Servaas Incorporated v. Republic of Iraq et al

Filing 114

MEMORANDUM OPINION AND ORDER: For the foregoing reasons, SerVaas's motion to certify the facts in support of a finding of contempt and sanctions is DENIED, and Iraq's motion to stay post-judgment discovery is DENIED. Iraq is HEREBY ORDERED to produce the requested interrogatories and documents as it relates to the Republic of Iraq and the Ministry of Industry for the Republic of Iraq by July 2, 2013. (Signed by Magistrate Judge Ronald L. Ellis on 7/2/2013) (js)

USDCSDNY
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW - - - - - - - - - - - - - - - YORK

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SERVAAS INCORPORATED,

DOCUMENT
ELECTRONICALLY FILED
DOC #: --------~~---DATE FILED: to 111/13

Plaintiff,
MEMORANDUM
OPINION AND ORDER
- against­
09 Civ. 1862 (RMB) (RLE)
REPUBLIC OF IRAQ and
MINISTRY OF INDUSTRY OF
THE REPUBLIC OF IRAQ,
Defendants.
RONALD L. ELLIS, United States Magistrate Judge:
I.

INTRODUCTION

Plaintiff SerVaas Incorporated ("SerVaas") brought this action pursuant to New York's
Uniform Foreign Country Money-Judgment Recognition Act, C.P.L.R. §§ 5301 et seq., and 28
U.S.c. § 1332 against Defendants the Republic ofIraq ("Republic") and the Ministry ofIndustry
of the Republic of Iraq ("Ministry") Gointly referred to as "Iraq"), seeking recognition of a
foreign judgment entered in favor of SerVaas by the Paris Commercial Court on April 16, 1991
("French Judgment"). SerVaas's motion for summary judgment was granted on February 1,
2012. See Docket No. 67. Iraq was ordered to produce materials related to post-judgment

discovery on August 29, 2012 ("August 2012 Order"). See Docket No. 86. Before the Court is
SerVaas's motion for certification of facts supporting civil contempt and sanctions and Iraq's
motion to stay post-judgment discovery pending appeals.
For the following reasons, each side's motion is DENIED.

II.
A.

DISCUSSION

SerVaas's Motion For Certification Of Facts Supporting Civil Contempt And
Sanctions
Federal Rule of Civil Procedure 37(b)(2)(A)(vii) provides that a court may hold a party

in contempt for failure to comply with a discovery order. Contempt authority of magistrate
judges is limited by the Federal Magistrates Act, and provides that:
the magistrate judge shall forthwith certifY the facts to a district judge and may
serve or cause to be served, upon any person whose behavior is brought into
question under this paragraph, an order requiring such person to appear before a
district judge upon a day certain to show cause why that person should not be
adjudged in contempt by reason of the facts so certified.
28 U.S.C. § 636(e)(6)(B)(iii). "In certifying the facts under Section 636(e), the magistrate
judge's role is 'to determine whether the moving party can adduce sufficient evidence to
establish a prima facie case of contempt.'" Toxey v. United States, No.1 0 Civ. 3339 (RJH)
(KNF), 2011 WL 4057665, *2 (S.D.N.Y. Aug. 25, 2011). If the facts are certified, the district
judge is required to conduct a de novo review where issues of fact are resolved and credibility
determinations are made. Bowens v. Atl. Maint. Corp., 546 F. Supp. 2d 55, 71 (E.D.N.Y. 2008).
If, however, the facts are not certified, "a district court may not proceed further on a motion for
contempt where the conduct at issue occurred before a magistrate judge." Toxey, 2011 WL
4057665, at *2; accord Nova Biomedical Corp. v. i-Stat Corp., 182 F.R.D. 419, 423-24
(S.D.N. Y. 1998). A party is held in civil contempt for failing to comply with a discovery order
when "(1) the order the contemnor failed to comply with is clear and unambiguous, (2) the proof
of noncompliance is clear and convincing, and (3) the contemnor has not diligently attempted to
comply in a reasonable manner." Paramedics Electromedicina Comercial, Ltda. v. GE Med.

