Summary
entering judgment and permitting defendant "every three months . . . [to] serve and file a letter requesting an interim judgment confirming . . . a specific dollar amount"
Summary of this case from Sistem Muhendislik Insaat Sanayi Ve Ticaret, A.Ş. v. The Kyrgyz RepublicOpinion
No. 02 Civ. 9369 (DFE).
August 12, 2004
OPINION AND ORDER
1. In my Order dated June 4, 2003, and my Final Judgment of Injunction dated June 4, 2003, and my Opinion and Order dated July 21, 2003, I ruled in favor of defendant ("GEMS-IT") and I issued several directives to plaintiff ("Tecnimed").
2. In my Memorandum and Order dated July 29, 2003, I ordered Tecnimed and its President Paulo Werlang to show cause why I should not hold both of them in contempt, for their failures to comply with:
(a) Paragraph 10 of my July 21 Opinion and Order, by failing to "cause [Tecnimed's] authorized legal representative and its counsel of record in the Brazil Action to sign four originals of the redrafted Joint Petition to Dismiss (prepared in both English and Portuguese) and to deliver those originals to GEMS-IT's counsel of record in the Brazil Action within one (1) business day of Tecnimed's receipt of the redrafted Joint Petition to Dismiss." [This paragraph was simply a more detailed version of Paragraph 6 of my Final Judgment of Injunction dated June 4, 2003.]
(b) Paragraph 11 of my July 21 Opinion and Order, by failing to "serve and file, by July 24, 2003, an affidavit detailing [Tecnimed's] compliance with this [July 21] Opinion and Order."
(c) Paragraph 12 of my July 21 Opinion and Order, by failing to "pay GEMS-IT $1,000 for each calendar day in which Tecnimed fails to be in complete compliance [with the July 21 Opinion and Order]."
3. In my Final Judgment of Civil Contempt, dated July 31, 2003, I found that Tecnimed and Mr. Werlang had wilfully violated said Paragraphs 10, 11 and 12. I held both of them in civil contempt, and I ordered monetary sanctions that were intended to be both compensatory and coercive.
4. In the ensuing 13 months, the following developments have occurred. Tecnimed and Mr. Werlang have continued to refuse to comply with said Paragraphs 10, 11 and 12.
5. In the Brazil Action, Judge Heraclito Jose de Oliveira Brito issued orders dated March 19 and 31, 2004, which dismissed Tecnimed's lawsuit without judgment on the merits, on the basis that both GEMS-IT and GE Brasil had alleged and shown a preliminary arbitration agreement. Tecnimed has taken an appeal to an appellate court in Brazil. Unless Tecnimed and Mr. Werlang comply with my orders and dismiss the Brazil Action, this appeal will be litigated for approximately one year and subsequent appeals to two higher courts could be litigated for several years.
6. On May 25, 2004, a three-judge panel in the Second Circuit issued a unanimous decision that affirmed my order compelling arbitration, my anti-suit injunction, and my finding of civil contempt. Paramedics Electro. v. GE Medical Systems, 369 F.3d 645 (2d Cir. 2004). By May 25, 2004, the unpaid sanctions had mounted to $1,366,000, at $1,000 per day from July 25, 2003 to September 3, 2003 and at $5,000 per day from September 4, 2003 onward. The Second Circuit said:
The per-day amount may be reasonable, but the court provided no justification beyond a generalized finding that Tecnimed's noncompliance was "unjustifiably causing GEMS-IT to incur large expenses"; there is no clarification as to what those expenses actually entail. To the extent that the sanction is compensatory, the fine should be correlated with the loss incurred by GEMS-IT. See King, 65 F.3d at 1062. We therefore remand to the district court to reconsider the amount of the sanction in light of its purpose and GEMS-IT's demonstrated loss. Depending on the court's findings, the court may enter an order adjusting the amount of the sanction.Id., 369 F.3d at 658.
