Tag Archives | Hague Evidence Convention

Case of the Day: Wultz v. Bank of China

By on May 15, 2013 in Hague Evidence Convention

The case of the day is Wultz v. Bank of China Ltd. (S.D.N.Y. 2013). We first considered this case in November 2012. Here was my description of the facts from the prior post:

In 2006, Daniel Wultz was killed, and Yekutiel Wultz injured, in a suicide bombing in Tel Aviv. Members of the Wultz family sued the Bank of China, alleging that the bank had violated the Antiterrorism Act, 18 USC § 2333, and that it was guilty of negligence etc.

In the earlier decision, the judge ordered the bank to produce documents under the FRCP rather than requiring resort to the Hague Evidence Convention, notwithstanding the bank’s invocation of China’s bank secrecy laws. The only exception the judge established was for “confidential regulatory documents created by the Chinese government whose production is clearly prohibited under Chinese law.” The judge’s order, however, “had little effect.” As the judge noted, “it eventually became clear that BOC was refusing to produce the requested Chinese documents not only based on the bank secrecy laws … but also based on other laws, including laws primarily concerned with combating money laundering and other illegal financial transactions.”

The judge conducted another hearing and issued another order finding that the bank would not be required to produce communications from the bank to the Chinese government “whose disclosure is specifically and categorically prohibited under” Chinese anti-money laundering laws and similar laws. But she invited further briefing.

The Bank offered expert opinion testimony to prove that under China’s state secrets law and its anti-money laundering legislation, it was forbidden to disclose the documents. The judge had concerns about the testimony on the grounds that it was “for the most part not based on empirical evidence of how the laws he discusses have (or have not) been implemented,” but instead “on interpretations of the general, abstract language of Chinese laws and regulations, supplemented by his own considerations of policy.” Nevertheless, the judge found that on balance, it was more likely than not that Chinese law did forbid the Bank from producing the documents, pointing in particular to Article 15(2) of the anti-money laundering law, which provides:

Financial institutions and their staff shall keep confidential … suspicious transaction reports, their cooperation with the PBOC in the investigation of suspicious transactions[,] and other information related to anti-money laundering activities, which shall not be provided to clients or others in violation of regulations.

Thus the question was whether, under Aérospatiale, production of the documents should be compelled even though it would be illegal under Chinese law. The judge considered that if the documents are not produced, there might be no other way for the plaintiffs to prove that the BOC had notice that some of its accounts were being used to fund the terrorist organizations that were responsible for the terrorist attack. On the other hand, China has an interest in enforcement of its anti-money laundering laws, which are aimed in part at depriving terrorist organizations of funding. And requiring production of documents that China considers to be state secrets could offend China’s sovereignty. The judge also considered that the BOC had tried to avoid its discovery obligations in bad faith, since it had failed to comply with earlier discovery orders and taken bad-faith interpretations of those earlier orders.

Weighing the factors, and “recogniz[ing] the seriousness” of her decision, the judge granted the motion to compel in part. In particular, it compelled production of communications from the Chinese government to the BOC relating to the accounts and the account-holder in question, and it compelled production of documents concerning anti-money laundering problems at the Bank’s Guangdong branch and at the head office for a certain period of time.

The judge went out of her way to indicate that the result would have been the same wherever in the world the bank was located, and that in similar circumstances foreign courts could expect the aid of US courts in obtaining such records from US banks. It remains to be seen whether China will be mollified by such sentiments.

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Case of the Day: United States v. Badger

By on April 12, 2013 in Hague Evidence Convention, Uncategorized

The case of the day is United States v. Badger (D. Utah 2013). In 2004, the defendant, George Badger, had consented to entry of a judgment against him in a case brought by the SEC. The claim in the case was that Badger had bribed brokers to induce them to sell stock in his golf course development to their clients. The judgment was for $19 million, of which Badger had voluntarily paid $2,228. (The government had collected an additional $13,000 by garnishment). With interest, the amount outstanding was $32 million.

The government brought a second action against Badger and his wife, the SB Trust, Ardco Leasing & Investment LLC, American Resources and Development Co., and Springfield Finance and Mortgage Co. The claim was that the other defendants were Badger’s nominees and alter egos and that their assets should be available to satisfy the judgment.

The government sought issuance of a letter of request to obtain discovery from Miltex, Banque SCS, and Camille Froidevaux, all in Switzerland; according to the government, Badger “has used them as nominees to funnel money into the United States.” Badger and the other defendants opposed the motion on the grounds that “Swiss law will prevent [the government] from obtaining the discovery it seeks.”

