Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 1 of 83
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE SOUTHERN DISTRICT OF TEXAS
`HOUSTON DIVISION
`
`§§
`
`§§
`
`§ CIVIL ACTION NO. H-07-1078
`§
`§
`
`§§
`
`§
`
`INTERSPAN DISTRIBUTION CORP.,
`
`Plaintiff,
`
`V.
`
`LIBERTY INSURANCE
`UNDERWRITERS, INC.,
`
`Defendant.
`
`MEMORANDUM AND ORDER
`
`The events involved in this case read more like a movie plot than the background facts of an
`
`insurance coverage dispute. The arrests, detention, and trial of individuals in Uzbekistan allegedly
`
`led their relatives, principals in a tea-import business based in Houston, to abandon that business and
`
`its assets. The company, Interspan Distribution Corp., claimed insurance benefits for the business
`
`assets and interests lost in Uzbekistan. Interspan asserted its claim under the “Extortion Bodily
`
`Injury” hazard of a Special Coverages Policy issued by Liberty Insurance Underwriters, Inc.
`
`Interspan claimed that in 2006, its Uzbekistan tea-importation business was the target of a scheme,
`
`orchestrated by members of one of Uzbekistan’s most powerful families who were also in the tea
`
`business, to force Interspan to stop doing business in that country and to abandon the assets located
`
`there. Liberty denied coverage. This litigation resulted.
`
`The following motions are pending:
`
`•
`
`Interspan has moved for partial summary judgment that it is entitled to
`coverage under Hazard 2 (Extortion Bodily Injury) and to Additional
`Coverage for related “legal judgments.” (Docket Entry No. 32). Liberty has
`responded, (Docket Entry No. 54), and filed objections to certain of
`Interspan’s summary judgment evidence, (Docket Entry No. 56). Interspan
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 2 of 83
`
`•
`
`•
`
`•
`
`•
`
`•
`
`•
`
`•
`
`•
`
`has replied, (Docket Entry No. 62), and filed a supplemental memorandum
`of law, (Docket Entry No. 82).
`
`Interspan has filed a motion in limine to preclude all evidence that Liberty
`adduced after denying coverage to Interspan. (Docket Entry No. 68).
`Liberty has responded. (Docket Entry No. 78).
`
`Interspan has filed a motion in limine to preclude all evidence suggesting that
`Interspan should have purchased political risk insurance. (Docket Entry No.
`70). Liberty has responded. (Docket Entry No. 79).
`
`Interspan has filed a motion in limine to preclude all evidence from Liberty
`relating to a purported side agreement between Interspan and Charles Rudd.
`(Docket Entry No. 72). Liberty has responded. (Docket Entry No. 80).
`
`Liberty has cross-moved for partial summary judgment that Interspan is not
`entitled to coverage under Hazard 1 (Kidnap/Ransom) of the Special
`Coverages Policy. (Docket Entry No. 34). Interspan has responded by
`withdrawing its claim under Hazard 1 “because it believes that the Liberty
`Policy’s Extortion Bodily Injury coverage is broader than its Kidnap/Ransom
`coverage.” (Docket Entry No. 46).
`
`Liberty has cross-moved for partial summary judgment that Interspan is not
`entitled to coverage under Hazard 2 (Extortion Bodily Injury) of the Special
`Coverages Policy. (Docket Entry No. 35). Interspan has responded.
`(Docket Entry No. 48).
`
`Liberty has cross-moved for partial summary judgment that Interspan is not
`entitled to Additional Coverage for “legal judgments” under the Special
`Coverages Policy. (Docket Entry Nos. 36, 37). Interspan has responded.
`(Docket Entry No. 48).
`
`Liberty has cross-moved for partial summary judgment that the act-of-state
`doctrine precludes coverage. (Docket Entry No. 39). Interspan has
`responded, (Docket Entry No. 50), and Liberty has replied, (Docket Entry
`No. 85).
`
`Liberty has cross-moved for partial summary judgment that Corporate Risk
`International (“CRI”), which provided crisis-response services after the
`arrests and detentions in Uzbekistan, was not Liberty’s agent, and that
`Charles Rudd, who investigated the arrests and detentions in Uzbekistan on
`CRI’s behalf, was not CRI’s agent. (Docket Entry No. 40). Interspan has
`responded, (Docket Entry No. 52), and Liberty has replied, (Docket Entry
`No. 86).
