FOR IMMEDIATE RELEASE
Court ruling is first to hold that foreign compensatory judgments issued as part of a criminal action may be enforceable in NY
In a unanimous 5-0 reversal in a first impression case, a New York State Appellate Court reinstated an action to enforce a $410 million judgment handed down by a Czech court in a major fraud claim that arose out of the earliest actions from the post-Cold War government.
Milbank, Tweed, Hadley & McCloy represented the plaintiff Harvardsky Prumyslovy Holding A.S.—V Likvidaci in the reversal. Milbank’s team included New York partner Sander Bak, Washington, DC partner Michael Nolan and associate Edward Baldwin.
The case, titled Harvardsky v. Kozeny, was the first-ever ruling on whether a foreign compensatory judgment issued as part of a criminal action was enforceable in New York State.
The case grew out of a notorious fraud following the post-Cold War privatization of state-owned companies in the Czech Republic. As part of the policy, Czech citizens were issued voucher points that could be used to purchase shares in designated firms or assigned to one of many investment privatization funds (IPFs) that would purchase and manage a portfolio of shares on their behalf.
The defendant in the case, Viktor Kozeny, worked with Harvard Capital and Consulting to solicit investors through its six Harvard investment funds, including Harvardsky.
Kozeny instead diverted the funds to shell companies in Cyprus. He then moved to the Bahamas, which has since refused a request to extradite him. He was tried in the Czech courts in 2010, found guilty of gross fraud, and sentenced to 10 years in prison. The Czech court also ruled that Kozeny had to pay approximately $410 million to Harvardsky and its 250,000 shareholders.
Harvardsky sued to have the judgment enforced in New York and sought the attachment of funds in a Wells Fargo bank account held by Landlocked Shipping Company, an alleged shell corporation owned by Kozeny. Landlocked had previously purchased a $19.75 million house in Aspen, Colorado, which was sold for $22 million in November 2001. The money was deposited into the Wells Fargo account.
Last year, a New York State Supreme Court dismissed Harvardsky’s claims and refused to attach the Wells Fargo account, accepting the argument that New York courts may not recognize judgments that are penal in nature.
Yesterday, the Appellate Court reversed, noting:
“[t]he statutory basis for denying enforcement is predicated on the classification and purpose of the judgment, not the court that issued it, making no differentiation between foreign civil and foreign criminal judgments. Upon even a superficial examination, such a distinction is artificial…"
“Landlocked identifies no New York case denying enforcement of a judgment awarding restitution merely because it was rendered by a criminal court…. That a judgment of restitution may serve a penological purpose by offering ‘an effective rehabilitative penalty’ and ‘a greater potential for deterrence’ does not detract from the court’s power ‘to order offenders to compensate the victims of their crimes’ for actual damages sustained.”
The appellate court also held found that substantial evidence was presented showing that Landlocked was an alter ego of Kozeny, and completely controlled by him.
“This is an important ruling for our client, who is simply trying to recover funds after a massive fraud perpetrated by Viktor Kozeny, as well as for anyone suing to enforce a foreign court judgment in New York. The appellate judges saw through the claim that the Czech court ruling was a punitive criminal action, rather than an attempt to recover funds for ripped-off investors,” said Milbank’s Mr. Nolan.
