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. Last Updated: 07/27/2016

Kremlin, UpDK Guilty in Stockholm

In two separate rulings, a California-based golf course developer and a German weapons dealer have won multimillion-dollar judgments over properties seized from their businesses by Russian government structures.

Both cases had been pending for years before an international arbitration court in Stockholm, Sweden.

In the first case, the Foreign Ministry's diplomatic housing service GlavUpDK f the acronym stands for "General Administration of the Diplomatic Corpus" f was ordered two weeks ago to pay $23 million to the California-incorporated Moscow Country Club Inc., or MCCI.

The Stockholm arbitration court ruled that GlavUpDK had violated a joint-venture agreement with MCCI in 1995 by taking over the Moscow Country Club, where homes are leased to Western corporations as executive housing and the golf course is a regular stop on the European PGA tour.

In the second case, the court ruled in July that the Russian federal government must pay German citizen Franz Sedelmayer $2.3 million plus interest and legal fees in compensation for the seizure of property from Kamenny Ostrov Co., or KOC, his St. Petersburg-based U.S.-incorporated security firm, which supplied provincial Russian law enforcement agencies with weapons and equipment.

Stockholm court proceedings are confidential, and the case of MCCI vs. GlavUpDK was not widely known until now. Scott Bartel, MCCI's attorney in the arbitration, said MCCI had intentionally kept quiet about the dispute because it did not want to damage the business of the Moscow Country Club: The majority of the MCCI claim was against "lost profits," which Bartel said are much easier to prove if the company goes on to be successful.

Sedelmayer's battle for his stately dacha on prestigious Kamenny Ostrov, by contrast, was one of the best-known stories in St. Petersburg's expatriate community f in no small part because Sedelmayer was taking on President Boris Yeltsin himself.

The dacha, leased from the St. Petersburg city government, was seized in accordance with a 1994 decree by Yeltsin that transferred it to the jurisdiction of the Kremlin's presidential procurement office f reportedly so that Yeltsin could use it when visiting St. Petersburg. The decree was not enforced until March 1996, when Sedelmayer and his family were evicted by police.

Other high-profile Stockholm court rulings f against the Russian partners in St. Petersburg's failed Subway Sandwiches joint venture, and against the Murmansk regional authorities over a salmon sports fishing camp once run there by American Bill Davies f have proved difficult to enforce.

But a key difference in these latest two rulings is that both are findings against state-owned structures with assets abroad that in theory could be seized through foreign courts.

Bartel said GlavUpDK had already refused to pay, prompting MCCI had taken the further step of getting the ruling converted into a U.S. Federal Court legal judgment. He said a next probable step would be to locate property owned by GlavUpDK outside Russia and make a claim against it.

Identifying foreign assets is even easier in Sedelmayer's case, as his ruling comes against the Russian state itself. Kaj Hober, resident partner in the Swedish law firm Mannheim Swartling's Moscow office, said his company had already moved to seize Russian state property on Sedelmayer's behalf in Sweden.

Hober refused to name specific assets his motion had targeted. But William Butler, a partner with Price Waterhouse who specializes in international arbitration, said that apartments or recreation facilities owned by a country's foreign trade delegation could be possible targets.

"You'd be surprised what countries end up owning," he said, and as an example offered the Russian ambassador's residence on Long Island in New York.

"That's worth millions," Butler said. "They bought it back in the '30s and real estate prices have skyrocketed."

The presidential administration has never commented on Sedelmayer's case over the years.

GlavUpDK Deputy Director Alexander Zinoviev, however, acknowledged in a telephone interview Thursday the existence of the court proceedings with MCCI, but said he did not know if an outcome had been reached.

Bartel said the Stockholm court's decision had been delivered to Zinoviev two weeks ago, and Zinoviev agreed that might be possible.

"You must realize that we have a protocol here with papers. It could take as long as a month for something like this to reach my desk," he said, adding that the documents may still tied up being translated.

Asked whether GlavUpDK would pay the award, Zinoviev said the state-owned company would "obey all laws."

In 1992, MCCI entered into the joint venture agreement with GlavUpDK to design and build the Moscow Country Club, a resort community in the suburb of Nakhabino, complete with a hotel, homes and Russia's first 18-hole golf course.

GlavUpDK was to provide the land, MCCI almost everything else f from financing and construction to recruiting club members and tenants.

In a telephone interview from his Sacramento, California offices, Bartel said the project stalled because GlavUpDK kept imposing new conditions before it would turn over the lease to the joint venture.

"They just changed the deal so that [MCCI] had to build everything before they would turn over the lease," he said. "[But] nobody was willing to finance a project where it was unclear who would control the land."

Unable to obtain further financing, MCCI halted construction in 1994 and declared bankruptcy. GlavUpDK took over the project and completed it. In an interview with The Moscow Times last year, Ivan Sergeyev, then the first deputy general director of commercial administration at GlavUpDK, said he expected $10 million in revenues from the country club for that year.

Chasing the assets abroad of the Kremlin or of the Foreign Ministry-affiliated GlavUpDK certainly ought to hold more promise than trying to track down the assets of Subway's St. Petersburg partner or of the Murmansk region's poverty-stricken local governments.

The Lozovero district of the Murmansk regional government owes Davies more than $913,000, according to a November 1997 Stockholm ruling that has been backed by the Russian Supreme Court. Davies sued the district for breach of contract after it sent a helicopter of armed men in black masks to force him and his clients off the site of a salmon fishing camp he had set up on the Varzina River with the government's cooperation.

Despite the Supreme Court ruling, however, the region has refused to pay, dragging out negotiations, and Davies has talked of seizing assets such as typewriters and telephones.

The U.S. partners in the failed Subway sandwiches joint venture won a $1.2 million judgment in January of 1997 against their former Russian partner. In 1994, the Americans and Russian citizen Vadim Bordug set up a joint venture to run a Subway sandwiches franchise on St. Petersburg's Nevsky Prospekt. By 1995, the partnership had spoiled, and Bordug controlled the restaurant, renamed Minutka. The Americans alleged they were forced with death threats and violence to leave. The Stockholm court agreed, and the Russian Supreme Court upheld the ruling.

But when court officers arrived to serve a writ of execution on Minutka for the judgment f now approaching $2 million with accrued interest f they were stymied by claims that Minutka is now run by a new entity called Submarine, which is not the company named on the court order.