`
`2
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 3 of 83
`
`Based on the pleadings; the motions, responses, and replies; the summary judgment record;
`
`and the applicable law, Interspan’s motions for partial summary judgment and motions in limine are
`
`denied. Liberty’s cross-motions for partial summary judgment are granted as to the lack of coverage
`
`under Hazard 1 and as to agency, and otherwise denied. Liberty’s evidentiary objections are
`
`overruled. A scheduling conference is set for September 17, 2009, at 9:00 a.m. in Courtroom 11-
`
`B.
`
`The reasons for these rulings are set forth below.
`
`I.
`
`Background
`
`A.
`
`The Cast of Characters
`
`To reduce confusion, it is helpful to provide a cast of characters. A list of those central to
`
`the plot, and a brief description of each individual or entity, is set out below.
`
`1.
`
`Interspan
`
`C
`
`C
`
`C
`
`C
`
`C
`
`Eric Johnson: A principal of Interspan and of Centrax International, which held a
`50% stake in Interspan. Johnson lived in The Woodlands, Texas when the incidents
`in this suit occurred. Johnson lived in Uzbekistan doing Interspan business between
`about 2001 and 2004.
`
`Emir Kiamilev: An Interspan principal and 50% Interspan stakeholder. Kiamilev
`lived in San Diego, California when the incidents in this suit occurred. Kiamilev
`lived in Uzbekistan after Interspan was founded until about 2004.
`
`Eskender Kiamilev: Emir Kiamilev’s father. Eskender Kiamilev worked in
`Uzbekistan between 2001 and 2006 to oversee Interspan’s business. Eskender
`Kiamilev was arrested in Uzbekistan on February 13, 2006 and released to the
`United States on February 21, 2006.
`
`Bakhrom Khakimov: Interspan’s manager in Uzbekistan. Khakimov was third-in-
`charge of the business after Eric Johnson and Emir Kiamilev.
`
`Mikhail Matkarimov: Eric Johnson’s brother-in-law. Matkarimov leased and
`managed Interspan’s warehouses in Keles, Uzbekistan. Mikhail Matkarimov was
`
`3
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 4 of 83
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`arrested in Uzbekistan on February 24, 2006 and detained, tried, and convicted of
`criminal commercial practices. He was released on August 11, 2006.
`Natasha Matkarimov: Mikhail Matkarimov’s wife and the sister of Eric Johnson’s
`wife.
`
`Sergey Matkarimov: Mikhail Matkarimov’s brother. Sergey Matkarimov was
`involved in security and distribution for Interspan.
`
`Furkhat: A customs broker who worked on retainer for Interspan in Tashkent,
`Uzbekistan.
`
`Famous Brands Tea Company: Interspan’s shipping agent in Dubai. Famous Brands
`had the same shareholders, in the same percentages, as Interspan.
`
`Centrax International: A 50% shareholder in Interspan. Eric Johnson, his father,
`Mike Johnson, and Larry Crews were principals.
`
`2.
`
`Liberty, CRI, and PIA
`
`Liberty Insurance Underwriters, Inc.: The insurer issuing the Special Coverages
`Policy.
`
`Professional Indemnity Agency (“PIA”): PIA quoted and bound insurance,
`contracted with reinsurers and crisis response firms, and issued policies in Liberty’s
`name. PIA, with the reinsurers, was responsible for investigating claims under the
`Special Coverages Policy.
`
`Corporate Risk International (“CRI”): A crisis-response firm that worked on a semi-
`exclusive basis with PIA to provide crisis-response services to insureds. CRI was
`named in the Special Coverages Policy as the entity to which loss should be reported.
`CRI responded to Interspan’s request for assistance in Uzbekistan.
`
`Unity Resources Group (“URG”): A risk consulting group headquartered in Dubai.
`CRI asked Unity Resources Group to find a consultant in Uzbekistan who could
`assist CRI with Interspan’s situation in Uzbekistan.
`
`Albert (“Bert”) Van Wagenen: The division manager for the kidnap/ransom and
`extortion coverage lines at PIA. Van Wagenen received reports from CRI about
`Eskender Kiamilev’s and Mikhail Matkarimov’s arrests.
`
`Buck Kidder: Another PIA employee. Kidder, with Van Wagenen, decided that CRI
`could respond to the arrests of Eskender Kiamilev and Mikhail Matkarimov but that
`CRI would not be permitted to assist Interspan in recovering its lost assets.
