Iraq Middle Mkt. Dev. Found. v. Harmoosh

947 F.3d 234

IRAQ MIDDLE MARKET DEVELOPMENT FOUNDATION, Plaintiff - Appellant,

v.Mohammad Ali Mohammad HARMOOSH, a/k/a Mohammed Alharmoosh; Jawad Alharmoosh, Defendants - Appellees.

No. 18-2212

United States Court of Appeals, Fourth Circuit.

Argued: October 30, 2019

Decided: January 13, 2020

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, Evan M. Lisull, KALBIAN & HAGERTY, LLP, Washington, D.C., for Appellant. Gary C. Adler, CLARK HILL PLC, Washington, D.C., for Appellees.

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.

DIANA GRIBBON MOTZ, Circuit Judge:

This case has a long and somewhat complicated history, and it returns to us after remand to the district court. The controversy here arises from nonpayment of a promissory note. A creditor sought recognition from a federal district court of a foreign judgment that required the debtor to pay the note. The debtor argued that the foreign judgment should not be recognized because the parties had agreed to arbitrate their dispute. The district court agreed and granted summary judgment to the debtor. On appeal, we vacated and remanded, holding that genuine issues of material fact precluded finding that the debtor had asserted a right to arbitrate in the foreign court. After discovery, the debtor again moved for summary judgment and the district court again granted the motion, relying heavily on perceived inadequacies in the foreign judicial process that assertedly excused the debtor even if he failed to assert his right to arbitration in the foreign forum. For the reasons set forth within, we must again vacate the judgment of the district court and remand for further proceedings.

I.

The Iraq Middle Market Development Foundation ("Foundation"), a Texas nonprofit corporation, loaned $2 million to Al-Harmoosh for General Trade, Travel, and Tourism ("AGTTT"), a company headquartered in Iraq. Mohammad Harmoosh, a managing partner of AGTTT and a dual Iraqi-American citizen residing in Maryland, executed a promissory note guaranteeing repayment of the loan. The loan agreement includes an arbitration clause, which provides 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" in Jordan.

In 2010, the Foundation sued Harmoosh in the United States District Court for the District of Maryland, alleging that Harmoosh refused to repay the loan. The district court dismissed the action after Harmoosh asserted his right to arbitrate. Iraq Middle Mkt. Dev. Found. v. Al Harmoosh , 769 F. Supp. 2d 838, 843 (D. Md. 2011). But Harmoosh did not move to compel arbitration as he was entitled to do under the Federal Arbitration Act. 9 U.S.C. §§ 3 – 4.

Three years later, in 2014, the Foundation sued Harmoosh in an Iraqi trial court, the Court of First Instance for Commercial Suits in Baghdad. This court does not provide pretrial discovery, but held five trial hearings in this case over the course of about six weeks. The trial court granted judgment to the Foundation, awarding it $2 million USD in damages and five hundred thousand dinars in costs and legal fees.

Under Iraqi law, if a party fails to assert the right to arbitration in the trial court, the party waives that right. Article 253, Amended Civil Procedure Code No. 83 of 1969. The Iraqi trial court’s hearing minutes, which summarize but do not transcribe the content of the hearings, memorialize several defenses raised by Harmoosh in the trial court but contain no reference to any assertion by Harmoosh of a right to arbitrate. Harmoosh’s counsel, the Foundation’s counsel, and the trial judge all signed the hearing minutes. The parties’ experts in Iraqi law agree that after both parties sign the hearing minutes, the parties are bound by their contents, and once the judge signs, the minutes become official records that effectively serve as court orders.

Harmoosh appealed the trial court’s order to the intermediate appellate court, the Baghdad/Al-Rasafa Federal Court of Appeals. Harmoosh challenged the judgment as, inter alia , contrary to his arbitration rights. But the Court of Appeals "reject[ed] the objections and grounds for appeals" and affirmed the trial court’s judgment. Harmoosh then appealed to the Federal Court of Cassation of Iraq, the court of last resort for commercial disputes, which "upheld" the judgment "as valid and consistent with the law."

The Foundation returned to the District of Maryland, seeking recognition of the Iraqi judgment under the Maryland Uniform Foreign Money-Judgments Recognition Act, Md. Code Ann., Cts. & Jud. Proc. §§ 10-701 et seq. ("Maryland Recognition Act"). The Foundation also alleged that Harmoosh fraudulently conveyed his assets to hinder the Foundation’s collection efforts.

