Case 1:11-cv-02794-KMW Document 116 Filed 08/19/14 Page 1 of 4

MILLER
CHEVALIER Richard A. Hibey
Member
(202) 626-5888
rhibey@milchev.corn

VIA ECF

The Honorable Kimba M. Wood

United States District Judge
Daniel Patrick Moynihan United States Courthouse
500 Pearl Street
New York, NY 10007

Re: Tymoshenko v. Firtash et al., Civil Action No. 11-02794 (KMW)

Dear Judge Wood:

We write on behalf of defendants Paul Manafort, Brad Zackson, CMZ Ventures, LLC,
the Dynamic Group, Barbara Ann Holdings, LLC, and Vulcan Properties, Inc. ("the U.S.
Defendants") in response to the Court's August 4, 2014 order posing the following question: to
what extent, if any, does the Second Circuit's recent decision in European Cmty. v. RJR Nabisco,
Inc. ("RJR"), No. 11-cv-2475, 2014 U.S. App. LEXIS 7593 (2d Cir. Apr. 23, 2014), affect the
arguments raised in the U.S. Defendants' pending motion to dismiss? The short answer is that
RJR does not essentially alter the analysis supporting dismissal of the Second Amended
Complaint ("SAC") in this case.

We answer the Court's question in the context of the procedural history of this case. The
Court dismissed the Amended Complaint (see Dkt. No. 78), the SAC is subject to a motion to
dismiss (see Dkt. No. 89), and the Plaintiffs have twice failed, after receiving the Court's
permission, to supplement the record with "significant additional evidentiary support with regard
to the legal issues raised in the pending motion to dismiss." Dkt. No. 111 at 1 (quoting Dkt. No.
101 at 1).

As set forth more fully in our motion to dismiss, there is no material difference between
the RICO allegations in the SAC and those in the previously dismissed Amended Complaint.
Dkt. No. 89 at 5-7. Notwithstanding the eleventh-hour inclusion of two New York residents'
employment complaints, this case remains focused on "a foreign enterprise and a pattern of
racketeering activity that occurred abroad." See Dkt. No. 78 at 19. As this Court noted, in Norex
Petroleum Ltd. v. Access Indus., Inc., 631 F.3d 29 (2d Cir. 2010), the Second Circuit held that
RICO does not apply extraterritorially and that "simply alleging that some domestic conduct
occurred cannot support a claim of domestic application." Id. at 33.

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RJR confirmed part of the holding in Norex: mail and wire fraud predicates cannot
support extraterritorial application of the RICO statute. RJR, 2014 U.S. App. LEXIS 7593, at
*25-26. Moreover, in an opinion issued after RJR, the Second Circuit held that financing
obtained in the U.S., invoices sent to a U.S. bank for payment, and payments issued from a U.S.
bank were insufficient to sustain RICO jurisdiction where wire fraud was the RICO predicate.
Petroleos Mexicanos v. SK Eng'g & Constr. Co., No. 13-cv-3175, 2014 U.S. App. LEXIS 13496
(2d Cir. July 16, 2014). For the reasons stated in this Court's March 26, 2013 order, the
Plaintiffs' RICO claim, to the extent it is predicated on mail and wire fraud, fails. See Dkt. No.
78 at 22 (finding "the scheme alleged by Plaintiffs [in the Amended Complaint] to be foreign,
and the connection to the United States to be incidental").

And even where the SAC relies on money laundering as the predicate RICO offense, RJR
cannot save it from dismissal for failure to state a claim. RJR did not purport to overrule Norex. 1
Instead, the RJR panel held that the district court "misread" Norex and concluded that Norex did
not "consider whether and how RICO may apply extraterritorially in the context of claims"
involving predicates with extraterritorial application. RJR, 2014 U.S. App. LEXIS 7593, at *13.
That statement, however, ignores the plain language of Norex which held that because "RICO
is silent as to any extraterritorial application," it "has none," even though "a number of RICO's
predicate acts possess an extraterritorial reach," Norex, 631 F.3d at 32-33.2 Indeed, in
dismissing plaintiffs' Amended Complaint in this case, this Court recognized that "[a]lthough
Norex's complaint alleged that the defendants 'had committed numerous acts in the United
States' to further the scheme, including money laundering, the Second Circuit nonetheless
dismissed the claim." Dkt. No. 78 at 20 (emphasis added, citation omitted).

