Walters v. People's Republic of China , 72 F. Supp. 3d 8 ( 2014 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
DEBBIE WALTERS, et al.,
Miscellaneous No. 01-300
Plaintiffs, JDB/DAR
v.
PEOPLE’S REPUBLIC OF CHINA,
Defendant.
MEMORANDUM ORDER
Plaintiffs Debbie Walters and Max Walters initiated this miscellaneous action requesting
a judgment debtor examination of Defendant, the People’s Republic of China, in order to identify
assets within the United States to satisfy an outstanding judgment that Plaintiffs secured against
Defendant in a civil action brought pursuant to the Foreign Sovereign Immunities Act (“FSIA”)
in the United States District Court for the Western District of Missouri. See Motion for
Judgment Debtor Examination or, Alternatively, for Order Requiring Payment of Outstanding
Judgment (Document No. 4). This action was referred to the undersigned United States
Magistrate Judge to “consider this matter in its entirety.” Order (Document No. 6) at 2.
In an Order (Document No. 24) filed on February 14, 2014, this court directed Defendant
to “produce [certain] requested documents to counsel for Plaintiffs by no later than April 15,
2014” and to appear before the court for a judgment debtor examination on May 6, 2014.1 At the
1
After this court had entered its order, the Supreme Court issued a decision in which it considered whether
the FSIA “limits the scope of discovery available to a judgment creditor in a federal postjudgment execution
proceeding against a foreign sovereign.” Republic of Arg. v. NML Capital, Ltd., 134 S. Ct. 2250, 2253 (2014). In
an effort to locate assets to satisfy unpaid judgments against the Republic of Argentina, NML Capital, Ltd. served
W alters, et al. v. People’s Republic of China 2
May 6, 2014 hearing, counsel for Plaintiffs indicated that they served the court’s order and
Plaintiffs’ request for production of documents on Defendant, see Plaintiffs’ Exhibit 1, and that
they received confirmation that it was delivered, see Plaintiffs’ Exhibit 2. Defendant did not
produce the requested documents, see Notice (Document No. 25), and did not appear for the May
6, 2014 hearing. Plaintiffs thus renewed their request that the court find Defendant in contempt,
which the court previously stayed pending the scheduled judgment debtor examination. See
Order at 3.
The court first notes that Plaintiffs’ previous requests for a finding of civil contempt were
predicated on Defendant’s noncompliance with an Order (Document No. 8) filed by the court on
March 6, 2012.2 Shortly after entering the order, however, the court vacated it, see 04/26/2012
Minute Order, and it is thus not a proper basis upon which to request a finding of contempt.3
subpoenas on “two nonparty banks” seeking “information about Argentina’s worldwide assets generally, so that [it
could] identify where Argentina may be holding property that is subject to execution.” Id. at 2253, 2258. The Court
affirmed the judgment of the Second Circuit, which held that “‘because the [district court’s] Discovery Order
involves discovery, not attachment of sovereign property, and because it is directed at third-party banks, not at
Argentina itself, Argentina’s sovereign immunity is not infringed.’” Id. at 2254, 2258 (citation omitted). The Court
analyzed the text of the FSIA, and determined that “[t]here is no [immunity] provision forbidding or limiting
discovery in aid of execution of a foreign-sovereign judgment debtor’s assets.” Id. at 2256.
