United States District Court, S.D. New York
For MWH International, Inc., Plaintiff: Edwin R. Matthews, BOURNE NOLL & KENYON, SUMMIT, NJ.
For Inversora Murten S.A., Defendant, Cross Claimant: Jon Schuyler Brooks, LEAD ATTORNEY, Phillips Nizer LLP, New York, NY.
For Energoprojekt holding company, Energoprojekt hidroinzenjering co., ltd, Defendants, Cross Defendants: Thomas M. Mullaney, LEAD ATTORNEY, Law Offices of Thomas M. Mullaney, New York, NY.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
GREGORY H. WOODS, United States District Judge.
MWH International, Inc. (" MWH") contracted with Energoprojekt Hidroinzenjering Co. Ltd. (" EP-Hidro"), a subsidiary of Energoprojekt Holding a.d. (" EP-Holding a.d."). Pursuant to the contract, EP-Hidro provided engineering services to MWH; in turn, MWH owed money to EP-Hidro. Inversora Murten, S.A. (" Inversora") holds a $38.5 million default judgment against Energoprojekt Holding Company (" EP-Holding"). Inversora sought to garnish the payments from MWH owing to EP-Hidro to satisfy Inversora's judgment against EP-Holding. Faced with the competing claims of Inversora and EP-Hidro to the funds MWH owed EP-Hidro, MWH filed this interpleader action. MWH subsequently deposited the disputed funds with the Court and was dismissed from the case. Inversora has raised cross-claims against EP-Hidro and EP-Holding a.d. (together, the " Energo Defendants"),  through which Inversora asserts that it is entitled to the funds.
In order to prevail in this case, Inversora must surpass three hurdles. First, Inversora would need to defend the validity of its default judgment against EP-Holding against the Energo Defendants' claim that the judgment is void. While the Energo Defendants have raised substantial questions about the validity of the default judgment, the Court need not address this issue to resolve this case. Second, Inversora must establish that EP-Holding a.d., the parent of EP-Hidro, is the legal successor to EP-Holding, the judgment debtor. The Court does not need to decide this issue in order to resolve this dispute. For purposes of this decision only, the Court assumes, without holding, that EP-Holding a.d. is the same entity as EP-Holding, the judgment debtor. Third, Inversora must demonstrate that it can collect the default judgment owing by EP-Holding against the assets of EP-Hidro, a separate legal entity. As described below, the Court finds, as a matter of both fact and law, that Inversora has failed to meet this hurdle on any of the alternative bases it has asserted. For the reasons that follow, the Court grants judgment in favor of the Energo Defendants and orders that the res be distributed to EP-Hidro.
I. PROCEDURAL HISTORY
This case has an extensive and tortuous procedural history in this Court, most of which is not directly relevant to this decision. The case was filed by MWH in October 2010 in the District of New Jersey, where the default judgment against EP-Holding was issued. The case was transferred to the Southern District of New York in March 2011 and was assigned to The Honorable Judge Harold Baer. MWH deposited the amount in dispute--$178, 283.39--with the Court in January 2011. MWH was then dismissed from the lawsuit. Dkt. No. 44. Judge Baer later ordered that $26, 338.98 of the funds on deposit with the Court be paid to MWH to offset its legal expenses. Dkt. No. 90.
For over three years, Inversora and the Energo Defendants litigated jurisdictional questions and conducted discovery under the supervision of Judge Baer and Magistrate Judge Maas. The discovery process appears to have been erratic. On June 18, 2013, Judge Maas wrote of the case " it has been referred to me for only two months; despite my brief association with the matter, I share Judge Baer's considerable frustration with the manner in which it has been litigated." Dkt. No. 82. Of particular note for the ultimate disposition of this case, Inversora, after litigating its right to take depositions of the Energo Defendants, ultimately chose to take no depositions at all in support of its case. Instead, as will be seen, Inversora chose to rest its case entirely on documents produced by the Energo Defendants and documents that Inversora's principal found on the internet.
The case was transferred to the undersigned in July 2014, following Judge Baer's passing. Shortly thereafter, Inversora and the Energo Defendants represented to the Court that, after nearly four years of litigation, discovery in the case was complete. Accordingly, in August 2014, the Court set a briefing schedule for any dispositive motions and a trial date.
In September 2014, the Energo Defendants filed a third motion to dismiss Inversora's cross-claims pursuant to Fed.R.Civ.P. 12(b) or to vacate the Default Judgment pursuant to Fed.R.Civ.P. 60(b). At the time that the motion was filed, the parties had already conducted discovery. The Court's preference was to resolve on the evidence instead of the pleadings a case that had been pending for four years in which all discovery was complete. The Court thus elected to resolve this case at trial.
The Energo Defendants' motion to vacate the default judgment against EP-Holding raises substantial questions regarding the validity of that judgment. See Energo Defendants' Motion to Dismiss for Lack of Jurisdiction and to Vacate Judgment. Dkt. No. 114. The Court need not reach those issues, however, to resolve this case. The primary issue before the Court is whether Inversora can enforce against EP-Hidro the default judgment against EP-Holding. Because the Court answers this question in the negative, it is not required to reach the issue of the validity of the default judgment itself. In the spirit of judicial restraint, the Court believes that it should adjudicate this dispute on the most limited basis necessary. A different conclusion in this interpleader action would warrant confronting the question as to whether the default judgment itself is void.
