Opinion
02 Civ. 666 (JSR)
August 22, 2002 As Amended August 23, 2002
Steven Davidson, Esq., Gordon M. Clay, Esq., John O'Connor, Esq., Howard Stahl, Esq., Steptoe Johnson LLP, Washington, D.C., Atty for Motorola (Affys admitted per pro hac vice order dated February 6, 2002) Mishell B. Kneeland, Esq., Paul Fishman, Esq., Friedman Kaplan Seiler Adelman LLP, New York, N.Y., Allison G. Kort, Esq., Jason Brown, Esq., Holland Knight LLP, New York, N.Y., Attys for Nokia, Plaintiff(s).
Robert F. Serio, Esq., Mark Holton, Esq., Gibson, Dunn Crutcher, New York, N.Y. David Rosenberg, Esq., Marcus, Rosenberg Diamond LLP, New York, N.Y., Stanley R. Mortenson, Esq., James R. Heavner, Jr., Esq., Baker Botts LLP, Washington, D.C., Defendant(s).
Kenneth M. Bailo, Esq., New York, New York, Atty admitted pro hac vice June 26, 2002, Atty for individual Uzan defts
OPINION AND ORDER
Plaintiffs Motorola Credit Corporation ("Motorola") and Nokia Corporation ("Nokia") seek a finding of civil contempt against the nine defendants here, namely, five members of the Uzan family (Kemal Uzan, Cem Cengiz Uzan, Murat Hakan Uzan, Melahat Uzan, and Aysegul Akay), their associate Antonio Luna Betancourt, and three Uzan-controlled companies, namely, Unikom Iletism Hizmetleri Pazarlama A.S. ("Unikom"), Standart Pazarlama A.S. ("Standart"), and Standart Telekomunikasyon Bilgisayar Hizmetleri A.S. ("Standart Telekom"). Full familiarity with all prior proceedings in this case is here presumed.
The facts here pertinent are as follows. After a lengthy evidentiary hearing, the Court, by Order dated May 9, 2002 (the "May 9 Order"), granted plaintiffs certain preliminary injunctive relief designed inter alia to prevent further dilution and diversion of certain stock held by defendant Standart Telekom in Telsim Mobil Telekomunikayson Hizmetleri A.S. ("Telsim"), another Uzan-owned and Uzan-controlled company. This stock (hereinafter referred to as "the collateral"), consisting of 73.5% of Telsim's total stock, effectively represented plaintiffs' primary security for repayment of $2.7 billion in loans extended by plaintiffs to Telsim and thereafter seemingly diverted, in substantial part, to other Uzan-controlled entities. See May 21 Opinion at 12.
See also Order dated May 10, 2002 ("May 10 Order") continuing attachment of defendants' New York assets and Opinion dated May 21, 2002 ("May 21 Opinion") detailing findings supporting the May 9 and May 10 orders.
Among other things, the May 9 Order prohibited the defendants and their agents from taking any step, directly or indirectly, to "certificate, transfer, encumber, or affect in any way whatever" the collateral itself or its "value, status, and/or availability to this Court." Such a provision was necessary, among other reasons, because on January 4, 2002, certain of the defendants had caused Telsim to enact certain resolutions (the "January 4 Resolutions") that, if effective, would, by creating a new class of Uzan-controlled shares with authority to nominate four of Telsim's five directors and all three of Telsim's statutory auditors (as well as permitting Telsim to establish foundations or become a member in foundations), effectively strip the collateral of its voting, auditing, and management control rights. See May 21 Opinion at 16.
When, shortly after the January 4 Resolutions were promulgated, plaintiffs filed the instant lawsuit, defendant Murat Hakan Uzan, the chief executive of Telsim, sought to stave off injunctive relief by declaring that, since the January 4 Resolutions had never been registered or certified with the relevant Turkish authorities, they were "not now and never [have] been in effect." Declaration of Murat Hakan Uzan, sworn to March 14, 2002, at ¶ 153. Mr. Hakan Uzan further declared, under penalty of perjury, that "[s]ince it appears to be an issue to which plaintiffs object . . . we will hold the resolution[s] in suspense." Id. Thus, when the Court issued its May 9 order prohibiting the defendants from, inter alia, affecting in any way whatever the status of the collateral, one would have thought that, if nothing else, no step would be taken by defendants to give effect to the January 4 Resolutions. See May 21 Opinion at 16, n. 4.
Yet, the very next day, May 10, 2002, Mr. Hakan Uzan, in defiance of the May 9 Order and in contravention of his own prior promise to the Court, caused Telsim to apply to the Turkish authorities for registration/certification of the January 4 Resolutions, while failing to disclose this step to this Court. The registration was ultimately accomplished on July 19, 2002. See Declaration of Jason Brown, sworn to July 30, 2002, Exhibit A (copy of the Turkish Commercial Gazette dated July 24, 2002 showing registration of Telsim's January 4 Resolutions by the Turkish Commercial Registry on July 19, 2002).