Sys. Info. Technologies, Inc., 396 F.3d 645, 655 (2d Cir. 2004). Failure to comply with the order

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at issue need not be willfuL Jd. (citing Donovan v. Sovereign Sec. Ltd., 726 F.2d 55,59 (2d Cir.
1984».
SerVaas argues that certification is warranted because Iraq has "failed to produce any
documents in response to SerVaas's document requests or to provide any substantive and sworn
responses to SerVaas's interrogatories." (Mem. of Law in Supp. ofPL's Mot. for Certiftication
of Facts Supp. Civil Contempt and Sanctions ("SerVaas's Sanctions Mem. of Law") 9.) SerVaas
maintains that Iraq has not operated in good faith because Iraq informed SerVaas that production
would be provided on a rolling basis but has not produced any documents. (Jd.) SerVaas also
argues that Iraq's request for a premotion conference does not eliminate Iraq's duty to produce
requested documentation. (Jd. at II.) SerVaas maintains that its request of $10,000 per day
until full compliance is reasonable. (Jd. at 14.) To support its position, SerVaas asserts that
Iraq's actions are "thwarting" its ability to enforce the Court's previous orders. SerVaas
contends that "[a]ny delay in obtaining post-judgment discovery ... substantially increases the
likelihood and the time for [Iraq] to transfer, alienate[, or] insulate their assets from
enforcement.") (Jd.)
Judge Berman's August 2012 Order unambiguously stated that post-judgment discovery
was to be completed twenty-one days after the order was issued, satisfying the first element
necessary for certification, failure to comply with a court order. Discovery is not complete
because Iraq has not produced the requested documents, satisfying the second element for
certification, proof of noncompliance. When considering the facts of this case, the final element
for contempt is not satisfied.

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SerVaas has not submitted any facts to support its allegation of improper transfer of assets on the part of

Iraq.

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After the August 2012 Order had been issued, SerVaas contacted Iraq to request a meet
and confer. (SerVaas Notice of Mot., Ex. 5.) Eleven days later, on September 10, 2012, counsel
for Iraq responded with a proposed date, explaining that the delay was caused by his co­
counsel's illness. (SerVaas Notice of Mot., Ex. 6.) On September 17,2012, Iraq sent letters to
the Court requesting a pre-motion conference for its motion to stay discovery pending appeal
and an adjournment to the twenty-one day discovery deadline imposed by the August 2012
Order. (SerVaas Notice of Mot., Ex. 9, 10.) In its letter, Iraq attached a declaration from Hanan
M. Nassef, Director General of the Legal Department ofthe Ministry of Justice of the Republic
of Iraq, explaining that it would take four to six months for each Ministry to determine whether
it had a legal obligation to respond and to produce such responses to SerVaas's discovery
request? (SerVaas Notice of Mot., Ex. 9.) Iraq further explained that counsel was en route to
the Republic ofIraq in furtherance of its attempts to provide responses to SerVaas's discovery
requests. (Id.) On September 20, 2012, SerVaas sent a letter to the Court requesting a premotion conference in advance of moving for sanctions against Iraq for failure to comply with the
August 2012 Order. (SerVaas's September 20,2012 Let. to the Court.)
A telephone conference had been scheduled for October 31, 2012, but was adjourned
because of hurricane Sandy. Thereafter, another conference was scheduled and held on January
15, 2013. 3 Because of the time that had lapsed, the discussion during the conference was
focused on proposed briefing schedules for the instant motions, and not on an adjournment of the
2 It is Iraq's position that the Ministry of Industry, Ministry of Trade, and Ministry of Oil are separate
government entities with no legal connection for liability purposes with each other. Therefore, each individual
ministry would have to detennine whether it is obligated to respond. (SerVaas Notice of Mot., Ex. 6.; Oef.'s Mem.
of Law in Supp. of Mot. to Stay Post-Judgment Discovery Pending Appeal, Ex. 3.)
3 The Parties' and the Court's schedules contributed to the delayed scheduling of the pre-motion
conferences.

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twenty-one day discovery deadline. During the conference, the Parties represented that a
mediation conference had been set for January 25,2013. Counsel for Iraq also represented that
the Parties had agreed to place discovery on a "standstill" pending settlement discussions and
possible motion practice. Moreover, Iraq represented that in furtherance of settlement
discussions it placed its appeals to the Second Circuit on administrative dismissal subject to
reactivation if a settlement was not reached. See Docket Nos. 93-97. Counsel for SerVaas
objected to Iraq's "standstill" representation, but did not disagree with Iraq's representations
regarding settlement negotiations. The Parties proposed a briefing schedule for the instant
motions, which would take effect if the January 25 mediation was unsuccessfuL The Court
endorsed a Joint Letter setting the briefing schedule for the instant motions, see Docket No. 92,
which was slightly altered, on consent of both parties, because of an unforeseen terrorist attack
that had taken place in the Republic of Iraq. See Docket No.1 04.
The actions of Iraq do not warrant a certification of contempt. In Export-Import Bank of
Repblic ofChina v. Grenada, No. 06 Civ. 2469 (HB), 2010 WL 5463876, *4 (S.D.N.Y. Dec. 29,

