Autotech Techs. v. Integral Research & Development

• Decision Date: 29 August 2007
• Docket Number: No. 06-1718.,06-1718.
• Citation: 499 F.3d 737
• Parties: AUTOTECH TECHNOLOGIES LP, Plaintiff-Appellee, v. INTEGRAL RESEARCH & DEVELOPMENT CORP., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

499 F.3d 737

AUTOTECH TECHNOLOGIES LP, Plaintiff-Appellee, v. INTEGRAL RESEARCH & DEVELOPMENT CORP., Defendant-Appellant.

No. 06-1718.

United States Court of Appeals, Seventh Circuit.

Argued February 6, 2007.

Decided August 29, 2007.

Rehearing Denied October 2, 2007.

Cary S. Fleischer (argued), Chuhak & Tecson, Chicago, IL, for Plaintiff-Appellee.

David A. Baron (argued), McDermott, Will & Emery, Washington, DC, for Defendant-Appellant.

Before KANNE, WOOD, and WILLIAMS, Circuit Judges.

WOOD, Circuit Judge.

Integral Research & Development Corp. ("Integral") is a company wholly owned by the Belarusian government; Integral manufactures semiconductors. Autotech Technologies LP ("Autotech") filed an action against Integral in the U.S. district court for the Northern District of Illinois in 1996 for violating an exclusivity agreement that Autotech obtained through a third party, Digital Devices, Inc. ("DDI"); it also filed a similar suit in state court against DDI. Autotech, Integral, and DDI later reached a global settlement, which was reflected in orders entered by both courts on April 3, 1997 ("Agreed Order"). The federal judgment stipulated that the court was retaining jurisdiction to enforce the Agreed Order. Disputes were not long in coming. A few months after the Order was entered, Autotech returned to the district court with a motion seeking contempt sanctions to enforce its exclusivity rights. The court found this appropriate and imposed a sanction of $5,000 per day. As far as anyone can tell, however, no one ever collected a penny of that money. Almost ten years later, Autotech sought and was granted an order reducing the accrued fines to a judgment for $18.8 million. The order did not stop the continuing accrual of the fines, but it included a writ of execution granting Autotech the right to seize Integral's assets, including those held by third parties.

On appeal, Integral raises a host of reasons why we should overturn the contempt judgment. Prominent among them is a challenge to the subject matter jurisdiction of the district court to entertain this contempt proceeding, because Integral is an instrumentality of a foreign state. See the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1330, 1601-11. We conclude, however, that subject matter jurisdiction is secure.

Some of Integral's other challenges hit their mark. First, Integral is entitled to pursue its attack now against the contempt finding underlying this huge judgment. Second, Autotech's failure properly to serve Integral with the motion for contempt deprived Integral of notice of the proceeding and, consequently, its right to a full and fair hearing. Third, the writ of execution issued in 2006 was defective, because it failed to identify specific properties in the United States against which the judgment could be executed. Finally, even if the service problem did not compel reversal of the contempt finding on its own, we would nonetheless reverse because Autotech failed to demonstrate that Integral was in contempt of the Agreed Order, and it offered no competent proof supporting the sanction.

I

This case has its roots in an "Exclusive Sales Agreement" that DDI and Integral concluded in 1992. Their agreement made DDI the exclusive sales and marketing agent in the United States for Integral's products. In 1994, Autotech purchased from DDI the exclusive right to promote and sell Integral's products for resale or incorporation into products manufactured or sold in the United States; its authority was embodied in an "Exclusive Marketing Agreement." Integral authorized the transfer of rights from DDI to Autotech through an "Acknowledgment and Modification of Agreement." Relations between Autotech and Integral (as well as Autotech and DDI) soon soured. In 1996, Autotech filed a three-count suit in federal court against Integral, alleging breach of contract, fraud, and a pattern of racketeering activity in violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act, 18 U.S.C. § 1962(c). The complaint included demands for $200,000 for the contract claim and more than $10 million for the fraud and RICO claims. Integral filed two counterclaims for fraud and RICO violations, demanding $50,000 for the former and more than $19 million for the latter. Autotech filed parallel claims against DDI in state court. See Autotech Technologies LP v. Digital Devices, Inc., et al., 95 CH 3427 (Ill. Cir. Ct., Cook County).