`
`4
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 5 of 83
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`C
`
`Richard Hildreth: The senior vice-president of CRI’s crisis-management services.
`Hildreth was responsible for coordinating CRI’s efforts in Uzbekistan for Interspan.
`
`Mike Fiacco: A member of URG who recommended a consultant in Uzbekistan that
`could assist CRI in Uzbekistan.
`
`Charles Rudd: An American businessman living permanently in Uzbekistan. Mike
`Fiacco of URG recommended Rudd to CRI as a person who could assist with CRI’s
`response in Uzbekistan. Rudd was not employed by URG, but his contracting
`services for CRI were billed through URG.
`
`John L. Wortham: The broker who sold the Special Coverages Policy to Interspan.
`
`Richard F. Roarke: The attorney who prepared the denial of Interspan’s claim for
`Liberty and PIA.
`
`3.
`
`Uzbekistan
`
`Uzbegim: One of Interspan’s importers in Uzbekistan. Uzbegim was an umbrella
`entity for a numerous businesses, including real estate, retail, and other companies.
`Several Uzbegim-related companies, including J.V. Trade and Production
`International, Farmers, and Avileasing, were also involved in importing tea for
`Interspan.
`
`Khurshid: A manager for Uzbegim and Interspan’s chief contact at Uzbegim.
`
`Takhir: A friend of Emir Kiamilev’s who worked in the Tashkent, Uzbekistan
`prosecutor’s office.
`
`Vissaryon Lee: One of Rudd’s legal contacts in Uzbekistan.
`
`Arustamov: Another of Rudd’s legal contacts in Uzbekistan. Arustamov was a
`former prosecutor in Tashkent, Uzbekistan.
`
`Venir: Mikhail Matkarimov’s attorney after the arrest.
`
`Gulnara Karimova: The daughter of Islam Karimov, President of Uzbekistan.
`
`Mirabror Usmanov: A former Minister of Trade and former Deputy Prime Minister
`of Uzbekistan. Usmanov was the beneficial owner of the Samarqand Tea company,
`which packaged and sold bulk tea in Uzbekistan.
`
`Beta Tea: Another tea company that sold packaged tea in Uzbekistan. Beta had a
`larger share of the packaged-tea market than Interspan.
`
`5
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 6 of 83
`
`B.
`
`The Summary Judgment Record
`
`The parties have submitted extensive summary judgment evidence. The exhibits include
`
`a copy of the Special Coverages Policy, number 180472-013, (Docket Entry No. 32, Ex. 1-A). The
`
`record also includes evidence as to the relationship among Liberty, the Professional Indemnity
`
`Agency (PIA), and Corporate Risk International (CRI). This evidence includes a March 3, 1993
`
`agreement between PIA and CRI, retaining CRI’s services, (Docket Entry No. 52, Ex. 4); a March
`
`2, 2005 Standard Letter of Authority from Liberty, stating that it had given authority to PIA “to act
`
`as our Agent to underwrite insurance business on our behalf,” (Docket Entry No. 52, Ex. 1); and a
`
`January 1, 2006 Managing General Agency Agreement between Liberty and PIA, (Docket Entry No.
`
`52, Ex. 2).
`
`There are a large number of documents that describe Interspan and its business in
`
`Uzbekistan.1 These documents include invoices and payments for tea Interspan imported into
`
`Uzbekistan.2 Another category of documents includes email and other communications involving
`
`the arrests, detentions, and release of the relatives of the Interspan principals.3 Another category
`
`1 These documents include a chart titled “Interspan Profit & Loss” for the year ending December 31, 2002,
`(Docket Entry No. 46, Ex. 2-A), a balance sheet for Interspan dated December 31, 2002, (id.), and an August
`10, 2005 email from Interspan principal Emir Kiamilev to Interspan principal Eric Johnson entitled “Interspan
`Distribution Slide Show,” attaching a presentation and a proposed Strategy Articulation Map for the
`company, (Docket Entry No. 54, Ex. D-150).
`
`2 Docket Entry No. 46, Ex. 2-A.
`
`3 These emails and communications began in February 2006 and were exchanged among Eric Johnson, Emir
`Kiamilev, Bakhrom Khakimov, Richard Hildreth, Bert Van Wagenen , Mike Fiacco, Charles Rudd, John L.
