Court Opinion

ID: 4122797
Source: CourtListenerOpinion
Date Created: 2017-02-02 20:01:12.96811+00
Date Added: 2024-06-11T14:37:21.247930
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 16-1403

IRAQ MIDDLE MARKET DEVELOPMENT FOUNDATION,

                Plaintiff - Appellant,

           v.

MOHAMMAD ALI MOHAMMAD HARMOOSH, a/k/a Mohammed Alharmoosh;
JAWAD ALHARMOOSH,

                Defendants - Appellees.

Appeal from the United States District Court for the District of
Maryland, at Baltimore. George L. Russell III, District Judge.
(1:15-cv-01124-GLR)

Argued:   December 7, 2016                 Decided:   February 2, 2017

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.

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.
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

                                               2
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

                                           3
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

                                            4
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.

                                        5
                                           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

                                            6
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     F.   App’x      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.

                                                 7
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., 450 A.2d 1304, 1306 (Md. 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., 460
A.2d 609, 614 (Md. Ct. Spec. App. 1983).

     As in other jurisdictions, exactly when a party waives his

rights through his conduct “turns on the factual circumstances

of each case.”          Charles J. Frank, 450 A.2d at 1307.                        However,

Maryland’s      highest     court      has   squarely       held    that     a    party    who

     1 The only notable difference between § 10-704(b)(4) and
§ 4(b)(5) of the Uniform Act is that the latter applies both to
arbitration clauses and to forum-selection clauses. Restatement
(Third) of the Foreign Relations Law of the United States § 482,
cmt. h (Am. Law Inst. 1987).        By contrast, § 10-704(b)(4)
applies only to arbitration clauses.

                                             8
litigates an arbitrable dispute to final judgment waives his

right to later arbitrate the dispute.                  Id.           This rule respects

the    fundamental     principles     of       freedom     of        contract       and     the

rationale for enforcing arbitration and forum-selection clauses:

the “belief that where parties can agree to a mutually optimal

method and forum for dispute resolution, it serves the interests

of efficiency and economy to allow them to do so.”                           Menorah Ins.

Co. v. INX Reinsurance Corp., 72 F.3d 218, 222–23 (1st Cir.

1995)     (citing     Mitsubishi     Motors       Corp.         v.     Soler       Chrysler-

Plymouth, Inc., 473 U.S. 614, 633 (1985)).

       Against this background, we find it highly unlikely that

the Maryland General Assembly intended the arbitration clause

exception    to     apply   when   parties      have      waived       their       rights    to

arbitrate.    Such a rule would mean that conduct which renders an

arbitration       clause    unenforceable       if   it    occurs       in     a    domestic

court would have no effect at all if it occurs in a foreign

court.     It would also mean that the parties’ decision to forego

arbitration and litigate in domestic courts would bind them,

while a similar decision to litigate in a foreign court would

not.     Absent some affirmative indication, we will not infer that

the Maryland        General   Assembly     intended        to    carve       out    such     an

exception to the common law.          See Spangler v. McQuitty, 141 A.3d
156, 166 (Md. 2016) (“[S]tatutes in derogation of the common law

are strictly construed, and it is not to be presumed that the

                                           9
[General Assembly] . . . intended to make any alteration in the

common    law   other    than    what     has       been    specified      and    plainly

pronounced.” (second alteration in original) (quoting Cosby v.

Dep’t of Human Res., 42 A.3d 596, 606 (Md. 2012))).

     Finally, construing the arbitration exception as Harmoosh

suggests would frustrate the overarching purpose of the Maryland

Recognition Act.        It is well settled that the Act “was intended

to   promote     principles      of     international          comity      by     assuring

foreign nations that their judgments would, under certain well-

defined    circumstances,         be    given       recognition       by        [Maryland]

courts.”     Wolff v. Wolff, 389 A.2d 413, 417 (Md. Ct. Spec. App.

1978), aff’d 401 A.2d 479 (Md. 1979) (per curiam); see also

Guinness PLC v. Ward, 955 F.2d 875, 884 (4th Cir. 1992) (quoting

Wolff).

