Case of the Day: Iraq Middle Market Development Foundation v. Harmoosh
Posted on February 9, 2017
The case of the day is Iraq Middle Market Development Foundation v. Harmoosh (4th Cir. 2017). The Foundation lent $2 million to Al-Harmoosh for General Trade, Travel, and Tourism, an Iraqi company. The loan agreement had an agreement to arbitrate all “disputes, controversies and claims between the parties which may arise out of or in connection with the Agreement.” Mohammad Harmoosh, a managing partner of Al-Harmoosh, gave a promissory note to the Foundation to guarantee payment of the loan. When Harmoosh refused to pay, the Foundation sued for breach of contract in the District of Maryland. Harmoosh successfully moved to dismiss on the grounds that the dispute was arbitrable, but he did not move to compel arbitration.
The Foundation then sued again on the note in the Court of First Instance for Commercial Disputes in Baghdad. Harmoosh moved to dismiss for lack of personal jurisdiction and for failure to state a claim on grounds that don’t matter here. There was some disagreement about whether he also raised arbitrability as a defense. But the court denied the motions, and after litigation on the merits the court awarded the Foundation $2 million in damages. Harmoosh appealed to the Baghdad/Al-Rasafa Federal Court of Appeals, which affirmed, and to the Federal Court of Cassation, which affirmed again.
The Foundation then sued again in Maryland, seeking recognition of the Iraqi judgment. Harmoosh moved to dismiss on the grounds that under the UFMJRA (§ 4(b)(5)), a judgment need not be recognized if the foreign proceeding was contrary to an agreement to arbitrate. The Foundation argued that Harmoosh had waived his right to arbitrate by failing to raise it in the Iraqi proceedings. Before the parties conducted discovery, the judge granted summary judgment to Harmoosh on the grounds that the Iraqi judgment was contrary to the arbitration agreement. The Foundation appealed.
The Fourth Circuit rejected the argument that if the proceedings were contrary to the parties’ agreement, then waiver is irrelevant. “We do not believe the [legislature] intended to give courts discretion to enforce contractual rights the parties decided to waive.” Moreover, the interpretation elsewhere of the Uniform Act and the general principles of contract law do not support Harmoosh’s view. And comity, the court said, requires recognition of foreign judgments where the parties voluntarily litigated the case abroad. Thus the court vacated the summary judgment and remanded for proceedings to determine whether the arbitration issue was indeed waived in the Iraqi case.