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Covington Scores Major Victory for Russian Media Empire

August 20, 2012

NEW YORK, NY, August 20, 2012 — After a five-month bench trial, Covington & Burling won a verdict of nearly $30 million on behalf of Russian media magnate Vladimir Gusinski in a dispute against a Russian rival over the ownership of the Ukrainian television network, TVi Channel.

In 2008, Mr. Gusinski formed a Delaware partnership entity with Russian businessman, Konstantin Kagalovsky, to jointly create, own and operate TVi. With Mr. Gusinski’s involvement, and by airing popular programs licensed by his television production company, NMDC, TVi grew from the 47th-ranked Ukrainian broadcaster to the 14th-ranked in less than a year.

Despite TVi’s success, disagreements arose. As he testified at trial, Mr. Kagalovsky used “the traditional Russian and Ukrainian method” to take TVi for himself. The trial record showed that he secretly diluted Mr. Gusinski’s ownership interest to less than one percent. Mr. Kagalovsky also refused to pay licensing fees to NMDC for programs that TVi continued to air.

New York Supreme Court Justice Charles E. Ramos issued a 108-page opinion in which he held Mr. Kagalovsky jointly and severally liable for the “unwarranted dilution” of Mr. Gusinski’s interests in TVi, and for the balance of NMDC’s unpaid licensing fees. The court determined that in the summer of 2009, at his home in the French Riviera, Mr. Kagalovsky decided to oust Mr. Gusinski from TVi, and then implemented a plan to do so, all in breach of fiduciary and contractual obligations. The court awarded plaintiffs a total of $28.68 million, plus interest, in damages.

In addition to denying liability, Mr. Kagalovsky, who negotiated the terms of the partnership in New York and conducted other partnership business in New York, vigorously contested jurisdiction and venue, and unsuccessfully argued in English and New York courts that the action belonged either in Ukraine or elsewhere overseas.

The case was tried by New York partner C. William Phillips and associate Christopher Y. L. Yeung.

“I am elated that the courts saw through Mr. Kagalovsky’s arguments and agreed to hear this dispute in New York,” Mr. Gusinski said. “I always have been confident that, no matter what outcome, we would receive justice in the courts of New York. New York courts are sophisticated and fair in their treatment of international cases. Covington did an outstanding job from start to finish, and Mr. Phillips and Mr. Yeung are a fantastic trial team.”

“In the 10-plus years that I have represented Mr. Gusinski, this was one of the most satisfying wins,” Mr. Phillips said. “I am glad that we were able to secure a fair and just result for our clients.”

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