Serial Litigation

Representing CEO equity member in serial vexatious litigation.

INTELLECT-S is representing a US-incorporated company out of Nevada (controlled by a Russian-based sole trader) owning 50 per cent in a Russian LLC engaged in the import and supply of electric equipment, in which the other half belongs to a Russian private individual, in a series of consecutive vexatious legal actions filed by the latter in an attempt to harass the "US" member out of the business. The Russian sole trader controlling the Nevadan member company also happens to be the Russian LLC's CEO.

The once friendly partnership between the two equity members soured and finally ended in 2015 when the Russian individual offered to buy out his partner's Nevadan company. Refused, the Russian individual started harassing his CEO partner by requesting unnecessary documents, contesting his transactions entered into in his capacity as CEO, and finally filing a series of meritless suits in order to compromise his management.

Our comment:

The Russian private member filed the fist vexatious suit in the Sverdlovsk Regional Arbitrazh Court in 2015 contesting a draft GM resolution to establish a branch office in Turkmenistan that the CEO had proposed, written, signed and sent to him for signature. Represented by INTELLECT-S, the defendant pointed out in his answer to the discovery that the draft resolution, not signed by the other member, was not actionable as a corporate action. The plaintiff dropped his nuisance suit and motioned for termination of the proceedings.

In October 2015, the Russian member again sued the company and its CEO for the discovery of corporate documents some of which he had never requested before as company member under the normal corporate procedure, whereas others simply did not exist (and could not have existed), such as fancy "counterparty-specific trial balance sheets" (there are no such things; trial balances are maintained without breakdown by customer or supplier); and quarterly accounts (although the 2013 amendments to the Federal Accounting Act require only annual accounts as statutory). The company had duly notified the plaintiff that such documents either did not exist or were not required to be maintained.

The plaintiff also unreasonably required the company to submit certified copies of 2014 annual accounts (although he had received the statutory duplicate originals as member before).

The trial court's partial judgment in favour of the plaintiff, ordering the defendant and the company to produce some of documents, is stayed pending appeal.

In January 2016 the Russian individual filed a third suit contesting the company's contract the CEO had made allegedly in breach of the arm's length principle with an contractor that in reality was not affiliated. In his statement of claim, in any of his further submissions, or during eight courtroom hearings the plaintiff demonstrably failed to coherently formulate exactly which of his rights the contract infringed upon, and offered no evidence that and how the contract prejudiced him or the company. In the meantime, the plaintiff demonstrated that the company was to profit from the contract in the form of a difference between what the company's customer paid, and the contract price.

The court accepted the defendant's arguments and dismissed the case in its entirety in June 2016, but the judgment is currently stayed pending appeal.

In April 2006 the Russian partner filed a fourth suit without merit, purportedly in the best interests of the company, seeking judicial termination of the contract with the sole trader partner as a contracted CEO, disregarding that he was himself no party to the contract between the company and the manager, on grounds of alleged material Civil Code Article 450 breaches of the contract. The charges included alleged denials of requests for company documents, transactions allegedly made in breach of the arm's length principle, and alleged failures to convene general meetings. The termination of the CEO contract is a matter reserved for the GM by statute, but the Russian 50% equity owner could not hope to prevail over his CEO partner technically within the usual corporate procedure. The objectives of this improper action were to circumvent the law by having the allegations recognised and legitimised by court, and use them as grounds to deny the Nevada member corporate control.

The court accepted the arguments raised by the defendant represented by Roman Rechkin, INTELLECT-S Senior Partner, agreeing that the plaintiff's vexatious litigation constituted a Civil Code Article 10(1) abuse of the right to due process of law and dismissed the case in its entirety as a "nuisance suit" in June 2016.

INTELLECT-S's client has retained control over the company with assets worth RUB67.5 million, and is preparing to sue the vexatious litigant for RUB400,000 in court costs incurred in the last two cases.

Corporate Disputes, Corporate Law

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