Exiled Russian media tycoon Vladimir Gusinsky owns properties all over the world, but he chose to spend his summer in the gallery of a courtroom in lower Manhattan. Almost three years earlier, Gusinsky sued fellow Russian mogul Konstantin Kagalovsky in Manhattan Supreme Court, alleging that Kagalovsky had schemed to grab control of a Ukrainian TV network the two men jointly owned. The claims finally climaxed in a five-month bench trial before Justice Charles Ramos (See Profile) earlier this year, and Gusinsky did not want to miss the action.
His patience was rewarded last week, when Ramos ruled that Kagalovsky is liable to Gusinsky’s company for $28.6 million in damages, plus interest, in their ownership dispute over the Ukrainian network TVi. Ramos found that Kagalovsky secretly diluted Gusinsky’s interest in the network from 50 percent to less than 1 percent, breaching contractual and fiduciary duties. The judge’s 108-page decision in New Media Holding v. Kogalovsky, 603742/09, was issued on Aug. 16.
Gusinsky was represented by C. William Phillips, a partner in Covington & Burling, who has been Gusinsky’s legal adviser since he left Russia more than a decade ago to avoid criminal charges brought against him by Vladimir Putin. Despite being forced into exile and having much of his vast media empire stripped from him, Gusinsky continues to invest in media projects in the former Soviet bloc. Kagalovsky, a former Yukos Oil Company vice president, also is living in exile. Ramos described them as “two former friends, each a remarkable and successful businessman.”
According to the decision, Gusinsky came up with the idea of investing in a Ukrainian TV station in 2007. He asked Kagalovsky, who was living in London at the time, to jointly fund the venture, and Kagalovsky agreed. TVi was a hit, growing from the 47th-ranked Ukrainian network to the 14th-ranked in less than a year. But the two moguls had different visions for the network’s future, and the partnership soured in the summer of 2009.
Despite signing an agreement in September 2009 stating that he wouldn’t take any aggressive action toward Gusinsky, later that month Kagalovsky allegedly instructed the company’s CEO and its directors to issue new stock certificates, diluting Gusinsky’s ownership stake. And he ordered one of his advisors, who served as the company’s accountant, to withhold payments from entities owned by Gusinsky.
Meanwhile, Gusinsky continued to pour millions of dollars of his own money into the company. It wasn’t until November 2009 that one of Gusinsky’s Ukrainian lawyers noticed discrepancies in the company’s stock filings and alerted his client.
Covington filed suit for Gusinsky’s New Media Holding Company later that year in New York, where agreements between Gusinsky and Kagalovsky were signed.
Kagalovsky, initially represented by John Moscow of Baker & Hostetler, moved to dismiss the case, arguing unsuccessfully that New York courts don’t have personal jurisdiction over the matter. Kagalovsky also failed to persuade the High Court of Justice in London that the case did not belong in New York.
Kagalovsky candidly admitted in a deposition conducted by Phillips that he has “used the traditional Russian and Ukrainian method” to oust Gusinsky, that is, secretly diluting his shares. When Kagalovsky took the stand at trial, he had no choice but to concede that he made the remark. Kagalovsky’s advisors similarly conceded at trial that they could have told Gusinsky about the scheme but didn’t.
“It is a terrific win for our client after three years of fairly intensive litigation around the world,” Phillips said. “This was an action where venue might lie in several different jurisdictions, but Gusinsky always wanted to bring this case in New York because he thought that the quality of justice that he has received in its courts is the best in the world.”
Kagalovsky was represented at trial by Fredric Newman and Joshua Rievman of Hoguet Newman Regal & Kenney.
@|Jan Wolfe, a reporter at The Litigation Daily, an affiliate, can be contacted at email@example.com.