Under the Maryland Recognition Act, a foreign judgment regarding a sum of money is generally "conclusive between the parties" in domestic courts so long as it is "final, conclusive, and enforceable where rendered." Id. §§ 10-702, -703. But a domestic 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 compel arbitration and to dismiss the suit, arguing that the District of Maryland need not recognize the Iraqi judgment because the Iraqi proceeding was "contrary to the parties[’] agreement to arbitrate disputes." The district court agreed and, construing the motion as one for summary judgment, granted judgment to Harmoosh. Iraq Middle Mkt. Dev. Found. v. Harmoosh (Harmoosh I ), 175 F. Supp. 3d 567, 572, 578–79 (D. Md. 2016).

The Foundation appealed, asserting that Harmoosh lost his right to arbitrate — and thus his ability to invoke § 10-704(b)(4) as a ground for nonrecognition — by failing to raise arbitration in the Iraqi trial court. Applying the Federal Arbitration Act ("FAA"), we held that a party defaults his right to arbitrate if he fails to raise arbitration before " ‘so substantially utiliz[ing] the litigation machinery that to subsequently permit arbitration would prejudice’ " the party opposing arbitration. Iraq Middle Mkt. Dev. Found. v. Harmoosh (Harmoosh II ), 848 F.3d 235, 241 (4th Cir. 2017) (quoting Forrester v. Penn Lyon Homes, Inc. , 553 F.3d 340, 343 (4th Cir. 2009) ) (construing 9 U.S.C. § 3 ). We concluded that genuine issues of material fact remained as to whether Harmoosh defaulted his right to arbitrate. Harmoosh II , 848 F.3d at 242. Accordingly, we vacated the judgment of the district court and remanded the case for development of the record on this point. Id.

On remand, the parties deposed Iraqi counsel on the question of whether Harmoosh raised an arbitration defense at any of the five hearings before the Iraqi trial court. Harmoosh’s Iraqi counsel testified that he had asserted Harmoosh’s right to arbitrate during the fifth trial court hearing. The Foundation’s Iraqi counsel, however, swore that Harmoosh never raised an arbitration defense at any hearing before the trial court. After the close of discovery, Harmoosh moved for summary judgment in the District of Maryland, again arguing that the Iraqi judgment was contrary to the parties’ arbitration agreement.

The district court held that even if it found that Harmoosh failed to raise an arbitration defense at a hearing before the Iraqi trial court, "that finding, without more, would be legally insufficient to establish default." Iraq Middle Mkt. Dev. Found. v. Harmoosh (Harmoosh III ), No. GLR-15-1124, 2018 WL 4634140, at *5 (D. Md. Sept. 27, 2018). The court reasoned that because Iraqi trial courts resolve disputes relatively quickly and without discovery, Harmoosh could not have "substantially utilized" the Iraqi litigation machinery and so could not have defaulted his right to arbitration. Id. at *4–6.

The Foundation then noted the current appeal. We review the district court’s grant of summary judgment de novo. Henry v. Purnell , 652 F.3d 524, 531 (4th Cir. 2011) (en banc). Summary judgment is proper only if, viewing the evidence in the light most favorable to the nonmoving party, the case presents no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Id.

II.

The Maryland Recognition Act governs the decision of whether to recognize the Iraqi judgment. Md. Code Ann., Cts. & Jud. Proc. §§ 10-701 et seq. Under that statute, a court may decline to 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). But a judgment is not contrary to an arbitration agreement if the party opposing the judgment defaulted his right to arbitration. In addressing whether Harmoosh had defaulted his right to arbitrate, in our previous opinion (without any contrary argument from the parties), we looked to the FAA.

As noted above, under the FAA, a party defaults the right to arbitration if he fails to assert that right before he "[1] so substantially utilizes the litigation machinery that [2] to subsequently permit arbitration would prejudice the party opposing" arbitration. Forrester , 553 F.3d at 343 (alteration omitted) (quoting Maxum Founds. v. Salus Corp. , 779 F.2d 974, 981 (1985) ); see also 9 U.S.C. § 3. As we explained in our previous opinion, it is clear that a holding that Harmoosh did not default his right to arbitrate would indeed prejudice the Foundation. See Harmoosh II , 848 F.3d at 241. Thus, the question before the district court on remand was whether Harmoosh defaulted his right to arbitrate by substantially utilizing...