S.D.N.Y. Allows Discovery from Correspondent Banks under Section 1782

On December 30, 2024, Judge Ho of the U.S. District Court for the Southern District of New York granted in part a renewed application under Section 1782 seeking evidence for use in proceedings before the High Court of the Hong Kong Special Administrative Region Court of First Instance (the "Hong Kong Proceeding"). In the same opinion, Judge Ho denied the intervenors'--defendants in the Hong Kong Proceeding--motion to vacate the Court's earlier order partially granting an original application.

The opinion attracted our attention because petitioners sought discovery from correspondent banks in order to trace misappropriated funds which were part of certain transactions made by the intervenors. In relation to the original application, the Court allowed discovery as to seven banks, but denied it as to other seven banks (the "Challenged Banks"). The latter are the subject of the renewed petition.

The Court had originally found that it lacks jurisdiction over the Challenged Banks. In the renewed application, petitioner argued that the Court had general jurisdiction over four of the Challenged Banks and, in any event, had specific jurisdiction over all of them.

The Court agreed that it has general jurisdiction over three of the four Challenged Banks, which admitted to maintaining their headquarters in the Southern District of New York. As to the fourth bank, the Court found that petitioner had failed to show that the Court had general jurisdiction because it was a foreign bank with a branch in New York and the petitioner did not present any evidence that this is an exceptional case where the bank's "operations in [this] forum ... [are] so substantial and of such a nature as to render the corporation at home.”

The Court moved on to analyzing petitioner's argument that the Court had personal jurisdiction over the remaining Challenged Banks because the "discovery material sought proximately resulted from the respondent[s'] forum contacts." Under SDNY precedent, from In re del Valle Ruiz, 939 F.3d 520, 530 (2d Cir. 2019), the respondent "purposefully avail[ing] itself of the forum must be the primary or proximate reason that the evidence sought is available at all." The Court found that to be the case as to the banks which cleared U.S. dollar transactions through their New York office and where the intervenors held an account. To the contrary, the Court found that it lacked jurisdiction over the remaining correspondent banks where the only allegations were that "their New York branches serve as correspondent banks for [a bank in China] and because 'major banks in HK use [their branches] in New York as their correspondents for U.S. dollar transfers." Petitioner's general allegations, without identifying any actual transactions where the remaining correspondent banks' branches served as intermediaries, were not sufficient for a finding of specific jurisdiction.

The Court summarized:

Put differently: (1) Applicant identifies no transaction where Wells Fargo and/or Bank of America served as an intermediary in a transaction to or from Industrial and Commercial Bank of China, and (2) while it is true that some banks in Hong Kong use New York branches of Wells Fargo and Bank of America as correspondents for U.S. dollar transfers, Applicant points to no specific alleged transactions where these banks’ New York branches may have served as intermediaries.

The Court also reminded the litigants of other SDNY precedent that should have warned them of their weak basis for specific personal jurisdiction when lacking any evidence that the respondents are the correspondent banks for any banks at which the foreign defendants had accounts. See  In re Litasco SA, 2023 WL 8700957, at *2 (S.D.N.Y. Dec. 15, 2023).

The opinion will serve as a guide for future petitioners in crafting their application and bringing it in a venue with jurisdiction over the correspondent banks.

The case is In re Application of, Golden Meditech Holdings Ltd., No. 24 MISC. 24 (DEH), 2024 WL 5247285 (S.D.N.Y. Dec. 30, 2024). The petitioner was represented by Kellner Herlihy Getty & Friedman, LLP. The intervenors were represented by Quinn Emanuel Urquhart & Sullivan LLP.

Unraveling the Veil: Asset Recovery in Delaware

Delaware, renowned for its favorable corporate laws and business-friendly environment, also serves as a key jurisdiction for asset recovery endeavors. Delaware's robust legal framework, coupled with its reputation as a corporate haven, makes it an attractive destination for those seeking to uncover hidden assets, unravel complex financial schemes, and pursue justice in the face of fraud or wrongdoing.

The Delaware Advantage: A Hub for Corporate Entities

Delaware's allure as a corporate hub stems from its business-friendly legal system, well-established case law, and specialized courts, such as the Delaware Court of Chancery, renowned for its expertise in corporate matters. The state's flexible corporate statutes, including the Delaware General Corporation Law (DGCL), provide businesses with a conducive environment for incorporation, offering benefits such as:

• Corporate Flexibility: Delaware's corporate laws afford significant flexibility in corporate governance structures, allowing entities to tailor their organizational frameworks to suit their specific needs.

• Favorable Tax Treatment: Delaware imposes no corporate income tax on companies that are formed in the state but do not conduct business there. This tax advantage has made Delaware an attractive domicile for many businesses, including those with complex corporate structures.

• Business-friendly Courts: Delaware's specialized courts, particularly the Court of Chancery, are renowned for their expertise in corporate law matters and efficient dispute resolution processes. The court's extensive case law and experienced judiciary make it an ideal venue for complex asset recovery cases.
  

Asset Recovery in Delaware: Uncovering Assets

Delaware's status as a corporate hub also makes it a prime destination for asset recovery efforts. In cases involving financial misconduct, fraud, or embezzlement, perpetrators often utilize complex corporate structures and offshore entities to conceal illicitly acquired assets. Asset recovery professionals, including forensic accountants, investigators, and legal experts, leverage Delaware's legal framework and resources to uncover hidden assets and pursue recovery proceedings.

Key Strategies for Asset Recovery in Delaware:

• Corporate Records Investigation: Delaware's Division of Corporations maintains extensive records of registered entities, including corporations, limited liability companies (LLCs), and partnerships. Conducting thorough corporate records investigations can reveal the ownership structures and affiliations of entities involved in asset concealment schemes.

• Litigation in Delaware Courts: Asset recovery proceedings often involve litigation in Delaware courts, particularly the Court of Chancery. Legal remedies such as attachment orders, injunctive relief, and fraudulent transfer actions may be pursued to freeze assets, prevent dissipation, and recover misappropriated funds.

• Collaboration with Legal Experts: Collaborating with legal professionals who specialize in Delaware corporate law and asset recovery is essential for navigating the intricacies of the state's legal system. Experienced attorneys can provide invaluable guidance on legal strategies, procedural requirements, and enforcement mechanisms.
  

In the pursuit of justice and accountability, asset recovery efforts in Delaware play a crucial role in unraveling the complexities of financial misconduct and corporate malfeasance. Leveraging Delaware's favorable legal framework, specialized courts, and expertise in corporate matters, asset recovery professionals strive to uncover hidden assets, dismantle fraudulent schemes, and restore misappropriated funds to their rightful owners.