Funnekotter et al v. Republic of Zimbabwe

Filing 38

MEMORANDUM OPINION AND ORDER: For the reasons set out in this Opinion, Petitioners' motion for sanctions is denied with respect to: (1) monetary contempt sanctions, (2) attorneys' fees and costs, and (3) their request that the Commercial E ntities be deemed alter egos of the Government of Zimbabwe. Their motion is granted with respect to precluding Respondent Zimbabwe from denying that the Commercial Entities are its alter egos. (Signed by Magistrate Judge Theodore H. Katz on 11/10/2011) (pl) Modified on 11/10/2011 (pl). Modified on 11/10/2011 (pl).

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SOUTHERN DISTRICT OF NEW YORK

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FUNNEKOTTER, et al.,

Petitioners,
09 Civ. 08168

(CM) (THK)

against
MEMORANDUM OPINION AND
ORDER

REPUBLIC OF ZIMBABWE,
Respondent.

---x
THEODORE H. KATZ, United States Magistrate Judge.

Pet

ioners have motioned this Court to impose sanctions on

Respondent,

t

Republic of Zimbabwe,

for failure to comply with

the Court's Discovery Order of July 8, 2011.

Petitioners ask the

Court to preclude Respondent from arguing that various Zimbabwean
corporations,

("Commercial

Entit

s"),

1

are

not

alter

egos

of

Respondent; to find that the Commercial Entities are, in fact, the
alter

egos

of

Respondent;

to

impose

Respondent; and to award them attorneys'
reasons set forth in this Order, the mot

a

monetary

penalty

fees and costs.
is

on

For t

ed in part and

denied in part.
BACKGROUND
In

il 2009, Petitioners obtained an arbitral award aga

t

I The corporations are the Zimbabwe Mining Development
Corporat
, the Mineral Marketing Co
ion of Zimbabwe, the
icultural Development Bank 0
Zimbabwe, the Industrial Bank of
Zimbabwe, and the Reserve Bank of Zimbabwe.

the

Republic

of

Settlement of Investment
an action

the

On

the

International

sputes ("ICS1D").

Southern District

enforce that award.
ngs,

fore

Zimbabwe

ought

Petitioners

of New York to confirm and

While Zimbabwe participated in the arbitration

it has not yet appeared in the

February 1,

Centre

2010,

United States

sent action.
strict

Colleen

McMahon confirmed the arbitral award and entered judgment against
the Republic of Zimbabwe in the amount of $25,120,171.33.
Zimbabwe refused to pay the Judgment, Petitioners s

After

to amend

the Judgment to name as Defendants on the Judgment five Zimbabwean
corporations,

the

Commercial

Entities,

claiming

that

the

corporations were "instrumentalities" of the Government of Zimbabwe
under

28

U.S.C.

execution a

§

1603(a).

Peti tioners

also

sought

writs

of

inst the Commercial Entities.
McMahon refused to modify the Judgment,

stating that

Petitioners had failed to identify property owned by the Corrmercial
Entities, located in the United States, and used for a commercial
activity.

Judge McMahon did not rule on the question of

er

the ComlTlercial Entities are \\ instrumentali ties" of the Zimbabwean
Government within the meaning of the Foreign Sovereign Immunities
Act ("FSIA"), since without identifying the property to be executed
upon, no writ of execution could issue.
2010, at 4.)
2

(See Order, dated Feb. 2,

Petitioners then sought to establish the existence of p
belonging to
well

as

the

y

Zimbabwean Government that could be attached, as
relationship

of

the

Commerc

1

Ent

Government of Zimbabwe, by attempting to serve t

ies

to

the

Government of

Zimbabwe and the Commercial Entities with requests for document
production and interrogatories.

After the Republic of Zimbabwe

failed to respond 2 to the discovery requests and to Pet
request for reI ief from thi s Court,

on July 8,

issued an Order compelling

to

discovery requests.

