Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

U.S. Rules Firm Can Seize GlavUpDK Assets

The Western partner in a joint venture gone bad has cleared another hurdle in its attempt to recover lost profits from GlavUpDK, a state-owned company that is the second largest real estate owner in the Russian capital after the city of Moscow.

A U.S. federal court has recognized a $23 million Stockholm arbitration court decision in favor of the California-incorporated Moscow Country Club Inc., or MCCI. The ruling allows MCCI to make a claim against any property in the United States owned by GlavUpDK, the defendant in the suit.

"Our court here in California has confirmed the award into judgment," said Scott Bartel, of Bartel Eng Linn & Schroder, which is representing MCCI.

"The actual paperwork is still being signed, though, ... [so] we have not yet started in earnest any collection effort."

The dispute between the two sides centers on the Moscow Country Club, a resort in the suburb of Nakhabino with corporate housing, a luxury hotel and an 18-hole golf course, Russia's only stop on the Professional Golfers Association tour. In September, an arbitration court in Stockholm, Sweden, ruled that GlavUpDK had reneged on its part of the contract with MCCI by not turning over the lease on the property to the joint venture.

MCCI had claimed that financing for the project, begun in 1992, dried up as investors' concerns increased over the ownership of the lease. In 1995, MCCI went bankrupt, leaving the whole of the project to GlavUpDK, which has since made it into a successful enterprise.

Last week, in fact, GlavUpDK - the Russian acronym stands for General Administration for the Diplomatic Corps - announced the grand reopening of Le Meridien, the five-star hotel at the country club, following extensive renovation. The hotel was originally a retreat for GlavUpDK employees, a country club spokesman said.

Bartel said GlavUpDK had not opposed MCCI in the U.S. court.

"We have received no opposition, or even acknowledgement, on the part of GlavUpDK" since the Stockholm ruling, he said. "Basically they're ignoring us."

GlavUpDK Deputy Director Alexander Zinoviev, contacted by telephone Thursday, refused to comment on the matter, saying only that "this is a long process" and it was too early to say anything about it.

The next likely step for MCCI is to determine if GlavUpDK has any holdings in the United States, against which a claim could be made. According to a spokesperson for the state-owned company, however, the only overseas property GlavUpDK owns is a 60 percent stake in a timber mill in Cambodia.

MCCI could theoretically make a claim against the mill, because Cambodia is a signatory of the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbiter Awards, which means that the Stockholm court's ruling should be recognized there.

Just because a country signed the convention doesn't mean that collection is guaranteed, however, according to a lawyer who specializes in arbitration.

"The convention leaves room to each individual state when it comes to the enforcement," said Kaj Hober, resident partner in the Swedish law firm Mannheim Swartling's Moscow office. "There have been several instances in China, for example, where collection has proven very difficult, even though China is a signatory of the convention."

While emphasizing that he did not know the details of the case, Hober said another tack MCCI might take is to try to make a claim against property owned by the Russian Foreign Ministry in the United States. In order to do that though, MCCI would have to prove that GlavUpDK was a part of the government, despite its assertion that it is a separate company.

"I am not saying they would necessarily be successful at the end of the day," he said. "But it is something that should not be excluded."