Motorola Credit Corp. v. Uzan

• Decision Date: 21 November 2007
• Docket Number: Docket No. 06-1222-cv.
• Citation: 509 F.3d 74
• Parties: MOTOROLA CREDIT CORPORATION, Plaintiff-Counter-Defendant-Appellee, Nokia Corporation, Plaintiff-Counter-Defendant, v. Kemal UZAN, Cem Cengiz Uzan, Murat Hakan Uzan, Melahut Uzan, Aysegul Akay, and Antonio Luna Betancourt, Defendants-Appellants, Cem Cengiz Uzan and Murat Hakan Uzan, Defendants-Counter-Claimants-Appellants, Unikom Iletism Hizmetleri Pazarlama A.S., Standart Pazarlama A.S. and Standart Telekomunikasyon Bilgisayar Hizmetleri A.S., Defendants, Credit Lyonnais, UBS AG and Bruce G. Howell, ABN Amro Bank N.V., Movants, Motorola Inc., Kroll Associates, Inc., Christopher B. Galvin, Keith J. Bane, Walter Keating, Ed Hughes, and Ernst Kramer, Counter-Defendants.
• Court: U.S. Court of Appeals — Second Circuit

509 F.3d 74

MOTOROLA CREDIT CORPORATION, Plaintiff-Counter-Defendant-Appellee, Nokia Corporation, Plaintiff-Counter-Defendant, v. Kemal UZAN, Cem Cengiz Uzan, Murat Hakan Uzan, Melahut Uzan, Aysegul Akay, and Antonio Luna Betancourt, Defendants-Appellants, Cem Cengiz Uzan and Murat Hakan Uzan, Defendants-Counter-Claimants-Appellants, Unikom Iletism Hizmetleri Pazarlama A.S., Standart Pazarlama A.S. and Standart Telekomunikasyon Bilgisayar Hizmetleri A.S., Defendants, Credit Lyonnais, UBS AG and Bruce G. Howell, ABN Amro Bank N.V., Movants,

Motorola Inc., Kroll Associates, Inc., Christopher B. Galvin, Keith J. Bane, Walter Keating, Ed Hughes, and Ernst Kramer, Counter-Defendants.

Docket No. 06-1222-cv.

United States Court of Appeals, Second Circuit.

Argued: May 3, 2007.

Decided: November 21, 2007.

Howard H. Stahl (Steven K. Davidson & Bruce C. Bishop on the brief), Steptoe & Johnson LLP, Washington, D.C., for Plaintiff-Counter-Defendant-Appellee.

Ryan E. Bull (R. Stan Mortenson & Benjamin E. Kringer on the brief), Baker Botts LLP, Washington, D.C., for Defendants-Appellants.

Before: WINTER, CALABRESI, and SOTOMAYOR, Circuit Judges.

CALABRESI, Circuit Judge:

In this appeal, the Uzan family of Turkey challenges the district court's award of $1 billion in punitive damages against it. The court based the punitive damages award on its findings that appellants "engaged in a coordinated campaign of lies and misrepresentations in order to swindle Motorola of more than $2 billion" and that, "threatened with exposure, [appellants] resorted not only to further lies and corporate manipulations but even to obstruction of justice and, ultimately, misrepresentations to this Court." Motorola Credit Corp. v. Uzan, 413 F.Supp.2d 346, 349 (S.D.N.Y.2006) ("Uzan V").¹

Appellants argue that the punitive damages assessed constitute "an economic death sentence that neither Illinois law nor the Constitution permit." They challenge the award as invalid under Illinois law because the "punitive sanction . . . exceed[s] the defendants' ability to pay," and under the Due Process Clause because, they contend, the amount is excessive. They also assert that the district court erred in assessing the punitive damages jointly and severally against them. Appellee contests each of these propositions, arguing, first, that the court properly considered defendants' ability to pay and that the Uzans cannot challenge this determination after "contumaciously" refusing to provide information as to their financial condition; second, that the "reprehensibility" of the Uzans' fraud, and the need to deter this kind of malicious misconduct, justify the size of the award under the Due Process Clause; and third, that defendants have waived any challenge to the joint and several assessment of the damages.

We affirm the district court's punitive damages award.

I. BACKGROUND

The circumstances giving rise to this action were set forth at length in a comprehensive opinion by the district court, Uzan II, 274 F.Supp.2d 481 (S.D.N.Y. 2003), and in an equally thorough opinion of this circuit which affirmed Uzan II in part and vacated and remanded it in part. Uzan III, 388 F.3d 39 (2d Cir.2004). See also Uzan I, 322 F.3d 130 (2d Cir.2003) (per curiam). We assume familiarity with those opinions, and recite only briefly the facts and history of this case.