     By    giving    foreign      nations       a    measure    of    certainty         that

Maryland    courts      will    respect     their      judgments,       the      Maryland

Recognition Act “hopefully facilitate[s] recognition of similar

United States’ judgments abroad.”                   Wolff, 389 A.2d at 417.              As

the drafters of the Uniform Act explained, the need for such

assurances      arose   because    “[i]n       a    large    number     of      civil    law

countries, grant of conclusive effect to money-judgments from

foreign courts is made dependent upon reciprocity.”                               Uniform

Foreign Money-Judgments Recognition Act of 1962, prefatory note

(Unif. Law Comm’n 1962).               By providing these assurances, the

                                          10
drafters hoped the Uniform Act would “make it more likely that

judgments     rendered”    in    adopting       states     would    “be      recognized

abroad.”      Id.

      Harmoosh’s       interpretation          would      inject        a     level    of

uncertainty into the process of recognizing foreign judgments

that the Maryland General Assembly clearly intended to avoid.

Under his interpretation, a court in Maryland would have almost

complete discretion to decide whether to recognize a foreign

judgment that both parties had voluntarily sought.                           This would

show foreign courts none of the “deference and respect” crucial

to comity.      Comity: Judicial Comity, Black’s Law Dictionary (4th

ed. 1951).      Indeed, it would show those courts no deference or

respect at all.          As a result, foreign nations would have no

assurance that Maryland courts would respect their resolution of

disputes     involving    contracts    with       arbitration       clauses.          They

would      therefore     have    little        reason     to   recognize        similar

judgments from Maryland courts.                The General Assembly sought to

avoid      precisely   this     mischief   when      it    enacted      the    Maryland

Recognition Act.

      Judicial proceedings in a foreign court are not “contrary

to”   an    arbitration    clause    for       the   purposes      of   the    Maryland

Recognition Act if the parties choose to forego their rights to

arbitrate by participating in those proceedings.                            Section 10-

704(b)(4) simply does not apply in that event.

                                          11
                                                  III.

       We next determine whether the Foundation has raised genuine

issues of material fact as to whether Harmoosh decided to forego

his arbitration rights.

       The Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. (2012)

(the   “Act”),        governs      resolution            of    this    question.          The    Act

applies       to     arbitration            clauses      in    contracts       “evidencing         a

transaction involving commerce.”                         9 U.S.C. § 2.            Both the loan

agreement and the promissory note evidence such a transaction.

Both documents pertain to a loan made by the Foundation, a Texas

corporation,         to       AGTTT,    an     Iraqi      corporation.            See     Reynolds

Jamaica Mines, Ltd. v. La Societe Navale Caennaise, 239 F.2d
689,   693     (4th       Cir.    1956)       (“A       contract      made   by    an    American

corporation with a foreign one . . . involves commerce with a

foreign country.”).              Thus, as the parties agree, we look to the

Act    when        determining         if     the       Foundation      offered         sufficient

evidence to prevent the grant of summary judgment to Harmoosh.

       Under the Act, a party loses his right to arbitrate when he

is “in default in proceeding with such arbitration.”                                     9 U.S.C.

§ 3.     “Default in this context resembles waiver, but, due to the

strong federal policy favoring arbitration, courts have limited

the    circumstances             that       can     result      in     statutory        default.”

Forrester v. Penn Lyon Homes, Inc., 553 F.3d 340, 342 (4th Cir.

2009).        Thus,       a    party    defaults         and    so    waives      his    right    to

                                                   12
arbitrate under the Act only if he “so substantially utiliz[es]

the litigation machinery that to subsequently permit arbitration

would prejudice” the other party.                 Maxum Founds., Inc. v. Salus

Corp., 779 F.2d 974, 981 (4th Cir. 1985); see also Rota-McLarty

v. Santander Consumer USA, Inc., 700 F.3d 690, 702 (4th Cir.

2012).

