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.

The Case for Integrating Asset Recovery in Legal Education

In 2011, David Quinones wrote an article for the now-defunct International Association for Asset Recovery titled “Asset Recovery: They Don’t Teach This Stuff in College. Or Do They?”  The article showcased a “groundbreaking class” taught at George Washington University entitled “International Money Laundering, Corruption, and Terrorism,” which also provided an overview of Asset Recovery.  The class, taught by Jack Smith–an accomplished government lawyer who headed the legal department of three U.S. federal agencies–and Tom Lasich–a former director of training at the prestigious Basel Institute on Governance’s International Centre for Asset Recovery–was one of the few classes providing law students with the tools to understand asset recovery and the practical realities of the field.  

Asset Recovery: An Unexplored Topic in Legal Education

More than 10 years later, Smith and Lasich’s class continues to be a rarity in legal education, despite the fact that the field of asset recovery has emerged as a critical area of practice. Whether stemming from financial crimes, corruption, or fraudulent activities, the recovery of assets plays a pivotal role in upholding the rule of law, combating illicit activities, and restoring justice to victims. 

The past few years saw an increase in training opportunities available to established practitioners.  Smith and Lasich built out their computer-based asset recovery exercise to offer international workshops and training sessions on the same topic through the Repatriation Group, and a soon-to-be launched video game: “Follow the Money.”  Professionals can access post-graduate training internationally, including through the Basel Institute’s training opportunities, Queen Mary University of London’s International Asset Tracing and Recovery Course (taught on three consecutive Tuesdays every November in London by practitioners, including Gary Miller of Mishcon de Reya), OPDAT’s Anticorruption and Asset Recovery course in Hungary for senior criminal justice professionals, opportunities to study asset recovery in law school remain rare. 

At a JD-level in the United States, the American University’s Washington College of Law’s Anti-Corruption Summer Law Program gives their students the opportunity to study asset recovery as a tool for combating corruption. Otherwise, some basic concepts of judgment enforcement and asset recovery are sometimes taught as part of conflicts of law classes (for example, at American and UVA), or as part of insolvency-focused courses (for example, at Washburn Law School). 

Bridging the Gap: The Need for Asset Recovery Education

In recent years, there has been a growing recognition of the importance of asset recovery in the global fight against financial crime and corruption. Governments, international organizations, and civil society have intensified efforts to recover stolen assets and hold perpetrators accountable. Further growth has been caused by an increase in distressed or non-performing assets, most famously including defaulted-on sovereign debt instruments.  However, the effectiveness of asset recovery efforts often hinges on the availability of skilled professionals with expertise in this specialized field. Litigation and prosecution, without perspective on whether a remedy can be obtained, is simply firing blanks.

Law schools play a pivotal role in preparing the next generation of legal practitioners to address the complex challenges associated with asset recovery. By integrating asset recovery education into their curricula, law schools can bridge the gap between theoretical knowledge and practical skills, equipping students with the tools and insights needed to navigate this multifaceted domain. 

Smith and Lasich’s class is a prime example of how law schools can creatively teach asset recovery in a way that combines theoretical knowledge and practical skills.  The 2011 article explained that “[t]he class devote[d] a five week chunk to a theoretical case study. Students [we]re given fact patterns and allowed to let the case develop, while Smith and Lasich toss real-life curveballs like uncooperative entities and lack of political will into the equation. Students gather[ed] 55 pieces of evidence and [we]re called upon to analyze spreadsheets, statements and multiple other documents. The students make all their own decisions, receiving only general guidance from the professors.”  

Asset recovery thus represents a great opportunity for law schools to build a course that would help students apply many theoretical concepts studied and practice their legal skills on real-world scenarios, including legal research, analysis, drafting, negotiations, and advocacy.  Students can research the laws related to executing on judgments or obtaining prejudgment attachments, develop an understanding of sovereign immunity, draft Section 1782 petitions in aid of foreign proceedings, and learn to understand and see through corporate structures meant to obscure ownership.  

A comprehensive asset recovery curriculum would also promote interdisciplinary learning, giving law students a peek into the world of finance, accounting, investigations and international relations.  Teaching asset recovery in law schools can encourage students to engage with global legal frameworks, international treaties, and cross-border legal issues, preparing them for a career in an interconnected world.

Practical Approaches to Teaching Asset Recovery

Integrating asset recovery into law school curricula can take various forms, including dedicated courses, seminars, workshops, and experiential learning opportunities. In addition to developing specialized courses or modules focused on asset recovery and touching on topics such as asset tracing, forfeiture proceedings, restitution, recovery mechanisms, and international cooperation, law schools can provide practical learning opportunities.

Examples of such opportunities include: (a) case studies and simulations, which would incorporate real-world case studies and simulations into coursework allows students to apply theoretical concepts to practical scenarios, honing their problem-solving skills and critical thinking abilities; (b) guest lectures and practitioner insights, which can provide students with valuable insights into the practical challenges and strategies involved in asset recovery efforts; or (c) internships, externships, or clinical programs focused on asset recovery, which can enable students to gain hands-on experience under the guidance of experienced professionals.

Teaching asset recovery in law schools is essential for preparing future legal practitioners. By integrating asset recovery education into their curricula, law schools can enhance students' legal skills, foster interdisciplinary learning, and encourage global engagement. Through practical approaches such as dedicated courses, case studies, guest lectures, and experiential learning opportunities, law schools can equip students with the knowledge, skills, and insights needed to make a meaningful impact in the field of asset recovery and contribute to the pursuit of justice and accountability on a global scale.

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."