Zimbabwe

2011,

respond to

ioners'
the Court

Pet

ioners'

The Order explicitly warned the Government of

Zimbabwe that failure to comply could result in the imposition of
sanctions.
Petitioners then motioned for a similar order, compelling the
Commercial Entities to respond to
denied

Petitioners'

motion without

2011, noting that,

scovery requests.
prejudice,

on

This Court

September

14,

the Commercial Entities had never

been found to be alter egos of Zimbabwe and that discovery could
not be compelled against a nonparty under Federal Rule of Civil
Procedure

33,

or against

a

foreign

nonparty under the

Rule

45

subpoena requirements expressly incorporated into Rule 34 of the

"Service on Zimbabwe was made properly.
July 8, 2011, at 2-3.)

3

Order, dated

ral

Ru

s

of Civil

Order,

Procedure.

dated

Sept.

14,

2011. )
Despite
Respondent,

this

Court's

Zimbabwe has

Order

ignored

compelling
its

discovery

discovery

a

inst

obligations

and

failed to answer any interrogatories or produce any documents.
Peti tioners
Comme

now

seek

sanctions

against

al entities to be alter egos.

Zimbabwe

from

Entities.

denying

In

the

addition,

alter
they

well

as

attorneys'

fees

seek

and costs

declaring

the

They also seek to preclude

ego

Zimbabwe for its failure to comply

Zimbabwe

status

of

monetary

the

Commercial

sanctions

against

with this Court's Order,
for

the

efforts

as

expended in

attempting to obtain the discovery.

DISCUSSION

I. Monetary Sanctions
Peti tioners seek monetary sanct ions,
Civil

Procedure

37(b) (2),

under Federal Rule of

of $1,000.00 per day,

complies with the Court's discovery Order.

until

Zimbabwe

These sanctions would

double every four weeks, until the sanctions reached $16,000.00 per
day.

Rule 37 (b) (2), however, does not

impose moneta

sanctions directly.

ve a court the power to

It instead permits courts to

treat failure to comply with a court order as contempt.
Civ.

P.

37 (b) (2) (Al (vii).

And,

Fed. R.

as Petitioners have stated, they
4

seek monetary sanctions

to both punish Zimbabwe's complete

"

failure to respond and persuade it to appear

this action and

comply with its obligations to Petitioners and the Court." (Pet'rs'
Mem. at 2.)

These reasons, insofar as they are proper reasons for

imposing monetary sanctions for failure to comply with a discovery
order, fall within the definition of contempt sanctions. See S. New
624 F.3d 123,
2010) (" [c] ivil

contempt

sanctions

may

serve

146

'dual

(2d Cir.

purposes':

securing 'future compliance with court orders' and 'compensa [ting]
the

party

that

has

369 F.3d 645, 657
Manhattan Indus.,
5

(2d Cir.

compensatory,

coe

is

Paramedics

(2d Cir. 2004) (alteration in original));

1989) (\\ [ci viI

contempt

not punitive.");

that

wronged' ") (quoting

Inc. v. Sweater Bee by Banff, Ltd., 885 F.2d 1,

493 F.2d 112,
contempt

been

the

115

Int'l Bus.

(2d Cir.

sanction

sanct ions

are]

Mach.

remedial

Corp.

V.

and

United

1973) ("The hallmark of civil

imposed

is

only

contingent

and

."). Accord Musalli Factory for Gold & Jewelry Co. v. New

York Financial LLC,

No.06 Civ.

82 (AKH),

2010 WL 2382415,

at

*3

(S.D.N.Y. June 14, 2010) (quoting Sweater Bee).3

In addition, all of the cases cited by Petitioners in
support of their request for sanctions involve contempt sanctions
in particular.
(
Pet'rs' Mem. at 2 3.)
5

While

district

courts

have

wide

discretion

in

imposing

sanctions for failure to comply with discovery orders, see Novak v.
Wolposs & Abramson, LLP,

536 F.3d 175, 177

(2d Cir. 2008), United

States magistrate judges have limited civil contempt authority.
28 U.S.C.
grant

§

636(e) (1),

Petitioners'

(4),

(6).1

request

for

Therefore,
contempt

this Court cannot

sanctions,

but,

if

appropriate, can merely certify the question to Judge McMahon. See
28 U.S.C. 636(e) (6) (B) (iii).
however,

and

for

the

Under the circumstances of this case,

following

reasons,

the

Court

decl ines

to

certify the question of contempt.
In imposing a
defendant

sanction,

"where the purpose is to make the

[the court]

comply

must

consider

the

probable effectiveness of any suggested sanction in bringing about
the result desired." United States v. United Mine Workers of Am.,
330 U.S.