`Wortham, and Mike Johnson and Larry Crews (principals of Centrax International). These emails refer to
`“Operation ‘Kick,’” the name given to CRI’s investigation of the arrest of Eskender Kiamilev, and to
`“Operation Kick II,” the name given to the investigation of the arrest, indictment, and conviction of Mikhail
`Matkarimov. (Docket Entry No. 32, 48, 54).
`
`6
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 7 of 83
`
`includes background documents on the political, business, and legal situation in Uzbekistan.4
`
`Another category consists of correspondence relating to Interspan’s claim for insurance benefits and
`
`Liberty’s response.5 The parties have also submitted excerpts from the depositions of Mark
`
`McDougall,6 Richard Hildreth;7 Robert F. Roarke,8 Eric Johnson,9 Emir Kiamilev,10 and Albert Van
`
`Wagenen.11
`
`4 This category includes a March 22, 2002 article by Gregory Feiner for the World Policy Journal titled
`“Uzbekistan’s eternal realities: a report from Tashkent,” (Docket Entry No. 32, Ex. 2-E); a July 31, 2004
`article by DEBRA-Net-Weekly titled “Three Groups Take Aim at Uzbekistan’s Secular Regime.” (Id., Ex.
`2-I); a June 24, 2005 article by TA titled “Gulnara Karimova has created a parallel power system in the
`country,” (Id., Ex. 2-H); a September 2005 article by Human Rights Watch titled “Burying the Truth:
`Uzbekistan Rewrites the Story of the Andijan Massacre,” (Id., Ex. 2-C); a September 21, 2005 article by
`Bruce Pannier for Radio Free Europe titled “Uzbekistan: Andijon Trial Follows Well-Established Pattern.”
`(Id., Ex. D). a 2006 article by Freedom House titled “Nations in Transit–Uzbekistan,” (Id., Ex. 2-G); a March
`8, 2006 release from the U.S. Department of State Bureau of Democracy, Human Rights, and Labor titled
`“Uzbekistan; Country Reports on Human Rights Practices–2005.” (Id., Ex. 2-A); and a November 8, 2005
`article by APEHA titled “National Security Service of Uzbekistan ‘neutralizes’ Sunshine Coalition
`oppositionists,” (Id., Ex. 2-F).
`
`5 This category includes Interspan’s June 9, 2006 claim demand and August 21 and September 8, 2006 letters
`from counsel for Liberty and PIA to counsel for Interspan denying coverage for the Eskender Kiamilev and
`Mikhail Matkarimov incidents. (Docket Entry No. 32, Exs. 1-L, 1-M, 2-W).
`
`6 Interspan has introduced numerous excerpts from McDougall’s deposition but has not identified
`McDougall’s employer or position. The excerpts show that McDougall was involved in the decision to deny
`Interspan’s claim. Docket Entry No. 46, Exs. 1-G, 1-H; Docket Entry No. 48, Exs. 1-P, 1-Q, 1-R, 1-S, 1-T,
`1-U, 1-V, 1-W, 1-X, 1-Y, 1-Z, 1-AA, 1-BB, 1-CC, 1-DD, 1-EE, 1-FF, 1-GG, 1-HH, 1-II, 1-JJ, 1-KK, 1-LL,
`1-MM, 1-NN, 1-AAA; Docket Entry No. 50, Exs. 1-H, 1-I, 1-J, 1-K, 1-M; Docket Entry No. 52, Exs. 6, 7,
`8, 11; Docket Entry No. 62, Exs. A, B, C, E, Q.
`
`7 Docket Entry No. 54, Exs. A, B.
`
`8 Docket Entry No. 48, Ex. 1-ZZ; Docket Entry No. 50, Ex. 1-L).
`
`9 Docket Entry No. 54, Ex. C.
`
`10 Docket Entry No. 54, Ex. D.
`
`11 Docket Entry No. 32, Ex. 2-Z; Docket Entry No. 46, Ex. 1-F; Docket Entry No. 48, Ex. 1-OO, 1-PP, 1-
`QQ, 1-RR, 1-SS, 1-TT, 1-VV, 1-WW, 1-XX, 1-BBB, 1-CCC, 1-DDD; Docket Entry No. 50, Exs. 1-A, 1-B,
`1-C, 1-D, 1-E, 1-F, 1-G; Docket Entry No. 52, Exs. 5, 17; Docket Entry No. 62, Exs. D, U; Docket Entry No.