2010), Grenada was found in contempt after an "inordinate amount of time" had been granted to
comply with post-judgment discovery and three motions to compel. Similarly, in Musalli
Factory for Gold & Jewelry Co. v. New York Fin. LLC, et al., No. 06 Civ. 82 (AKH), 2010 WL

2382415, *1-3 (S.D.N.Y. June 14,2010), defendant Amir Boktor was found in contempt after
canceling a deposition two days before it was scheduled, failing to respond to a properly served
subpoena, failing to comply with a motion to compel his deposition testimony and document
production, and failing to appear before the Court for an ordered appearance. Here, Iraq has not
shown behavior similar to these cases. Given the difficulty with scheduling the premotion
conferences, Iraq's representation as to the time needed to comply with discovery, the

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misunderstanding as to whether a "standstill" of discovery had been agreed upon, Iraq's
discovery obligations were unclear. Nonetheless, Iraq's efforts to comply with the order were
reasonable, namely, traveling to Iraq to effectuate discovery, engaging in settlement
negotiations, and placing its appeals on administrative leave in furtherance of those settlement
negotiations. Based on the Court's familiarity with the case and the Parties' submissions, Iraq
has made reasonable efforts to comply with the discovery order. Therefore, SerVaas's motion
to certify the facts in support of contempt and sanctions is DENIED.

B.

Iraq's Motion To Stay Discovery Pending Appeal To The Second Circuit
Iraq seeks a stay of discovery pending appeal of the August 2012 Order pursuant to

Federal Rule of Civil Procedure 62(c), which provides that a court may "suspend, modify,
restore, or grant an injunction during the pendency of the appeal." Fed. R. Civ. P. 62(a)
(emphasis added). Magistrate judges, however, cannot issue injunctions. See 28 U.S.C.
636(b)(l)(A). The Court cannot treat a discovery order as an injunction. The August 2012
Order stated that any "disagreements regarding discovery [] should be presented to the
magistrate judge." August 2012 Order, at 7. This statement necessarily implies that the Court
has authority to make necessary modifications to Iraq's duty to produce interrogatories and
documents upon showing of good cause. The August 2012 Order does not, however, grant the
Court authority to issue an order pursuant to a Federal Rule of Civil Procedure outside its
authority.
Iraq maintains that SerVaas's discovery demands seek information from entities that
were not parties to the underlying French Judgment. (Def.'s Mem. of Law in Supp. of Mot. to
Stay Post-Judgment Discovery Pending Appeal ("Iraq's Mem.") 2.) Iraq states that compliance
would affect "at least thirty-four major ministries ofIraq and 192 Iraqi State-Owned
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Enterprises."4 (ld) SerVaas maintains that it only seeks discovery from the Republic and the
Ministry. (Pl.'s Mem of Law in Opp'n to Defs' Mot. to Stay Post-judgment Discovery Pending
Appeal 18.) Since SerVaas states that it only requests information from the Republic and the
Ministry, there is no need to modifY the August 2012 Order. To the extent SerVaas's discovery
request could be interpreted to implicate thirty-four major ministries and 192 state-owned
enterprises, it would be overbroad and inconsistent with Judge Berman's timetable for
completion. SerVaas is only entitled to discovery relating to Iraq's and the Ministry's political
subdivisions, agencies, and instrumentalities. See August 29 Order, at 6; see also EM Ltd. v.

Republic ofArgentina, 473 F.3d 463,477 (2d Cir. 2007) (explaining that a foreign government's
determination of the legal status for its instrumentalities as a separate legal entity should be
honored). Iraq must comply with Judge Berman's order to this extent by July 2, 2013. Iraq's
motion to stay discovery is DENIED.
Even if the Court could issue an injunction, Iraq's motion to stay discovery would be
meritless. A district court's order enforcing discovery is not typically considered a "final order"
subject to appellate review under 28 U.S.c. § 1602. See Church ofScientology ofCalifornia v.

