Tag Archives: Aerospatiale

Case of the Day: Wultz v. Bank of China

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.

Case of the Day: SEC v. Stanford International Bank

The case of the day is SEC v. Stanford International Bank Ltd. (N.D. Tex. 2011). The court had earlier appointed a receiver to take control of the assets of R. Allen Stanford and various affiliates. In today’s case, the receiver sought to obtain information about the Stanford defendants’ accounts at Société Générale Private Banking (Suisse) S.A., which was a Swiss firm with its main office in Geneva but with one branch office in Miami. The receiver served a subpoena, apparently on SG’s office in Miami, but the documents were located in Switzerland. SG objected to the subpoena on the grounds that it could not comply with the subpoena without violating Swiss criminal law and that the receiver should have sought the evidence under the Hague Evidence Convention.

The judge conducted an Aerospatiale analysis to determine whether the receive could proceed under the Rules of Civil Procedure rather than under the Convention. While the judge noted that many decisions treated the Convention as a “permissive supplement” to the FRCP, he suggested that “that approach ignores Aerospatiale’s admonition to ‘exercise special vigilance’ in international discovery disputes.” He looked to the seven-factor test in Strauss v. Credit Lyonnais, 242 F.R.D. 1999 (E.D.N.Y. 2007), which combines the five Aerospatiale factors and adds two factors suggested by the Restatement. The seven-factor test, the judge wrote, “adequately addresses the complexity and the scope of interests” at stake. The Credit Lyonnais factors are: (1) the importance of the documents requested to the litigation; (2) the degree of specificity of the request; (3) whether the information originated in the United States; (4) whether there are alternate means of getting the information; (5) the competing interests of the two states; (6) the hardship of compliance on the foreign party; and (7) the good faith of the party resisting discovery.

The judge found that the information requested was important in the litigation and that the requests, while broad, were not inappropriate. The receiver stood in Stanford’s  shoes and was, in effect, SG’s customer. Thus a broad request for its own account records was acceptable. Thus the first two factors favored the receiver. The fourth factor favored the receiver as well: there was no alternate means of obtaining the information.

But the third factor, focusing on the origin of the information, favored SG. The judge agreed with the receiver that under what it called the “geographic fiction” found in the precedents, the documents sought did not “originate” in Switzerland merely because SG would have to take preparatory steps in Switzerland in order to produce the documents in Florida. But the judge found that the Swiss banking law actually criminalized taking such preparatory steps in Switzerland, and so he declined to apply the geographic fiction. Because of the potential for criminal sanctions, the court fond that the sixth factor (hardship of compliance) weighed in favor of SG. The seventh factor weighed in favor of SG because SG was simply pointing to laws that had been on the books in Switzerland for decades, and while SG had not yet sought an exemption to the bank secrecy rules from the Swiss government, its delay was brief, as the receiver had only recently served his subpoena.

The fifth factor—the competing interests of the U.S. and Switzerland—was neutral. The U.S. had a strong interest in fair adjudication of cases in its courts, and the court itself had a strong interest in seeing to it that its orders were enforced and that the litigation proceeded to a just, speedy, and inexpensive determination. On the other hand, the court found it significant that the SEC had not sought to compel production of the documents, though it could have done so using (unspecified) means unavailable to the receiver. On the Swiss side, the judge found that Switzerland had a longstanding interest in protecting the privacy of its banking customers and shared the civil law’s view of discovery as a domestic judicial function and been opposed to U.S. discovery requests that require collection of evidence in Switzerland. But the judge hesitated to weigh these interests against each other, citing Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909 (D.C. Cir. 1984):

Despite the real obligation of courts to apply international law and foster comity, domestic courts do not sit as internationally constituted tribunals. Domestic courts are created by national constitutions and statutes to enforce primarily national laws. The courts of most developed countries follow international law only to the extent it is not overridden by national law. Thus, courts inherently find it difficult neutrally to balance competing foreign interests. When there is any doubt, national interests will tend to be favored over foreign interests. This partially explains why there have been few times when courts have found foreign interests to prevail.

On balance, the judge found that the factors favored SG. (How courts actually balance the factors when they do not all point in one direction has always seemed a little mysterious to me). His decision seems noteworthy to me on account of the unusual judicial modesty he displayed in weighing, or rather refusing to weigh, the United States’s interest against the interest of Switzerland. Indeed, given the outline of the battles about document discovery in Europe for use in U.S. cases—the Hague Evidence Convention, followed by Article 23 reservations, followed by Aerospatiale, followed by blocking statutes—I wonder whether the judge’s reticence isn’t a kind of unilateral disarmament!

The case is also noteworthy for its conclusion. The judge noted that he might revisit his balancing of the factors and permit resort to the Federal Rules of Civil Procedure if the Swiss authorities decided that Swiss law did not permit the receiver to obtain the records sought. This seems a gentle way of saying that one good turn deserves another.