The case of the day, NML Capital v. Republic of Argentina (D. Nev. 2014), is a small corner of the Argentine sovereign debt debacle. NML, the victorious judgment creditor, sought to take post-judgment discovery in Nevada in aid of its judgment under FRCP 69.
I want to focus just on one aspect of the decision. NML sought to take discovery from a bunch of Nevada corporations. The basic theory was that the corporations “were used to launder $65 million of embezzled Argentine funds.” There was some reason to think that all of the corporations had the same director: Aldyne Ltd., a Seychelles corporation. According to the corporations, NML could not compel depositions in Nevada because none of the corporation’s officers or directors resided in Nevada, even though Nevada was the state of incorporation. The corporations submitted an affidavit from Letcia Montoya, an officer of Aldyne, custodian of records for some of the corporations, and a partner of Mossack & Fonseca, a Panamanian law firm that, according to the judge, “is known for incorporating shell companies.” The affidavit stated that no documents responsive to the subpoenas existed and that in any case the corporations did not reside or do business within 100 miles of Las Vegas (FRCP 45 generally forbids a party to compel a non-party to travel more than 100 miles for a deposition).
Nonsense, the judge correctly held. Under FRCP 30(b)(6), a corporation within the court’s subpoena power can be required to designate a witness to testify on its behalf.
[T]the unique status of the corporate person permits a federal court to compel a non-party resident corporation to designate a non-resident employee to “thoroughly educate” an in forum employee to testify on the corporation’s behalf.
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A company cannot purposefully avail itself of the law’s benefits by incorporating in this
jurisdiction and then excuse itself from the court’s subpoena power by abusing the corporate form. This would allow a corporation to exploit the benefits created by the law without shouldering the concomitant burdens and responsibilities imposed by the law. By incorporating in the State of Nevada, the corporations assented to this court’s power to impose a burden under
Rule 45(c): the limited but real burden that the United States District Court for the District of Nevada may impose on Nevada residents to testify.
To me this seems a sound rule in general, but to the extent some cases come out the other way, the judge pointed out that they do not involve shell corporations, and it was clear he regarded the shell corporations in this case as an attempt to abuse the corporate form.