PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
RZS HOLDINGS AVV,
Plaintiff-Appellant,
v.
PDVSA PETROLEO S.A.; ALI
RODRIGUEZ ARAQUE; RODOLFO PORRO;
JOSE ROJAS; IVAN HERNANDEZ; FELIX No. 06-1680
RODRIGUEZ; NELSON MARTINEZ;
DESTER RODRIGUEZ; LUIS VIERMA;
RAFAEL ROSALES; NELSON NUNEZ;
VICTOR ALVAREZ,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Gerald Bruce Lee, District Judge.
(1:04-cv-00784-GBL)
Argued: September 26, 2007
Decided: November 1, 2007
Before MOTZ and KING, Circuit Judges, and
Robert J. CONRAD, Jr., Chief United States District Judge
for the Western District of North Carolina, sitting by designation.
Vacated and remanded by published opinion. Judge King wrote the
opinion, in which Judge Motz and Judge Conrad joined.
COUNSEL
ARGUED: Henry St. John FitzGerald, Arlington, Virginia, for
Appellant. Christopher O. Davis, BAKER, DONELSON, BEAR-
2 RZS HOLDINGS AVV v. PDVSA PETROLEO S.A.
MAN, CALDWELL & BERKOWITZ, P.C., New Orleans, Louisiana,
for Appellees. ON BRIEF: Joseph F. Giordano, SEMMES, BOWEN
& SEMMES, Vienna, Virginia, for Appellees.
OPINION
KING, Circuit Judge:
RZS Holdings AVV ("RZS") seeks appellate relief from a judg-
ment entered against it in the Eastern District of Virginia, confirming
an arbitration award in favor of the appellees, PDVSA Petroleo S.A.
and several of its officers (collectively, "PDVSA"). The district
court’s Order of May 10, 2006, from which this appeal flows, fol-
lowed its oral ruling on PDVSA’s motion to confirm the arbitration
award, announced at a hearing conducted on April 28, 2006. During
that hearing, the court permitted RZS’s counsel to withdraw, denied
RZS’s owner permission to proceed pro se, and struck RZS’s pro se
pleadings. Although RZS had also sought a continuance to obtain
replacement counsel, the court proceeded instead to address and rule
in favor of PDVSA on its motion to confirm the arbitration award —
effectively denying RZS’s continuance request and conducting an ex
parte proceeding in which it ruled on the merits of the controversy.
As explained below, we are obliged to vacate and remand.
I.
A.
PDVSA, a Venezuelan corporation, is the state owned and operated
oil company of Venezuela. RZS is involved in the international petro-
leum market, with its principal place of business in Oakton, Virginia,
and with mailing offices in London and Venezuela. RZS is owned, at
least in part, by an individual named Shukri Gabriel Deeb.
The underlying dispute arose from a February 19, 1993 agreement,
by which RZS agreed to sell, and PDVSA agreed to buy, 50,000 met-
ric tons of unleaded gasoline. Although the basis for termination of
the gasoline contract is disputed, the parties agree that it was termi-
RZS HOLDINGS AVV v. PDVSA PETROLEO S.A. 3
nated by PDVSA on approximately April 1, 2003. As a result, RZS
filed breach of contract claims against PDVSA in a state court in Fair-
fax County, Virginia, and in the Eastern District of Virginia.
In November 2003, RZS and PDVSA entered into settlement dis-
cussions and, according to RZS, agreed to settle RZS’s claims against
PDVSA. Pursuant to the settlement agreement, RZS filed motions to
dismiss its pending lawsuits against PDVSA in the state and federal
courts. These motions were granted and, after the dismissals, RZS
claimed that PDVSA had improperly repudiated the settlement and
refused to pay RZS the agreed settlement funds. On June 16, 2004,
RZS again filed suit against PDVSA in Fairfax County, asserting vio-
lations of the gasoline contract and the settlement agreement, as well
as various other claims. On July 8, 2004, PDVSA removed this civil
action to the Eastern District of Virginia. Shortly thereafter, PDVSA
sought a stay of the litigation pending arbitration proceedings pro-
vided for in the gasoline contract. On August 6, 2004, the district
court granted PDVSA’s motion and stayed the litigation pending arbi-
tration.
The arbitration proceedings began in the fall of 2004 and continued
until February 9, 2006. At the conclusion thereof, the arbitration court
ruled substantially in favor of PDVSA, concluding that (1) a contract
for 50,000 metric tons of gasoline had been entered into by RZS and
PDVSA; (2) RZS’s breach of contract claim nevertheless failed, and
PDVSA owed no damages to RZS; (3) the arbitration court lacked
jurisdiction to arbitrate the other claims; and (4) no binding settlement
agreement had been entered into because the settlement had not been
appropriately agreed to by PDVSA. See RZS Holdings AVV v.