258,

304,

Electromedicina,
counseled
including

to

67 S.

369

F.3d
r

cons
the

Ct.

677,

at

several

701

657 58
factors

'probable

ef

ct

sanction in bringing about [compliance]'

(1947);
("The

district

in

calculating
ess
. . ")

of

any

court
a

is

fine,

suggested

(quoting Perfect

4 To the extent that Petitioners seek sanctions to "punish"
Respondent, the sanctions would constitute criminal contempt
sanctions.
Magistrate Judges have similarly limited powers to
impose criminal contempt sanctions.
See 28 U.S.C. § 636(e) (2) ­

(3),

(6).

6

673 F.2d 53, 57
Cir. 1982)).

(2d

Here, there is no reason to believe that the contempt

sanctions being sought would be effective in compelling Zimbabwe to
comply with its discovery obI
this Court's ef

rts thus

tions, as none of Petitioners' or
r

has been able to provoke even an

appearance in this action from Zimbabwe.
subject

to a

Judgment

and,

to thi s

headway

in

million,
little

circumstances,
moneta

of

the Court

Court's

Zimbabwe is now

in an amount

know ledge,

collecting

certi

Indeed,

that

exceeding $25

Pet it ioners

Judgment.

have made

Under

these

ng Zimbabwe's contempt in order to impose

sanctions against it would be an empty and inefficient

exercise.
II. Rule 37 Discovery Sanctions
1. Establishing or Precluding Opposition to Certain Matters
Petitioners ask the Court to deem it established that the
Commercial
Zimbabwe.

Entities

are

to

provide

"designated

alter

egos

of

the

Government

of

The Court declines to do so.

Rule 37(b) (2) (A) (I)
officer,

the

provides that "if a party or a party's

rector, or managing agent
or

permit

facts

be

discovery,"

ta ken as

. fails to obey an order
a

court

established

action, as the prevailing party claims."

for

may

direct

purposes

of

that
the

But no part of the Rule

addresses a court's finding facts established when to do so would
7

4;

af

ct

the

rights

of

an

entity

litigation, and as to whom t

that

is

not

a

party

to

the

re has been no discovery order, no

less an order that has been disobeyed.

Petitioners have not been

permitted to compel discovery from the Commercial Entities,

and

they are not parties to this

the

action.

Yet,

Commercial Entities are alter egos of t
would be a

finding

against

them,

a

finding that

Government of Zimbabwe

since

it

would subj ect

their

assets to attachment by Petitioners, as part of their efforts to
enforce

their

Judgment

aga

st

the

Government

of

Zimbabwe.

Petitioners cite no authority for the proposition that such a
sanction is appropriate under these circumstances,

nor has this

Court found any decisions supporting the idea that Respondent's
sanctionable behavior can be used as the basis for findings of fact
against a t

rd party.

790,795 n.2 (2d CiL 1984)

Letelier v. Republic of Chile, 748 F.2d
("Rule 37 sanctions ensure that a party

will not benefit from non-compliance with

scovery orders.

Yet,

one party to litigation will not be subjected to those sanctions
because of the failure of another to comply with discovery, absent
a finding that the other party controlled the actions of the non­
complying party.").

Indeed, even where a non-party is subject to

a court-ordered deposition or subpoena,
only

remedies

available

are

those

for

and fails to comply,
contempt,

not

the

adverse

Fed. R. Civ. P. 37 (b) (1); Fed.

findings against the non-party.
8

R. C

. P. 45(e);

126 F.3d 215, 220 21

(3d Cir. 1997).

Accordingly, the Court will

not impose a sanction concluding that the Commercial Entities are
the alter egos of the Government of Zimbabwe.
Petitioners

have

also

asked

the

Court

to

preclude

the

Government of Zimbabwe from denying the alter-ego status of the
Commercial Ent it ies .