Plaintiff Motorola Credit Corporation ("Motorola"), the financing arm of the cellular telecommunications manufacturer Motorola, Inc., and plaintiff Nokia Corporation ("Nokia"), also a leading cellular telecommunications company, sued five individual members of the Uzan family, a close associate of theirs, named Antonio Luna Betancourt, and several of their companies. Allegedly one of the richest families in the world, the Uzans are said to control more than 130 companies, ranging from banks and construction companies to utilities, media outlets, and communication firms. Uzan II, 274 F.Supp.2d at 490, 526-30. Several of these family-owned companies—Unikom Iletism, Standart Pazarlama A. S., Standart Telekom, and a large Turkish telecommunications firm called Telsim—were defendants in the action at bar. These corporate defendants have not appealed the lower court decision. Accordingly, appellants are the individual Uzans (Kemal Uzan, Cem Uzan, Hakan Uzan, Melahut Uzan, and Aysegul Akay) along with their close family associate, co-defendant Betancourt.²

In Uzan II, the district court concluded that defendants fraudulently obtained loans from Motorola for more than $2 billion and from Nokia for approximately $800 million, purportedly to finance the development of the Uzans' telecommunications business in the Telsim company. They secured this financing by granting plaintiffs shares in Telsim as collateral, inducing the loans through numerous "material false statements regarding the business practices and finances of Telsim, the value and security of the collateral, the uses to which prior loan proceeds had been put, the status of other financing for Telsim, the existence and value of offers to purchase an interest in Telsim, and the status of negotiations with third parties" to sell control of Telsim. Id. at 577. After procuring the loans, defendants severely diluted the value of the collateral by tripling the number of outstanding Telsim shares and creating a new privileged class of unencumbered shares with the power to elect a majority of Telsim directors.

After declaring Telsim in default on the loans, Motorola and Nokia filed their complaint in January 2002 alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq., Illinois law, the Computer Fraud and Abuse Act, 18 U.S.C. § 1030(a)(4), and the Electronic Communications Privacy Act, 18 U.S.C. §§ 2511(1)(a), 2701(a)(2). Two months later, defendants moved to dismiss the complaint and to compel arbitration. The plaintiffs countered by asking the court to attach various New York properties belonging to the Uzans and to grant a preliminary injunction requiring the defendants to deposit in a district court registry the Telsim shares that they had pledged as collateral. In April 2002, before the court ruled on these motions, defendants secured three injunctions from courts in Turkey purporting to prohibit the transfer of Telsim stock outside the country; these injunctions were subsequently lifted by the Turkish courts.

In May 2002 the district court conducted a six-day evidentiary hearing and, by injunction, ordered defendants to deposit into the court's registry the shares of Telsim stock. Defendants refused, and instead canceled the voting rights of plaintiffs' collateral. The court deemed the loan agreements' arbitration provisions to be irrelevant, having concluded that these governed litigation only against the Uzan companies and not against the individual defendants, who were the real parties in interest in the suit before the court.³ Defendants appealed the injunction and the denial of their motion to compel arbitration. While these appeals were pending before our court, the district court proceeded to a bench trial despite defendants' refusal to recognize the jurisdiction of the court and to participate in discovery.

In March 2003, our court ruled on a consolidated appeal that considered both the preliminary injunction ordering the transfer of stock into the court registry and the arbitration decision. Uzan I, 322 F.3d 130. We concluded that the RICO claims underpinning the preliminary injunction had to be dismissed as unripe. Id. at 135. But we did not vacate the injunction. Instead, we remanded the case to permit the district court to determine whether supplemental jurisdiction over state law claims was an appropriate basis for the injunction. Id. at 137. On remand in July 2003, Judge Rakoff issued a 173-page opinion responding to our court. Uzan II, 274 F.Supp.2d 481. The court exercised supplemental jurisdiction, and made findings of fact and conclusions of law. Based on these findings, the court awarded plaintiffs $2,132,896,905.66 in compensatory damages and an equal sum in punitive damages; it imposed a constructive trust on 73.5% of the shares of Telsim as the functional equivalent of the original Telsim shares that had been the plaintiffs' collateral; and it issued a variety of other injunctions. Id. at 580-82. At the same time, it denied defendant's motion for reconsideration of the arbitration ruling. Id. at 509.

In light of defendants' conduct, the court reached "the single and overwhelming inference that [the Uzans] never had any intention to fully and fairly litigate this matter, or to abide by the rule of law or to do anything but thumb their noses at the Courts of the United States." Consequently, to enforce its specific stock transfer order, the court imposed a "contingent sanction" providing that:

Defendants have already been found to be in contempt of the Court's prior orders regarding the transfer of stock. Since Nokia has no meaningful remedy for the fraud perpetrated upon it other than the constructive trust . . ., if defendants now fail to transfer . . . the requisite Telsim shares to the Court's registry on behalf of Nokia within one week from the entry of judgment, the Court hereby orders that judgment will automatically then enter requiring defendants (jointly and severally) to pay to Nokia two times the full amount outstanding on the loans extended by Nokia to Telsim . . . for a grand total of $1,707,415,278.26.

Id. at 582. With post-judgment interest taxed according to federal law, this contempt judgment entered against the Uzans and in favor of Nokia amounted, as of January 19, 2005, to approximately $1.735 billion. Uzan IV, 425 F.3d at 1007. In Uzan IV, we upheld the contempt judgment on the ground that the Uzans had failed to appeal that judgment in Uzan III. Id. at 1008. Contemporaneously, Turkish authorities estimated that the Uzans had also embezzled some $6...