Nor is this all. The May 9 Order also required the defendants to deposit the collateral with the registry of this Court by no later than May 24, 2002. This relief, sought by plaintiffs from the outset of this case in order to safeguard the collateral from further tampering and thereby preserve the status quo, was a primary subject of a six-day evidentiary hearing held by this Court between April 9 and April 18, 2002 at which time the Court indicated its decision would be forthcoming shortly. But as soon as the hearing was over, three Telsim distributors, in seeming collusion with defendants ( see infra), obtained in the Turkish courts emergency orders enjoining defendants from effecting any transfer of the collateral to this Court. Moreover, Mr. Hakan Uzan, though promptly informed of these orders, expressly directed his United States counsel not to disclose the existence of these orders to the U.S. Courts. Further still, after this Court issued its May 9 Order directing transfer of the collateral to the registry of this Court, defendants not only made no meaningful effort to oppose the injunctions obtained by the Telsim distributors but also acquiesced in the issuance of still a fourth such injunction.
Against this background, plaintiffs ask the Court to hold the defendants in civil contempt for (i) seeking registration/ certification of the January 4 Resolutions, and (ii) failing to transfer the collateral to the Court's registry. On June 21-24, 2002 the Court held an evidentiary hearing on the contempt motion, at which Mr. Hakan Uzan, having been guaranteed temporary "safe passage" by the Court for this purpose, testified. Upon consideration of the evidence there adduced, and taking account as well of the various other submissions of the parties, the Court reaches the following conclusions:
Much of Mr. Hakan Uzan's testimony — such as his assertion that he somehow "forgot" his prior promise to this Court not to seek registration/certification of the January 4 Resolutions, see transcript of evidentiary hearing ("tr.") at 17-18 — is incredible on its face, and the Court so finds. The portion of his testimony that, in terms of his demeanor, appeared most sincere was his assertion that the two female defendants, his mother Melahat Uzan and his sister Aysegul Akay, were, despite their ownership interests in various Uzan-controlled business enterprises, effectively uninvolved in business decisions and, instead, simply followed the orders given by him, his brother Cem Cengiz Uzan, and their father Kemal Uzan, See, e.g., tr. at 8-13; but other facts, discussed infra, cast doubt even on these assertions, especially as regards Ms. Akay. Even assuming Mr. Hakan Uzan's testimony is true in these respects, however, the agency role in which Melahat Uzan and Aysegul Akay have thereby placed themselves may still subject them to liability for civil contempt. See infra. As for Mr. Hakan Uzan's assertion that Uzan-related business decisions are not made at weekly family dinners, as prior witnesses had reported ( see May 21 Opinion at 9), but are more diffuse, with Kemal, Cem, and Hakan taking individual responsibility for various Uzan-owned entities, see, e.g., tr. at 301-03, this testimony even if credited, is largely irrelevant to the instant mater, or indeed, to any issue in this case since such division of responsibility does not absolve any of the individual Uzan defendants of joint and several liability for the actions of particular entities within the joint enterprise of Uzan entities that they own and control.
Unlike criminal contempt, civil contempt does not require showing of a willfully contemptuous purpose (although, as indicated below, the Court finds such purpose here). Rather, a movant seeking to hold a respondent in civil contempt must show, by clear and convincing evidence, that, in fact, the respondent has failed to comply with a clear and unambiguous order of the Court and that this failure is, at a minimum, the result of the respondent's failure to exercise due diligence to comply with the order. See Drywall Tapers Pointers of Greater N.Y. v. Local 530, Operative Plasterers Cement Masons Int'l Ass'n, 889 F.2d 389, 394 (2d Cir. 1989); Int'l Controls Measurement Core. v. Watsco, Inc., 853 F. Supp. 585, 587 (N.D.N.Y. 1994).
As to the first specification of contempt, regarding the registration/certification of the January 4 Resolutions, it is beyond reasonable dispute that Mr. Hakan Uzan's decision on May 10, 2002 to ask the Turkish authorities for the registration/certification (subsequently granted) that, by his own admission, was necessary to give the Resolutions legal effect was a clear violation of the provision of the May 9 Order prohibiting him and his co-defendants from taking "any other step" that could, directly or indirectly, "affect in any way whatever" the status of the collateral. As previously noted, the Court does not credit Mr. Hakan Uzan's testimony that he somehow "forgot" his prior sworn promise to this Court not to seek to certify the January 4 Resolutions, tr. at 15-16; but even if this were true, it would still evidence a lack of reasonable diligence on his part. As for his claim that the registration/certification was necessary to meet certain upcoming deadlines under Turkish law, see tr. at 15, 146, both the imminence of the alleged deadlines and the necessity of meeting them is directly refuted by the only testimony of a Turkish legal expert directly on point, see Declaration of Dr. Fadlullah Cerrahoglu, sworn to June 6, 2002 (Exhibit 6 to the Declaration of John O'Connor, sworn to June 5, 2002) at ¶ 27. Moreover, even if there were applicable deadlines, a defendant exercising reasonable diligence would have brought them to this Court's attention and sought modification of the May 9 Order, rather than, as happened here, surreptitiously flouting the order the day after it was issued. In short, the proof of Mr. Hakan Uzan' s contempt with respect to the first specification is overwhelming.