2
See Plaintiffs/Judgment Creditors Debbie W alters and Max W alters’ Response to Statement of Interest of
the United States (Document No. 11) at 15 (“[T]he W alters[] respectfully urge the Court to rescind its vacation of its
March 6, 2012, Order and find that the PRC was in contempt for failing to comply with the Court’s Order.”);
Plaintiffs/Judgment Creditors Debbie W alters and Max W alters’ Notice of New Relevant Authority Pertaining to
Entry of Order of Contempt Against the People’s Republic of China (Document No. 13) at 1-2 (“[T]he W alters
continue to respectfully urge the Court to rescind its vacation of its March 6, 2012, Order and find
Defendant/Judgment Debtor The People’s Republic of China in contempt for failing to comply with the Court’s
March 6, 2012 Order.”); Plaintiffs/Judgment Creditors Debbie W alters and Max W alters’ Second Notice of New
Relevant Authority Pertaining to Entry of Order of Contempt Against the People’s Republic of China (Document
No. 15) at 3 (“[T]he daily contempt penalty imposed upon China for failing to comply with the Court’s March 6,
2012, Order . . . should be significantly greater than US$50,000 per day . . . .”); Plaintiffs/Judgment Creditors
Debbie W alters and Max W alters’ Supplemental Memorandum of Points and Authorities W ith Respect to
Permissible Scope of Discovery Against the PRC (Document No. 22) at 13; Proposed Order for Contempt Against
the People’s Republic of China (Document No. 22-1).
3
See Second Supplement to the United States’ Statement of Interest (Document No. 16) at 2; Notice of the
United States Regarding Scheduled Hearing (Document No. 23) at 2.
W alters, et al. v. People’s Republic of China 3
Accordingly, the court will limit its consideration to Plaintiffs’ request, stated on the record at the
May 6, 2014 hearing, that the court find Defendant in contempt for failure to comply with the
court’s February 14, 2014 order.
Plaintiffs request that the court, pursuant to its inherent authority, find Defendant in civil
contempt for its failure to comply with the court’s February 14, 2014 order – more specifically,
for failing to produce the requested documents and for failing to appear for the judgment debtor
examination, as ordered. Plaintiffs request sanctions in the amount of “$246,500 per day until
the PRC satisfies its discovery obligations . . . or the Final Judgment has been paid
in full.” See Proposed Order (Document No. 22-1) at 3. In support of their request, Plaintiffs
rely on Chabad v. Russian Federation, 915 F. Supp. 2d 148 (D.D.C. 2013) and the CIA World
Factbook’s assessment of Defendant’s economy. See Plaintiffs/Judgment Creditors Debbie
Walters and Max Walters’ Second Notice of New Relevant Authority Pertaining to Entry of
Order of Contempt Against the People’s Republic of China (Document No. 15) at 2 n.1, 3.
“[C]ourts have inherent power to enforce compliance with their lawful orders through
civil contempt,” and may do so when a party “has violated an order that is clear and
unambiguous,” and the violation is proved by “clear and convincing evidence.” Armstrong v.
Exec. Office of the President, Office of Admin., 1 F.3d 1274, 1289 (D.C. Cir. 1993) (citations
omitted) (quoting other sources) (internal quotation marks omitted); see also Serv. Emps. Int’l
Union Nat’l Indus. Pension Fund v. Artharee, No. 12-1233, 2014 WL 2580660, at *2 (D.D.C.
June 10, 2014) (quoting Int’l Painters & Allied Trades Indus. Pension Fund v. ZAK Architectural
Metal & Glass LLC, 736 F. Supp. 2d 35, 38 (D.D.C. 2010)) (“[A] party moving for civil
contempt must show, ‘by clear and convincing evidence, that: (1) there was a court order in
W alters, et al. v. People’s Republic of China 4
place; (2) the order required certain conduct by the defendant; and (3) the defendant failed to
comply with that order.’”); Chabad, 915 F. Supp. 2d at 151.
“Civil contempt, unlike the punitive remedy of criminal contempt, is designed to coerce
compliance with a court order or to compensate a complainant for losses sustained.” Chabad v.
