United States District Court, S.D. New York
OPINION & ORDER
NETBURN, United States Magistrate Judge.
Plaintiffs' Executive Committees, on behalf of all
plaintiffs in this multidistrict litigation, move for
sanctions against defendant Perouz Sedaghaty pursuant to
Federal Rule of Civil Procedure 37(a) and (b). They allege a
continuing and intentional failure to comply with
Plaintiffs' discovery requests and orders by the
Honorable Frank Maas compelling production of documents.
Plaintiffs seek a conditional default against Sedaghaty
unless he complies with the discovery orders outstanding in
this case by a date certain, an order of preclusion
preventing Sedaghaty from introducing any evidence subject to
Plaintiffs' discovery requests at trial, an instruction
permitting the jury to draw an adverse inference from
Sedaghaty's failure to comply with discovery and
prolonged invocation of his Fifth Amendment privilege against
self-incrimination, and fees and expenses.
these requests were either granted or denied by Judge Maas at
a July 8, 2016 hearing. At that hearing, Judge Maas granted a
preclusion order (ECF No. 3320 at 9, 11, 16) and denied
plaintiffs' request for a conditional default judgment.
Id. at 17. Judge Maas also indicated that he would
entertain an application for costs related to this discovery
motion. Id. The Court explicitly adopts and
reaffirms these rulings. Accordingly, the Court shall enter
an order of preclusion and award reasonable fees and costs to
Plaintiffs upon an appropriate application, and denies
Plaintiffs' request for a conditional default.
Maas, however, deferred ruling on Plaintiffs' request for
an adverse inference instruction pending further briefing.
Id. After due consideration of this briefing, the
Court DENIES the request for an adverse inference instruction
without prejudice to its refiling if and when Plaintiffs
present sufficient evidence to demonstrate the relevance of
the withheld documents to their claims in the current
Sedaghaty was the Secretary and alleged founder of the
Al-Harimain Islamic Foundation-USA (“Al
Harimain-USA”), an Oregon-based foundation that was
classified by the Treasury as an organization linked to
support for terrorism and a co-defendant in this case. As
detailed in Judge Maas's November 22, 2011 Order (ECF No.
2491), in 2005, Sedaghaty was indicted and charged with
conspiring to defraud the United States in violation of 18
U.S.C. § 371, and abetting the filing of a false federal
tax return in violation of 26 U.S.C. § 7206(1) and 18
U.S.C. § 2. The indictment alleged that Sedaghaty had
participated in a scheme to transport approximately $200, 000
in traveler's checks to Saudi Arabia without properly
declaring them, with the ultimate goal of financing Chechen
separatists in the Russian Federation. ECF No. 2491 at 2. It
was further alleged that Sedaghaty had falsely claimed that
the check used to purchase the traveler's checks was used
to purchase a building in Springfield, Missouri, leading Al
Harimain-USA's accountant to understate its charitable
contributions and overstate its real estate holdings on a
2000 federal tax return. Id. at 3. Sedaghaty was
convicted by a jury on September 9, 2010, and sentenced to a
33-month term of imprisonment in 2011. Sedaghaty appealed the
conviction to the Court of Appeals for the Ninth Circuit.
December 2010, shortly after the jury verdict, Plaintiffs
served Sedaghaty with their First Set of Requests for the
Production of Documents (“First Document
Demands”). The subject matter of many of the documents
that the Plaintiffs sought overlapped with what was at issue
in the Oregon case, including, inter alia,
Sedaghaty's involvement with Al Harimain-USA and the
Quran Foundation, a charity located at the same address,
Sedaghaty and Al Harimain-USA's financial activities, and
U.S. and foreign investigations of Al Harimain-USA. Rather
than responding to the First Document Demands, on January 21,
2011, Sedaghaty filed a motion to stay discovery pending the
disposition of his criminal appeal. ECF No. 2403. The
Plaintiffs, in turn, sought to compel him to respond to their
First Document Demands. ECF No. 2486.
November 22, 2011, Judge Maas denied Sedaghaty's request
for a stay and granted the Plaintiffs' application to
compel, noting that “discovery in this case is unlikely
to implicate Sedaghaty's Fifth Amendment rights.”
ECF No. 2491 at 11. Judge Maas further observed that
Sedaghaty had been tried on tax charges in Oregon, and that
his “misdeeds . . . [were not] inextricably
interrelated to the events that gave rise to the terrorist
attacks of September 11, 2011.” Id. at 10.
Sedaghaty was given until January 20, 2012, to produce
documents responsive to the First Document Demands. ECF No.
2501. On January 11, 2012, Judge Daniels overruled
Sedaghaty's objections to Judge Maas's Order. ECF No.
January 20, 2012, Sedaghaty responded to the First Document
Demands by stating separately for each request:
“Sedaghaty respectfully declines to respond on the
grounds that the answer may tend to incriminate him.”
ECF No. 2991-1. On July 31, 2012, Plaintiffs served
supplementary document demands on Sedaghaty
(“Supplemental Document Demands”); on September
4, 2012, Sedaghaty responded in identical fashion. ECF No.
August 23, 2013, the Court of Appeals for the Ninth Circuit
vacated Sedaghaty's criminal conviction. United
States v. Sedaghaty, 728 F.3d 885 (9th Cir. 2013). The
court found that the government made a number of errors while
prosecuting Sedaghaty, “which resulted in admitting
evidence illegally seized while denying [Sedaghaty] both
material impeachment evidence and potentially exculpatory
evidence.” Id. at 892. The court noted with
concern that “[t]his [was] a tax fraud case that was
transformed into a trial on terrorism, ” given that the
District Court ultimately found that “there has been a
failure to prove the terrorist enhancement . . . [a] failure
to prove a link between the defendant and the money being
used for terrorist activities.” Id. at 891,
899 n.8. On July 28, 2014, the government dismissed the case
against Sedaghaty, provided that Al Harimain-USA
“fufill all the terms and conditions of its [plea]
agreement with the [government], ” which apparently
included a plea of guilty to one count of filing a false tax
return. ECF No. 3110-3.
the vacatur of his conviction and the dismissal of all
charges against him, Sedaghaty failed to amend his discovery
responses or produce any documents. In response, Plaintiffs
filed this motion for sanctions on August 10, 2015. ECF No.
2991. Sedaghaty opposed the motion, arguing primarily that he
had no responsive documents beyond those that were already
produced by Al Harimain-USA. These documents included (a) a
2004 production of 4, 153 pages of documents that Sedaghaty
had provided to his counsel in 2003 before going overseas and
other documents received from co-defendant Soliman Al-Buthe;
(b) a 2013 production of approximately 43, 700 pages of
documents seized from Al Harimain-USA by the U.S. Government
in February 2004 and subsequently returned; (c) approximately
8, 700 pages of documents produced to the grand jury and
subsequently released; (d) 1, 400 pages of trial exhibits;
and (e) 24, 000 emails from Al Harimain-USA computers. ECF
No. 3054 at 2.
July 8, 2016 hearing before Judge Maas, Sedaghaty's
counsel clarified that he was not asserting a Fifth Amendment
defense since the date his conviction was vacated in August
2013, though apparently this had never been communicated to
Plaintiffs or reflected in his responses to the discovery
demands, and alleged that he had no non-privileged responsive
documents in his possession. ECF No. 3320 at 9. During this
hearing, Judge Maas granted Plaintiffs a preclusion order and
reasonable costs and fees, denied their request for a
conditional default, and deferred ruling on the request for
an adverse inference instruction pending further briefing.
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