The opinion of the court was delivered by: Rakoff, District Judge.
In February 1989, plaintiff First City, Texas-Houston, N.A.
("First City")*fn1 extended $49.9 million in credit to defendant
Rafidain Bank, a commercial bank wholly owned by the Republic of
Iraq. Pursuant to a repayment agreement, Rafidain Bank made some
initial payments to First City; but in or around August 1990, as
one of the outgrowths of the Kuwaiti War, Iraq repudiated its
foreign debts, and thereafter Rafidain Bank ceased any further
repayment of its debt to First City. First City then brought this
lawsuit, seeking to recover on the unpaid debt. In an amended
complaint filed on December 18, 1990, First City also sought
recovery from co-defendant Central Bank of Iraq ("CBI") on the
theory that CBI was effectively the "alter ego" of Rafidain Bank.
In April 1991, default judgment in the amount of $53.2 million
was entered against both defendants, jointly and severally. While
no portion of this was collected from the defendants and interest
continued to accumulate, First City thereafter received $55
million in compensation from the United States Government. See
Powers Aff., Ex. C.
Meanwhile, in April 1992, the judgment against CBI was vacated
for lack of valid service. In early 1994, First City effected
proper service on CBI and the suit against CBI was reinstated.
CBI then moved to dismiss on grounds of sovereign immunity. In
opposition to that motion and in support of its theory that CBI
was Rafidain Bank's alter ego, First City sought discovery from
both defendants. While CBI provided the limited discovery ordered
from it by the Court, Rafidain Bank, against which the original
default judgment continued, failed to respond.
In March 1997, the Court granted CBI's motion to dismiss,
finding that First City had failed to support its alter ego
theory. In July 1998, however, the Court of Appeals reversed,
concluding that the district court should not have dismissed CBI
without permitting First City further opportunity to conduct
"full discovery against Rafidain" on the alter ego issue. See
City, 150 F.3d at 177. Upon remand, First City renewed its
discovery demands on Rafidain Bank and served subpoenas duces
tecum seeking relevant information. Consistent with its prior
conduct, Rafidain Bank ignored the subpoenas, failed to provide
any discovery, and failed to appear at the conferences convened
by the Court to address discovery. See Transcript of Hearing
("Tr."), August 31, 1998; Tr., November 9, 1998.
First City then moved, by Order to Show Cause dated November
19, 1998, to hold Rafidain in contempt of Court and to impose a
fine of $1,000 for each day that Rafidain remained in contempt.
Predictably, Rafidain Bank failed to appear on the return date,
November 30, 1998.
Nonetheless, the Court, in an excess of caution, has waited
nearly a year for Rafidain Bank to proffer an excuse for its
noncompliance or to give even a hint of its willingness to
provide the ordered discovery. No such response having been
received, the Court now hereby holds Rafidain Bank in civil
contempt and assesses a fine of $1,000 per day, plus interest, at
the federal statutory rate, for each day beginning November 1,
1999 that Rafidain Bank fails to cure the contempt.
The Court of Appeals further directed that on remand, after
permitting discovery from Rafidain Bank, "the district court
should then determine (1) whether there is an adequate factual
record on which to rule whether CBI was Rafidain's alter ego, or
(2) whether further discovery against CBI on the jurisdictional
question is warranted." First City, 150 F.3d at 177. In light
of Rafidain's recalcitrance, and the parties' assessment that no
order of contempt was likely to compel further discovery from
Rafidain, the parties chose, even while First City's contempt
motion was pending, to proceed to this next stage, with First
City seeking to compel further discovery from CBI and CBI
renewing its motion to dismiss on grounds of sovereign immunity.
As to the former, the Court, although assuming that no
discovery will be forthcoming from Rafidain Bank,*fn2 sees no
reason to disturb its prior finding — which it hereby adopts by
reference, see Tr., March 26, 1997 — that First City has failed
to make a sufficient showing to warrant further discovery from
CBI. See First City, 150 F.3d at 176; see generally Filus v.
Lot Polish Airlines, 907 F.2d 1328, 1332 (2d Cir. 1990); Arriba
Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 534 (5th Cir. 1992).
In effect, First City seeks to obtain from an arm of the Iraqi
Government, CBI, the broad discovery it has failed to obtain from
a commercial (albeit state-owned) entity, Rafidain Bank, in order
to justify invasion of CBI's presumptive sovereign immunity on
the theory that, appearances notwithstanding, CBI is really the
alter ego of Rafidain Bank. Such boot-strapping, if permitted,
would make a mockery of the mandate of the Foreign Sovereign
Immunities Act, 28 U.S.C. § 1603, not to intrude upon a foreign
government's sovereignty in any but very limited respects. For
example, First City asks this Court to compel CBI to utilize
CBI's own powers under Iraqi law to obtain from Rafidain Bank and
then turn over to First City documents that, First City
speculates, will help establish the alter ego hypothesis. Such
compulsion would be a far greater intrusion on CBI's presumptive
sovereign immunity than anything remotely contemplated by the
Court of Appeals. See First City, 150 F.3d at 176; see also
Filus, 907 F.2d at 1332; Arriba, 962 at 534.*fn3
As to CBI's motion to dismiss, the Court, in the absence of any
further evidence, would ordinarily feel compelled to grant CBI's
motion, again essentially for the reasons stated at the time of
the prior dismissal. See Tr., March 26, 1997. While First City
argues that the Court should draw an adverse inference
unfavorable to CBI from Rafidain Bank's failure to provide
discovery on the alter ego issue, to do so would be to assume the
very point in controversy, i.e., that CBI is an alter ego of
Rafidain Bank. Yet it is the very absence of meaningful evidence
of that alleged relationship that underlay the Court's original
grant of the motion to dismiss. Id. Rafidain Bank, on its face,
is a state-owned commercial bank. CBI, on its face, is roughly
the Iraqi equivalent of the Federal Reserve. Nothing in the
defendants' ostensible relationship nor in anything adduced by
First City provides a sufficient basis to infer that CBI is
really Rafidain Bank's alter ego.
Nonetheless, because of the possibilities, exceedingly remote
though they be, that Rafidain Bank may yet seek to purge its
civil contempt and provide the requested discovery and that such
discovery may cast further light on the alter ego issue, the
Court, in an excess of caution, will for now deny CBI's motion,
without prejudice to its being renewed six months from the date
Accordingly, First City's motion to hold defendant Rafidain
Bank in civil contempt is hereby granted, First City's motion to
compel further discovery from defendant CBI is hereby denied, and
CBI's motion to dismiss is hereby denied without prejudice to its
being renewed six months hereafter.