7. On June 2, 2004, I held a telephone conference with William G. O'Donnell, Jr. (attorney for Tecnimed) and Scott A. Burr (attorney for GEMS-IT). I said that, if Tecnimed would purge itself of contempt by June 7, then I would consider forgiving all of the unpaid sanctions except for whatever costs and attorneys fees were incurred by GEMS-IT and were caused by the contempt. Tecnimed refused to purge itself of contempt.
8. Since then, both attorneys have submitted extensive papers. On July 22, GEMS-IT served affidavits and time sheets showing that, as a result of the contempt, GEMS-IT incurred costs and attorneys fees of $160,136.12 from June 4, 2003 through June 30, 2004. (Docket Items # 77 through 80.) I find that the costs, and the number of hours, and the hourly rates were all reasonable and were all caused by the contemptuous violation of my Order of Final Injunction dated June 4, 2003 and my Opinion and Order dated July 21, 2003.
9. On July 29, GEMS-IT served another memorandum which began by making a dramatic offer:
. . . GEMS-IT proposes a simple solution: give Tecnimed the opportunity to purge itself of the entire sanction accrued heretofore. The entire million dollar plus amount. If Tecnimed dismisses the Brazil case within ten (10) days of the Court's order.
(Docket Item # 82, pp. 1-2, emphasis in the original.)
10. I discussed the quoted passage in a telephone conference with Mr. O'Donnell and Mr. Burr on the morning of August 3, 2004. Mr. Burr stated, and then confirmed by fax that same day, that, if Tecnimed would agree to withdraw its Brazilian appeal on or before August 9, then "upon receiving an order from the Brazilian Court dismissing the appeal, . . . GEMS-IT will not request . . . an accrued contempt sanction . . . [nor] an award for the attorneys' fees and costs incurred by GEMS-IT because of Tecnimed's contempt." I held another telephone conference on the afternoon of August 6, 2004, and Mr. O'Donnell confirmed that Tecnimed was rejecting the offer.
11. On the morning of August 6, 2004, both attorneys received the Award of the IACAC Arbitral Tribunal (consisting of a Canadian attorney, a U.S. attorney, and a Brazilian attorney). The Award, 47 pages long, contained a comprehensive discussion. It noted that Tecnimed declined to participate in the arbitration directly, but that Tecnimed did submit a number of comments. (Award, ¶ 73.) In response to Tecnimed's arguments, the Award made various findings, including:
(v) The disputed sales of GEMS IT equipment in Brazil after the expiry of the Agreements did not involve the use of Tecnimed's registration of the relevant equipment with the Brazilian authorities nor did Tecnimed have any involvement in the importation and sale of any pieces of equipment in dispute in this arbitration;
(vi) on the basis of the evidence presented, there was no breach by the Claimants [GEMS-IT and GE Brasil] of Tecnimed's rights under the Agreements;
(vii) any claim for damages arising from an alleged breach of Brazilian importation regulations in relation to the disputed sales raised by Tecnimed in these arbitration proceedings are within the scope of the arbitration clauses in the Agreements and must be the subject of arbitration.
(Award ¶ 149.) The conclusion that Tecnimed's claims "must be the subject of arbitration" has now been the unanimous conclusion of four U.S. judges, one Brazilian judge, and three arbitrators (one of whom is a Brazilian attorney).
12. The Award ordered Tecnimed to pay to GEMS-IT:
a. $1,156,966.61 for goods sold and delivered.
b. Interest at the contractual rate of 12% per annum; as of March 4, 2004, this amounted to $500,974.52.
c. $99,547.62 for the costs of the arbitration (paid entirely by GEMS-IT).
d. $127,365.61 for the costs and attorneys fees incurred by GEMS-IT in the arbitral proceedings in Florida.
e. $29,986.42 for the costs incurred by GEMS-IT from 2002 to March 4, 2004 in Tecnimed's New York and Brazilian lawsuits.
f. $132,550.32, representing exactly 50% of the attorneys fees incurred by GEMS-IT from 2002 to March 4, 2004 in Tecnimed's New York and Brazilian lawsuits.
g. Interest at 12% per annum on the previous four items, commencing on September 7, 2004.
