An investment in Polish margarine that went sour could cost a Boston venture capital firm and its principal owner more than $3 million in arbitration costs, if a federal judge here agrees to enforce an international tribunal's decision against them.
The Polish government this week filed a lawsuit in US District Court in Boston against Vincent Ryan and his Schooner Capital over the costs it was awarded in 2015 by an international tribunal, following more than 20 years of legal wrangling between Poland and Ryan over the fate of a margarine and vegetable-oil factory Schooner took over in 1994 following the collapse of communism in that country.
The tribunal, which met in Paris, said Schooner and Ryan had failed to make their case that Poland owed them more than $18 million in damages for the bankruptcy of Kama Foods by what they charged were interminable demands for back taxes based on the fees a separate company Schooner set up charged Kama for management consulting.
According to the arbitration decision and a Polish press account, Ryan had set up that company to make investments in post-communism Poland. In 1994, Ryan's company paid the Polish government nearly $19 million for a controlling interest in Nadodrzanskie Zaklady Przemyslu Tlusczowe - which it then renamed Kama Foods - in Brzeg, a town on the banks of the Oder River in southwestern Poland that was first settled several thousand years ago.
Ryan's company also promised to invest $38 million to bring Kama up to the state of the art in margarine and edible oil production.
Not long after the new company took over, the government began demanding taxes based on the fees Kama was paying to the company.
Kama ran into financial difficulties as the Polish government pressed its demands for back taxes. In 2000, Kama stopped making social-security payments for its workers. The next year, it stopped paying its workers.
It tried various measures to get back into the black, including selling off its margarine trademark and excess power from a power plant it owned, but the measures all failed and the company declared bankruptcy in 2003.
Ryan and Schooner said the company could have recovered, but that the court battles over the back taxes meant nobody would lend it money and so the company's failure was ultimately the Polish government's fault.
In 2011, Ryan sought to have an international tribunal hear his argument that the Polish government owed him the roughly $18 million he claimed the tax issue had cost him.
After legal wrangling over whether such a tribunal would have any jurisdiction - and even over which city it would hold hearings in - a tribunal of arbiters from Pakistan, Chile and Mexico met in Paris, held hearings and basically concluded in 2015 that Ryan had no case and that he owed Poland roughly $2.7 million for its costs related to the arbitration.
The Polish government's suit seeks that amount plus 12% in annual interest as called for under Massachusetts arbitration law - which it says would apply because Ryan lives here and Schooner is based here, in Boston's Leather District.