United States, 506 U.S. 9, 18 n. 11, (1992). Under the collateral order doctrine, however, a
discovery order is '''final' if it (1) conclusively determines a disputed question; (2) resolves an
important issue completely separate from the merits of the action; and (3) is effectively
unreviewable on appeal from final judgment." See EM Ltd. v. Republic ofArgentina, 695 F.3d

4 This argument is consistent with Iraq's previous representations that each ministry and state-owned
enterprise is a separate legal entity. (See Dec!. of Fakhri Kadhum in SUpp. of Defendants' Mot. to Dismiss ~~
(7)(B), (7)(C)) ("In accordance with such Iraqi law, each [m]inistry is separately and independently responsible and
liable for performance of the obligations arising under contracts entered into by such [m]inistry, and for any breach
of obligations arising from contracts entered into by such [m]inistry, including, but not limited to, breach of contract
liability for failure to honorthe terms of a contract entered into by such [m]inistry.")

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201, 205-06 (2d Cir. 2012).
Iraq argues that the August 2012 Order is appealable because the Order denied it
sovereign immunity under the Foreign Sovereign Immunity Act ("FSIA") and thus is subject to
interlocutory appeal. (Def.'s Reply Mem. of Law in Supp. of Mot. to Stay Post-Judgment
Discovery Pending Appeal ("Iraq's Reply Mem.") 3.) Iraq maintains that the first two elements
of the collateral order doctrine are met because the August 2012 Order concerned questions of
sovereign immunity from post-judgment discovery from Iraq and "226 separate and independent
foreign sovereign juridical persons." (Jd. at 4.) Citing Rubin v. The Islamic Republic ofIran,
637 F.3d 783 (7th Cir. 2011), Iraq argues the third element is satisfied because questions
involving sovereign immunity by their very nature satisfY the collateral order doctrine. (Iraq's
Reply Mern. 4.)
In EM Ltd., the Second Circuit held that "a district court's power to order discovery to
enforce its judgment does not derive from its ultimate ability to attach the property in question
but from its power to conduct supplementary proceedings, involving persons indisputably within
itsjurisdiction.,,5 EM Ltd., 695 F. 3d at 208. The court further provided that the determination
of whether a particular asset is attachable under the FSIA is a separate issue from discovery. Id.
at 209. The court expressly disagreed with Rubin's determination that under the FSIA a district
court lacked sufficient authority to compel discovery. Id. EM Ltd precludes Iraq's position that
the August 2012 Order related to sovereign immunity because the issue is not whether the assets
can be attached, but whether attachable assets exist. See, e.g., Thai Lao Lignite (Thailand) Co.,

5 The Court has twice rejected Iraq's claim ofjurisdictional immunity under the FSIA. See SerVaas Inc. v.
Republic ofIraq, 686 F. Supp. 2d 346, 356-58 (S.D.N.Y. 2010); SerVaas, Inc. v. Republic ofIraq, 2012 WL 335654,
*5 (S.D.N.Y. Feb 1,2012).

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Ltd v. Gov 't ofLao People's Democratic Republic, No. 10 Civ. 5256 (KMW), 2013 WL
541259, *8 (S.D.N.Y. Feb. 11,2013) (holding that EM Ltd's distinction between attachment and
discovery foreclosed the respondent's FSIA sovereign immunity objections to a discovery
order).
The present circumstances do not support an application of the collateral order doctrine.
The final element requires an order to be "effectively unreviewable on appeal from final
judgment." See EM Ltd, 695 F.3d at 205-06. The August 2012 Order only relates to discovery,
not sovereign immunity, which makes the Order appealable through disobedience and contempt.

See Id at 206; accord Arista Records, LLC v. Doe 3, 604 F.3d 110, 116 (2d Cir. 2010). Iraq
would not be able to satisfy the final element of the collateral order doctrine, and therefore, is not
substantially likely to succeed on appeal for lack of subject matter jurisdiction. If the Court had
authority to determine whether a stay could be issued pursuant to Rule 62(a), Iraq's motion to
stay post-judgment discovery pending appeal of the August 2012 Order would be denied.

III.

CONCLUSION

For the foregoing reasons, SerVaas's motion to certify the facts in support of a finding of
contempt and sanctions is DENIED, and Iraq's motion to stay post-judgment discovery is

DENIED. Iraq is HEREBY ORDERED to produce the requested interrogatories and
documents as it relates to the Republic of Iraq and the Ministry of Industry for the Republic of
Iraq by July 2, 2013.

SO ORDERED this 19th day of June 2013
New York, New York

The Honorable Ronald L. Ellis

United States Magistrate Judge

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