`82, Ex. C.
`
`7
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 8 of 83
`
`C.
`
`The Special Coverages Policy
`
`Liberty issued Special Coverages Policy number 180472-013 to Interspan on June 20, 2003.
`
`The effective dates were June 23, 2003 through June 23, 2006. The Policy had a $5 million limit
`
`for “each loss” and no deductible. Coverage was worldwide. The Policy provided for the insured
`
`to give “notice of loss” at a specified address to Corporate Risk International (“CRI”), a crisis-
`
`response company. (Docket Entry No. 32, Ex. 1-A at 1).
`
`The Special Coverages Policy provided coverage for four hazards. Interspan relies on
`
`Hazard 2, which covered “LOSSES” caused by “Extortion Bodily Injury.” Hazard 2 stated:
`
`
`
`Extortion Bodily Injury:
`by reason of the receipt of a threat, communicated directly or
`indirectly to the INSURED to kill, injure or KIDNAP an Insured
`Person, RELATIVE OR GUEST . . . .
`
`(Id., Ex. 1-A at 15). The relevant Policy definitions are:
`
`•
`
`•
`
`•
`
`“LOSS”: “the sum of monies or the monetary value of any other consideration
`surrendered by, or on behalf of, the INSURED as a ransom or extortion payment
`arising from one event or connected series of events involving one or more Insured
`Persons, RELATIVES or GUESTS.” (Id., Ex. 1-A at 16).
`
`“KIDNAP or KIDNAPPING”: “the involuntary abduction of an insured person,
`RELATIVE, or GUEST and the holding of such person by persons who demand
`money or other consideration in exchange for the release of the captive person.” (Id.,
`Ex. 1-A at 20).
`
`“RELATIVE”: includes “an Insured Person’s: spouse, siblings, brothers-in-law,
`sisters-in-law, [and] living ancestors . . . .” (Id., Ex. 1-A at 19–20).
`
`The Policy did not provide definitions for “extortion” or “threat.”
`
`The Policy also provided “Additional Coverage” for “Legal/Medical Expenses” resulting
`
`from the occurrence of an insured hazard. Legal/Medical Expenses include “legal judgments . . .
`
`8
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 9 of 83
`
`incurred by the INSURED based on or arising out of incidents insured by this Policy. . . .” (Id., Ex.
`
`1-A at 18).
`
`Interspan is not seeking coverage under Hazard 3, which provides coverage for “LOSS”
`
`resulting from the “DETENTION of an Insured Person, RELATIVE or GUEST.” But Interspan
`
`argues that Hazard 3 shows that the Policy “contemplate[s] and provide[s] coverage for losses
`
`arising from government officials” that are arguably covered by the “act-of-state” doctrine. (Docket
`
`Entry No. 50 at 12). Hazard 3 provides:
`
`Detention:
`by reason of a DETENTION of an Insured Person, RELATIVE or
`GUEST first occurring during the Policy period; provided that, as
`respects Hazard 3, the Company shall not be liable for:
`
`1)
`
`any DETENTION resulting from:
`
`a)
`
`b)
`
`any violation or alleged violation of the laws
`of a host country by the INSURED or Insured
`Person(s), RELATIVE or GUEST, or
`
`failure of the INSURED or an Insured Person,
`RELATIVE or GUEST to maintain and
`possess duly authorized and issued required
`documents and visas
`
`unless the Company shall determine such allegations were
`intentionally false, fraudulent and malicious and made solely
`to achieve a political, propaganda and/or coercive effect upon
`or at the expense of the Named Insured, Insured Person,
`RELATIVE or GUEST.
`
`(Id., Ex. 1-A at 15–16). “DETENTION” is defined as “an arbitrary and capricious act of involuntary
`
`confinement of an Insured Person, RELATIVE or GUEST.” (Id., Ex. 1-A at 20).
`
`The Policy also contains a “Collusion or Fraud” exclusion for “LOSS and/or expense due
`
`to fraudulent, dishonest or criminal act by an Insured Person, RELATIVE, GUEST or authorized
`
`9
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 10 of 83
`
`representative (whether acting alone or in collusion with others) unless the person authorizing
`
`payment of the LOSS and/or expense had, prior to payment, made every reasonable attempt to
`
`determine that the ransom demand or threat was genuine.” (Id., Ex. 1-A at 22).
`
`D.
