The case of the day is CE International Resources Holdings, LLC v. S.A. Minerals LP (S.D.N.Y. 2013). CEIR commenced an arbitration against S.A. Minerals and Tantalum Technology in 2012, alleging a breach of contracts for the purchase and sale of synthetic concentrates. After learning that S.A. Minerals had been dissolved, CEIR amended its claim to assert claims against Yeap Soon Sit, allegedly an alter ego of the two firms and successor to S.A. Minerals. The arbitration was held under the auspices of the ICDR.
CEIR obtained an interim award requiring S.A. Minerals and Yeap to provide written information about the goods that were the subject of the contract. S.A. and Yeap did not comply with the award. CEIR also obtained a Mareva injunction in the Supreme Court of British Columbia regarding Yeap’s assets, and an injunction restraining one or the other of the respondent’s assets from the High Court of Singapore. The arbitrator also entered an interim award directing the respondents to provide security in the amount of $10 million and enjoining them from transferring their assets until the security was provided.
The High Court ordered that CEIR would have access to the books of Deutsche Bank AG Singapore that related to any account held by S.A. Minerals, and it confirmed the arbitrator’s interim award regarding the $10 million. The District Court in the Southern District of New York also confirmed that award and ordered Yeap and Tantalum to post $10 million in security, and provided for an asset freeze if they did not. When Yeap failed to comply, the court found him in contempt and fined him $720,000, payable to the United States.
Since, as the court found, Yeap “continue[d] to evade enforcement of the Final Award and federal court judgments,” CEIR issued a subpoena to Deutsche Bank AG in New York, seeking documents in the possession of Deutsche Bank’s Singapore branch. Deutsche Bank objected to the subpoena on various grounds, including an assertion that the documents sought were protected from disclosure by applicable law. CEIR moved to compel, and Deutsche Bank responded that the subpoena would cause it to violate Singapore law, and that comity required an application to the Singapore courts, either directly or via the Hague Evidence Convention. Deutsche Bank also argued that its Singapore branch was a separate entity.
The judge determined that Singapore law did indeed bar disclosure of the documents. It conducted an Aerospatiale analysis. First, the documents were important to CEIR’s case. Importantly, the judge noted that “establishing liability is not the only basis upon which courts have recognized the importance of the sought after documents.” In other words, this factor can weigh in favor of discovery even in post-judgment discovery proceedings under FRCP 69. Second, much of the subpoena was narrowly tailored. In some cases, the subpoena was directed to specific account numbers. But other requests, e.g., “documents sufficient to identify each and every account [ellipsis] of any entity legally or beneficailly owned in whole or in part by Yeap Soon Sit,” were unreasonably broad. Thus the second Aerospatiale factor was neutral. Third, the information originated outside of the United States, which weighs against enforcement of the subpoena. Fourth, the judge found that the Hague Evidence Convention was an available and viable alternative. The burden of persuasion here was on Deutsche Bank. CEIR argued that there would be a long delay (perhaps 6 to 12 months) and that the Singapore courts would not enforce a request as broad as CEIR’s subpoena. But Deutsche Bank offered to cooperate with a request under the Convention and offered expert testimony suggesting that this cooperation would drastically cut down the time necessary to execute the letter of request. Deutsche Bank also offered expert testimony to prove that the subpoena was not too broad by Singaporean standards, which CEIR failed to rebut. Fifth, the balance of national interests favored Singapore. The United States has an interest in a fair adjudication, but this is of little weight when set against Singapore’s interest in the enforcement of its banking laws. There was no evidence that Singapore had used the banking laws to facilitate violations of US law, as courts had found in other cases with regard to other countries, e.g., China. Sixth, the court took seriously the risk that Deutsche Bank faced under Singaporean law if it complied with the subpoena. This is perhaps the most unusual feature of the court’s analysis, as US courts generally give little weight to such statutes in the absence of any evidence that there is a real risk of enforcement. The judge reasoned that it was not necessary to make a real showing of risk, since Deutsche Bank was a non-party. Last, the judge found that Deutsche Bank had acted in good faith. On balance, the factors favored the Hague Evidence Convention over a subpoena under the FRCP.
The judge rejected Deutsche Bank’s separate entity rule argument. Under the rule, courts must treat “each branch of a bank [ellipsis] as a separate entity, in no way concerned with accounts maintained by depositors in other branches or at a home office.” But the rule only applies to limit the courts’ power to attach assets extraterritorially, not to enforce subpoenas or to issue injunctions. In those cases, it is enough that the courts have personal jursidiction over the legal entity. The judge rejected the New York Supreme Court’s recent decision to the contrary in Ayyash v. Koleilat, 957 N.Y.S.2d 574 (Sup. Ct. 2012), as an improper expansion of the rule. It’s not clear whether the judge was ignoring Ayyash as a lower court’s misstatement of New York law, or whether the judge was treating the question as a question of federal law. I like the latter alternative. Under FRCP 69(a)(1), attachments in aid of execution are governed by state law. But under FRCP 69(a)(2), a judgment creditor can obtain discovery either under federal law or using the methods provided by state law. So if CEIR uses a subpoena issued under FRCP 45, it seems to me at least arguable that the reach of the subpoena is a question of federal law, not of special state law limitations that do not go to the court’s jurisdiction.