
case is pending in a foreign court with proper jurisdiction.” Id. at 599 (quotation
omitted).
Smagin is correct that the Convention on the Recognition and Enforcement
of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38, 9
U.S.C. § 201 (“New York Convention”) does presuppose parallel enforcement
proceedings globally. But here, the remedial measure ordered by the district court
has precipitated the potential conflict, as it is premised on the district court’s
resolution of questions of Liechtenstein trust law that are currently pending review
2
We choose not to rely on the doctrine of prior exclusive jurisdiction, see
Princess Lida of Thurn & Taxis v. Thompson, 305 U.S. 456, 466–68 (1939),
because the turnover order mandated that Yegiazaryan take an action in his
personal capacity on the basis of the court’s in personam jurisdiction. Under the
“mandatory” Princess Lida rule, see Chapman v. Deutsche Bank Nat’l Trust Co.,
651 F.3d 1039, 1044 (9th Cir. 2011), a court cannot take jurisdiction over a trust,
over which a different court has already exercised jurisdiction. See Princess Lida,
305 U.S. at 466. Here, the Liechtenstein courts first asserted jurisdiction over the
Alpha Trust in Feburary 2016 when Smagin brought suit in Liechtenstein, about
six months before Smagin brought the Alpha Trust to the district court’s attention.
See Penn General Cas. Co. v. Pennsylvania ex rel. Schnader, 294 U.S. 189, 196
(1935). But given the court’s personal jurisdiction over Yegiazaryan, and given
that he holds interests and performs functions vis-à-vis the Alpha Trust distinct
from his interest as Beneficiary, we refrain from answering at this time whether
Yegiazaryan can be ordered by turnover order to take some action in his capacity
as Settlor, Protector, Asset Manager, or otherwise. See, e.g., Knaefler v. Mack, 680
F.2d 671, 675 (9th Cir. 1982).
10
by the Supreme Court of Liechtenstein. The Liechtenstein Supreme Court can be
expected to resolve some if not all of the questions at issue in this case. Out of
respect for the Liechtenstein Court of Justice’s jurisdiction over the Alpha Trust in
this case, and in consideration of the principles of legal pragmatism and efficiency
embodied in international comity, we vacate the turnover order.
4. Reassignment
We deny Yegiazaryan’s request that the case be reassigned to a different
district judge on remand, see 28 U.S.C. § 2106, as we find absent the “unusual
circumstances” that merit reassignment. Earp v. Cullen, 623 F.3d 1065, 1071–72
(9th Cir. 2010); United States v. Atondo-Santos, 385 F.3d 1199, 1201 (9th Cir.
2004).
* * *
We vacate the award of attorneys’ fees; we affirm the postjudgment
injunction against Yegiazaryan; we vacate the turnover order; and we deny
Yegiazaryan’s request for reassignment on remand. The parties shall bear their
own costs in these consolidated appeals.
AFFIRMED in part, VACATED in part, and REMANDED.
11