Iraq Middle Mkt. Dev. Found. v. Harmoosh

• Decision Date: 02 February 2017
• Docket Number: No. 16-1403,16-1403
• Citation: 848 F.3d 235
• Parties: IRAQ MIDDLE MARKET DEVELOPMENT FOUNDATION, Plaintiff-Appellant, v. Mohammad Ali Mohammad HARMOOSH, a/k/a Mohammed Alharmoosh; Jawad Alharmoosh, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

848 F.3d 235

IRAQ MIDDLE MARKET DEVELOPMENT FOUNDATION, Plaintiff-Appellant,

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

No. 16-1403

United States Court of Appeals, Fourth Circuit.

Argued: December 7, 2016

Decided: February 2, 2017

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, KALBIAN & HAGERTY, LLP, Washington, D.C., for Appellant.

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:

After securing a judgment in Iraq for non-payment of a promissory note, a creditor sought to have the judgment recognized in the federal district court for the District of Maryland. The debtor contended that the judgment was not entitled to recognition given that the parties had agreed to arbitrate their disputes. The district court agreed and granted summary judgment to the debtor. Because genuine issues of material fact remain as to whether the debtor lost his right to arbitrate by utilizing the Iraqi judicial process, we must vacate and remand for further proceedings.

I.

The Iraq Middle Market Development Foundation, a non-profit corporation, makes and services loans to local businesses in Iraq. On November 10, 2006, the Foundation agreed to lend $2 million to Al-Harmoosh for General Trade, Travel, and Tourism ("AGTTT"), a company headquartered in Najaf, Iraq. The loan agreement includes an arbitration clause specifying 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." The clause identifies Amman, Jordan as the venue for arbitration. As part of the deal, Mohammad Harmoosh, a managing partner of AGTTT and a dual citizen of Iraq and the United States, who resides in Maryland, executed a promissory note guaranteeing repayment of the loan.

In 2010, after Harmoosh had refused to repay the loan, the Foundation tried to collect by suing him for breach of contract in federal court in Maryland. Harmoosh moved to dismiss, arguing that his alleged breach was an arbitrable dispute "aris[ing] out of or in connection with" the loan agreement. The district court agreed and dismissed the Foundation's complaint. Iraq Middle Mkt. Dev. Found. v. Al Harmoosh , 769 F.Supp.2d 838, 842 (D. Md. 2011). Harmoosh, however, did not move to compel arbitration, as he was entitled to do under the Federal Arbitration Act. 9 U.S.C. § 3 (2012).

In February 2014, the Foundation filed another civil action against Harmoosh to collect on the promissory note, this time in the Court of First Instance for Commercial Disputes in Baghdad. Harmoosh appeared in that court through counsel and asserted at least two affirmative defenses. He contended that the court lacked personal jurisdiction and that he was not personally liable because he guaranteed the loan only in his capacity as a shareholder. The parties disagree as to whether Harmoosh raised the arbitration clause as a third defense. It is undisputed that, under Iraqi law, although a valid arbitration clause deprives a court of jurisdiction over arbitrable disputes, a party waives his right to arbitrate if he fails to assert it before the trial court. Article 253, Amended Civil Procedure Code No. 83 of 1969.

In any event, the Foundation and Harmoosh litigated their dispute to final judgment in Iraq. In April 2014, the Court of First Instance found in favor of the Foundation and awarded it $2 million in damages and $424.91 in costs and legal fees. Harmoosh appealed the judgment to the Baghdad/Al-Rasafa Federal Court of Appeals, which affirmed the judgment. Harmoosh then appealed to the Federal Court of Cassation of Iraq—the court of last resort for commercial disputes—which also affirmed.

In April 2015, the Foundation returned to the District of Maryland and filed the two-count complaint at issue here. Count One seeks recognition of the Iraqi judgment under the Maryland Uniform Foreign Money-Judgments Recognition Act, Md. Code Ann., Cts. & Jud. Proc. §§ 10–701 et seq. (West 2016) ("Maryland Recognition Act"). Count Two alleges that Harmoosh fraudulently conveyed some of his assets both before and after the Iraqi judgment was rendered.

Under the Maryland Recognition Act, a foreign judgment regarding a sum of money is generally conclusive between the parties so long as it is "final, conclusive, and enforceable where rendered." Id. §§ 10-702, -703. However, the Act recognizes several exceptions to this general rule. Relevant here, the Act provides that a 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 dismiss, invoking this exception and arguing that the district court should not recognize the Iraqi judgment because the Iraqi proceedings were contrary to the parties' agreement to arbitrate. The Foundation responded that Harmoosh failed to assert his arbitration rights before the Iraqi trial court and therefore had waived his right to arbitrate.

