X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
In the late 1990s, U.S. executives were fascinated with emerging markets like Turkey. They saw a chance to snare sales while such economies remained up-and-coming, cutting deals quickly, lest they lose turf. Yet haste in a foreign land makes waste of a different sort. As is now clear, investors who hope to collect on a stack of overseas IOUs must hop around the world’s courts. There, they find many of these legal systems as untamed as the wild economies. Mexico may have faltered in 1995, Russia in 1996, and Southeast Asia in 1997. Yet many investors in 1998 still found Turkey an irresistible target. Growing rapidly on the edge of Europe, the country offered 70 million customers, substantial tourism, and rapid technological development. When a Motorola Inc. subsidiary loaned millions and then billions of dollars’ worth of equipment and cash to a Turkish mobile phone company, the loan didn’t look like a big gamble. Or it just may be that Motorola didn’t stop to look. Telsim Mobil Telekomunikasyon Hizmetleri A.S., the company Motorola helped, was run by the Uzans, a wealthy Turkish family with a colorful record. In 1994, Turkish regulators accused the Uzans of looting one company to prop up others. Says one person involved with the Motorola case: “Anybody who spent much time talking to the Turkish business class would discern that, in a fairly cutthroat business environment, the Uzans stood alone.” Turkey’s economy crumbled in 2001. A devastating earthquake led to a general economic slump, which in turn led to a banking crisis and a sudden devaluation of the currency, the lira. In April 2001 Telsim defaulted on its loan. It cited the economic crisis as the cause. Motorola’s lawyers at Steptoe & Johnson, working with the investigative firm Kroll Associates Inc., concluded by January 2002 that other forces had caused the default. Along with fellow creditor the Nokia Corp., Motorola accused the Uzan family of diverting Telsim money into other companies. Claiming fraud and racketeering, the companies asked Judge Jed Rakoff, who sits in the U.S. District Court for the Southern District of New York, to get their money back. On July 31, in a blistering opinion, Rakoff awarded Motorola $4.2 billion, which was Telsim’s debt plus an equal amount as punitive damages. “Having fraudulently induced the loans, they have sought to advance and conceal their scheme through an almost endless series of lies, threats, and chicanery,” Rakoff wrote. He calculated that the Uzans had stolen $1 billion outright from Motorola. But, by then, the Uzans had already succeeded in convincing courts in Turkey and Switzerland to side with them against Motorola. In November 2002 the Uzans obtained an injunction from a court in Turkey, purporting to halt litigation against the family in the United States and other parts of the world. In January, Telsim employees — proxies for the Uzans, says Motorola — obtained another Turkish injunction ordering Motorola to stop its U.S. case. Citing these decisions, the Uzans and their lawyers from Gibson, Dunn & Crutcher and Baker Botts stopped participating in the U.S. litigation. Telsim had also initiated Swiss arbitration, as the loan contract called for. This turned into another example of the Uzans’ ability to find legal obstacles to shove in Motorola’s path. The move also put Motorola, a global company, in an unlikely role: seeking to stop international arbitration. Judge Rakoff blocked the Swiss arbitration in 2002, but dissolved that order in his July 31 decision, which ran to 173 pages. To capture Uzan funds, Motorola’s lawyers have been busy pursuing worldwide asset freezes, including the seizure of airplanes and other luxury assets in Manhattan, France, Germany, Bermuda, and Switzerland, as well as on the isles of Man, Guernsey, and Jersey. Ultimately, however, Motorola needs to succeed where companies like the Newmont Mining Corp., the Dillingham Construction Co., and Cargill Inc. have failed against other defendants: finding Turkish courts that will redress losses. Fortunately for Motorola, Turkey is changing. BUMPY RIDE For the first time in a decade, the national government is controlled by a single party. Turkey wants to join the European Union and knows that it must show a greater commitment to the rule of law if it is to gain that approval. Whether the evidence in the U.S. case caught up with the Uzans, or they simply pressed their luck too much, the Uzans’ ride in Turkey has finally hit some bumps. First, Turkish appellate judges threw out the injunctions banning litigation in other countries. (Motorola won appeals in Switzerland, too.) Then, in August, Turkish prosecutors charged the Uzans with stealing funds from one of their banks and issued Interpol arrest warrants for all but the family’s photogenic heir, Cem Uzan. He cut ties with the businesses when he unsuccessfully ran for parliament last year. Even if police collar the Uzans, getting their money out of Turkey won’t be easy. The family’s empire spans 130 different companies, including construction, utilities, and financial operations. They have sentimental support from many Turks for sticking it to U.S. companies. One other factor: the Uzans’ local lawyers. Turkey’s Capital Markets Board has sued Uzan companies 58 times since 1995 and have won just once. “Their true sophistication lies in the use of the courts and the legal systems to keep the victims of the frauds from recovering their money,” says Howard Stahl, the D.C.-based Steptoe lawyer tailing the Uzans. “Their best defense,” agreed Rakoff, “was obfuscation, allegations of bias, perversion of processes of the judiciary of other countries through collusion.” For appeals in the United States, the Uzans have added to Baker Botts and Gibson, Dunn three lawyers with outsized appellate reputations: Carter Phillips from Sidley Austin Brown & Wood’s D.C. office, Floyd Abrams from Cahill Gordon & Reindel in New York, and Nathan Lewin of D.C.’s Lewin & Lewin. “It’s Motorola that has used the American judicial system to keep from participating in the Swiss arbitration that it long ago agreed to,” says Abrams. Adds Lewin: “The facts do not justify allegations or findings of fraud.” So far, this team has won only one concession from the U.S. Court of Appeals for the 2nd Circuit, yet it may allow the Uzans to snarl the fight in Switzerland. The Turkish courts still may help the family, too. Earlier this year, two judges blocked the removal of Telsim stock from the country, and all appeals appear exhausted. The rulings are reminders that as overseas courts grow more reliable, rogues are becoming capable of fighting ever more elaborate legal battles. Matt Fleischer-Black is a senior reporter at The American Lawyer, where this article first appeared in the November issue.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.