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Note:This litigation commenced under the Foreign Sovereign Immunities Act ("FSIA") (28 U.S.C. § 1602) as an action to collect on an unsatisfied default judgment. First City sued both Rafidain and Central Bank of Iraq, as Rafidain's altar ego, to recover more than US$ 50 million in unpaid principal and interest on defaulted letters of credit issued by Rafidain, Iraq's state-owned Bank. The U.S. District Court for the Southern District of New York, Martin, J., entered a default judgment in the amount of US$ 53.2 million in favor of First City against both defendants ("1991 Judgment"). The Iraqi Central Bank, however, was subsequently granted summary judgment on the basis of lack of service.

First City subsequently brought another action against the Central Bank and it moved to dismiss again on grounds of sovereign immunity. In order to initiate discovery on the Central Bank's sovereign immunity defense and its own 'alter ego' argument, First City served both the Central Bank and Rafidain with interrogatories and document requests through Iraq's Permanent Representative to the United Nations in New York. Rafidain failed to respond. When the Central Bank moved again to dismiss, First City filed a motion to compel additional responses since it had been unable to gather evidence due to noncompliance on the part of both Rafidain and the Central Bank. The District Court granted the Central Bank's motion to dismiss with prejudice on grounds of sovereign immunity without addressing First City's motion to compel. First City appealed and the case was subsequently remanded with the following instructions:

Because Rafidain is a party to this suit, has been found to fit within the FSIA's "commercial activity" exception and because First City has a judgment against Rafidain, allowing First City to seek further discovery from Rafidain would not intrude upon the sovereign immunity, if any, of Rafidain. Following discovery from Rafidain, the district court would then have been in a better position to assess whether discovery from [Central Bank] on the alter ego question was sufficiently likely to be productive as to warrant compelling additional jurisdictional discovery. We believe that the court's failure to take such a course, when coupled with the dismissal of the complaint, was an abuse of discretion.

After the remand, First City served Rafidain with a subpoena duces tecum requiring submission of documents seeking jurisdictional discovery on the "alter ego" issue ("1998 Subpoena"). When Rafidain failed to respond again, arguing that since it was no longer a party to the action and it was not subject to the court's jurisdiction, First City moved to hold Rafidain in contempt. At the same time, the Central Bank renewed its motion to dismiss for lack of jurisdiction. The district court did not order the Central Bank to comply but denied its motion to dismiss, holding that Rafidain might chose to purge its contempt charge and provide the discovery to allow First City to support its 'alter ego' theory.

Subsequently, the District Court granted First City's motion for contempt and entered an Order to Show Cause against Rafidain ("1999 order"). Rafidain failed yet again to respond and, almost a year later, was held in civil contempt and charged a fine of US$ 1,000 per day to continue until such time as it purged its default. Seven months later, Rafidain appeared in court and moved to vacate the civil contempt order on the grounds that the district court lacked subject matter jurisdiction and personal jurisdiction to enforce the subpoena. First City responded by serving a subpoena duced tecum on Rafidain's council seeking post judgment discovery as well as restraint of assets in aid of enforcing the judgment against Rafidain ("2000 Subpoena"). The court ruled:

In moving to vacate the Court's order holding Rafidain in civil contempt for failure to comply with the 1998 Rafidain Subpoena, Rafidain argues, first and foremost, that the Court lacked authority to impose such an order because Rafidain by that time was no longer a party to this lawsuit and was exempt under the FSIA from being subject to third-party discovery.

The first premise of the argument is effectively foreclosed, however, by the Court of Appeal's [sic] express finding that "Rafidain is a party to this suit" and that "the district court is instructed to permit First City to conduct full discovery against Rafidain." [I]t would exceed the power of this lower court to disregard these clear and unequivocal determinations of the Court of Appeals. The Court therefore finds, in compliance with the Second Circuit's ruling, that Rafidain remains a party to this action. As a result, moreover, Rafidain's additional argument about the limitations of jurisdiction over non-party sovereign entities is rendered irrelevant, since Rafidain is not a non-party.

The District Court, Rakoff, J., granted the stay as to the 1998 Subpoena, however denied it with respect to the Rule 69 2000 Subpoena seeking post judgment discovery. Rafidain appealed the district court's denial of its motion to vacate the civil contempt order entered for failure to comply with the 1998 Subpoena.

The U.S. Court of Appeals for the Second Circuit, Jacobs, J., subsequently affirmed the district court's denial of Rafidain's motion to vacate the civil contempt order for failure to comply with the 1998 Subpoena, holding that the waiver of subject matter jurisdiction continued through post-judgment discovery, which included discovery on the "alter ego" issue.

It ruled that "[t]he waiver by a foreign state under section 1605(a)(2), rendering it a party to an action, is broad enough to sustain the court's jurisdiction through proceedings to aid collection of a money judgment rendered in a case, including discovery pertaining to the judgment debtor's assets." The court held that subject matter jurisdiction was further sustained under Federal Rule 69 (a): "In aid of the judgment or execution, the judgment creditor or successor in interest when that interest appears of record, may obtain discovery from any person, including the judgment debtor, in the manner provided by the practice of the state in which the district court is held."

The FSIA, 28 U.S.C. § 1330(b), provides: "Personal jurisdiction over a foreign state shall exist as to every claim for relief over which the district courts have [subject matter] jurisdiction under subsection (a) where service has been made under section 1608 of this title." The FSIA further states that a court can sustain personal jurisdiction provided there is proper service as provided for by any arrangements between the plaintiff and the foreign agency. Under the agreement between First City and Rafidain, Rafidain consented to being served "in any suit, legal action or proceeding in the New York and federal courts sitting in New York, New York, by serving a copy thereof (by registered mail, postage prepaid) upon the Permanent Representative of Iraq to the United Nations."

The court found, first, that Rafidain had been properly served and did not raise any objections as to lack of actual notice and had still failed to appear or challenge the contempt order or service in a timely manner. Second, Rafidain also does not allege that it was unaware of the court's judgment subsequent to the 1998 Subpoena stating that Rafidain was a party and had to submit to discovery. Last, the court found that First City duly served Rafidain with the 1998 Subpoena pursuant to the Federal Rules of Civil Procedure, and held that although First City had not complied with the terms of the agreement exactly, it had made a "substantial and sufficient" effort to do so.

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