As for the other defendants, all the Uzans were material beneficiaries of the January 4 Resolutions, several were members of the board that approved the Resolutions, and all but Melahat Uzan, the Court finds, were in a position to prevent registration/certification of the Resolutions if they had exercised reasonable diligence. While Hakan Uzan may claim that his sister, Aysegul Akay, despite her liberal education, blindly followed his orders on matters of business, see supra, the fact remains that she not only served on various boards of Uzan-controlled entities, including Telsim, see tr. at 304, but also owned no less than 20% of Standart Telekom, which, as the holder of legal title to the collateral, was in a position to veto the proposed diminishment in the power of its shares. See Plaintiffs' Contempt Hearing Exs. C-144, C-145; see also tr. at 148-149.
As for Melahat Uzan, assuming arguendo the accuracy of Mr. Hakan Uzan's testimony that, so far as business is concerned, she is entirely the pawn of male members of the family, the fact remains that she permits these members to put relevant stock ownership in her name, thus enabling them to carry out their various business plans more effectively. It follows that she is liable for contempt, in her agency capacity, when, as here, those business plans entail contempt of this Court's orders.
Finally, as to the three corporate defendants, while their roles in helping control the collateral and its disposition have already been described by the Court in its May 21 Opinion, their relationship to the specific conduct of attempting to register/certify the January 4 Resolutions is more problematic and has not been proven to a standard of clear and convincing evidence. Consequently they will not be held in contempt as to this specification.
As to the second specification of contempt, regarding the failure to deposit the collateral in the registry of this Court, there is no dispute that the order was clear and the noncompliance plain. See tr. at 28-29. Nor can it be seriously maintained that the defendants have been reasonably diligent in complying with the Court's order. Standart Telecom, which holds legal title to the shares, has done nothing to effectuate the transfer, nor have the Uzans, who control all the relevant entities (Telsim, Standart, Standart Telehom, Unikom, Rumeli Telefon Sistemleri A.S., etc). Indeed, Mr. Hakan Uzan repeatedly testified at the contempt hearing that he has not yet decided whether or not to comply with the order to transfer the collateral to the registry of this Court even if the Turkish injunctions prohibiting such transfer are lifted. Tr. at 48-49, 256-57.
To be sure, since the Turkish injunctions remain in effect at present, the defendants contend that, regardless of their intent, their non-compliance with the provision of the May 9 Order requiring transfer of collateral to this Court's registry is excused because, even before the Order took effect, three distributors of goods and services to Telsim obtained preliminary injunctive orders from three Turkish courts barring transfer of any Telsim shares outside of Turkey. See Declaration of Murat Hakan Uzan, sworn to June 3, 2002, Exs. A, B, C (Turkish orders) (As noted above, defendants have also notified the Court that a fourth injunction has now issued, although its details are rather sketchy. See Defendants' letter to the Court dated July 10, 2002.)
The merits or demerits of these Turkish orders are no business of this Court. They provide, however, no justification for the defendants' noncompliance with the May 9 Order because, on inspection, it is apparent that they are in substantial measure the product of collusion between the plaintiff-distributors and the defendants here and that, in any case, the defendants, if they wished, could readily resolve any dispute with their distributors that might conceivably justify such relief.
To begin with, one must ask why any Telsim distributor would have such a strong interest in preventing the transfer of Telsim's stock to a U.S. Court's registry as to seek an ex carte injunction to prevent it. Indeed, it is hard to see that the distributors have any interest aside from being paid for the services and goods they provide.
Moreover, the timing of the suits, two of which were filed immediately following the conclusion of this Court's preliminary injunction hearing but before the Court had given its ruling, is highly suspicious. Although filed by separate counsel, the suits closely copy one another, with large portions of the wording of the respective complaints being nearly identical in all three complaints and all three seeking the identical, and unusual, relief. It further turns out that one of the complaints was brought by a company controlled by a Uzan family cousin, tr. at 34, and all three complainants do business virtually exclusively with Telsim. Tr. at 58.