(Award, ¶¶ 147-49.)
13. GEMS-IT notes that the Second Circuit dismissed Paulo Werlang's individual appeal, because Tecnimed's notice of appeal did not make "objectively clear" that Mr. Werlang also intended to appeal. ( 369 F.3d at 657.) Accordingly, in Docket Item #75, GEMS-IT requests that I not change my Final Judgment of Civil Contempt as to Mr. Werlang, and that I merely perform an arithmetic calculation and issue a supplemental final judgment against him in the amount of $1,654,000 to be made payable to GEMS-IT. I deny GEMS-IT's request. I am sitting as a court of equity, and I will reconsider all aspects of my Final Judgment of Civil Contempt.
14. At all relevant times, Mr. Werlang has been the President and prime mover of Tecnimed. He has submitted his affidavit dated July 19, 2004. (See Docket Item #76.) He states in generalities that he is "financially ruined," that Tecnimed is his "only source of income," and that he is "not in a condition to pay [his] personal obligations and family expenses." However, it is significant that he has not submitted any evidence about his assets. As to Tecnimed, he asserts that it is "near bankruptcy." This is much the same story that Tecnimed told GEMS-IT in 2000 and 2001, as an excuse not to pay for the goods sold and delivered. Now, Mr. Werlang says that Tecnimed is near bankruptcy because of the break-up of Tecnimed's commercial relationship with GEMS-IT in 2001. But the situation does not look so bad when one looks at Tecnimed's financial statements for 2002 and 2003 (annexed to his affidavit). (All figures are given in Brazilian reals; one real is equivalent to about US$0.33.) They say that Tecnimed had a net profit of R864, 315 in 2002 and a net loss of R238,208 in 2003. They also say that Tecnimed's net equity was R1, 593,222 at the end of 2002 and R1,355,014 at the end of 2003.
15. I have considered the character and magnitude of the harm caused by more than a year of contumacy, and threatened by continued contumacy. During the 13 months from June 4, 2003 to June 30, 2004, GEM-IT incurred costs and attorneys fees of $160,136.12 caused by Tecnimed's contemptuous refusal to terminate Tecnimed's lawsuits in New York and Brazil. Dividing by 13 months and then by 30 days, this was an average of $410.60 per day. Similar costs are continuing, and will continue unless the contempt ceases. There is the possibility of a second appeal to the Second Circuit, and there is the certainty of an appeal in Brazil.
16. I find that Tecnimed and Mr. Werlang have at all times been aware that GEMS-IT had an open-and-shut case for $1,156,966, plus 12% and attorneys fees. The motive for the continuing refusal to dismiss their Brazilian lawsuit is to delay collection during years of appeals in the Brazilian courts. During that period, they would probably attempt to shelter their assets to prevent any collection at all. In these circumstances, the 12% contractual rate of interest (which of course is not being paid) is insufficient to compensate GEMS-IT for the risk that continuing contempt will prevent GEMS-IT from collecting any of the money to which it is entitled. I find that, at the least, GEMS-IT should be compensated for this risk at a rate equivalent to an additional 12% per annum, or 1% per month. The Arbitral Tribunal's award adds up to slightly more than $2,000,000. This entire amount will soon start to increase by 12% per annum. In addition, as long as the contempt continues, I find that GEMS-IT should be compensated with an additional 1% per month; using round numbers, that is $20,000 per month, or $666.66 per day.
17. Pursuant to the two preceding paragraphs, I estimate that future contempt will cost GEMS-IT $410.60 + $666.66 = $1,077.26 per day. I will round this down to $1,000 per day as the future compensatory sanction to be paid to GEMS-IT.
18. In addition, Tecnimed and Mr. Werlang are continuing to abuse the U.S. courts. They invoked the laws of New York and brought this lawsuit in New York, which was then removed to our Court. They questioned the validity of the arbitration clause signed by them, and when they received my answers, they refused to obey each of my core rulings. They then asked the Second Circuit to review my injunctive orders, and when those were affirmed, they continued to refuse to obey. If they continue to disobey, then I find that they should pay an additional sum of $1,000 per day as a future coercive sanction to be paid to the Clerk of the Court.
