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.

Section 1782 Update - April 2024

April has been an eventful month in terms of Section 1782 litigation, including as it applies to asset recovery proceedings. For more details and updates on Section 1782 applications, follow Section 1782 Updates on LinkedIn.

In Re Application of Banco Sistema S.A., No. 23-21868-MC, 2024 WL 1826609 (S.D. Fla. Apr. 24, 2024). 

The United States District Court for The Southern District of Florida denied a motion to quash a subpoena served pursuant to a Section 1782 petition in aid of asset recovery proceedings in Brazil. Petitioner explained that "under Brazilian law, a creditor that has a claim for a sum certain based on an enforceable instrument may proceed directly to collection of the debt by initiating an enforcement proceeding in court (an “ação de execução” in Portuguese)," and with limited assets discovered in Brazil, Petitioner moved to discover assets outside of the country's borders. The Court rejected intervenors' argument that this discovery is entirely premature, explaining that section 1782 “does not purport to impose a requirement that a foreign proceeding be at a certain stage prior to discovery being granted," but that “courts should err on the side of ordering discovery, since foreign courts can easily disregard any material that they do not wish to consider.” 

The Court also reminded litigants that once a Section 1782 application is granted, the discovery is governed by Rules 26-36 of the Federal Rules of Civil Procedure, and not by Rule 69.  Reed Smith represented the petitioner in this successful action.

In re Ex Parte Application of Nokia Technologies Oy & Alcatel Lucent SAS, No. CV 23-01395-GBW, 2024 WL 1675025 (D. Del. Apr. 18, 2024). 

The District Court for the District of Delaware denied Nokia and Alcatel-Lucent SAS's Section 1782 application in relation to a patent litigation in Germany against Amazon. Although it found that the application satisfied the statutory requirements, the Court exercised its discretion to deny the application under the Intel factors, specifically because Amazon is a party to the German litigations--both pending and proposed. The Court viewed Nokia and Alcatel's petition as "an attempt to circumvent proof-gathering restrictions in the German courts because Nokia has not requested discovery from Amazon in those proceedings." The Court explained that since Section 1782 does not have an exhaustion requirement that would require a party to seek discovery abroad first, "[o]n balance, the Court finds that Nokia's failure to attempt discovery in Germany indicates an attempt to circumvent the German courts’ discovery rules, but not a 'surreptitious' effort to do so. Thus, the Court finds that this factor weighs slightly against granting Nokia's application." The Court also found the request burdensome. 

In re Quadre Invs., L.P., No. 3:23-MC-00037-MEG, 2024 WL 1550381, at *3 (D. Conn. Apr. 10, 2024).

The District of Connecticut entered an order finding the non-responsive target of a Section 1782 subpoena in contempt and ordering that he be "fined $300 per day until he complies fully with the ... Order [ordering compliance with the subpoena]" and, if "after 30 days from the date of the Court's Order, Respondent has still not complied with the Court's ... Order [ordering compliance with the subpoena], ... a U.S. Marshal shall be directed to locate Respondent, take him into custody, and deliver him to Court to respond to the November 14 Order." 

In re Municipality of Mariana, No. 1:23-mc-00033-KWR, 2024 WL 1434792 (D.N.M. Apr. 3, 2024).

The US District Court, District of New Mexico denied a motion to quash an order granting the Municipality of Mariana Section 1782 application seeking discovery from a resident of Santa Fe in aid of an English proceeding pursuing losses and damages arising from the 2015 collapse of the Fundao Dam in Brazil.

"To establish these claims, Claimants seek discovery of evidence related to Defendants’ supervision, management, funding, control of, and profits generated from the Brazilian-English joint venture behind the Fundao Dam, Samarco Mineracao SA ('Samarco'), and BHP's knowledge of the risks posed by the dam. Id. Marcus Randolph, then-Chief Executive of BHP's Ferrous and Coal Customer Sector Group, was a member of the BHP Group Management Committee, the most senior executive body of BHP, focusing on leadership and strategic advice to the BHP Group and its CEO from 2007 to 2013. Id. at 2-3. Marcus Randolph served on Samarco's board of directors from 2007 to 2013 as a member, chairman, and vice chairman."

Nevertheless, Randolph sought "to quash the subpoenas, arguing they are at odds with § 1782’s express prohibition against compelling testimony in violation of a legally applicable privilege," specifically his Fifth Amendment right to not "be compelled in any criminal case to be a witness against himself.” 

The Court refused to "accept Respondent's blanket assertion of privilege" because "Respondent has not argued that his privilege against self-incrimination applies to specific documents or specific deposition questions. Rather, Mr. Randolph seeks a wholesale assertion of privilege against Claimants’ discovery requests. Asserting a Fifth Amendment right based on a blanket claim of privilege is impermissible." The Court thus concluded that "Mr. Randolph's fear of incrimination in Brazil remain[ed] 'remote or speculative,' especially since the criminal charges he faced in Brazil have been dismissed and is not currently facing criminal charges there."

Responded also argued that the parallel concepts in English and Brazilian law protect him from disclosure, but the Court similarly found that "Mr. Randolph has not established beyond speculation that English courts would reject the discovery sought" by reason of "the English protections against self-incrimination."

Stati Brothers Ask SDNY to Vacate Ex Parte Order and Quash Subpoena

The Moldovan Stati brothers, along with related entities (the "Intervenors"), intervened in a Section 1782 matter initiated by Kazakhstan to ask the Southern District of New York on April 6 to vacate an ex parte order and quash a subpoena seeking financial discovery of financial transactions from The Clearing House Payments Company L.L.C related to the Intervenors “during the last seven years” to use in ongoing foreign proceedings.

The Intervenors argued that the discovery sought by Kazakhstan was "not in aid of a foreign proceeding, as required under 28 U.S.C. § 1782[, but r]ather, ... an improper fishing expedition filed in advance of yet another round of contemplated litigation in the U.S." The Intervenors explain that although Kazakhstan claims to seek discovery in order to supports its allegations of fraud in relation to the Intervenors obtaining an arbitration award back in 2013, the financial information sought "goes back, at most, seven years, to 2016." The Intervenors further pointed out that Kazakhstan has recently filed a new action in the District of Columbia arguing that the Intervenors have obtained the 2013 award through fraud, thus proving that "the Petition in this case was in furtherance of a U.S. proceeding."

The Intervenors also ask the Court to reject Kazakhstan's claim that the information is needed “to locate the Statis’ assets to execute on cost orders” because "clear, binding caselaw from the Second Circuit Court of Appeals prohibit[s] § 1782 relief for exactly this kind of request." The Intervenors referred to Euromepa, S.A. v. R. Esmerian, Inc., 154 F.3d 24 (2d Cir.1998) and Jiangsu Steamship Co. v. Success Superior Ltd., No. 14 CIV. 9997 CM, 2015 WL 3439220, at *4 (S.D.N.Y. Feb. 5, 2015) to support their position that “[n]either pre-judgment attachment nor post-judgment proceedings are adjudicative in nature” and thus Section 1782 cannot be used to propound discovery in such cases.

The case is In re Application of the Republic of Kazakhstan for Order Directing Discovery from The Clearing House Payments Company L.L.C. Pursuant to 28 U.S.C. § 1782, No. 1:22-mc-00367-JPO. The Intervenors are represented by Berenice Le Diascorn and Thomas Vandenabeele of Kellner Herlihy Getty & Friedman, LLP.

The Motion to Vacate can be downloaded below.

Kazakhstan - Stati Mot to Vacate.pdf

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