PDVSA Petroleo, S.A. (U.S. v. Venez.), Int’l Comm. Arb., Case. No.
12 723/JNK/EBS (Feb. 9, 2006).1
B.
Near the conclusion of the arbitration proceedings, a fee dispute
developed between RZS and its attorney, George Doumar. On
1
The arbitration award directed RZS to pay the fees and expenses of
the arbitral tribunal in the sum of $480,000. The award also ordered RZS
to pay PDVSA $250,000 in legal fees and other costs.
4 RZS HOLDINGS AVV v. PDVSA PETROLEO S.A.
December 7, 2005, Doumar wrote to the arbitration court, indicating
that he and his firm were withdrawing as counsel for RZS. By this
correspondence, Doumar alleged that RZS owed his firm over
$70,000 in fees and expenses, and that, pursuant to Virginia Rule of
Professional Conduct 1.16(b)(4) and (5),2 he was entitled to withdraw
because to continue the representation would constitute a financial
hardship on his firm. On March 31, 2006, Doumar also filed a motion
to withdraw from the representation of RZS in the district court pro-
ceedings underlying this appeal. In the supporting memorandum that
accompanied the motion to withdraw, Doumar contended that it was
a financial burden to continue to represent RZS and that he had
advised RZS to consult with and retain another attorney. Doumar thus
requested that the court grant him and his firm permission to with-
draw, and that the court grant RZS a thirty-day continuance to retain
replacement counsel, if it so desired.
Anticipating the withdrawal of Doumar from the representation of
RZS in the district court proceedings, Deeb began filing pro se plead-
ings on behalf of RZS. For example, on March 13, 2006, before Dou-
mar filed his motion to withdraw, Deeb filed a pro se motion seeking
to lift the stay, to vacate the arbitration award, and to award RZS
damages. PDVSA responded on March 27, 2006, seeking to strike the
pro se pleadings Deeb had filed on behalf of RZS. In an accompany-
ing memorandum, PDVSA contended that the pro se pleadings were
deficient and should be stricken because they violated the principle
2
Virginia Rule of Professional Conduct 1.16(b) provides as follows:
[A] lawyer may withdraw from representing a client if with-
drawal can be accomplished without material adverse effect on
the interests of the client, or if:
***
(4) the client fails substantially to fulfill an obligation to
the lawyer regarding the lawyer’s services and has been
given reasonable warning that the lawyer will withdraw
unless the obligation is fulfilled; [or]
(5) the representation will result in an unreasonable finan-
cial burden on the lawyer or has been rendered unrea-
sonably difficult by the client[.]
RZS HOLDINGS AVV v. PDVSA PETROLEO S.A. 5
that business entities are entitled to appear in federal court only
through licensed attorneys.3
On April 3, 2006, Deeb filed a pro se response in the district court
opposing PDVSA’s motion to strike RZS’s pro se pleadings. In that
submission, Deeb claimed that it was appropriate for him to represent
RZS pro se, in that RZS was a sole proprietorship rather than a part-
nership. In support of this proposition, Deeb relied on a certificate he
had filed with the Clerk of the Circuit Court of Fairfax County on
September 23, 2003, registering RZS as a sole proprietorship and
himself as its sole owner.4 Deeb requested, in the alternative, that if
the court ruled that RZS had to be represented by an attorney, it be
given a reasonable time to secure replacement counsel if Doumar and
his firm were allowed to withdraw.
3
In support of its position that RZS could not proceed pro se, PDVSA
relied on an unpublished Fourth Circuit opinion that adopted the
Supreme Court’s reasoning in Rowland v. California Men’s Colony, Unit
II Men’s Advisory Council, 506 U.S. 194 (1993). See Allied Colloids,
Inc. v. Jaddair, Inc., No. 96-2078, 1998 WL 112719, at *1 (4th Cir. Mar.
16, 1998). The Supreme Court in Rowland recognized that
[i]t has been the law for the better part of two centuries . . . that
a corporation may appear in the federal courts only through
licensed counsel. As the courts have recognized, the rationale for
that rule applies equally to all artificial entities. Thus, save a few
aberrant cases, the lower courts have uniformly held that 28
U.S.C. § 1654, providing that "parties may plead and conduct
their own cases personally or by counsel," does not allow corpo-
rations, partnerships, or associations to appear in federal court
otherwise than through a licensed attorney.
