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Can a U.S. bank get a fair trial in Moscow?

By Roger Parloff, senior editor
Last Updated: September 24, 2008: 7:22 AM ET

By early 2006, Russia had told Marks to go forward with a claim against the Bank of New York. Why did Marks choose to bring the case in Russia? The lawyer contends he was effectively required to do so, because of a Manhattan federal district judge's 2001 ruling in a case known as Pavlov v. Bank of New York. In that instance, some depositors in an insolvent Russian bank sued the Bank of New York in Manhattan, claiming that their losses were ultimately traceable to the Edwards-Berlin scheme. Bank of New York lawyers argued that the depositors' case was mainly a Russian matter and should be heard in a Russian court, which could provide "an adequate, alternative forum."

Though the depositors protested that Russian courts were corrupt, the Manhattan judge dismissed the case anyway, finding that "it is not the business of our courts to assume the responsibility for supervising the integrity of the judicial system of another sovereign nation."

Marks argues, "The court said that that case didn't belong here and booted it to Russia. If I'd filed a new action in New York, the Bank of New York would've moved for sanctions!" Marks also contends that because the Bank of New York favored moving the Pavlov case to Russia, it is now legally barred from taking a contrary position in the current case.

The bank's counsel, Schiller, says that Marks' arguments are nonsense. "Pavlov was a case brought by private citizens of Russia regarding the failure of a Russian bank," he says. "The Bank of New York was not faced in that case with a government action in a court where U.S. and U.K. published court opinions have found that the [Russian] government has influence."

Schiller has a different theory for why Marks filed the case in Russia: "It would be summarily dismissed in the U.S. based on clear and controlling federal precedent."

Before filing suit, Marks met in the spring of 2006 with the Bank of New York's executive vice president and deputy general counsel, Matt Biben. Marks has acknowledged that on behalf of Russia he asked the bank to fork over $600 million if it wished to avoid litigation. Biben had joined the bank in 2004, after spending 12 years as a federal prosecutor - six in Manhattan - and having brought many criminal RICO suits himself. Biben had also personally negotiated the language of the Bank of New York's nonprosecution agreement in 2005. Biben says that Marks offered no documentation or written analysis for his demand, which Biben rejected. "It was certainly not the type of information that any corporation would make a serious decision based upon," he says.

Marks filed suit for $22.5 billion in the Arbitrazh Court for the City of Moscow in May 2007. There is no question that U.S. courts are sometimes called upon to apply the laws of foreign countries, and vice versa. While this is apparently the first time anyone has ever tried to bring a civil RICO case in a foreign court, the question of whether one can properly do so is ultimately a question of Russian law, not U.S. law. Still, legal niceties aside, there's an elephant in the room: Does anyone really think a U.S. bank running up against the Russian state can get a fair hearing in a Russian court?

According to three academics consulted by Fortune, the Moscow arbitrazh court's objectivity in any matter is likely to be inversely proportional to the state's interest in the case. In addition, three of the American legal experts who are currently serving as retained experts for Russia in the Bank of New York case, including Notre Dame law professor G. Robert Blakey, are listed as co-counsels on a brief submitted in a different case just two years ago that argued "Russian courts are highly susceptible to corruption, and a foreign [party] cannot expect to receive an impartial trial against major Russian interests."

Blakey, who, as chief counsel to a Senate subcommittee in 1970, had been the principal draftsman of the RICO law, says his name appeared on the brief by mistake, since he was only working on other aspects of the case. He says his views then and now are the same: "I think the aspiration of the courts in Russia is for independence. I have no opinion whether they are, in fact. I haven't read enough of the literature, so I don't know."

Marks says the Russian court is fair. "It defies common sense that the Russian judicial system would be honest in cases of little interest but would be dishonest in cases involving a great deal of public scrutiny," he writes in an e-mail. "You must be speaking to the ill-informed or persons with an agenda."

In accordance with Russian law, Marks appended to his complaint his retainer agreement, which shows that he has taken the case on a 29% contingency fee, even though Russia's highest constitutional court ruled in early 2007 that contingent fees are unethical and therefore unenforceable. (Marks won't confirm the fee arrangement, but says that his Russian co-counsel assures him that contingency fees are authorized under Russian law.)

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