`
`The Relationship Among Liberty, PIA, and CRI
`
`Under a March 3, 2002 Standard Letter of Authority, Liberty gave PIA authority “to act as
`
`[Liberty’s] Agent to underwrite insurance business on [Liberty’s] behalf.” (Docket Entry No. 52,
`
`Ex. 1). Liberty and PIA entered into a Managing General Agency Agreement for the administration
`
`of “Special Contingencies Insurance” on January 1, 2006. Special Contingencies Insurance includes
`
`but is “not limited to Kidnap and Ransom, Extortion, Detention and extensions of coverage thereto.”
`
`Under the Managing General Agency Agreement, PIA was authorized to solicit customers, quote
`
`and collect premiums, and bind policies for Liberty. PIA was also responsible for selecting,
`
`retaining, and paying a crisis-response team to respond to events arising under the policies. (Docket
`
`Entry No. 52, Ex. 2). Albert (“Bert”) Van Wagenen was the division manager for the kidnap/ransom
`
`and extortion coverage lines at PIA. (Docket Entry No. 48, Ex. 1-BBB at 9).
`
`PIA and CRI entered into a March 3, 1993 Agreement under which CRI would “supply
`
`appropriate man-power to respond and render consulting services upon the request of PIA, its
`
`clients, [and] insureds . . . immediately upon receipt of notice furnished by PIA . . . [or] the
`
`policyholder.” (Docket Entry No. 52, Ex. 4 at 6). The 1993 Agreement required CRI “[t]o provide
`
`and be responsible for the operation of a continuously manned . . . telephone answering and response
`
`system” for PIA and insureds and “[t]o provide all means necessary (including the retainage of
`
`competent experienced contract personnel) to provide the highest degree of expeditious and
`
`professional response.” (Id., Ex. 4 at 3). An exclusivity provision in the 1993 Agreement required
`
`10
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 11 of 83
`
`CRI to “refrain from rendering consulting or response services to any kidnap, ransom, extortion,
`
`[or] . . . detention victim” insured by any other insurer, although CRI may provide such services to
`
`uninsured victims. (Id., Ex. 4 at 7–8). Under the 1993 Agreement, CRI received 3½% of net cash
`
`premiums collected by PIA, plus a $1,000 “per man” per diem for the first 45 days of any covered
`
`incident and $750 per man per diem thereafter, plus expenses. The 1993 Agreement also entitled
`
`PIA to fifteen days of free services from a CRI agent of PIA’s choice to make presentations and
`
`meet with prospective clients, brokers, intermediaries, underwriters, syndicates, and insurers. (Id.,
`
`Ex. 4 at 9–10, 13).
`
`In another case discussing a “kidnap and ransom” insurance policy issued by PIA for which
`
`CRI served as the crisis-response group, the court explained the relationship between PIA and CRI:
`
`To avoid the appearance that Underwriters placed their economic
`interest over the interests of a hostage, the Policy provides that the
`Underwriters will not be involved in the day-to-day handling of any
`kidnapping and will not make any substantive decisions regarding
`strategy or the payment of ransom. Instead, the Policy provides that
`in the event of a kidnapping, Corporate Risk International (CRI), a
`crisis management company, will advise and assist [the insured] in
`the negotiations for the release of the hostage.
`
`Hargrove v. Underwriters at Lloyd’s, London, 937 F. Supp. 595, 598 (S.D. Tex. 1996).
`
`Richard Hildreth, the senior vice-president of CRI’s crisis-management services, testified
`
`in his deposition that neither Liberty nor PIA controls the details of how CRI responds to an
`
`incident. CRI notifies PIA when it receives a claim, to confirm that the insured has a policy in place.
`
`CRI does not see its customers’ insurance policies and does not make coverage decisions. (Docket
`
`Entry No. 54, Ex. A at 10–20). Hildreth testified that CRI responds if a policyholder asks and
`
`“nobody tells us not to.” (Id., Ex. A at 120). CRI does provide regular updates to PIA while
`
`working for an insured.
`
`‘
`
`11
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 12 of 83
`
`E.
`
`Interspan
`
`Interspan was formed around January 1998 by Emir Kiamilev and Eric Johnson, who lived
`
`and worked in the United States when the incidents alleged in this suit occurred. Kiamilev owned
`
`50% of Interspan and concentrated on marketing and strategy. Johnson was a principal in another
`
`company called Centrax International Distribution, which owned the other 50% of Interspan. Eric
`
`Johnson; his father, Mike Johnson; and Larry Crews were members of the Centrax board. (Docket
`
`Entry No. 54, Ex. C at 177–78).
