Russian Court Sides With Foreign Owners of Historic Porcelain Plant

Foreign investors in the historic Lomonosov Porcelain Factory celebrated victory Friday after a Russian appeals court scuttled a months-long effort to renationalize the plant.

In a case widely viewed as a test of the rights of investors in Russian companies, a regional arbitration court Thursday overturned a lower court’s October decision that had annulled the 1993 privatization of the factory.

Investors, headed by a fund financed by U.S. taxpayers, hailed the decision as a sign that Russia under acting President Vladimir V. Putin will try to establish a society based on the rule of law, not on cronyism and corruption.

“In the end, the law won out after a lot of painful legal wrangling,” said a jubilant Douglas Boyce, the newly appointed director of the 255-year-old factory. “Russia has avoided destroying its reputation.”

The battle for who would control the Lomonosov factory began when foreign investors, led by the nonprofit U.S. Russia Investment Fund, began buying shares that the plant’s workers had received when the company was privatized.

After the foreigners acquired 84% of the company, the factory managers tried to save their jobs with a novel strategy: They sought to prove that their own privatization of the company was illegal. A local court agreed and ruled that the old management would retain control of the company.

The foreign owners contested the decision and ultimately won approval from another court to hold a shareholders meeting in January. At that session, the shareholders threw out the old management. A week later, the U.S.-born Boyce moved into the factory and took control of the company, which once made dinnerware for the czars.

Among Boyce’s first acts was to give employees 20% pay raises--their first salary increases in memory. He also promised to make immediate improvements in working conditions, such as repairing the ventilation system, which had been out of order for two years.

Like many factories in Russia, the Lomonosov plant had been used by its managers to extract as much money as possible with a minimum amount of investment.

“Working conditions here are reminiscent of 19th century sweatshops,” Boyce said. One of the most egregious practices under the old management, he said, was assigning a worker to break up blocks of cobalt for use in glazes without providing a mask to prevent the worker from inhaling radioactive dust.

While many workers were worried last year about the prospect of foreign ownership, many seemed optimistic Friday about the new management and its promises.

“I think it’s a great improvement,” said Lyubov Vasilyeva, 53, a 25-year employee of the factory. “If everything [Boyce] says is implemented, it will be just wonderful. We are full of hopes now.”

Galina Gunda, 44, a 15-year employee, praised the new management for giving small bonuses to workers who are single mothers and reinstating the practice of providing milk to workers who have hazardous jobs. “It was a very noble gesture, and everyone appreciates it,” she said. “This is the first time in my life I go to work with enthusiasm.”

Before the foreign investors took over the factory, they had alleged that products and company assets were being removed from the premises improperly--a claim denied by then-director Yevgeny Y. Barkov.

After taking control of the factory, Boyce said, he found copies of a contract signed by Barkov selling the company’s trademark to an obscure Cyprus firm for $20,000. Boyce said he had turned the documents over to the police for investigation of fraud.

A representative of the previous management said it intends to appeal the regional court decision to Russia’s Supreme Arbitration Court, but it is uncertain whether the high court will choose to hear the case.