Even more telling has been the defendants' response to the lawsuits. Although Mr. Hakan Uzan testified before this Court that he had no role in bringing these suits and that, once informed of them, he directed his attorneys to do all in their power to get the Turkish courts to lift these injunctions, tr. at 39, 208, 216-17, this testimony is belied by the record. Telsim's opposition papers to the injunctions (Plaintiffs' Contempt Hearing Exs. C-13, C-14, C-15) are worse than tepid: they virtually concede, and in some respects effectively support, the arguments of the three plaintiffs. Thus, in alleged "opposition" to the injunctions, each of the (virtually identical) papers submitted by Telsim to the Turkish courts states:
"[w]hile it is true that the plaintiff's relationship with Telsim constitutes its whole business, its damages would be very minor compared to the damages to be incurred by Telsim, its shareholders and other distributors and dealers if, as a result of the delivery of Telsim shares to abroad [sic], the license agreement, providing concessions, by and between the Ministry of Transportation and Telsim is cancelled."See id. at ¶ 2. Collusion quite aside, no one can seriously contend that such "opposition" fulfills the obligation of the Uzan defendants who control Telsim to exercise reasonable diligence to comply with this Court's May 9 Order.
Nor is there any meaningful evidence that defendants' more recent "attempts" to lift the injunctions, see Defendants' letter to the Court dated July 10, 2002, have been anything other than tepid windowmdashidressing. Whether or not the lawsuits are collusive, the defendants could readily arrange for their dismissal by coming to terms with their suppliers as to any claims the suppliers might have — a matter of simple economics that would in no way involve the Turkish courts. Defendants' failure to do so is further evidence of their failure to exercise reasonable diligence to comply with this Court's orders.
Most telling of all, perhaps, is the fact that the defendants, though fully aware of the Turkish injunctions well before the Court issued its May 9 Order, purposely kept them secret from the Court — going so far as to instruct their U.S. counsel not to reveal them to this Court or to the Court of Appeals judge who heard defendants' initial request for a stay of the May 9 Order. Whatever lame excuses defendants may now offer for this materially misleading conduct, the real reason, the Court finds, was to conceal as long as possible their involvement in these collusive suits and their intent to use them, if all else failed, to subvert the orders of this Court and of the Court of Appeals.
Closing arguments at the preliminary injunction hearing were completed on April 18, 2002. The first Turkish injunction was entered on April 19, and U.S. counsel learned of them in late April or early May. See, e.g., tr. at 30-32, 248. Nonetheless, the earliest that anyone brought these injunctions to the attention of any U.S. court was in a May 28, 2002 telephonic conference, well after the issuance of the May 9 Order and after the Court of Appeals had denied a stay of that Order.
While most of the defendants did not play the obstructionist and deceptive role essayed by Mr. Hakan Uzan, all were in a position, to a greater or lesser extent, to assist in the steps necessary or helpful to transfer the collateral to this Court's registry, and none did. Accordingly, all will be found in civil contempt with respect to this specification.
In short, all the defendants are held in civil contempt for failing to deposit the collateral with the Court, and all but the corporate defendants are separately held in contempt in connection with the registration/certification of the January 4 Resolutions. This being civil contempt, the defendants can purge their respective contempts by causing the January 4 Resolutions to be decertified or rescinded and by causing the collateral to be transferred to the registry of this Court. However, given the Court's prior findings of the interdependent relationships among the defendants, see May 21 Opinion at 9-10, no single defendant can purge that defendant's contempt unless all of the defendants purge theirs, except that, since the corporate defendants are not implicated in the first specification, delivery of the collateral to the Court's registry will itself purge the corporate defendants' contempt.
Since the size of the penalty necessary to compel such compliance is uncertain, it is necessary to start small but impose a sliding scale. Specifically, until their contempts are purged, the defendants will be liable for a monthly fine, payable to the Clerk of the Court on the last day of each month, beginning at $1,000 for the month of June, 2002 (the first full month of contempt) and doubling each month thereafter ( i.e., $2,000 for July, $4,000 for August, etc.) until either the contempts are purged, or the total amount owed (which is presently $3,000, i.e., $1,000 for June and $2,000 for July) exceeds the estimated value of the collateral prior to passage of the January 4 Resolutions (approximately $1.5 billion), at which point (if not sooner) additional coercive measures may need to be considered. In addition, defendants are hereby held liable, jointly and severally, for plaintiffs' costs and reasonable attorneys fees in prosecuting this contempt motion. Plaintiffs should submit an accounting thereof within 10 business days hereof, after which defendants will have 10 business days to file any objections.
Plaintiffs claim that defendants are hell—bent on never transferring the collateral to this Court, not to mention never rescinding the January 4 Resolutions. Defendants, by contrast, claim that they are law abiding business persons, stymied in fulfilling their obligations only by legal and economic developments beyond their control. If the latter is true, they will not hesitate to purge their contempts promptly, at little cost to themselves. But even if the former is true, the Court is hopeful that the price of noncompliance will eventually bring them to their senses.
SO ORDERED.