506 U.S. at 201-02 (internal citations omitted).
4
The business form of RZS has been disputed in both the district court
and on appeal. Although RZS now claims that it is a sole proprietorship
owned by Deeb, it has not consistently represented itself as a sole propri-
etorship. In certain prior proceedings, RZS has claimed to be a sole pro-
prietorship, while at other times it has claimed to be a partnership.
Notably, it has been recognized that a sole proprietorship has no legal
existence apart from its owner, and that an individual owner may repre-
sent his sole proprietorship in a pro se capacity. See Lattanzio v.
COMTA, 481 F.3d 137, 140 (2d Cir. 2007). If there is a material dispute
concerning this issue on remand, we leave it to the district court.
6 RZS HOLDINGS AVV v. PDVSA PETROLEO S.A.
On April 11, 2006, PDVSA filed a motion in the district court
seeking to lift the stay of the litigation and to confirm the arbitration
award in its favor. On April 13, 2006, Deeb filed a pro se motion
requesting that Doumar compensate RZS for certain of its costs,
asserting that Doumar and his firm had breached their representation
agreement with RZS. Deeb filed another pro se pleading on April 18,
2006, requesting that the court deny PDVSA’s motion to confirm the
arbitration award and seeking an award of damages for RZS.
On April 25, 2006, Doumar submitted a motion on behalf of RZS
seeking to file, out of time, RZS’s opposition papers to confirmation
of the arbitration award, as well as a memorandum opposing confir-
mation of the award. Thus, two pleadings opposing confirmation of
the arbitration award were submitted to the district court: one by Deeb
appearing pro se for RZS, and the separate motion and memorandum
by Doumar as counsel for RZS.
The critical motions hearing in this case, which had been noticed
by both PDVSA, on its motion to confirm the arbitration award
(served on Doumar), and by Doumar, in connection with his motion
to withdraw (served on counsel for PDVSA), was conducted in the
district court on April 28, 2006. At the outset of the hearing, the court,
without any argument or discussion, orally granted Doumar’s motion
to withdraw. After his withdrawal motion had been granted, Doumar
requested that the court nevertheless allow him to argue the substan-
tive motions on behalf of RZS, in that RZS had not had an opportu-
nity to secure replacement counsel. In response, the court advised
Doumar "[i]t’s you’re in or you’re out. Which do you wish to be?"
J.A. 193.5 When Doumar answered that he was "out," the court sim-
ply responded "goodbye." Id. Having permitted Doumar to withdraw,
the court then refused to consider the pleadings previously filed by
him on RZS’s behalf, including the April 25, 2006 memorandum
opposing confirmation of the arbitration award and the accompanying
motion to file it out of time.6
5
Citations to "J.A. ___" refer to the Joint Appendix filed by the parties
in this appeal.
6
On the day of the hearing, the court formally rejected Doumar’s
motion to file opposition papers on behalf of RZS out of time, declining
RZS HOLDINGS AVV v. PDVSA PETROLEO S.A. 7
The court then turned its consideration to the disposition of the
other pending motions. It orally ruled, again without hearing from the
parties, that "Mr. Deeb does not have the right to file any motions in
this court. He’s not a member of the bar of the court. All of his plead-
ings will have to be stricken." J.A. 194. The court also informed Deeb
and those present that it was prepared to confirm the arbitration
award. Directing its remarks to Deeb, it explained that
[a]s a business person who owns a business, you cannot
appear in federal court. You have to appear by an attorney.
You do not have an attorney, so all the things that you filed
are invalid and will not be considered by the court. I’m pre-
pared now to enter the arbitration award to confirm it.
J.A. 195. When the court asked Deeb if he had anything to say before
the arbitration award was confirmed, Deeb responded "[n]o, your
honor." Id. at 196. The court then briefly addressed why it had
granted Doumar’s motion to withdraw, explaining that, based on the
statements made in Doumar’s and Deeb’s motions, an actual conflict
of interest existed between Doumar and RZS. As a result, the court
deemed it inappropriate for Doumar to file anything on RZS’s behalf.
No mention was made of Doumar’s request on behalf of RZS that it
be accorded a thirty-day continuance to secure replacement counsel,
nor of Deeb’s similar pro se request for a reasonable time to do so.
According to the transcript, the proceedings of April 28 — commenc-
ing at 10:05 a.m. and ending at 10:12 a.m. — consumed a total of
seven minutes.
