Are Mireva Rulings Coming to the United States?
Readers of our website know that we have written extensively about the Mareva ruling, a form of ex parte preliminary injunction increasingly granted by courts outside the USA to freeze debtor assets. A 2021 Florida state court decision has created a great deal of unease among debtors’ representatives concerning the reach of foreign creditors, and whether the Mareva ruling is likely to become a popular – and very powerful – creditor’s tool here in the USA.
The Mareva Case
The Mareva ruling owes its name to a 1975 case in the English Court of Chancery, Mareva Compania Naviera S. A. v. International Bulkcarriers S. A., 2 Lloyd’s Rep. 509. The creditor in that case had requested what would be commonly referred to here in the USA as a preliminary injunction, enjoining the debtor from reaching and dissipating assets. As with the prevailing view among American courts, the Mareva court acknowledged that a court in England had no power to protect a creditor prior to judgment. However, the court found authority for an injunction by relying on a statute giving courts the authority to grant an interlocutory injunction “‘in all cases in which it shall appear to the court to be just or convenient.'” Id. at 510 (quoting Judicature Act of 1925, Law Reports 1925 (2), 15 & 16 Geo. V, ch. 49, § 45). Upending the extant balance of debtor-creditor law of the time, Lord Denning announced that “if it appears that the debt is due and owing – and there is a danger that the debtor may dispose of his assets so as to defeat it before judgment – the Court has jurisdiction in a proper case to grant an interlocutory judgment so as to prevent him [sic] disposing of those assets.” 2 Lloyd’s Rep., at 510. The Mareva injunction has now been codified into law in England. See Supreme Court Act of 1981, § 37, 11 Halsbury’s Statutes 966, 1001 (4th ed. 1985).
Mareva in Federal Courts: Grupo Mexicano
In 1999, the U.S. Supreme Court was asked to consider allowing Federal courts to enforce Mareva rulings here in the USA in Grupo Mexicano De Desarrollo v. Alliance Bond Fund, 527 U.S. 308 (1999). Writing for the Court, Justice Antonin Scalia observed that the adoption of Mareva rulings was a dramatic departure from prior practice for the courts in England. Id. at 337. He also ominously noted that the Mareva ruling has been called the “nuclear weapon of the law.” Id., quoting R. Ough & W. Flenley, The Mareva Injunction and Anton Piller Order: Practice and Precedents xi (2d ed. 1993).
The Supreme Court opted not to extend the authority of the Federal courts to Mareva rulings, deferring instead to Congress to decide whether to vastly expand creditor rights at the expense of debtors. Quoting one commentator’s critique of Mareva rulings as “manifestly * * * susceptible of the grossest of abuse,” the Court instead held fast to the requirement that the creditor obtain a prior judgment before being able to request an injunction. Id. at 338. Justice Scalia emphasized that the requirement of a prior judgment is a fundamental protection in debtor-creditor law, particular in the Federal court system, where the debtor has the right to a jury trial on civil claims. Id.
“Justice Scalia emphasized that the requirement of a prior judgment is a fundamental protection in debtor-creditor law, particular in the Federal court system, where the debtor has the right to a jury trial on civil claims.“
-Stephen E. Speiser, Esq.
Enter Gorsoan Ltd. v. Bullock
In early 2021, Florida’s Eleventh Judicial Circuit ruled that a Florida state court can recognize and enforce a foreign court’s non-final order, including a Mareva-style global freeze order. Gorsoan Ltd. v. Bullock, Case No. 2020-020803-CA-01 (Fla. 11th Cir. Ct. 2021). This case is noteworthy for a number of reasons: It features a prominent Russian businessman who lost political favor and fled the country, only to face protracted litigation at the hands of a politically interested entity. It also raises important questions about judicial comity given what the world has learned about the Russian legal system and its disregard for international norms.
Background
The creditor in Gorsoan was a shell company formed in Cyprus by Russia’s Gazprombank, which assigned to Gorsoan all of Gazprombank’s potential claims against Bullock and her then-husband, Alexey Kuznetsov, who had been a finance minister and vice-governor for the Moscow regional government. Before entering Russian politics, Kuznetsov was one of the most prominent bankers in Russia. Alas, he did not enjoy the support of Russian President Vladimir Putin and was forced to resign in 2008. The Kremlin thereupon sought his political office as well has his personal assets.
