Iraq Middle Mkt. Dev. Found. v. Harmoosh, No. 15-cv-1124, 2016 U.S. Dist. LEXIS 41924 (D. Md. Mar. 30, 2016) [click for opinion]
In 2006 Plaintiff Iraq Middle Market Development Foundation ("IMMDF") and Al-Harmoosh for General Trade, Travel, and Tourism ("AGTTT"), located in Iraq, entered into a Medium Term Loan Agreement (the "Agreement"). Pursuant to the Agreement, IMMDF provided AGTTT with $2,000,000 to expand its business. Mohammad Ali Mohammad Harmoosh, an Iraqi and American citizen, signed the Agreement in his capacity as Managing Partner of AGTTT, providing a personal guaranty in his individual capacity in the form of a promissory note. AGTTT allegedly failed to make payments and ultimately went out of business in 2008.
In 2010, Plaintiff brought suit in federal court in Maryland to enforce the promissory note. Harmoosh moved to dismiss the suit for lack of subject-matter jurisdiction, arguing that the arbitration provision in the Agreement barred IMMDF from pursuing litigation. The court, concluding that the promissory note was part of the Agreement, found it lacked subject matter jurisdiction and dismissed the case with prejudice in early 2011.
Around February 2014, Plaintiff brought suit against Harmoosh in the Court of First Instance for Commercial Disputes in Baghdad, Iraq. Harmoosh was represented by a local Iraqi attorney. On April 9, 2014, the Iraqi trial court entered judgment against Harmoosh in the amount of $2,000,000, plus attorneys' fees. Harmoosh unsuccessfully appealed the judgment to the Baghdad/Al-Rasafa Federal Court of Appeals, which affirmed the trial court judgment around August 2014. Harmoosh then appealed the judgment to the Iraqi Federal Court of Cassation, which also affirmed the trial court's decision. Plaintiff brought this case to collect on the judgment it received against Harmoosh in Iraq.
Maryland's Uniform Foreign Money Judgments Recognition Act ("Recognition Act") governs whether the court should recognize a foreign judgment. Under the Recognition Act there are four mandatory grounds for nonrecognition of a foreign judgment and five discretionary grounds. Defendants raised arguments based on several of these grounds.
Initially, Defendants argued that the Iraqi courts are not impartial and do not provide due process, which is a mandatory ground for nonrecognition under the Recognition Act. Looking to other jurisdictions' interpretation of the same provision in the uniform act, the court adopted a method of inquiry which examines the fairness of the entire judicial system, not the details of a particular proceeding. Thus, the Defendant's assertion that a bribe was solicited in the particular case was not sufficient as evidence of systemic problems with bribery in the Iraqi judicial system. The court also considered the creation of the new court systems under the 2005 constitution and its inclusion of several principles designed to establish due process, including Article 19 which creates an independent judiciary. As such, the court found that Defendants failed to demonstrate that the Iraqi legal system does not provide impartial tribunals or due process.
Defendants also argued that Iraqi courts did not have personal jurisdiction over Harmoosh. Article 14 of the Iraqi Civil Code states in relevant part: "An Iraqi national shall be tried before the courts of Iraq in respect of the rights owing from him even those which have been created abroad." It was undisputed that Harmoosh was an Iraqi citizen, and so the court, in construing the evidence in the light most favorable to Plaintiff, found that the Defendants failed to demonstrate that the Iraqi courts lacked personal jurisdiction over Harmoosh.
Another argument was that the Iraqi courts lacked subject matter jurisdiction over the matter because the case should have been arbitrated in accordance with the Agreement. Plaintiff argued that Harmoosh waived his right to arbitrate by not objecting to the litigation proceeding in the Iraqi trial court, which amounts to waiver under Article 253 of Iraq's Amended Civil Procedure Code No. 83 of 1969. The court found that there was insufficient evidence that Harmoosh had raised the provision as a defense, which would mean that the Iraqi courts may not have had subject matter jurisdiction over the case. There was no evidence demonstrating that the Iraqi courts found that Harmoosh waived the provision and deemed it null and void. If Harmoosh's attorney did not raise the provision as a defense, then the Iraqi courts had subject matter jurisdiction. Thus the court found that Defendants had not established that they were entitled to summary judgment on this ground.
Defendants also argued that Plaintiff committed fraud on the Iraqi court because it initiated the litigation in violation of the Agreement's arbitration provision, did not inform the Iraqi court of the District of Maryland's 2011 opinion dismissing the case for lack of subject matter jurisdiction, and obtained a judgment in excess of what was owed on the loan. The court noted that fraud as a defense against a foreign judgment must be extrinsic fraud and that Defendants' allegations did not constitute such extrinsic fraud. Furthermore, this fraud did not prevent an adversarial trial, as Harmoosh was still represented by counsel. As such, the court found that Defendants failed to present sufficient facts to establish fraud as a ground for nonrecognition of the Iraqi judgment.
As an additional argument, Defendants said there was a discretionary ground for nonrecognition, namely that the judgment was contrary to the parties' prior agreement to arbitrate. The court, noting that Maryland courts have not interpreted this section of the Recognition Act, looked at other courts which had declined to recognize foreign judgments where a party to a contract pursued litigation contrary to an arbitration provision. In light of the court's prior decision in 2011 that the promissory note was part of the Agreement, and therefore subject to the arbitration provision, the court determined that the Iraqi judgment on the promissory note was contrary to the parties' agreement to arbitrate. As such, the court found that Defendants had demonstrated that they are entitled to judgment as a matter of law regarding this discretionary ground for nonrecognition.