Judgment was entered in favor of PDVSA on May 10, 2006, and
RZS filed a timely notice of appeal on June 8, 2006. We possess juris-
diction pursuant to 28 U.S.C. § 1291.
to accept the submission by writing on Doumar’s proposed order that
there was "no good cause shown" and that "counsel has an actual conflict
of interest." J.A. 166. Although it is unnecessary for us to pass on the
district court’s rejection of Doumar’s opposition papers, we observe that,
until Doumar was granted permission to withdraw, he remained RZS’s
counsel and was obliged to zealously represent it. See Virginia Rule of
Professional Conduct 1.3 cmt. 2 ("A lawyer shall act with commitment
and dedication to the interests of the client and with zeal in advocacy
upon the client’s behalf.").
8 RZS HOLDINGS AVV v. PDVSA PETROLEO S.A.
C.
On appeal, RZS raises multiple contentions of error. First, it con-
tends that the district court erred in determining that RZS was an arti-
ficial entity that could not represent itself in court. Second, RZS
maintains that the court erred in declining to accept and consider the
April 25, 2006 pleadings submitted by Doumar, on behalf of RZS and
those filed by Deeb pro se. Third, RZS asserts that the court erred,
after striking RZS’s pleadings, in granting an involuntary dismissal of
its claims. Finally, RZS contends that the court should "either have
denied the motion of [Doumar] for leave to withdraw or allowed [it]
some reasonable time . . . within which to obtain new counsel. [The
court] should not have allowed the withdrawal of counsel and imme-
diately thereafter dismissed all of [RZS’s] claims because [it] had no
counsel." Br. of Appellant 17-25.
As explained below, after granting Doumar’s request to withdraw
from his representation of RZS and ruling that Deeb could not pro-
ceed pro se, RZS was unrepresented in the litigation and did not fur-
ther participate in the motions hearing of April 28, 2006. As a result,
the district court conducted an ex parte proceeding, without any
notice thereof to RZS, where it impliedly denied RZS any opportunity
to secure replacement counsel and granted judgment in favor of
PDVSA.
II.
We review a district court’s denial of a continuance to secure
replacement counsel for abuse of discretion. See United States v. Bau-
com, 486 F.3d 822, 827 (4th Cir. 2007). We also review a district
court’s decision to conduct an ex parte proceeding for abuse of discre-
tion, bearing in mind that such proceedings are generally disfavored.
See United States v. Napue, 834 F.2d 1311, 1318 (7th Cir. 1987); see
also Thompson v. Greene, 427 F.3d 263, 269 n.7 (4th Cir. 2005) (cit-
ing Doe v. Hampton, 566 F.2d 265, 276 (D.C. Cir. 1977)). By defini-
tion, a district court abuses its discretion when it makes an error of
law. See United States v. Ebersole, 411 F.3d 517, 526 (4th Cir. 2005).
III.
The motions hearing underlying this appeal, which was conducted
in the district court on April 28, 2006, consisted of two distinct parts.
RZS HOLDINGS AVV v. PDVSA PETROLEO S.A. 9
The first part was properly noticed and of an adversarial nature (the
"Adversarial Part"), consisting of the period from the beginning of the
hearing until the court ruled that Deeb could not appear pro se for
RZS. During the Adversarial Part of the hearing, the court ruled that
Deeb’s pro se pleadings should be stricken, because he could not
appear pro se on behalf of RZS. During the second part of the hearing
(the "Nonadversarial Part") — consisting of the period from the
court’s ruling that Deeb could not represent RZS pro se until the hear-
ing adjourned — the court explained why it had allowed Doumar to
withdraw, ruled against RZS on the merits of the case, and confirmed
the arbitration award. The court then entered judgment in favor of
PDVSA, failing to address and effectively denying RZS’s requests for
a continuance to secure replacement counsel.
On this record, the Nonadversarial Part of the motions hearing was
conducted on an ex parte basis. Neither Doumar nor Deeb was per-
mitted to speak on behalf of RZS concerning the merits of the motion
to confirm the arbitration award, leaving RZS with no representation
during the Nonadversarial Part of the hearing and thus no presence
there. As a result, the only party present and participating in the Non-
adversarial Part of the hearing was PDVSA.
It is settled beyond peradventure that, in our system of justice, ex
parte judicial proceedings, such as that which occurred in the Nonad-
versarial Part of the April 28, 2006 hearing, are greatly disfavored.
