Iraq Middle Market Development v. Mohammad Harmoosh
Filing
PUBLISHED AUTHORED OPINION filed. Originating case number: 1:15-cv-01124-GLR. [1000015771]. [16-1403]
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 16-1403
IRAQ MIDDLE MARKET DEVELOPMENT FOUNDATION,
Plaintiff - Appellant,
v.
MOHAMMAD ALI MOHAMMAD HARMOOSH, a/k/a Mohammed Alharmoosh;
JAWAD ALHARMOOSH,
Defendants - Appellees.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. George L. Russell III, District Judge.
(1:15-cv-01124-GLR)
Argued:
December 7, 2016
Decided:
February 2, 2017
Before WILKINSON, MOTZ, and FLOYD, Circuit Judges.
Vacated and remanded by published opinion. Judge Motz wrote the
opinion, in which Judge Wilkinson and Judge Floyd joined.
ARGUED: D. Michelle Douglas, KALBIAN & HAGERTY, LLP, Washington,
D.C., for Appellant.
Mukti N. Patel, FISHERBROYLES LLP,
Princeton, New Jersey, for Appellees.
ON BRIEF: Haig V.
Kalbian,
KALBIAN
&
HAGERTY,
LLP,
Washington,
D.C.,
for
Appellant.
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DIANA GRIBBON MOTZ, Circuit Judge:
After
promissory
securing
note,
a
a
judgment
creditor
in
Iraq
sought
for
to
non-payment
have
the
of
a
judgment
recognized in the federal district court for the District of
Maryland.
The
debtor
contended
that
the
judgment
was
not
entitled to recognition given that the parties had agreed to
arbitrate their disputes.
The district court agreed and granted
summary
debtor.
judgment
to
the
Because
genuine
issues
of
material fact remain as to whether the debtor lost his right to
arbitrate
by
utilizing
the
Iraqi
judicial
process,
we
must
vacate and remand for further proceedings.
I.
The Iraq Middle Market Development Foundation, a non-profit
corporation, makes and services loans to local businesses in
Iraq.
On November 10, 2006, the Foundation agreed to lend $2
million to Al-Harmoosh for General Trade, Travel, and Tourism
(“AGTTT”), a company headquartered in Najaf, Iraq.
The loan
agreement includes an arbitration clause specifying that “[a]ll
disputes, controversies and claims between the parties which may
arise out of or in connection with the Agreement . . . shall be
finally and exclusively settled by arbitration.”
The clause
identifies Amman, Jordan as the venue for arbitration.
As part
of the deal, Mohammad Harmoosh, a managing partner of AGTTT and
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a dual citizen of Iraq and the United States, who resides in
Maryland, executed a promissory note guaranteeing repayment of
the loan.
In 2010, after Harmoosh had refused to repay the loan, the
Foundation tried to collect by suing him for breach of contract
in
federal
arguing
court
that
his
in
Maryland.
alleged
breach
Harmoosh
was
moved
an
to
dismiss,
arbitrable
dispute
“aris[ing] out of or in connection with” the loan agreement.
The
district
complaint.
court
agreed
and
dismissed
the
Foundation’s
Iraq Middle Mkt. Dev. Found. v. Al Harmoosh, 769 F.
Supp. 2d 838, 842 (D. Md. 2011).
Harmoosh, however, did not
move to compel arbitration, as he was entitled to do under the
Federal Arbitration Act.
9 U.S.C. § 3 (2012).
In February 2014, the Foundation filed another civil action
against Harmoosh to collect on the promissory note, this time in
the Court of First Instance for Commercial Disputes in Baghdad.
Harmoosh appeared in that court through counsel and asserted at
least two affirmative defenses.
He contended that the court
lacked
that
personal
jurisdiction
and
he
was
not
personally
liable because he guaranteed the loan only in his capacity as a
shareholder.
The parties disagree as to whether Harmoosh raised
the arbitration clause as a third defense.
that,
under
Iraqi
law,
although
a
valid
It is undisputed
arbitration
clause
deprives a court of jurisdiction over arbitrable disputes, a
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party waives his right to arbitrate if he fails to assert it
before the trial court.
Article 253, Amended Civil Procedure
Code No. 83 of 1969.
In any event, the Foundation and Harmoosh litigated their
dispute to final judgment in Iraq.