Before the parties had an opportunity to conduct discovery, the district court granted summary judgment to Harmoosh on the Maryland Recognition Act claim, declining to recognize the Iraqi judgment because the Iraqi proceedings were "contrary to an arbitration provision." The court then granted Harmoosh's motion to compel arbitration of the fraudulent conveyance claim. The Foundation timely noted this 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). A court can grant summary judgment only if, viewing the evidence in the light most favorable to the non-moving party, the case presents no genuine issues of material fact and the moving party demonstrates entitlement to judgment as a matter of law. Id.

II.

We must first determine whether the arbitration clause exception in § 10-704(b)(4) of the Maryland Recognition Act applies if a party forgoes his right to arbitrate by deciding to participate in judicial proceedings in a foreign court. This is a question of Maryland law, one that Maryland's highest court has not addressed. Because we sit in diversity, our task is to anticipate how it would rule on this question. See, e.g. , Liberty Univ., Inc. v. Citizens Ins. Co. of America , 792 F.3d 520, 528 (4th Cir. 2015).

The text of § 10-704(b)(4) provides that a Maryland court need not recognize a foreign judgment if the proceedings were "contrary to" an agreement to settle the dispute out of court. Harmoosh contends that § 10-704(b)(4) permits a Maryland court to decline recognition of a foreign judgment if—under the terms of an arbitration clause—the dispute should not have been litigated in the first place. On this reading, any and all foreign judicial proceedings are "contrary to" an arbitration clause regardless of whether the parties forego their arbitration rights.

We cannot agree. We do not believe the General Assembly of Maryland intended to give courts discretion to enforce contractual rights the parties themselves decided to waive. By the same token, we do not believe the legislature gave courts discretion to ignore the judgment of a foreign court when the parties voluntarily resolved their dispute before that court.

This court has not addressed this issue, and few other courts have interpreted exceptions similar to § 10-704(b)(4). Those that have done so have recognized that parties may waive such exceptions. See The Courage Co. v. The Chemshare Corp. , 93 S.W.3d 323, 336–38 (Tex. App. 2002) ; Dart v. Balaam , 953 S.W.2d 478, 480 (Tex. App. 1997) ; cf. Montebueno Mktg., Inc. v. Del Monte Corp. USA , 570 Fed.Appx. 675, 677 (9th Cir. 2014) (unpublished) (rejecting a waiver argument due solely to "lack of evidence"). And we have not found a single case in which a court has held, or even suggested, that exceptions similar to § 10-704(b)(4) cannot be waived. During oral argument, Harmoosh's counsel agreed with our assessment of the case law.

Moreover, we can draw guidance on the question from the fact that Maryland has largely adopted the Uniform Foreign Money-Judgments Recognition Act. See Andes v. Versant Corp. , 878 F.2d 147, 149 (4th Cir. 1989). The arbitration clause exception in § 10-704(b)(4) closely tracks a provision in the Uniform Act. That portion of the Uniform Act, which provides that a court need not recognize the judgment of a foreign court if the proceedings were "contrary to" an agreement that a given dispute "was to be settled otherwise than by proceedings in that court," can be waived either expressly or by implication. Uniform Foreign Money-Judgments Recognition Act of 1962 § 4(b)(5) (Unif. Law Comm'n 1962); Restatement (Third) of the Foreign Relations Law of the United States § 482, cmt. h (Am. Law Inst. 1987).¹

Nothing suggests that the Maryland General Assembly intended a different result. On the contrary, Harmoosh's interpretation would put the arbitration clause exception in § 10-704(b)(4) at odds with Maryland common law of contracts. Under Maryland law, a party can waive the right to arbitrate a dispute just as he can waive any other contractual right. Charles J. Frank, Inc. v. Associated Jewish Charities of Baltimore, Inc. , 294 Md. 443, 450 A.2d 1304, 1306 (1982). And once a party waives his right to arbitrate, that right becomes unenforceable "and thus treated as though it had never existed." Stauffer Constr. Co. v. Bd. of Educ. of Montgomery Cty. , 54 Md.App. 658, 460 A.2d 609, 614 (1983).

As in other jurisdictions, exactly when a party waives his rights through his conduct "turns on the factual circumstances of each case."...