The conduct of such proceedings present substantial due process con-
cerns, and our courts are necessarily and properly reluctant to partici-
pate in them. Indeed, under the Code of Judicial Conduct for United
States Judges, Canon 3(A)(4), a judge "should . . . neither initiate nor
consider ex parte or other communications concerning a pending or
impending proceeding." And, as our Court has aptly recognized, "‘as
a general rule, ex parte communications by an adversary party to a
decision-maker in an adjudicatory proceeding are prohibited as funda-
mentally at variance with our conceptions of due process.’" Thomp-
son v. Greene, 427 F.3d 263, 269 n.7 (4th Cir. 2005) (quoting Doe
v. Hampton, 566 F.2d 265, 276 (D.C. Cir. 1977)). Research confirms
that our sister circuits concur in this view of such proceedings, and
several of the courts of appeal have elaborated on this bedrock princi-
ple. See United States v. Napue, 834 F.2d 1311, 1318 (7th Cir. 1987)
(concluding that ex parte communications "should be avoided when-
10 RZS HOLDINGS AVV v. PDVSA PETROLEO S.A.
ever possible"); United States v. Thompson, 827 F.2d 1254, 1258-59
(9th Cir. 1987) (concluding that departures from general rule disfa-
voring ex parte communications must have compelling justification
such as need to act quickly or keep sensitive information from oppos-
ing party); In re Paradyne Corp., 803 F.2d 604, 612 (11th Cir. 1986)
(explaining that ex parte hearings are disfavored because they conflict
with fundamental precept of our system of justice — that fair hearing
requires "reasonable opportunity to know the claims of the opposing
party and to meet them"), cited with approval in United States v.
Microsoft Corp., 56 F.3d 1448, 1464 (D.C. Cir. 1995).
The Seventh Circuit’s discussion in Simer v. Rios, 661 F.2d 655
(7th Cir. 1981), is informative. In analyzing an ex parte communica-
tion issue, the court recognized that "[t]he essence of procedural due
process is notice and an opportunity to be heard." 661 F.2d at 679
(citing Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306,
313-14 (1950) (observing that right to be heard "has little reality or
worth unless one is informed that the matter is pending and can
choose for himself whether to appear or default, acquiesce or con-
test")); see also United States v. Minor, 228 F.3d 352, 356 (4th Cir.
2000) (recognizing adequacy of notice as "a matter of obvious consti-
tutional magnitude"); Elmco Props., Inc. v. Second Nat’l Fed. Sav.
Ass’n, 94 F.3d 914, 920-21 (4th Cir. 1996) (explaining that parties
must be given constitutionally adequate notice). Under Simer, our
analysis should focus, first, on the parties’ opportunity to participate
in the court’s decision and, second, on whether the ex parte proceed-
ings were unfairly prejudicial. See 661 F.2d at 679. In Simer, even
though there had been an ex parte communication, the excluded party
was accorded an opportunity to respond by way of oral argument and
legal memoranda. Id. The Seventh Circuit thus found no prejudice
from the ex parte communications, in that the potentially affected
party had been accorded a full opportunity to participate before the
trial court issued its ruling. Id. at 679-80.
In this matter, the Nonadversarial Part of the hearing of April 28,
2006, was not, on this record, justified by the circumstances. This liti-
gation had been ongoing for three years, and there was no notice that
the merits of the case would be heard and considered ex parte. Even
if the district court had not contemplated conducting an ex parte pro-
ceeding on that occasion, it nevertheless did so, after ruling that Dou-
RZS HOLDINGS AVV v. PDVSA PETROLEO S.A. 11
mar could withdraw and that Deeb could not proceed pro se. Upon
striking the pleadings Deeb had filed, and after declining to accept
Doumar’s submission for RZS in opposition to confirmation of the
arbitration award, PDVSA’s motion to confirm the award was unop-
posed. And with no opposition papers in the record, and RZS not
present, the arbitration award was confirmed by the court.
In these circumstances, RZS was denied its due process right to
meet and oppose the claims of PDVSA, and to otherwise participate
in the resolution of the merits of this case. If RZS had been present
during the Nonadversarial Part of the hearing, or if the court had
accorded RZS some reasonable opportunity to seek replacement
counsel, RZS is likely to have exercised its right to oppose confirma-
tion of the arbitration award. It was unable to do so, however, and the
Nonadversarial Part of the hearing resulted in a final judgment against
RZS. In such circumstances, the district court committed prejudicial
error, abusing its discretion in failing to grant RZS a reasonable con-
tinuance to secure replacement counsel and in conducting an ex parte
proceeding on the merits of the case.7
IV.
Pursuant to the foregoing, we vacate the district court’s judgment
in favor of PDVSA and remand for such other and further proceed-
ings as may be appropriate.
VACATED AND REMANDED
7
Because we vacate and remand on the basis of the ex parte proceed-
ings, we need not reach or assess the other contentions presented by
RZS. If any of those issues are relevant on remand, we are content to
leave them to the district court.