In April 2014, the Court of
First Instance found in favor of the Foundation and awarded it
$2
million
in
damages
and
$424.91
in
costs
and
legal
fees.
Harmoosh appealed the judgment to the Baghdad/Al-Rasafa Federal
Court of Appeals, which affirmed the judgment.
Harmoosh then
appealed to the Federal Court of Cassation of Iraq -- the court
of last resort for commercial disputes -- which also affirmed.
In April 2015, the Foundation returned to the District of
Maryland and filed the two-count complaint at issue here.
Count
One seeks recognition of the Iraqi judgment under the Maryland
Uniform Foreign Money-Judgments Recognition Act, Md. Code Ann.,
Cts.
&
Jud.
Proc.
Recognition Act”).
§§
10-701
et
seq.
(West
2016)
(“Maryland
Count Two alleges that Harmoosh fraudulently
conveyed some of his assets both before and after the Iraqi
judgment was rendered.
Under
the
Maryland
Recognition
Act,
a
foreign
judgment
regarding a sum of money is generally conclusive between the
parties so long as it is “final, conclusive, and enforceable
where
rendered.”
Id.
§§
10-702,
-703.
However,
recognizes several exceptions to this general rule.
4
the
Act
Relevant
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here, the Act provides that a court need not recognize a foreign
judgment if “[t]he proceeding in the foreign court was contrary
to an agreement between the parties under which the dispute was
to be settled out of court.”
Id. § 10-704(b)(4).
Harmoosh
moved to dismiss, invoking this exception and arguing that the
district court should not recognize the Iraqi judgment because
the Iraqi proceedings were contrary to the parties’ agreement to
arbitrate.
The Foundation responded that Harmoosh failed to
assert his arbitration rights before the Iraqi trial court and
therefore had waived his right to arbitrate.
Before the parties had an opportunity to conduct discovery,
the district court granted summary judgment to Harmoosh on the
Maryland Recognition Act claim, declining to recognize the Iraqi
judgment
because
arbitration
the
Iraqi
provision.”
proceedings
The
court
were
then
“contrary
granted
to
an
Harmoosh’s
motion to compel arbitration of the fraudulent conveyance claim.
The Foundation timely noted this appeal.
We review the district court’s grant of summary judgment de
novo.
banc).
Henry v. Purnell, 652 F.3d 524, 531 (4th Cir. 2011) (en
A court can grant summary judgment only if, viewing the
evidence in the light most favorable to the non-moving party,
the case presents no genuine issues of material fact and the
moving party demonstrates entitlement to judgment as a matter of
law.
Id.
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II.
We
must
exception
in
first
§
determine
10-704(b)(4)
whether
of
the
the
arbitration
Maryland
clause
Recognition
Act
applies if a party forgoes his right to arbitrate by deciding to
participate in judicial proceedings in a foreign court.
This is
a question of Maryland law, one that Maryland’s highest court
has not addressed.
anticipate
how
it
Because we sit in diversity, our task is to
would
rule
on
this
question.
See,
e.g.,
Liberty Univ., Inc. v. Citizens Ins. Co. of America, 792 F.3d
520, 528 (4th Cir. 2015).
The text of § 10-704(b)(4) provides that a Maryland court
need not recognize a foreign judgment if the proceedings were
“contrary to” an agreement to settle the dispute out of court.
Harmoosh contends that § 10-704(b)(4) permits a Maryland court
to decline recognition of a foreign judgment if -- under the
terms of an arbitration clause -- the dispute should not have
been litigated in the first place.
On this reading, any and all
foreign judicial proceedings are “contrary to” an arbitration
clause
regardless
of
whether
the
parties
forego
their
arbitration rights.
We cannot agree.
Maryland
intended
to
We do not believe the General Assembly of
give
courts
discretion
to
enforce
contractual rights the parties themselves decided to waive.
By
the same token, we do not believe the legislature gave courts
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discretion to ignore the judgment of a foreign court when the
parties voluntarily resolved their dispute before that court.
This
court
has
not
addressed
this
issue,
and
few
other
courts have interpreted exceptions similar to § 10-704(b)(4).
Those that have done so have recognized that parties may waive
such exceptions.
See The Courage Co. v. The Chemshare Corp., 93
S.W.3d 323, 336–38 (Tex. App. 2002); Dart v. Balaam, 953 S.W.2d
478, 480 (Tex. App. 1997); cf. Montebueno Mktg., Inc. v. Del
Monte
Corp.
