First City, Texas-Houston v. Rafidain Bank

197 F.R.D. 250, 48 Fed. R. Serv. 3d 421, 2000 U.S. Dist. LEXIS 16212, 2000 WL 1682757
CourtDistrict Court, S.D. New York
DecidedNovember 8, 2000
DocketNo. 90 CIV. 7360(JSR)
StatusPublished
Cited by14 cases

This text of 197 F.R.D. 250 (First City, Texas-Houston v. Rafidain Bank) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
First City, Texas-Houston v. Rafidain Bank, 197 F.R.D. 250, 48 Fed. R. Serv. 3d 421, 2000 U.S. Dist. LEXIS 16212, 2000 WL 1682757 (S.D.N.Y. 2000).

Opinion

OPINION AND ORDER

RAKOFF, District Judge.

The uneven course of this case has taken some further odd turns. Previously the Court had held defendant Rafidain Bank (“Rafidain”) in civil contempt for failure to provide plaintiff First City, Texas-Houston, N.A. (“First City”) with discovery sought in connection with First City’s claim that co-defendant Central Bank of Iraq (“Central Bank”) was the “alter ego” of Rafidain (a commercial bank) and therefore not entitled to sovereign immunity. While waiting in vain for Rafidain to purge its contempt, First City sought similar discovery from another source by serving a subpoena duces tecum on the law firm Richards & O’Neil, LLP, present counsel to Central Bank but former counsel to Rafidain. Richards & O’Neil moved to quash the subpoena, but before that motion could be finally resolved, Rafidain, which had effectively absented itself from these proceedings for many years, reappeared through new counsel, Sinnreich, Wasserman & Grubin, LLP (“SW & G”), and moved to vacate the contempt order. First City responded by serving on SW & G, as Rafidain’s agent, [252]*252both a subpoena duces tecum seeking Rafidain-related financial information and a restraining notice seeking to restrain certain of Rafidain’s assets. In turn, Rafidain, through SW & G moved to vacate both the subpoena and the restraining notice. Because all these motions bear upon each other, the Court discusses and resolves them collectively in the instant Opinion and Order.

The pertinent facts, already the subject of several prior opinions of this Court,1 and the Court of Appeals,2 are summarized as follows. In February 1989, First City, an American bank, agreed to loan nearly $50 million to Rafidain, a commercial bank wholly owned by the Republic of Iraq. In August 1990, after Iraq, in connection with the Kuwaiti War, repudiated its foreign debts, Rafidain defaulted on repayment of the loan. First City then commenced this suit against defendants Rafidain and Central Bank, arguing that as “alter egos of each other” both were liable on the loan. Complaint, H 3.3 Neither defendant appeared or answered, and on April 26, 1991 the Court (per Martin, J.) entered a default judgment against Rafidain in the amount of approximately $53.2 million and a declaratory judgment against both defendants declaring that the approximately $21.4 million in the bank accounts that Rafidain and Central Bank held with First City could be set off against the Rafidain default judgment. This Order was a final judgment, from which no appeal was taken by either party.

A year later, however, on April 24, 1992, both defendants moved before Judge Martin to set aside the judgment on grounds of improper service, sovereign immunity, and excusable neglect. Finding that the service on Central Bank had been improper, Judge Martin vacated the judgment as to Central Bank, but denied any relief as to Rafidain. See First City, Texas-Houston, N.A. v. Rafidain Bank, 1992 WL 296434 (S.D.N.Y. Oct. 6, 1992). No appeal was taken by Rafidain from this denial, and, indeed, Rafidain effectively abandoned the litigation from that point until this year.

Meanwhile, First City, finding itself unable to satisfy its judgment against Rafidain, sought reimbursement from the United States Government (pursuant to certain arrangements arising from the Kuwaiti War) and succeeded in recovering $55 million. Nevertheless, because of interest and other charges, this recovery did not fully make First City whole. In' early 1994, First City re-served Central Bank with the Amended Complaint in this case, and this time service was proper. In response, Central Bank moved to dismiss on the ground of sovereign immunity (a ground raised, but not reached, in connection with Judge Martin’s earlier order). As previously, First City countered by arguing that, so far as the underlying transactions here in issue were concerned, Central Bank had acted, not as a branch of a sovereign government, but as the “alter ego” of Rafidain, which, as Judge Martin had previously determined, was a commercial bank that fell outside the protections of sovereign immunity. See Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1605(a). In support of this “alter ego” theory, First City requested, and Judge Martin granted, certain limited discovery, pursuant to which First City propounded discovery requests to both Central Bank and Rafidain. Only Central Bank responded, however, and so, on May 11, 1996, First City filed a motion seeking to compel responses fi*om Rafidain, as well as broader discovery from Central Bank. Central Bank, for its part, renewed its motion to dismiss on the ground of sovereign immunity.

With these motions pending, the case was reassigned from Judge Martin to Judge Jones and, thereafter, in early 1997, to the undersigned. On March 27, 1997, the Court, after hearing oral argument, denied First City’s motion for broader discovery from Central Bank, and granted Central Bank’s [253]*253motion to dismiss on the ground of sovereign immunity, finding that First City had failed to make an adequate showing that Central Bank was the alter ego of Rafidain. See transcript of hearing of Mai’. 26,1997, at 20-23. As no one appeared on behalf of Rafidain, the Court took no action on First City’s motion to compel discovery from Rafidain. Indeed, since no relief had ever been granted from the default judgment previously entered against Rafidain, the Court was under the impression that Rafidain was no longer in the case. Accordingly, the Court simply entered judgment dismissing Central Bank. See Judgment, Mar. 31,1997.

On appeal from that judgment, however, the Court of Appeals reversed, holding that the District Court should not have rejected First City’s alter ego theory without first permitting First City to “conduct full discovery against Rafidain” on the question of whether Central Bank was Rafidain’s alter ego. Unlike the limited discovery permitted against Central Bank, such full discovery was justified against Rafidain, the Court of Appeals held, “[bjeeause Rafidain is a party to this suit, has been found to fit within the FSIA’s ‘commercial activity’ exception and because First City has a judgment against Rafidain----” First City, Texas-Houston, N.A. v. Rafidain Bank, 150 F.3d 172, 177 (2d Cir.1998).

Following remand, First City served on Rafidain (in the contested manner described below) a subpoena duces tecum ad testificandum dated September 14, 1998 (the “1998 Rafidain Subpoena”) seeking both documentary and testimonial evidence on the “alter ego” issue. Receiving no response from Rafidain, First City asked the Court to hold Rafidain in civil contempt and impose a sanction of $1,000 per day to continue until such time as Rafidain purged its contempt. Despite being given ample opportunities to respond — extending over nearly a year — Rafidain chose not to do so. Accordingly, on November 1, 1999, the Court granted First City’s motion and held Rafidain in civil contempt. See First City, Texas-Houston, N.A. v. Rafidain Bank, 68 F.Supp.2d 377, 379 (S.D.N.Y.1999).

Meanwhile, First City, effectively rebuffed in its efforts to obtain discovery from Rafidain on the issue of whether Central Bank was the “alter ego” of Rafidain, sought to explore alternative sources of discovery.

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197 F.R.D. 250, 48 Fed. R. Serv. 3d 421, 2000 U.S. Dist. LEXIS 16212, 2000 WL 1682757, Counsel Stack Legal Research, https://law.counselstack.com/opinion/first-city-texas-houston-v-rafidain-bank-nysd-2000.