Russian Fed’n, 798 F. Supp. 2d 260, 272 (D.D.C. 2011) (citation omitted) (quoting another
source) (internal quotation marks omitted); see also United States v. Latney’s Funeral Home,
Inc., No. 11-2096, 2014 WL 1826732, at *3 (D.D.C. May 8, 2014) (citation omitted) (quoting
another source) (internal quotation marks omitted) (“A civil contempt action is characterized as
remedial in nature, used to obtain compliance with a court order or to compensate for damages
sustained as a result from noncompliance.”). Thus, while the court has “broad” discretion in
constructing civil contempt sanctions, the court’s exercise of its discretion is guided by these
goals. See, e.g., Latney’s Funeral Home, 2014 WL 1826732, at *9 (citations omitted) (“Federal
courts have broad equitable powers to craft remedial sanctions for civil contempt . . . . A court’s
goal is to fashion a remedy that will coerce the contemnor into compliance, compensate the
complainant for losses due to the noncompliance, or both.”).
This Circuit has addressed the imposition of civil contempt sanctions on a foreign
sovereign in an action brought pursuant to the FSIA. FG Hemisphere Assocs., LLC v.
Democratic Republic of Congo, 637 F.3d 373, 375 (D.C. Cir. 2011). In that case, the plaintiff,
seeking to execute on judgments it obtained against the Democratic Republic of Congo, served
discovery requests in order “to identify the DRC’s commercial property in the United States
available for execution.” Id. at 376. The district court entered a discovery order, with the
consent of the parties, but the Democratic Republic of Congo did not produce all of the
W alters, et al. v. People’s Republic of China 5
documents in accordance with the court’s order. Id.; see also FG Hemisphere Assocs., LLC v.
Democratic Republic of Congo, 603 F. Supp. 2d 1 (D.D.C. 2009). The district court found the
Democratic Republic of Congo in civil contempt, ordered it to certify its compliance with the
court’s discovery orders within thirty days, and ordered it to “show cause on or before the
expiration of the 30–day period why a fine payable to plaintiff should not be imposed in the
amount of $5000 per week, doubling every four weeks until reaching a maximum of $80,000 per
week, until DRC satisfies its discovery obligations under this Order.” FG Hemisphere Assocs.,
603 F. Supp. 2d at 2-3.
The district court denied the Democratic Republic of Congo’s motion to vacate the
contempt order, and the Circuit affirmed the district court’s order, after determining that
“contempt sanctions against a foreign sovereign are available under the FSIA.” FG Hemisphere
Assocs., 637 F.3d at 376, 379; see also id. at 380 (“We hold today only that the FSIA does not
abrogate a court’s inherent power to impose contempt sanctions on a foreign sovereign, and that
the district court did not abuse its discretion in doing so here.”). In so concluding, the Court
distinguished between a court’s power to “impose” sanctions and the court’s power to “enforce”
the sanctions imposed. Id. at 377.
More recently, another member of this court imposed civil contempt sanctions, in the
amount of $50,000 per each day of noncompliance, against a foreign sovereign – the Russian
Federation – and other Russian entities, for their failure to comply with the court’s final order
with respect to the merits of the case. Chabad, 915 F. Supp. 2d at 150, 154-55. The court
concluded that it had authority to issue contempt sanctions under FG Hemisphere Associates, and
found that sanctions were appropriate under the “general principles . . . governing the issuance of
W alters, et al. v. People’s Republic of China 6
civil contempt sanctions . . . .” Id. at 153. The court also reiterated the distinction between “a
court’s issuing of contempt sanctions with execution or enforcement of an award . . . .” Id. at
154; see also id. at 152.
Here, Plaintiffs have shown, by clear and convincing evidence, that Defendant has failed
to comply with the court’s February 14, 2014 order. Plaintiffs submitted evidence that Defendant
was served. See Plaintiffs’ Exhibit 1; Plaintiffs’ Exhibit 2. The order clearly and unambiguously
directed Defendant to “produce the requested documents to counsel for Plaintiffs by no later than
April 15, 2014” and to “appear before the undersigned in Courtroom 4 of the United States
District Court for the District of Columbia on Tuesday, May 6, 2014 at 10:00 a.m., for a
judgment debtor examination.” Order (Document No. 24) at 3. Defendant did not appear for the
May 6, 2014 judgment debtor examination, and counsel for Plaintiffs represented, on the record
at the May 6, 2014 hearing, that Defendant has not produced the documents. Defendant itself has
indicated that it will not comply with the court’s order because “execution of the request would
infringe the sovereignty or security of the People’s Republic of China [].” Notice (Document
No. 25).