USA,
570
F.
App’x
675,
677
(9th
Cir.
2014)
(unpublished) (rejecting a waiver argument due solely to “lack
of evidence”).
And we have not found a single case in which a
court has held, or even suggested, that exceptions similar to
§ 10-704(b)(4)
cannot
be
waived.
During
oral
argument,
Harmoosh’s counsel agreed with our assessment of the case law.
Moreover, we can draw guidance on the question from the
fact
that
Maryland
has
largely
Money-Judgments Recognition Act.
878
F.2d
147,
149
(4th
Cir.
adopted
the
Uniform
Foreign
See Andes v. Versant Corp.,
1989).
The
arbitration
clause
exception in § 10-704(b)(4) closely tracks a provision in the
Uniform Act.
That portion of the Uniform Act, which provides
that a court need not recognize the judgment of a foreign court
if the proceedings were “contrary to” an agreement that a given
dispute “was to be settled otherwise than by proceedings in that
court,”
can
be
waived
either
expressly
7
or
by
implication.
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Uniform
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Foreign
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Money-Judgments
Recognition
Act
of
1962
§ 4(b)(5) (Unif. Law Comm’n 1962); Restatement (Third) of the
Foreign Relations Law of the United States § 482, cmt. h (Am.
Law Inst. 1987). 1
Nothing
intended
a
suggests
different
interpretation
would
that
the
result.
put
the
Maryland
On
the
General
contrary,
arbitration
clause
Assembly
Harmoosh’s
exception
in
§ 10-704(b)(4) at odds with Maryland common law of contracts.
Under Maryland law, a party can waive the right to arbitrate a
dispute
just
Charles
J.
as
he
Frank,
can
Inc.
waive
v.
any
other
Associated
contractual
Jewish
Charities
Baltimore, Inc., 450 A.2d 1304, 1306 (Md. 1982).
party
waives
his
right
to
arbitrate,
that
right.
of
And once a
right
becomes
unenforceable “and thus treated as though it had never existed.”
Stauffer Constr. Co. v. Bd. of Educ. of Montgomery Cty., 460
A.2d 609, 614 (Md. Ct. Spec. App. 1983).
As in other jurisdictions, exactly when a party waives his
rights through his conduct “turns on the factual circumstances
of each case.”
Maryland’s
Charles J. Frank, 450 A.2d at 1307.
highest
court
has
squarely
1
held
that
a
However,
party
who
The only notable difference between § 10-704(b)(4) and
§ 4(b)(5) of the Uniform Act is that the latter applies both to
arbitration clauses and to forum-selection clauses. Restatement
(Third) of the Foreign Relations Law of the United States § 482,
cmt. h (Am. Law Inst. 1987).
By contrast, § 10-704(b)(4)
applies only to arbitration clauses.
8
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litigates an arbitrable dispute to final judgment waives his
right to later arbitrate the dispute.
the
fundamental
principles
of
Id.
freedom
This rule respects
of
contract
and
the
rationale for enforcing arbitration and forum-selection clauses:
the “belief that where parties can agree to a mutually optimal
method and forum for dispute resolution, it serves the interests
of efficiency and economy to allow them to do so.”
Menorah Ins.
Co. v. INX Reinsurance Corp., 72 F.3d 218, 222–23 (1st Cir.
1995)
(citing
Mitsubishi
Motors
Corp.
v.
Soler
Chrysler-
Plymouth, Inc., 473 U.S. 614, 633 (1985)).
Against this background, we find it highly unlikely that
the Maryland General Assembly intended the arbitration clause
exception
to
arbitrate.
apply
when
parties
have
waived
their
rights
to
Such a rule would mean that conduct which renders an
arbitration
clause
unenforceable
if
it
occurs
in
a
domestic
court would have no effect at all if it occurs in a foreign
court.
It would also mean that the parties’ decision to forego
arbitration and litigate in domestic courts would bind them,
while a similar decision to litigate in a foreign court would
not.
Absent some affirmative indication, we will not infer that
the Maryland
General
Assembly
exception to the common law.
intended
to
carve
out
such
an
See Spangler v. McQuitty, 141 A.3d
156, 166 (Md. 2016) (“[S]tatutes in derogation of the common law
are strictly construed, and it is not to be presumed that the
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[General Assembly] . . . intended to make any alteration in the
common
law
other
than
what
has
been
specified
and
plainly
pronounced.” (second alteration in original) (quoting Cosby v.
