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A New York federal judge has decided to pause the litigation filed by Alcazar Capital Partners, a subsidiary of Kuwaiti logistics firm Agility Public Warehousing Co., to enforce a $490 million judgment against the Kurdistan Regional Government of Iraq. This decision comes as a related arbitration proceeding takes center stage.

U.S. District Judge Arun Subramanian ruled on Thursday that the enforcement case should be put on hold until the outcome of the ongoing arbitration before the International Centre for Settlement of Investment Disputes (ICSID). Judge Subramanian emphasized that there is no need to address the central arguments in the current case while the arbitration is still in progress.

The litigation stems from a dispute over a $250 million loan provided by Alcazar to Korek Telecom, a Kurdish mobile phone operator, in 2007. The loan was guaranteed by the Kurdistan Regional Government, with Alcazar seeking to enforce a 2022 Kuwaiti court judgment against the Iraqi government for repayment. However, the Kurdistan government argues that the debt no longer exists following an ICSID tribunal award, though that award was partially annulled earlier this year and is now under review by a new tribunal.

Judge Subramanian explained that the arbitration is the most appropriate forum for resolving the issues at hand, particularly given the smoother and less contentious nature of the proceedings there. He noted that ICSID has seen voluntary participation from both Alcazar and the Kurdistan Regional Government, a contrast to the highly adversarial nature of the litigation in U.S. courts.

“The ICSID is where Alcazar wanted to have these issues adjudicated in the first instance,” Judge Subramanian stated, adding that it makes sense to wait for the arbitration to unfold before proceeding further with litigation in New York.

The origins of the dispute trace back to Alcazar’s $250 million loan, which allowed Korek Telecom to pay for a license to install mobile networks outside the Kurdistan region. In 2014, Iraqi regulators declared their previous approval of a deal between Alcazar, Agility, and Korek to be void, setting off a wave of litigation. Agility and Alcazar allege fraud, bribery, and corruption by Korek and its Iraqi shareholders, while the Kurdish government contends that the losses resulted from a failure to anticipate the rescission of regulatory approval.

At the heart of the litigation is a claim for enforcement of the Kuwaiti court's $490 million judgment against the Kurdistan Regional Government. However, with the arbitration proceeding ongoing, the U.S. judge has ruled it is better to wait and see how that dispute unfolds before moving forward with the U.S. case.

The parties involved in the dispute have yet to comment on the ruling. Alcazar Capital Partners is represented by Quinn Emanuel Urquhart & Sullivan LLP and Skadden Arps Slate Meagher & Flom LLP, while the Kurdistan Regional Government is represented by Arnold & Porter Kaye Scholer LLP.

The case is Alcazar Capital Partners Co. v. Kurdistan Regional Government of Iraq, case number 1:23-cv-00186, in the U.S. District Court for the Southern District of New York.