Although the Energo Defendants have answered Inversora's cross-claims, they have not answered MWH's interpleader complaint. Based on the latter fact, counsel for Inversora made an oral motion for a default judgment on the morning of the first day of trial in this matter. Inversora's motion is denied. The motion does not comply with Rule 55, as Inversora has not obtained a certificate of default against the Energo Defendants. See Fed.R.Civ.P. 55(a); see also Allstate Ins. Co. v. Yadgarov, No. 11-cv-6187, 2014 WL 860019, at *13 (E.D.N.Y. Mar. 5, 2014) (" [P]rocedural irregularities warrant denial of a motion for default judgment; the court cannot simply overlook a technical error."). More importantly, the Energo Defendants appeared in this case over three years ago and have been actively litigating it since then, and Inversora is in no way prejudiced by the Energo Defendants' failure to answer the interpleader complaint. Under these circumstances, given that " default judgments are disfavored" and that " [a] clear preference exists for cases to be adjudicated on the merits, " Pecarsky v. Galaxiworld.com Ltd., 249 F.3d 167, 174 (2d Cir. 2001), the Court will not decide this case against an active litigant based on a procedural technicality raised on the first day of trial, see Cablevision of Southern Conn., Ltd. Partnership v. Smith, 141 F.Supp.2d 277, 281-82 (D. Conn. 2001) (noting that, in determining whether to enter a default judgment, courts may consider, inter alia, " whether the default is largely technical, " " whether the plaintiff has been substantially prejudiced by the delay involved, " " how harsh an effect a default judgment might have, " and " whether the court thinks it later would be obligated to set aside the default on defendant's motion").
The Court held a three-day bench trial to determine which defendant is entitled to the disputed funds beginning on January 12, 2015. Inversora presented the testimony of its principal, Peter Bronner, and the Energo Defendants presented the testimony of EP-Hidro's Director, Bratislav Stiŝ ović . The direct testimony of those witnesses was taken by written declaration, and the witnesses were subject to live cross-and redirect examination by counsel.
Mr. Bronner was the only witness who appeared for Inversora at trial. His testimony is fundamentally limited, however, by the fact that he has no personal knowledge of the operations of the Energo Defendants or any other issue relevant to the disposition of this dispute. He testified that his knowledge of the operations of the Energo entities is derived from his work with a Guinean subsidiary of EP-Holding in the early 90's--over twenty years ago. Trial Tr. at 24, 147. Otherwise, the only basis for his knowledge regarding the operations of any member of the Energo group of companies comes from documents that he has read. Trial Tr. at 24. Mr. Bronner was not presented as an expert witness. Because of Mr. Bronner's lack of personal knowledge regarding the structure, assets, nature, or operations of the Energo Defendants, the Court does not credit any statements made by him on those issues other than direct quotations from documentary evidence that Inversora sought to introduce through his testimony. In particular, the Court does not credit any of Mr. Bronner's extrapolations or conclusions from, or characterizations of, the evidence that he collected.
As a general matter, the Court also found Mr. Bronner to lack credibility as a witness. He is interested in the outcome of the litigation. He testified that he is entitled to receive all of the proceeds of the litigation should Inversora prevail, net of legal expenses. Trial Tr. at 251. The Court found him to be heavily invested personally in this matter. Moreover, throughout his testimony on cross-examination, Mr. Bronner looked at his counsel for direction as to the proper responses to questions. Confronted with the opportunity to demonstrate his own familiarity with the matters about which he was testifying, he was unable to do so capably without guidance from counsel. See, e.g., Trial Tr. at 211-216.
Because the only witness offered by Inversora lacked personal knowledge of pertinent facts, the only basis that it offered in support of its case in chief were documents procured by Mr. Bronner and his counsel, Mr. Brooks. Many of the documents were corporate records of the Energo Defendants produced by them in discovery or located by Mr. Bronner through internet searches. The Energo Defendants understandably objected to the introduction of much of this evidence for a number of reasons, but principally because Mr. Bronner could not lay a foundation for the document or because the documents constituted hearsay. At trial, the Court provisionally accepted the disputed evidence and took the parties' objections under advisement. For purposes of this decision only, rather than ruling on each objection, the Court is accepting the documents proffered by Inversora. The Court is essentially finding that, even assuming, arguendo, that the evidence offered by Inversora is admissible, Inversora is not entitled to the disputed funds. As a result, the Court is not required to resolve the Energo Defendants' objections to the admissibility of Inversora's evidence. The Court has not based any findings of fact on evidence presented by the Energo Defendants to which Inversora objected.
Over Inversora's objection, the Energo Defendants' sole witness, Mr. Stisovic, testified through a Serbian interpreter. Although Mr. Stisovic has represented professionally that he is " fluent" in English, Mr. Stisovic has only a high school level of education in English and admitted that he does not understand the English versions of " legal terms, " see Trial Tr. at 347. In light of both the complex nature of this case--which involves numerous legal terms--and Mr. Stiŝ ović 's limited background and proficiency in English, the Court finds that the use of a Serbian interpreter was necessary for Mr. Stiŝ ović to understand the questions presented to him and to provide complete and accurate answers. Indeed, on the few occasions on which Mr. Stisovic endeavored to testify in English both the Court and the court reporter had difficulties understanding him.
With that background established, the Court now issues these findings of fact and conclusions of law.
II. FINDINGS OF FACT
This story begins over twenty years ago--in the early 1990s. At that time, Inversora, a Uruguayan company, was actively involved a hydro-electric development project in the Republic of Guinea. Mr. Peter Bronner, Inversora's sole principal, ran the company from a shared office in New York City and his home in ...