The January 5, 2021 Order of the U.S. District Court Judge Andrew L. Carter, Jr. to adopt the Magistrate Judge Lehrburger’s report and recommendation to increase sanctions against the Kyrgyz Republic demonstrates the serious consequences that may befall litigants for non-compliance with court orders. This Southern District of New York case involves the Kyrgyz Republic’s systemic refusal to pay the more than eleven-million-dollar judgment (with interest) confirming an international arbitration award entered against the Republic for more than a decade. Despite multiple court orders requiring discovery, the Republic has failed to comply, its counsel has withdrawn and the Court has tripled the monetary sanctions – to $15,000 per day – resulting from the disregard of the Court’s orders. The case underscores the importance of compliance with Court orders.
The Court cites the standard that provides the Court with broad discretionary power to impose sanctions on litigants disregarding the Court’s orders. Indeed, “[a] district court has wide discretion to impose sanctions, including severe sanctions, under Federal Rule of Civil Procedure 37 ….” Design Strategy, Inc. v. Davis, 469 F.3d 284, 294 (2d Cir. 2006). That broad discretion permits courts “to design a remedy that will bring about compliance” from a party that refuses to obey the court’s orders. Perfect Fit Industries, Inc. v. Acme Quilting Co. Inc., 673 F.2d 53, 57 (2d Cir. 1982). That discretion also permits a district court to “increase the amount of [a] daily fine” if “a higher coercive sanction is … warranted.” New York v. Shore Realty Corp., 763 F.2d 49, 54 (2d Cir. 1985).
Courts may thus increase the amount of a per diem fine when the existing fine has not secured compliance. See, e.g., United States v. Mongelli, 2 F.3d 29, 30 (2d Cir. 1993) (affirming order increasing fine from $4,000 to $10,000 per day); United Fabrics International, Inc. v. Metro 22, Inc., No. 16-MC- 253, 2017 WL 455552, at *1-2 (S.D.N.Y. Jan. 31, 2017) (doubling fine after “several months” of noncompliance); Spectacular Venture, L.P. v. World Star International, Inc., 927 F. Supp. 683, 684, 686 (S.D.N.Y. 1996) (increasing fine from $1,000 to $2,500 per day after four months of noncompliance). Courts may also prescribe escalating fines in the first place. See, e.g., 1199 SEIU United Healthcare Workers East v. Alaris Health at Hamilton Park, No. 18-CV-3336, 2019 WL 1448075, at *2 (S.D.N.Y. Mar. 11, 2019) (imposing fines for failure to comply with post-judgment asset discovery of $1,000 per day escalating to $5,000 after five days and $10,000 after twenty days); CE International Resource. Holdings LLC v. S.A. Minerals Limited Partnership, No. 12-CV-8087, 2013 WL 324061, at *3 (S.D.N.Y. Jan. 24, 2013) (imposing fine of $5,000 per day increasing to $20,000 per day after twenty business days); Telenor Mobile Communications AS v. Storm LLC, 587 F. Supp. 2d 594, 621 (S.D.N.Y. 2008) (imposing “initial contempt sanction of $100,000 per day, doubling to $200,000 per day thirty days thereafter, and to $400,000 per day thirty days after that, and continuing to double every thirty days until compliance is achieved”), aff’d,351 F. App’x 467 (2d Cir. 2009).
This case is also interesting from the perspective of jurisdiction. It serves as additional precedent for U.S. courts to exercise discretion to impose sanctions on not only private litigants, such as private companies or individuals, but also on a foreign sovereign republic. The Court’s decision notes that as a foreign sovereign, the Republic may not litigate this case pro se, which apparently it tried to do. In this regard, the case underscores the importance of following the court rules, as well as orders. Whether or not the case will ever result in a successful recovery for the plaintiff remains to be seen, but from a perspective of former Soviet republics, now independent states and sovereigns, litigating in the U.S. federal courts, the case is a stark reminder of the power of the federal court.