Yukos' US court case could bring further damages

Jan 11, 2005 01:00 AM

Russian oil company Yukos' bid to use US courts to protect its crumbling empire could be thwarted by a federal judge and ultimately backfire against the company, according to an opponent in the case and legal experts.
Yukos, which made a surprise US bankruptcy filing in Houston last month in a failed bid to block the Russian government's auction of its Yugansk arm, said it would seek to determine whether Russian gas monopoly Gazprom or its banks had violated a court ruling which prevented it from taking part in last month's auction.

A lawyer for Gazpromneft, the former Gazprom unit that Yukos sued as part of its bankruptcy filing, said Yukos would first have to overcome a jurisdiction challenge lodged by Deutsche Bank, the lead bank in the lending consortium behind Gazpromneft. That means Yukos must justify bringing its case to the Houston court before it can use the court's fact-finding discovery process to dig for information about last month's auction, Gazpromneft lawyer Michael Goldberg said.
"The discovery issues will be relevant to the motion to dismiss the suit. This will include showing that Gazpromneft has absolutely zero contacts with Texas," Goldberg, a lawyer at Houston-based law firm Baker Botts, told.

A two-day court hearing will begin Feb. 16 for arguments on that dismissal motion. Lawyers are expected to complete the discovery process later this month. Legal experts said Judge Letitia Clark would have wide latitude in deciding how much information the lawyers could seek during that process.
"It's really hard to predict. Discovery is a very discretionary area (for the court)," said Jay Westbrook, a bankruptcy expert at the University of Texas. Yukos hopes that process will shed light on the Baikal Finance Group, the unknown company that bought Yugansk for $ 9.4 bn in last month's auction and was then itself bought by state-controlled oil company Rosneft.

Yukos has said it would seek damages of up to $ 20 bn against anyone who participated in the auction, which it said significantly undervalued Yugansk. If the US court decides it has no jurisdiction, Yukos could be vulnerable to lawsuits for bringing its case to Houston.
"Yukos continues to threaten anyone involved in Russian oil with a suit for $ 20 bn. Yukos should be more concerned with the damages they and their lawyers have caused with these improper threats and their wrongful Texas suit," Goldberg said.

Legal experts agreed that such claims could be justified if Gazpromneft showed it suffered financially from its court-ordered exclusion from the auction.
"If (Gazpromneft) is right that there's no jurisdiction, that argument could be convincing," said Nancy Rapoport, bankruptcy expert and dean of the University of Houston Law Centre. Rosneft is being merged with Gazprom, but Russian authorities have said the Yugansk operations would remain part of a separate entity.

Many observers have said Yukos and its former head Mikhail Khodorkovsky are the victims of a Kremlin campaign to bring Russian businesses to heel and return the country's valuable natural resources to Moscow after a decade of privatisation.
Russian authorities auctioned off Yugansk, which produces more than 1 mm bpd of oil, in a bid to recover part of the $ 27.5 bn in back taxes it says Yukos owes. Yukos has contested that tax claim, but says it cannot get a fair hearing in Russia.

Source: MosNews
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