Shortly after its formation in 2012, Gorsoan filed an ex parte request in the country of Cyprus for a global freeze order against Bullock and Kuznetsov. The Cypriot court granted an interim freeze order, and this was later converted in 2013 into a permanent freeze order of “up to” $26 million among Bullock’s and Kuznetsov’s worldwide assets. That same year, Bullock and her then-husband appeared in the Cypriot court to challenge jurisdiction, which was denied. At no point did a Cypriot court hold a hearing on the merits of Gorsoan’s claims, and Gorsoan has never obtained a final judgment in Cyprus. Instead, Gorsoan has used the Cypriot freeze order to pursue Bullock and Kusnetsov in other courts elsewhere in the world, including in France and the United States.
“At no point did a Cypriot court hold a hearing on the merits of Gorsoan’s claims, and Gorsoan has never obtained a final judgment in Cyprus. Instead, Gorsoan has used the Cypriot freeze order to pursue Bullock and Kusnetsov in other courts elsewhere in the world.”
-Stephen E. Speiser, Esq.
The Florida Litigation
In 2020, Gorsoan filed a complaint in the Florida state court seeking recognition of its Cypriot injunction as well as a judicial order freezing Bullock’s assets in the State of Florida. In particular, Gorsoan sought a freeze on any transfer of Bullock’s interest in a luxury condominium on Miami Beach’s Fisher Island.
Bullock submitted a motion to dismiss contending that (i) Florida state courts should not grant full faith and credit to non-final orders issued by a foreign court and (ii) recognizing the foreign freeze order would offend public policy. Florida’s 11th Circuit Court, however, disagreed, relying on Amezcua v. Cortez, No. 3D20-1649 (Fla. 3d DCA Jan. 13, 2021).
Amezcua holds that Florida courts will give effect to foreign decrees when the following conditions are satisfied:
- The parties have been given notice and the opportunity to be heard.
- The foreign court has original jurisdiction.
- The foreign decree does not offend the public policy of the State of Florida.
Notably, the 11th District Court did not analyze these elements outlined in Amezcua. Instead, the court focused on whether recognition should be limited to final judgments as opposed to interim orders. Ruling in favor of Gorsoan, the 11th District court cited precedent that “repeatedly approved the enforcement in Florida of temporary injunctions issued by foreign courts as a matter of international comity,” Cermesoni v. Maneiro, 144 So. 3d 627, 629 (Fla. 3d DCA 2014).
Perhaps the most compelling argument to be made by Bullock was that enforcement of the Cypriot court’s order in a Florida court gave Gorsoan a remedy that it would not likely have under Florida law, since Florida courts do not grant pre-judgment Mareva rulings. The Eleventh Circuit, however, dispensed with this challenge, explaining that comity is not limited to orders and judgments that could have been secured in a Florida court applying Florida law.
Is Gorsoan Good Law?
Public Policy Concerns
Gorsoan was decided by the 11th District Court in 2021, one full year before Russia’s invasion of Ukraine caused many Western governments to reassess their relationship with the Russian government. Many businesses have left Russia due to new and heavy sanctions, as well as a hostile business environment there. In the past, politicians looked askance as Russia conducted assassinations of political opponents in Europe and stole assets of its political enemies. Now such behavior invites a profound response from Western governments.
Put simply, the Gorsoan ruling is dubious, and it is extremely doubtful that an American court would entertain Gorsoan’s claims today on public policy grounds. Moreover, a careful review of the facts points up a profound mistake made by the 11th Circuit in its ruling, which makes the Gorsoan decision unlikely to be followed in future cases.
“Put simply, the Gorsoan ruling is dubious, and it is extremely doubtful that an American court would entertain Gorsoan’s claims today on public policy grounds.”
-Stephen E. Speiser, Esq.