Accordingly, the undersigned finds that Plaintiffs have established a basis for the court, in
an exercise of its inherent power, to find Defendant in civil contempt of the court. The
undersigned further finds that civil contempt sanctions against Defendant are authorized in this
Circuit, pursuant to FG Hemisphere Associates. However, before imposing such sanctions, the
court will first order Defendant to show cause why it should not be subject to civil contempt
sanctions. The court in Chabad entered a show cause order prior to its issuance of civil contempt
sanctions, noting that it “must remain cognizant that a fundamental requirement of civil contempt
W alters, et al. v. People’s Republic of China 7
proceedings ‘is that the accused party has notice and an opportunity to be heard.’” Chabad, 798
F. Supp. 2d at 273 (citation omitted); see also id. at 274 (“[D]efendants’ ongoing failure to
comply with the Court’s order . . . cannot eliminate the requirement that they be given notice and
an opportunity to respond before entry of civil contempt.”); cf. FG Hemisphere Assocs., 603 F.
Supp. 2d at 3 (including a show cause provision in the contempt order).
While Plaintiffs’ previous requests for sanctions, see supra note 2, may have alerted
Defendant to the possibility that sanctions could be imposed, Defendant, to the undersigned’s
knowledge, has not been notified of Plaintiffs’ present request for sanctions, which was made
orally on the record at the May 6 hearing at which Defendant was not present. Moreover, unlike
the circumstances presented in the cases discussed above, Defendant has never appeared or
participated in the instant litigation. See Notice (Document No. 10); cf. Chabad, 798 F. Supp. 2d
at 264 (“Following nearly four years of active litigation between the parties, all defendants
withdrew from this matter, explaining that ‘[t]he Russian Federation views any continued
defense before this Court and, indeed, any participation in this litigation as fundamentally
incompatible with its rights as a sovereign nation.’”); FG Hemisphere Assocs., 637 F.3d at 375-
76 (noting that the “DRC began participating in the litigation” and that the district court entered a
discovery order “with the consent of both parties”). The need for notice is arguably greater
where, as here, the party subject to sanctions has never appeared in the litigation.
Defendant’s notices to the court reflect that it does not intend to participate in the
litigation, or comply with orders of the court. See Notice (Document No. 10); Notice (Document
No. 25); see also Chabad, 798 F. Supp. 2d at 273 (“[D]efendants’ prior statement that they view
‘any continued defense before this Court and, indeed, any participation in this litigation as
W alters, et al. v. People’s Republic of China 8
fundamentally incompatible with [their] rights as a sovereign state,’ . . . along with their
letter—sent after receipt of the default judgment—returning documents ‘without judicial review,’
. . . make clear that they have no intention of complying with the Court’s prior order.”).
Nonetheless, the undersigned finds it prudent to provide Defendant with notice of Plaintiffs’
request for sanctions, an opportunity to come into compliance with the court’s order prior to the
issuance of sanctions, and an opportunity to be heard.
CONCLUSION
For all of the foregoing reasons, it is, this 27th day of October, 2014,
ORDERED that by no later than December 31, 2014, Defendant shall produce the
documents requested by Plaintiffs in accordance with the court’s February 14, 2014 order; and it
is
FURTHER ORDERED that in the event Defendant fails to comply, it shall SHOW
CAUSE by no later than January 7, 2015 why the court should not impose the civil contempt
sanctions requested by Plaintiffs – $246,500 per day – for its failure to comply with the court’s
February 14, 2014 order directing it to produce the documents requested by Plaintiffs and to
appear for a judgment debtor examination; and it is
FURTHER ORDERED that counsel for Plaintiffs shall serve a copy of this order upon
Defendant in accordance with applicable federal law and international agreements.
/s/
DEBORAH A. ROBINSON
United States Magistrate Judge