Russian Auto Co.'s $58M Suit Against Banker Revived

Published on:
January 4th, 2019
Sean Hecker
Photo Credit: Sylvie Rosokoff

A New York state appeals court revived a $58 million lawsuit by a Russian auto sales company against a former banker on Thursday, saying a Manhattan judge was wrong to find that a related case in federal courts had addressed the same issues.

Sergey Leontiev, who led Probusiness Bank until Russian bank regulators took it over in 2015, appeared to have prevailed when Justice Barry Ostrager dismissed a suit in 2017 by Avilon Automotive Group and its owner’s son that sought to collect on some $58 million that Leontiev allegedly owed. The state judge found that Avilon was trying to do an end-run around a federal suit that Leontiev brought against Avilon’s former president to halt collection efforts.

But the First Department of New York’s Appellate Division ruled Thursday that the lower court had gone too far, finding that Avilon wasn’t actually a party to the federal suit Leontiev filed to halt the debt collection efforts by Alexander Varshavsky, the auto dealer’s president. Trying to deny Avilon and its affiliates a “second bite at the apple” risked denying them the day in court that they were entitled to, the court said.

Avilon and Karen Avagumyan, whose father partly owns Avilon, claim Leontiev didn't repay the high-interest loans he took out to fund his financial empire, fled to New York and hid his money in a Cook Islands trust. Leontiev persuaded the lower court that Avilon and Avagumyan should have defended their rights in the federal court where Leontiev had filed suit against Varshavsky, but the First Department disagreed.

“Plaintiffs’ putative rights to intervene as party defendants in the federal action, or to assign their claims to Varshavsky, are far from clear,” the appellate court said. “Either option, intervention or assignment, might have been rejected by the federal court as an attempt to evade the strictures of diversity jurisdiction.”

While U.S. District Judge Jed Rakoff ruled in favor of Leontiev in his suit against Varshavsky and criticized the auto sales businessman for trying to collect on the debt in his own name, the revival of state suit against Leontiev means the dispute isn’t over. The appeals court instructed Justice Ostrager to reconsider whether he had authority over one of Leontiev’s alleged shell companies and to evaluate Avilon and Avagumyan’s request to beef up their complaint.

Lawyers for Avilon said they were happy with the decision, which came eight months after the case was argued. Attorney Sean Hecker called it “a significant victory for our clients and a vindication of their position in this matter.”

“We are pleased that the Appellate Division has ensured that our clients will have their day in court,” he said in a statement.

A lawyer for Leontiev declined to comment. Lawyers for Wonderworks, a company named in the suit that Leontiev allegedly used to hide his assets, didn’t respond to requests for comment.

Both Avilon and Leontiev have been tarred in news reports and other litigation. A European nonprofit news service said in a 2017 story that Avilon had “secret business connections” with top Russian law enforcement officials and their family members around the time that it won a $12 million contract with the national prosecutor’s office, among other state tenders. Avagumyan’s father was quoted as saying the contracts were won fair and square.

Leontiev has been accused by Russia’s government of embezzling from Probusiness Bank. The country’s Depository Insurance Agency, or DIA, has filed suit in Manhattan federal court to subpoena him for information about the ownership and movement of money among dozens of companies for use in Russian legal proceedings. Leontiev has said the allegations are false and has told the court he wants a declaratory judgment that would clear his name.

He has accused Russia’s DIA of working with prosecutors to try to take him down, and argued that responding to the subpoena may violate U.S. sanctions. A prosecutor and another DIA lawyer have been sanctioned for their role in the arrest and death in custody of a man who was jailed while investigating an alleged tax fraud scheme.   

Avilon and Avagumyan are represented by Sean Hecker of Kaplan Hecker & Fink LLP and William H. Taft V, Nathan S. Richards and Megan Corrarino of Debevoise & Plimpton LLP.

Leontiev is represented by Robert L. Weigel, Alison L. Wollin and Marshall R. King of Gibson Dunn & Crutcher LLP. Wonderworks is represented by Andrew C. Lourie, Lindsey Weiss Harris and Carrie A. Tendler of Kobre & Kim LLP.

The case is Avilon Automotive Group et al. v. Leontiev et al., index number 656007/2016 in the Supreme Court of the State of New York, County of New York and appeal number 2017-2755 in the First Judicial Department of the Appellate Division.


Read this at Law360.