The Requirement of the Opportunity to be Heard
The 11th Circuit cited Amezcua as controlling authority over the recognition and enforcement of foreign judgments, pointing out that Amezcua was a judicial effort to reconcile Florida state law with the Restatement (Second) of Conflicts of Laws. One important requirement under the Restatement for the recognition of a foreign judgment or order is that the defendant be given notice and an opportunity to be heard. However, Mareva rulings are obtained on an ex parte basis… The very essence of a Mareva ruling is that the freeze order is a surprise, preceding any effort by the debtor to abscond with assets before a hearing is conducted. Technically, a Mareva ruling should never be recognized under the Restatement standard.
Similarly, Amezcua requires that a party be given notice and an opportunity to be heard on the merits. Bullock was not afforded this opportunity in the Cyprus court, as the freeze order was granted on an ex parte basis. Accordingly, the 11th Circuit should have denied Gorsoan’s request to have the Cypriot freeze order recognized under Florida law. Unfortunately, while Bullock’s attorneys pointed out this fact in their brief to the 11th Circuit, they failed to connect this fact to the case law, and the 11th Circuit did not pick up on it when issuing their ruling. Rather, the court stated the opposite, that “the parties do not dispute that Bullock was given notice and an opportunity to be heard.” Due to this notable flaw in its ruling, Gorsoan should not be cited as precedential authority.
Reconciling Grupo Mexicano
Florida’s 11th Circuit ruling in Gorsoan does not once mention the U.S. Supreme Court holding in Grupo Mexicano, which precludes the availability of Mareva-type injunctions in Federal civil cases. Bullock’s attorneys argued extensively in their brief that Florida courts follow Grupo Mexicano and deny Mareva rulings in original proceedings.
Does Gorsoan give rise to a loophole in Florida state courts? Can a creditor avoid Grupo Mexicano merely by obtaining a Mareva ruling in a foreign court and seeking recognition of that ruling in a domestic state court? We do not think so. Grupo Mexicano precludes the Mareva-type remedy in Federal courts because the remedy denies the defendant-debtor an opportunity to be heard. Amezcua imposes the same requirement in Florida state courts, that the defendant-debtor have an opportunity to be heard.
“Does Gorsoan give rise to a loophole in Florida state courts? We do not think so.”
-Stephen E. Speiser, Esq.
Conclusion
The 11th Circuit made a profound error when they cited – incorrectly – that the debtor had been given an opportunity to be heard on the merits of the case. Bullock’s attorneys stated to the contrary, and the court should have conducted a hearing on this point. Had the court inquired further, they likely would have determined that the requirements for foreign judgment recognition under Amezcua had not been satisfied, and that the Cypriot freeze order should not be recognized and enforced under Florida law.
A more thorough investigation would likely have led to Gorsoan withdrawing its lawsuit or being tossed out on the courthouse steps. The entire nature of the case – the creation of Gorsoan as a special purpose litigation entity for the Russian government to exact KGB-style punishment on its political opponents – warranted that it be dismissed. We are not surprised to see that Russia affirmatively chose Cyprus as the jurisdiction in which to bring the case, as the legal and political systems there are heavily influenced by the Russian government. We suspect that Gorsoan would never have been created had the Russian authorities not received advance assurances that a Mareva ruling would be granted.
This was an abusive case that should have never been entertained by the 11th Circuit, which made itself out to be a pawn of a corrupt Russian oligarchy. When being asked to recognize and enforce a foreign court order, state courts should carefully examine whether the proceedings leading up to the foreign court order have afforded the defendant an opportunity to be heard on the merits of the underlying claim. The Restatement was not intended to offer a pathway for corrupt politicians and human rights abusers to exact revenge on their political opponents.
“When being asked to recognize and enforce a foreign court order, state courts should carefully examine whether the proceedings leading up to the foreign court order have afforded the defendant an opportunity to be heard on the merits of the underlying claim.”
-Stephen E. Speiser, Esq.
A Mareva ruling denies a defendant-debtor the opportunity to be heard. Had the 11th Circuit conducted an inquiry on this point, they would have determined that the Cypriot ruling was granted ex parte and without a hearing on the merits, and that no judgment had ever been obtained. Further investigation would have revealed the Cypriot proceedings to be an abuse of court process. For this reason, Gorsoan should not be considered precedential authority.