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In re Terrorist Attacks on September 11

United States District Court, S.D. New York

February 16, 2017


          OPINION & ORDER

          SARAH NETBURN, United States Magistrate Judge.

         The 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.

         Most of 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.

         Judge 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 litigation.


         Perouz 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.

         In 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.

         On 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. 2529.[1]

         On 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. 2991-2.

         On 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.

         Despite 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.[2]

         At a 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.


         I. Legal Standard for ...

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