Case of the Day: In re Finserve Group Ltd.

The case of the day is In re Finserve Group Ltd. (D.S.C. 2011). Finserve is an investment company incorporated in the British Virgin Islands. Its principal is Vladimir Volpert, who resides in Russia. Volpert’s affidavit states that Finserve agreed to lend $1 million to Anri Petrosyan, who resides in Myrtle Beach, South Carolina, to invest in soybeans. According to the affidavit, $300,000 of the funds were transferred to Petrosyan’s account in a US bank, and $700,000 to the Hungarian bank account of a Bahamian corporation. That’s a lot of soybeans! According to Volpert, Petrosyan defaulted on the loan.

Disputes under the loan agreement were to be arbitrated at the LCIA. Finserve represented to the court that it intended to commence an arbitration, but it did not inform the court whether it actually had commenced the arbitration. Finserve sought authority to issue subpoenas to Petrosyan compelling him to appear at a deposition and to produce documents for use in the arbitration.

I am happy to say that Judge Harwell bucked the trend in the cases and opined (but did not necessarily hold) that a private arbitral tribunal is not a “tribunal” for purposes of the judicial assistance statute. I don’t necessarily agree with his reasoning, which focuses on the fact that the tribunal’s decisions are not subject to judicial review. I have instead suggested that it would be anomalous to read the statute to refer to private international arbitral tribunals, since such a reading gives parties to international arbitrations greater access to US pretrial discovery procedures than parties have in domestic arbitration. This would be an odd result indeed, since once of the motivations for parties to contracts with US entities to agree to arbitration outside the United States is to avoid pretrial discovery.

The judge ultimately refused to grant the application on discretionary grounds, finding that there was insufficient evidence that the tribunal would be receptive to the evidence gathered.

If I had been the judge, I would have focused on the apparent fact that the LCIA arbitration had not yet been commenced, an issued discussed in the post on In re Broadsheet LLC, the case of the day from October 24, 2011. If in fact Finserve had not yet sought arbitration, its judicial assistance request would have all the markings of a fishing expedition.

Photo credit: FotoosVanRobin (license)

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