The judge’s discussion of the general law of letters of request is not recommended: he says, incorrectly, that he is being asked to issue a letter of request pursuant to 28 U.S.C. § 1782, and he seems to say that the Hague Evidence Convention is the sole mechanism by which a court can issue a letter of request. But the judge properly dispatched Badger’s argument. I assume Badger’s argument is a reference to Article 271 of the Swiss Penal Code, which makes it illegal in Switzerland to “carr[y] out activities on behalf of a foreign state on Swiss territory without lawful authority, where such activities are the responsibility of a public authority or public official.” Article 271 curtails the ability of a US court to order a Swiss party to provide discovery under the FRCP, but the whole point of the Hague Convention is to allow the US court to request the Swiss authorities themselves to compel the evidence, so I question whether Badger’s argument has any real force. In any case, the judge found that Badger had failed to persuade him that the evidence would not be produced, and “mere speculation about whether Plaintiff will in fact obtain the desired discovery does not constitute good cause” to refuse to issue a letter of request.

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Case of the Day: Wultz v. Bank of China

By on November 27, 2012 in Hague Evidence Convention

The case of the day is Wultz v. Bank of China (S.D.N.Y. 2012). In 2006, Daniel Wultz was killed, and Yekutiel Wultz injured, in a suicide bombing in Tel Aviv. Members of the Wultz family sued the Bank of China, alleging that the bank had violated the Antiterrorism Act, 18 USC § 2333, and that it was guilty of negligence etc.

In 2011, the Wultzes served a request for production of documents on the bank seeking documents relating to acounts relating to Said al-Shurafa, allegedly the leader of the Palestinian Islamic Jihad, the group responsible for the bombing, and other documents. The bank refused to comply, citing China’s bank secrecy laws. The Chinese bank regulator, the People’s Bank of China, indicated, however, that Chinese judicial authorities would provide reasonable assistance in response to a proper request under the Hague Evidence Convention.

Accordingly, the bank asked the court to issue a letter of request, and the judge agreed. However, more than a year passed and the court received no response from the Chinese central authority. After several more months of delay, the judge issued an order setting a deadline for production of all documents. Ultimately the Wultzes moved to compel.

The judge conducted an Aerospatiale analysis to determine whether discovery from the Bank had to be taken pursuant to the Convention rather than the FRCP. The judge undertook this analysis in the shadow of cases such as Tiffany v. Qi, in which the court ordered the Bank of China to produce documents under the FRCP over a claim that production would violate Chinese law and where the Bank was not a party. “The fact that in the instant case [the Bank] is a party doing business in the United States, and that some of the requested discovery may be physically present in the United States at [the Bank's] New York branches, makes the case for compelling production even stronger.” The judge also noted that in the earlier cases such as Qi, it appeared that China had not sanctioned the Bank for obeying US discovery orders, though the Chinese government did, the Bank claimed, give a “severe warning.”

With these thoughts in mind, the judge turned to the Aerospatiale factors. The importance to the action of the categories of documents requested was undisputed, though the judge agreed with the Bank that certain requests were overbroad. In particular, the judge held that the requests were overbroad “to the extent [they] call for the production of confidential regulatory documents created by the Chinese government whose production is clearly prohibited under Chinese law.” Such documents raise particular sovereignty and comity concerns. Overall, the first and second factors—the importance of the documents to the case and the specificity of the requests—weighed in favor of production once the requests were suitably narrowed.

At least some of the documents originated in China. Thus the third factor weighed against production.

The fourth factor considers the availability of alternate means of obtaining the information. The Bank pointed to a consensus between the United States government and the Chinese government that bilateral means such as the Hague Evidence Convention were in general to be preferred to unilateral means. The judge agreed in general with the governments’ consensus view, but he concluded that China was construing its obligations under the Convention too narrowly and failing to produce documents relevant to US litigation. Moreover, the long delay in this case—more than a year—made it difficult to see the Convention as a reasonable alternative. This factor thus weighed in favor of production.

The fifth factor weighs the competing national interests. The United States had a compelling interest in combating terrorism by disrupting the financial networks that finance terrorism. China asserted an interest in the development of its banking industry through the enforcement of its banking secrecy laws. But the judge concluded that “the Chinese interest in building confidence in its banking industry does not encompass an interest in protecting the confidentiality of those who participate in the funding of international terrorism.” Thus the judge held that this factor weighed in favor of production.

The Second Circuit considers additional factors not present in Aerospatiale itself, namely hardship and the good faith of the party resisting discovery. In light of the lack of sanctions for violation of the Chinese bank secrecy law and the fact that the New York offices of the Bank are branches rather than separate corporations and thus that the Bank has control of the documents held by the branches, the judge found no hardship. The judge found that the bank, by refusing to undertake a search of its electronic records until the requests were narrowed, had acted wrongly, but she refused to find that the bank had acted in bad faith.

Weighing all these factors, the judge ordered discovery. Although the judge’s discussion was thorough and detailed, in the end, this case seems to be just another example of the general US approach to document discovery of foreign parties notwithstanding foreign bank secrecy laws.

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