The case of the day is Ahmad Hamad Algosaibi & Brothers Co. v. Standard Chartered International (USA) Ltd. (S.D.N.Y. 2011). While the New York case involved a request for judicial assistance, the underlying case, pending in the Cayman Islands and in Saudi Arabia, is a colorful tale of alleged fraud.
AHAB, a Saudi Arabian general partnership controlled by the Algosaibi family, was the exclusive distributor of Pepsi in the eastern province of the country. Maan Al Sanea married into the Algosaibi family and obtained control of AHAB Money Exchange Commission and Investment, which provided remittance and currency exchange services. He also controlled the Saad Group of companies, including Saad Investments Company, and two banks, Awal Bank and The International Banking Corporation. Al Sanea “allegedly controlled [the Money Exchange] without AHAB’s knowledge.”
AHAB conducted an investigation that concluded that AHAB “had been massively defrauded by Al Sanea and his companies.” According to the investigation, Al Sanea “allegedly had used AHAB’s name to borrow billions of dollars from banks and other financial institutions using hundreds of forged documents without the consent or knowledge of AHAB or its individual partners.” Al Sanea allegedly used some of the proceeds “to pay back previously obtained loans to maintain the Ponzi scheme”, with the rest “transferred via the Money Exchange to the accounts of Saad Group companies.” Yikes!
The banks that believed they had been making loans to AHAB demanded repayment. AHAB sued Al Sanea and various companies under his control in the Cayman Islands for fraud, breach of fiduciary duty, etc. Meanwhile, in a remarkable display of chutzpah (if they have chutzpah in Saudi Arabia), TIPC sued AHAB in Saudi Arabia for breach of various commercial agreements.
AHAB sought judicial assistance in New York to obtain records from the banks in order to establish the fraud. The banks resisted discovery on the grounds that the real purpose of the discovery was to set up a future litigation by AHAB against the banks, and thus that the documents sought were not “for use in” the foreign proceedings, as the statute requires. But Judge Rakoff dismissed this argument on the grounds that as long as the documents were relevant to the foreign proceedings (which they plainly were), the possibility that they might be used in another proceeding was immaterial.
Judge Rakoff required AHAB to pay 100% of the costs of the discovery. This seems a little too stringent to me. Under Rule 26(c)(1), the question is whether the banks are facing undue expense, not whether they will incur any expense. It’s true that the requests were broadly framed, covering an eleven-year span and calling for the production of records not just of the main entities involved, but of “any current or former owner, partner, director, officer, employee, agent, representative, or other person acting or purporting to act on [the entity’s] behalf.” But the judge recognized that the request was appropriate in the context of the case: “[T]he Court recognizes that AHAB is litigating a complex fraud case and that in orer to establish that Al Sanea’s allegedly fraudulent bank transferrs occurred, AHAB may need documentation of the transfers from the respondent banks.” So perhaps the judge should have picked a number less than 100%.