`
`Interspan was incorporated in the Bahamas and registered to do business in Dubai. Interspan
`
`was not registered to do business in Uzbekistan. (Docket Entry No. 32, Ex. 1-C; Docket Entry No.
`
`54, Ex. C at 20–21). Interspan’s business was importing packaged tea into Uzbekistan. Interspan
`
`had imported bulk tea and packaged it inside Uzbekistan between about 2001 and 2003, but
`
`abandoned this part of the business because of changes to Uzbekistan’s tax laws. Interspan still had
`
`equipment from its packaging operations in storage in Uzbekistan when the incidents alleged in this
`
`suit occurred. (Docket Entry No. 54, Ex. C at 11–19, 39–42).
`
`In 2005 and 2006, Interspan had three tea suppliers: Akbar Brothers in Sri Lanka (which
`
`supplied Interspan’s Akbar and Tashkent Tea brands); Imperial (“Impra”) Teas in Sri Lanka; and
`
`Silk Teas in China. Interspan imported tea from these suppliers through the Famous Brands Tea
`
`Company, Interspan’s shipping agent in Dubai. Famous Brands was owned by the same
`
`shareholders as Interspan.
`
`Bakhrom Khakimov, Interspan’s manager in Uzbekistan, was responsible for ordering tea
`
`from the suppliers. Bakhrom sent monthly spreadsheets to Johnson and Kiamilev setting out the
`
`12
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 13 of 83
`
`dates that containers of tea were ordered, invoice numbers, and payment dates. (Docket Entry No.
`
`49, Ex. D at 19–31, 104).
`
`The suppliers shipped the tea to Dubai and then to Tashkent, Uzbekistan. The tea would
`
`arrive in Uzbekistan through a customs-bonded warehouse. A customs broker named Furkhat was
`
`responsible for clearing the tea through customs by paying the taxes and duties. Furkhat received
`
`a retainer, not a salary, and did not work directly for Interspan. Furkhat also worked as a customs
`
`broker for other entities. The tea was cleared through customs in the name of Interspan’s importers,
`
`which Interspan referred to as “ChPs” or “patents.” (Docket Entry No. 54, Ex. D at 37–50). The
`
`transactions were documented as between Famous Brands and the ChPs; Interspan’s name did not
`
`appear on the import documents.
`
`After the tea cleared customs, the ChPs transported the tea to warehouses in Keles,
`
`Uzbekistan. The warehouses were leased and managed by Mikhail Matkarimov, Eric Johnson’s
`
`brother-in-law. Some of the tea was sold in Keles and some went to “Urukzor,” a wholesale bazaar,
`
`or to a “distribution warehouse” for sale. The ChPs sold the tea to wholesalers at prices set by
`
`Interspan. According to Johnson, the tea was “consigned” to the ChPs because Interspan technically
`
`retained title until it was sold to the wholesalers. (Docket Entry No. 54, Ex. C at 39–40). But the
`
`official documents showed that the ChPs owned the tea. (Id., Ex. C-104). The ChPs would retain
`
`a monthly fixed amount from their sales as compensation. Tea sales in Tashkent were primarily
`
`cash transactions. Interspan set the price at which the ChPs could sell the tea. (Id., Ex. D at 51–56).
`
`Emir Kiamilev testified that Interspan “underinvoiced” its tea imports, meaning that the tea
`
`was declared at customs for less than the prices at which it was purchased and sold. Kiamilev
`
`testified, however, that underinvoicing was proper—even required—under Uzbekistan law.
`
`13
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 14 of 83
`
`Kiamilev testified that imported tea was declared at customs at “customs base,” a price set by the
`
`Uzbekistan government. The customs base “was lower than the actual price.” According to
`
`Kiamilev, the difference between the customs base and the actual price of the tea was “huge.”
`
`Kiamilev testified that the Uzbek government required underinvoicing tea and other imports “to
`
`limit the[ ] outflow of [hard] currency.” Interspan’s ChPs paid Famous Brands directly for the
`
`amounts declared at customs and Famous Brands forwarded the funds to an Interspan bank account
`
`in Germany. Transferring the amounts paid above the “customs base” was more complicated.