19. I believe that I have chosen future sanctions which are fair and reasonable and will probably be effective in bringing about eventual compliance. As always, compliance involves no burden; Mr. Werlang has to sign a piece of paper that will simply honor the arbitration clause in the contract he signed with GEMS-IT.
20. As compensation for GEMS-IT's demonstrated past loss (from June 4, 2003 to June 30, 2004) caused by the contempt, I rule that Tecnimed and Mr. Werlang must pay GEMS-IT, forthwith, the compensatory sum of $160,136.12. They have argued, through Mr. O'Donnell, that this amount is partly duplicative of some of the amounts recently awarded by the Arbitral Tribunal. (See above at ¶ 12(e) and ¶ 12(f).) However, I responded with two points during my August 6 telephone conference. First: There is relatively little overlap, because the Arbitral Tribunal was dealing with an earlier (although overlapping) period of time and because it awarded GEMS-IT only 50% of the attorneys fees that GEMS-IT incurred in Tecnimed's New York and Brazilian lawsuits. Second: There is no issue of double compensation unless and until GEMS-IT has already collected the other components of the Arbitral Tribunal's award.
21. Taking all of the circumstances into account, I am today issuing an Amended Judgment of Civil Contempt.
22. If I have not found full compliance by an earlier date, then I plan to issue an interim judgment on December 30, 2004 for the coercive sanction of $140,000.00 (140 days times $1,000.00) in favor of the Clerk of the Court. At any times after November 30, 2004, but no more frequently than every three months, GEMS-IT may serve and file a letter requesting an interim judgment confirming that a specific dollar amount be paid to GEMS-IT as a result of the cumulation of the compensatory sanction of $1,000 per day. However, each such letter must enclose (a) an affidavit with time sheets reflecting costs and attorneys fees incurred by GEMS-IT and caused by any act of contempt or failure to comply with my orders, and (b) a status report on any moneys collected by GEMS-IT on amounts owed to it by Tecnimed and/or Paulo Werlang. After reviewing such information, I may decide to adjust the compensatory sanction of $1,000.00 per day.
23. On July 20, 2004, Mr. O'Donnell and his law firm made a motion (Docket Item #73) for an order permitting them to withdraw as attorneys for Tecnimed and Mr. Werlang; the affidavit of service showed that the law firm served a copy on Tecnimed "Attn: Paulo Werlang, President." I have not received any papers from Tecnimed or Mr. Werlang in response to this motion. If they wish to replace O'Donnell Fox, P.C. with a different attorney, they may signify this at any time by causing an attorney admitted to the bar of the Southern District of New York to serve and file a Notice of Appearance for both Tecnimed and Mr. Werlang. Whether or not such a Notice of Appearance is filed, I direct Tecnimed and Mr. Werlang to send me — no earlier than September 7 and no later than September 30, 2004 — an affidavit in response to the motion dated July 20, 2004 (Docket Item #73). This affidavit must tell me (a) whether Tecnimed and Mr. Werlang want me to permit O'Donnell Fox, P.C. to withdraw as their attorneys, (b) whether they wish to take a second appeal to the Court of Appeals, (c) if so, whether they have filed a Notice of Appeal (the deadline is September 13), (d) what efforts they have made to pay O'Donnell Fox, P.C. or any other law firm a retainer to prosecute such an appeal, (e) the dates and amounts of all bills received from O'Donnell Fox, P.C., and (f) the dates and amounts of all payments made by them to O'Donnell Fox, P.C. After receiving this affidavit, I will be in a better position to make a decision pursuant to Local Civil Rule 1.4. I will consider GEMS-IT's memorandum in conditional opposition (Docket Item #86). I will also consider any updated report from GEMS-IT on whether Tecnimed and Mr. Werlang have continued to litigate in Brazil or have complied with my orders.