On April 3, 1997, Autotech and Integral agreed to dismiss the federal suit with prejudice, while allowing the court to retain jurisdiction to enforce the provisions of the Agreed Order. The state court suit was resolved similarly on the same day. The Agreed Order provided that Integral "shall not sell goods directly or indirectly in the United States[,] Canada, or to Mexican subcontractors except any and all sales may be made by Integral through [Autotech]." Integral also promised not to use the Data Book compiled to market Integral's products. The Order further required that both Integral and the government of Belarus had to acknowledge the grant of exclusive rights. Finally, Autotech waived a $200,000 debt that Integral owed to it and agreed to transfer $217,000 to Integral after it received the required acknowledgments.

As Autotech saw it, this agreement worked no better than its predecessors. On December 2, 1997, Autotech filed a motion to find Integral in contempt of the Order. The only specific violation of the Order its motion alleged, however, was that Integral was selling goods to a company operated by Art Scornavacca. Autotech requested that Integral be fined $20,000 a day, submitting that "the imposition of this fine should have the effect of requiring Integral to comply with the Court's Order. . . ." No factual affidavit accompanied the motion for contempt. Autotech attached only a copy of the Agreed Order itself, acknowledgments of the Order signed by Integral's Vice-President of Sales and Marketing (Dmitry Vecher) and an official from the Ministry of Industry of the Republic of Belarus, a copy of a minute entry from November 8, 1996, and a letter from Vecher to one of Autotech's principals.

The last of these items, Vecher's letter, was evidently the foundation for Autotech's allegation that Integral was selling to Scornavacca. The letter suggests that Autotech and Integral had been discussing a set of five questions. The second of those questions related to Scornavacca. On that topic, Vecher wrote (somewhat elliptically), "We can provide with official confirmation of the binding necessity of the Agreement for sole agents. While have business with ordinary buyers (by the way, Mr. Scornavacca is one of them) making a buying/selling contract with them is sufficient, moreover that in this case the volumes of purchases ordered are scanty and do not influence the situation at the market." This quote provides the only support for Autotech's assertion in its contempt motion that "Mr. Vecher ADMITS THAT INTEGRAL IS SELLING GOODS TO MR. SCORNAVACCA'S COMPANY." No record of service was attached to the motion. In its appearance in court on the motion on December 9, 1997, Autotech alleged only that it "served this on the embassy in Washington, D. C."

On the day of the hearing, the district court issued an Order for a Rule to Show Cause, returnable on December 23, 1997. Autotech had the responsibility of serving Integral. Back in court on December 23, Autotech's lawyer said only that "They were served by certified mail on December 12th. I have a copy of service or the original." He gave no details about who might have been served, and no document verifying the service was ever entered in the record. The court granted the motion for contempt, but it lowered the daily fine from the requested $20,000 to $5,000 a day out of concern that "[a] hundred days and we're up to $20 million." The fine began accruing on December 31, 1997. Autotech was ordered to "serve a copy of this Court's Order on Integral . . . and on the owner of Integral . . ., being the Republic of Belarus by its Embassy in Washington, D.C." Again, no record of service was ever made. (In its motion for a writ of execution filed on February 2, 2006, Autotech alleged that it had spoken with Integral's then-attorney John LaPine following the December 23, 1997 contempt order. No competent evidence of this conversation, in the form of an affidavit or otherwise, was ever made part of the record.)

Autotech's February 2, 2006, motion for a writ of execution submitted that the company had taken steps to discover and levy upon the assets of Integral in the United States, but that "[n]o such assets were discovered or levied upon." The motion explained that Autotech sought the writ of execution because it "believes there are assets of Integral located in other countries that can be levied upon to satisfy at least a portion of the judgment debt owed to Plaintiff. . . . In order to levy upon these assets, Plaintiff must possess not only a certified copy of the judgment order . . . but also a Writ of Execution." (Emphasis added.) Yet again, the record contains no copy of service of this motion on Autotech.

The court granted Autotech's motion on February 10, 2006, without requiring from it any more information about the assets it hoped to attach. The court's writ read as follows:

a. That Plaintiff, through its agents, is entitled to enforce and collect from third parties the judgment debt entered against Defendants on December 23, 1997, which amount is, as of January 31, 2006: $14,790,000, plus interest of 4.5% compounded annually, totaling $18,867,730, and which amount continues increasing at the rate of $5,000.00 per day plus interest;

b. That those third parties that have, hold, or are in possession of goods or monies belonging to Integral [are] commanded to produce to Plaintiff or its agents all books, papers or records in their possession or control which...