`
`Kiamilev testified that Interspan’s ChPs would use the money received from sales above the customs
`
`base to purchase Uzbek commodities for export. Purchasers of those exports would then forward
`
`their payments for those commodities to Interspan. (Id., Ex. D at 128–140, 153–56). The evidence
`
`does not show whether the system Kiamilev described was legal in Uzbekistan.12
`
`A company called Uzbegim was one of Interspan’s importers. Uzbegim was an umbrella
`
`entity for a “multitude of businesses,” including real estate, retail, and other companies. Uzbegim
`
`directed its companies—including J.V. Trade and Production, International; Farmers; and
`
`Avileasing—to import Interspan’s tea. Interspan primarily dealt with Uzbegim through a man
`
`named Khurshid. (Id. at 47–70, 81–82). Emir Kiamilev’s father, Eskender Kiamilev, worked in
`
`Uzbekistan from approximately 2001 to 2006 to oversee Interspan’s business, including overseeing
`
`payment by the ChPs. Eskender was in Uzbekistan on a work visa obtained by Uzbegim. Eskender
`
`Kiamilev could not get a work visa through Interspan because it was not registered to do business
`
`12 Johnson stated in his deposition that the authorities who arrested Kiamilev and Matkarimov made the
`“ridiculous accusation” that Interspan “brought cheap tea . . . under invoice and sold the tea at five times the
`value of the tea.” Johnson also testified, however, that he understood that Uzbek customs authorities set the
`price of imports themselves as a matter of law, so importers did not have the option of clearing the imports
`at higher or lower amounts. (Id., Ex. C at 160–62).
`
`14
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 15 of 83
`
`in Uzbekistan. Eskender Kiamilev did not receive a salary from Uzbegim but drew a $3,000
`
`monthly salary from Interspan. (Id. at 71–80; Docket Entry No. 32, Ex. 2-W).
`
`On August 10, 2005, Emir Kiamilev sent Johnson a document titled “Interspan Distribution”
`
`and asked for Johnson’s input. The document described Interspan as a “fully integrated tea
`
`company” with 80 employees, involved in importing, packaging, and distributing tea. The document
`
`stated that Interspan’s “sales over the last 2.6 years ha[d] been stagnant and in an overall
`
`downtrend,” although “[r]epayment of debt, lower costs, [and] creative management ha[d] allowed
`
`Interspan’s net assets to grow.” The document described a “slow deterioration” driven by sales
`
`teams not “understand[ing] the relationship between their success and the compan[y]’s success.”
`
`The document recommended “weed[ing] out non-performing unqualified workers,” “chang[ing] the
`
`compensation system,” “restructur[ing] the routes,” and “[i]ncentiviz[ing] re-sellers to display
`
`Interspan products properly.” (Docket Entry No. 54, Ex. D-150). Emir Kiamilev testified that this
`
`document was a rough draft prepared as part of a group project for his executive MBA program at
`
`Wharton business school. The assignment was to restructure Interspan’s distribution network.
`
`Eskender Kiamilev testified that the document might not have been an accurate description of
`
`Interspan’s business situation or condition. (Id., Ex. D at 14–17, 83–84).
`
`The record shows that Interspan’s principals contemplated selling all or a portion of the
`
`business in November 2005. An email from Johnson to Emir Kiamilev stated:
`
`I’ve been speaking with the Almaty Tea Factory owner. And, he
`does have an interest in either purchasing our business straight out or,
`purchasing a percentage of our business. They have been looking to
`enter the Uzbek market, and believe that it might make sense to
`purchase our brand vs. starting a new one. And, they think that with
`the new customs laws, they can get an advantage by packing in
`Kazakhstan.
`
`15
`
`

`
`Case 4:07-cv-01078 Document 93 Filed in TXSD on 08/21/09 Page 16 of 83
`
`What I need to know from you is:
`
`*
`
`*
`
`Are you interested in selling just a percentage of the
`business? I assume yes, if the price is right.
`
`What is the total price that you are interested in selling for?
`We mentioned 1 times revenues . . . I think that’s a good
`starting point to ask, but I don’t think it is realistic . . . with
`assets, that would put the price around $6 Mill. Obviously,
`that’s a crazy number. I think that ½ times sales plus assets
`would be more realistic. What’s your price?
`
`(Docket Entry No. 54, Ex. C-59). Emir Kiamilev responded