Dep’t of Human Res., 42 A.3d 596, 606 (Md. 2012))).
Finally, construing the arbitration exception as Harmoosh
suggests would frustrate the overarching purpose of the Maryland
Recognition Act.
to
promote
It is well settled that the Act “was intended
principles
of
international
comity
by
assuring
foreign nations that their judgments would, under certain welldefined
circumstances,
courts.”
be
given
recognition
by
[Maryland]
Wolff v. Wolff, 389 A.2d 413, 417 (Md. Ct. Spec. App.
1978), aff’d 401 A.2d 479 (Md. 1979) (per curiam); see also
Guinness PLC v. Ward, 955 F.2d 875, 884 (4th Cir. 1992) (quoting
Wolff).
By
giving
Maryland
foreign
courts
will
nations
respect
a
measure
their
of
judgments,
certainty
the
that
Maryland
Recognition Act “hopefully facilitate[s] recognition of similar
United States’ judgments abroad.”
Wolff, 389 A.2d at 417.
As
the drafters of the Uniform Act explained, the need for such
assurances
arose
because
“[i]n
a
large
number
of
civil
law
countries, grant of conclusive effect to money-judgments from
foreign courts is made dependent upon reciprocity.”
Uniform
Foreign Money-Judgments Recognition Act of 1962, prefatory note
(Unif. Law Comm’n 1962).
By providing these assurances, the
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drafters hoped the Uniform Act would “make it more likely that
judgments
abroad.”
rendered”
in
adopting
states
would
“be
inject
recognized
a
Id.
Harmoosh’s
interpretation
would
level
of
uncertainty into the process of recognizing foreign judgments
that the Maryland General Assembly clearly intended to avoid.
Under his interpretation, a court in Maryland would have almost
complete discretion to decide whether to recognize a foreign
judgment that both parties had voluntarily sought.
This would
show foreign courts none of the “deference and respect” crucial
to comity.
Comity: Judicial Comity, Black’s Law Dictionary (4th
ed. 1951).
Indeed, it would show those courts no deference or
respect at all.
As a result, foreign nations would have no
assurance that Maryland courts would respect their resolution of
disputes
would
involving
therefore
contracts
have
with
little
reason
judgments from Maryland courts.
avoid
precisely
this
arbitration
mischief
to
clauses.
recognize
They
similar
The General Assembly sought to
when
it
enacted
the
Maryland
Recognition Act.
Judicial proceedings in a foreign court are not “contrary
to”
an
arbitration
clause
for
the
purposes
of
the
Maryland
Recognition Act if the parties choose to forego their rights to
arbitrate by participating in those proceedings.
704(b)(4) simply does not apply in that event.
11
Section 10-
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III.
We next determine whether the Foundation has raised genuine
issues of material fact as to whether Harmoosh decided to forego
his arbitration rights.
The Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. (2012)
(the
“Act”),
applies
to
governs
resolution
arbitration
of
clauses
in
transaction involving commerce.”
this
question.
contracts
The
“evidencing
9 U.S.C. § 2.
Act
a
Both the loan
agreement and the promissory note evidence such a transaction.
Both documents pertain to a loan made by the Foundation, a Texas
corporation,
to
AGTTT,
an
Iraqi
corporation.
See
Reynolds
Jamaica Mines, Ltd. v. La Societe Navale Caennaise, 239 F.2d
689,
693
(4th
Cir.
1956)
(“A
contract
made
by
an
American
corporation with a foreign one . . . involves commerce with a
foreign country.”).
Act
when
Thus, as the parties agree, we look to the
determining
if
the
Foundation
offered
sufficient
evidence to prevent the grant of summary judgment to Harmoosh.
Under the Act, a party loses his right to arbitrate when he
is “in default in proceeding with such arbitration.”
§ 3.
9 U.S.C.
“Default in this context resembles waiver, but, due to the
strong federal policy favoring arbitration, courts have limited
the
circumstances
that
can
result
in
statutory
default.”
Forrester v. Penn Lyon Homes, Inc., 553 F.3d 340, 342 (4th Cir.
2009).
Thus,
a
party
defaults
12
and
so
waives
his
right
to
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arbitrate under the Act only if he “so substantially utiliz[es]
the litigation machinery that to subsequently permit arbitration
would prejudice” the other party.