Under Rule

37 (b) (2) (A) (ii),

a

court may

issue an order "prohibiting the disobedient party from supporting
or opposing designated claims .
this

appears

sanction

to

be

against

Although, at first glance,

"

simply an alternative way of

the

Commercial

Ent

ies

that

achi

this

ng the
Court

has

stinguishable.

refused to impose, it is, in fact,

When Petitioners sought to amend the Judgment entered against
Zimbabwe to make the Commercial Entities parties to t

Judgment,

they sought a declaratory judgment from the District Court finding
that

the

Commercial

Government of Zimbabwe.
that

issue

until

Entities

are

instrumentalities

done

so

and,

the

The District Court declined to address

Petitioners

could

identify

Commercial Entities that could be attached.
yet

of

therefore,

as

things

property

of

the

Petitioners have not
stand,

the

Commercial

Entities have not been deemed alter egos or instrumentalities of
the Government of Zimbabwe,

and are not subject to the Judgment.

Should there come a time when Petitioners are able to identi
9

IL

attachable

property

of

the

Petitioners then proffer
the Commerc
the

Commercial

Entities,

dence to the Court tending to show that

of

Zimbabwe,

the

Comme

al

doubt, be given the opportunity to respond.
s

choose
for

requests,

t

to

appear

ilure

to

respond

Government

sanction

not

of

Zimbabwe

its

in

this

Entities

action,

to

however,

Petitioners'

would

Peti tioners have repeatedly sought

would,

be

interrogatories

precluded

production on representatives of
Order, dated July 8,
the

extent

of

2011),

Respondent's

denying

the

from

d of the

requests

They have

for

the Republic of

document

Zimbabwe

(see

seeking to establish facts regarding
ties

to

the

Commercial

Zimbabwe has simply ignored these requests,
Orders of this Court.

a

s alter egos.

discovery

and

as

discovery

execution of their Judgment, pursuant to Rule 69 (a) (2).
served

no

Should the Commercial

arguing that the Commercial Entities are not

properly

should

1 Entities are the alter egos or instrumentalities of

Government

Ent

and

Entities.

and has ignored the

Therefore, precluding Respondent itself from

alter-ego

status

of

the

Commer

al

Entities

is

appropriate.
2.

Petitioners also seek attorneys' fees and costs in the amount
of

$16,749.50

and

$893.17,

respectively,

attempting to secure from Zimbabwe the
10

for

the

time

spent

scovery authorized by thi s

Court's Orders.
37.

This sanction is specifically authorized by Rule

Fed. R. Civ. P. 37 (a) (5) (A) and (b) (2) (c).

Nevertheless,

it is a well-established rule in this Circuit "that absent unusual
circumstances

attorneys

are

required

records with the fee applications.
F.3d 130,

133

(2d Cir.

2010)

Retarded Children v. Carey,
see also Whitney v.
2009 WL

4929274,

n

to

submit

Scott v. City of New York, 626

(citing New York State Ass'n

Inc.,

*4

(E.D.N.Y.

context of a Rule 37 appl icat ion:

for

711 F.2d 1136 (2d Cir. 1983)};

JetBlue Airways Corp., No.

at

contemporaneous

Dec.

21,

07-CV-1397

2009) (noting

"It is clearly t

(CBA) ,
in

the

attorney's

burden to maintain contemporaneous records, see F. H. Krear & Co.
810 F.2d at 1265, and fee applications
are

subj ect

documented.

to denial
=..:=:..=..'---"'-''--'''--=-

where

the

fees

have not

been adequately

, Riordan v. Nationwide Mut.

977 F.2d 47, 53 (2d Cir.1992)

Fire Ins. Co.,

.If).

Petitioners have submitted no time records reflecting the work
the for which they seek fees,
the costs expended.

their hourly rates,

Accordingly,

or evidence of

their request for the award of

fees and costs is denied.
CONCLUSION
For the reasons set out in this Opinion, Petitioners' motion
for

sanctions

sanctions,

(2)

is denied with respect
attorneys'

to:

(1)

monetary contempt

fees and costs,

and

(3)

11

their request

that the Commercial Entities be deemed
of Zimbabwe.

ter egos of the Government

Their motion is granted with respect to precluding

Respondent Zimbabwe from denying that the Commercial Entit

are

its alter egos.
SO ORDERED.

~/Iif

THEODORE H. KATZ Z
UNITED STATES MAGISTRATE JUDGE

Dated:

November 10, 2011
New York, New York

12