       In this case, not even Harmoosh disputes that his waiver of

the     arbitration         right,     if     proven,       would        prejudice      the

Foundation.       This is wise.        If the Foundation proves what it has

alleged    --   that       Harmoosh    waived      his   right      to     arbitrate    by

litigating the dispute in Iraqi courts -- allowing him to assert

that right now would deprive the Foundation of its entitlement

to    recover   on     a    $2   million     judgment.        Under      any    reasonable

definition of “prejudice,” this would be highly prejudicial.

       Thus, the controlling question is this:                   did the Foundation

raise genuine issues of material fact that preclude a summary

judgment holding that Harmoosh preserved his arbitration rights?

We    believe     it       clearly    did.        Without     any     discovery,        the

Foundation offered evidence that Harmoosh was aware of his right

to    arbitrate      (having      successfully      asserted        that       right   once

before) and nonetheless voluntarily litigated his dispute with

the    Foundation      to     final   judgment      in   an    Iraqi       court.       The

Foundation offered evidence that Harmoosh voluntarily appeared

through counsel before the Iraqi trial court, asserted several

                                             13
defenses, and litigated those defenses to final judgment.                                 After

the   Iraqi      trial    court       awarded      the    Foundation       a     $2   million

judgment, Harmoosh appealed all the way to the Iraqi court of

last resort, and he lost.

      The Foundation supplemented this undisputed evidence with

the declaration of Salam Zuhair Dhia, its local counsel in the

Iraqi proceedings.             Dhia declared that the Foundation pursued

litigation in Iraq to avoid the high costs of arbitration in

Jordan and that Harmoosh never raised the arbitration clause as

a defense at any point during the proceedings before the trial

court.

      According to Dhia, “[i]t is common practice in the Iraqi

Courts     of    First    Instance      for     the      court    to     prepare      a   short

summary of what occurred and what arguments were raised at each

hearing.”         The Foundation submitted purported copies of these

summaries        from    the   Iraqi        proceedings,         along    with     certified

English     translations.             The    summaries      indicate       that       Harmoosh

raised     two    defenses     but     never    asserted         his   rights     under     the

arbitration clause.             Perhaps most tellingly, Harmoosh’s local

counsel     appears      to    have    signed      the    summaries       detailing        what

defenses he had raised.

      In    opposition,        Harmoosh       offered      the     unsworn,      unverified

declaration of his own local counsel, who asserts that he raised

the arbitration clause to “the court” in Iraq and that “the

                                              14
court    did    not   consider      the    defense     in   both    the       [trial]   and

appeal stages.”         Harmoosh also submitted the appellate brief his

counsel       filed   with    the    Baghdad/Al-Rasafa         Federal          Court    of

Appeals, in which his counsel lists the arbitration clause as

one reason for overturning the trial court’s decision but does

not state that the defense was raised before the trial court.

     Construing this evidence in the light most favorable to the

Foundation, genuine issues of material fact remain as to whether

Harmoosh       defaulted     his    right        to   arbitrate.          A    reasonable

factfinder      could    determine        that    Harmoosh   chose    to       waive    his

right    to    arbitrate     and    instead      litigated    his    dispute       in   the

Iraqi courts to avoid the time and cost of arbitration.                           Further

discovery and development of the record will undoubtedly clarify

these issues.         But given the present record, Harmoosh was not

entitled to summary judgment on the Maryland Recognition Act

claim.

                                           IV.

        For the foregoing reasons, the judgment 2 of the district

court is

     2 The district court also held that “[b]ecause” it would
“not recognize the Iraqi Judgment,” the Foundation was a
creditor only by virtue of the loan agreement. As such, the
district court held that the fraudulent conveyance claim arose
from the loan agreement and was arbitrable.   This may be the
(Continued)
                                            15
                                           VACATED AND REMANDED.

correct result in the final analysis. However, for the reasons
discussed above, we believe it is too soon to say whether
Harmoosh defaulted his arbitration rights. It is therefore too
soon to say the Foundation is a creditor only by virtue of the
loan agreement. Accordingly, we must vacate the entire judgment
of   the  district   court,   including   its   order compelling
arbitration of the fraudulent conveyance claim.

                               16