Maxum Founds., Inc. v. Salus
Corp., 779 F.2d 974, 981 (4th Cir. 1985); see also Rota-McLarty
v. Santander Consumer USA, Inc., 700 F.3d 690, 702 (4th Cir.
2012).
In this case, not even Harmoosh disputes that his waiver of
the
arbitration
right,
if
proven,
would
prejudice
the
Foundation.
This is wise.
If the Foundation proves what it has
alleged
that
waived
--
Harmoosh
his
right
to
arbitrate
by
litigating the dispute in Iraqi courts -- allowing him to assert
that right now would deprive the Foundation of its entitlement
to
recover
on
a
$2
million
judgment.
Under
any
reasonable
definition of “prejudice,” this would be highly prejudicial.
Thus, the controlling question is this:
did the Foundation
raise genuine issues of material fact that preclude a summary
judgment holding that Harmoosh preserved his arbitration rights?
We
believe
it
clearly
did.
Without
any
discovery,
the
Foundation offered evidence that Harmoosh was aware of his right
to
arbitrate
(having
successfully
asserted
that
right
once
before) and nonetheless voluntarily litigated his dispute with
the
Foundation
to
final
judgment
in
an
Iraqi
court.
The
Foundation offered evidence that Harmoosh voluntarily appeared
through counsel before the Iraqi trial court, asserted several
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defenses, and litigated those defenses to final judgment.
the
Iraqi
trial
court
awarded
the
Foundation
a
$2
After
million
judgment, Harmoosh appealed all the way to the Iraqi court of
last resort, and he lost.
The Foundation supplemented this undisputed evidence with
the declaration of Salam Zuhair Dhia, its local counsel in the
Iraqi proceedings.
Dhia declared that the Foundation pursued
litigation in Iraq to avoid the high costs of arbitration in
Jordan and that Harmoosh never raised the arbitration clause as
a defense at any point during the proceedings before the trial
court.
According to Dhia, “[i]t is common practice in the Iraqi
Courts
of
First
Instance
for
the
court
to
prepare
a
short
summary of what occurred and what arguments were raised at each
hearing.”
summaries
English
raised
The Foundation submitted purported copies of these
from
the
translations.
two
defenses
arbitration clause.
counsel
Iraqi
appears
to
proceedings,
along
summaries
indicate
The
but
never
asserted
his
with
certified
that
rights
Harmoosh
under
the
Perhaps most tellingly, Harmoosh’s local
have
signed
the
summaries
detailing
what
defenses he had raised.
In
opposition,
Harmoosh
offered
the
unsworn,
unverified
declaration of his own local counsel, who asserts that he raised
the arbitration clause to “the court” in Iraq and that “the
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did
not
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consider
appeal stages.”
counsel
filed
the
Pg: 15 of 16
defense
in
both
the
[trial]
and
Harmoosh also submitted the appellate brief his
with
the
Baghdad/Al-Rasafa
Federal
Court
of
Appeals, in which his counsel lists the arbitration clause as
one reason for overturning the trial court’s decision but does
not state that the defense was raised before the trial court.
Construing this evidence in the light most favorable to the
Foundation, genuine issues of material fact remain as to whether
Harmoosh
factfinder
right
to
defaulted
could
his
right
determine
arbitrate
and
to
that
instead
arbitrate.
Harmoosh
litigated
A
chose
his
reasonable
to
waive
dispute
Iraqi courts to avoid the time and cost of arbitration.
in
his
the
Further
discovery and development of the record will undoubtedly clarify
these issues.
But given the present record, Harmoosh was not
entitled to summary judgment on the Maryland Recognition Act
claim.
IV.
For the foregoing reasons, the judgment 2 of the district
court is
2
The district court also held that “[b]ecause” it would
“not recognize the Iraqi Judgment,” the Foundation was a
creditor only by virtue of the loan agreement. As such, the
district court held that the fraudulent conveyance claim arose
from the loan agreement and was arbitrable.
This may be the
(Continued)
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VACATED AND REMANDED.
correct result in the final analysis. However, for the reasons
discussed above, we believe it is too soon to say whether
Harmoosh defaulted his arbitration rights. It is therefore too
soon to say the Foundation is a creditor only by virtue of the
loan agreement. Accordingly, we must vacate the entire judgment
of
the
district
court,
including
its
order
compelling
arbitration of the fraudulent conveyance claim.
16
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