Accordingly, RJR must be read narrowly and confined to its own clear language: an
extraterritorial money-laundering-based RICO complaint can survive "under specified
circumstances, including those alleged in the Complaint [before it]." RJR, 2014 U.S. App.
LEXIS 7593, at *22-23. In RJR, the extraordinary circumstances justifying extraterritorial
application of the RICO statute included a money-laundering scheme controlled by a U.S.
company and directed by its executives and employees in which currency generated by illegal
narcotics smuggling was laundered through money brokers and then used to purchase cigarettes
from the U.S. Company. Id. at *5-6. The U.S. Company then directed the distribution of those
cigarettes through a country with secrecy laws to shield the transactions from government
scrutiny, filed numerous fraudulent documents with U.S. government authorities to further the
smuggling and money-laundering scheme, and received the profits from this circular scheme in
the United States. Id. at *6-7.

I Of course, it could not, given that a panel of the court of appeals will not overturn a recent decision of
another panel, rendered after full consideration of the very point at issue. Thomas E. Hoar, Inc. v. Sara
Lee Corp., 900 F.2d 522 (2d Cir. 1990).

2The Defendants-Appellees in the RJR case have filed a Petition for Panel Rehearing or Hearing En
Banc. Document 148, No. 11-cv-2475 (2d Cir. May 7, 2014). The petition is grounded, in part, on this
conflict. See id. at 13-14. The Second Circuit has not yet ruled on the petition.

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Those specific factual allegations allowed the RJR panel to find that the complaint pled
critical elements of a money-laundering predicate RICO offense, including conduct by a U.S.
citizen, knowing engagement in monetary transactions, and the criminally derived nature of
property involved in such transactions. See id. at *23-24 (citing 18 U.S.C. 1956, 1957).

RJR did not, of course, alter the fundamental requirement that a complaint must contain
facts sufficient "to state a claim to relief that is plausible on its face." Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007), or diminish the principle that a court is "not bound to accept
as true a legal conclusion couched as a factual allegation." Id. at 555. Indeed, in circumstances
such as those presented here, where a plaintiff seeks to maintain an action in a U.S. court focused
on the alleged mistreatment of a controversial Ukrainian politician by her political enemies, it is
paramount to plead with particularity what conduct occurred and where it occurred so a court
might determine whether there is sufficient contact with the United States to give cognizance to a
RICO claim.

The failure of the SAC to satisfy Twombly is clear, especially when it is compared to
RJR. It fails to include any plausible factual allegations that support the extraordinary claim that
the U.S. Defendants were engaged in a continuing criminal enterprise with money laundering as
a predicate offense. This is because this case is, as it has always been, part of a protracted
struggle between rival Ukrainian politicians about the disposition of Ukrainian natural gas
contracts. The introduction of two New Yorkers complaining about their loss of employment
when real estate transactions failed to close cannot obscure that fact or properly vest jurisdiction
over the Ukrainian dispute in a federal courtroom.

Throughout the SAC, Plaintiffs repeat sinister catch-phrases like "defendants' U.S.-based
Racketeering Enterprise" and "series and pattern of racketeering acts within the U.S." without
pleading specific facts to support those legal conclusions.3

Unlike RJR, where the criminal derivation of the property used in the scheme was clear,
here the Court is left to guess how money generated in Ukraine might implicate U.S. money-
laundering statutes. And even if the Court were able to somehow answer that question, the SAC
offers no meaningful facts supporting the knowing involvement of a U.S. person in laundering
that money, because the most the SAC does is suggest that Firtash was a "silent partner" of the
U.S. defendants notwithstanding the fact that he is not listed on any of the U.S. Defendants'
corporate documents, and that Mr. Manafort "knew" Firtash had obtained his money illegally
because he served as a political advisor to former President Yanukovich.

While the Court is compelled to accept well-pleaded facts as true and draw inferences in
favor of the plaintiff at this stage, it is not required to entertain 'naked assertion[s]' devoid of
`further factual enhancement.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly,

3 See Dkt. No. 89 at 4-11; Dkt. No. 98 at 2-6; see also, e.g., Dkt. No. 87 4, 20, 60, 84-92, 96-100.

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550 U.S. at 557). Indeed, the Supreme Court has made clear that Rule 8 "demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation." Id.

The few facts contained in the SAC simply do not articulate a coherent money laundering
theory. Vague allegations about promised but undelivered escrow deposits, meetings between
"agents," "investors," and "silent partners," and unconsummated real estate deals offer no
answers to fundamental questions such as how these dealings would have laundered funds, how
the U.S. Defendants knew that never-delivered funds were the proceeds of specified illegal
activity, or how this alleged scheme inflicted injuries in the United States. The Court has given
the Plaintiffs multiple chances to comply with Rule 8, and they simply cannot do so. When
juxtaposed against the RJR recitation of facts that supported that RICO claim, the SAC's
deficiencies are stark and compel dismissal, and for the reasons set forth in our earlier pleadings
related to the long and tortured history of this case, we renew our request that the dismissal be
with prejudice.

Sincerely,

ichard
cc: All counsel of record (via ECF)

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