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Second Circuit upholds discretionary denial of request from German litigants for production of documents under 28 U.S.C. Section 1782 though it complied with statutory requirements because granting discovery assistance would not, under circumstances, further goals of Section 1782
Michael Schmitz and 27 other German investors (hereinafter petitioners) filed a lawsuit in Germany against the German telecom company “Deutsche Telekom AG” (hereinafter DT) which the government owns in part. Petitioners claimed that the company had misled investors by overstating the value of its real estate assets. Similarly, American investors brought a parallel action in a New York federal court.
In January 2003, petitioners sought the production of evidence under 28 U.S.C. Section 1782 from the U.S. law firms involved in the U.S. action, particularly the documents that DT had already produced and handed over to those firms.
Section 1782(a) provides for judicial aid in obtaining evidence for foreign proceedings. It provides that “the district court … may order [a person] to give his testimony or statements or to produce a document or other thing for use in a proceeding in a foreign or international tribunal …” The district court first decided that petitioners met the statutory requirements of Section 1782. Nevertheless, it concluded that the request would run counter to the twin aims of the statute. These are [1] to provide efficient evidentiary assistance to international tribunals and litigants and [2] to encourage foreign countries to give similar aid to American courts.
Here, the German government opposed judicial assistance by the American court. The German Ministry of Justice and the Prosecutor in Bonn who were looking into DT’s affairs asked the district court to deny production. They asserted that it would jeopardize the ongoing German criminal investigation and impugn German sovereignty.
Furthermore, the Federal Ministry of Justice submitted that DT had made the documents available in the American action on condition that they be used exclusively for that action. Exercising its statutory discretion, the court denied the application for evidence and petitioners filed this appeal. The U.S. Court of Appeals for the Second Circuit affirms.
The Court first lays down the standard for granting such discovery requests. “We have held that a district court is authorized to grant a Section 1782 request where ‘(1) … the person from whom discovery is sought reside[s] (or [is] found) in the district of the district court to which the application is made, (2) … the discovery [is] for use in a proceeding before a foreign tribunal, and (3) … the application [is] made by a foreign or international tribunal or ‘any interested person.’‘ [Cite] ‘Once the statutory requirements are met, a district court is free to grant discovery in its discretion.’ This discretion, however, is not boundless. Rather, we have held that district court have to exercise their discretion under Section 1782 in light of the twin aims of the statute.” [Slip op. 9-10]
The Court of Appeals decides that the district court did not abuse its discretion in this case. Technically, the respondents here from whom petitioners sought evidence were the U.S. law firms, but in reality the documents belonged to DT whom petitioners were suing in Germany.
“[W]e find no error in the court’s decision to deny, rather than merely limit, discovery. Although we have expressed a preference for narrowly tailored discovery orders where possible, … the district court did not abuse its discretion in deciding that no such order was possible in this case. The German authorities objected to any disclosure of DT documents to petitioners at this time. … Despite their protestations to the contrary, petitioners are thus not in the same position as the American plaintiffs.”
“The latter received access to the documents only because they were not involved in the German litigation and promised not to disclose the documents to anyone, including the German plaintiffs. … But petitioners, themselves German plaintiffs, want the documents for use in their actions in Germany. It is hard to imagine a discovery order that could have effectively eliminated the concerns raised by the German authorities and fulfilled the aims of Section 1782.” [Slip op 13-15]
Citation: Schmitz v. Bernstein, Liebhard & Lifshitz, LLP, 376 F.3d 79 (2d Cir. 2004).
Filed in: 2004 International Law Update, Issue8
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In international offshoot of United States’ massive lawsuit in American court against tobacco companies, English Court of Appeals (Civil Division) dismisses appeal from lower court’s honoring of plaintiff’s Letter of Request for testimony from former attorney for British tobacco company so that issues of privilege could be decided on question-by-question basis
The plaintiff in this case is the government of the United States. Since 1999, it has been carrying on civil RICO litigation in the U.S. against a number of tobacco companies. The action is one of the most complex in American history. Discovery may involve upwards of 40 million documents and damages are claimed to be U.S.$ 289 billion. The plaintiff was claiming that, since 1953, those companies had taken part in an illegal campaign to deceive and defraud the American public about the health risks linked to smoking and about their knowledge and attitude towards them.
Among the defendants to that lawsuit are two companies in the British American Tobacco group. British American Tobacco (Investments) Ltd. (BAT), which became a corporation in 1997, owned both companies. Mr. Andrew Foyle was a partner in the firm of solicitors who acted for the BAT group, representing them from about 1985 to May 1994.
The plaintiff applied, inter alia, for an order to have Mr. Foyle deposed for the purposes of making his evidence available for use in the trial of proceedings now pending in the U.S. District Court for the District of Columbia which had issued a Letter of Request. The defendants opposed the application.
One of plaintiff’s allegations was that defendants or others had intentionally destroyed many relevant documents or had taken them out of U.S. jurisdiction. The plaintiff specifically wished to question Mr. Foyle as to the defendants’ document management policies and procedures. Mr. Foyle admitted that he could give relevant and admissible evidence, but opposed the order applied for on the grounds of legal professional privilege and oppression. The chief constraints on the judge in a matter such as this is the Evidence (Proceedings in other Jurisdictions) Act 1975.
The plaintiff conceded that Mr. Foyle might well be entitled to refuse to answer many questions put to him, but contended that the proper course would be to make objections or invoke privilege as to specific questions asked. The Commercial Court judge ruled for the plaintiff, ordering the deposition to be carried out by English counsel before a judge of that Court. The defendants and Mr. Foyle appealed.
The appellants argued that privilege covered all communications passing between Mr. Foyle and the BAT group companies. The Commercial Court could not, therefore, require Mr. Foyle to answer questions on any of the matters identified in the letter of request, unless BAT waived all its privileges. As BAT had no intention of doing so, defendants said it would waste time and money to make an order for Mr. Foyle’s examination. The English Court of Appeal (Civil Division), however, unanimously agrees to dismiss the appeal.
The Court of Appeal first found it clear that the judge below was not mistaken in his application of the “litigation privilege.” In general, this protection extends to confidential communications which must have been made for the dominant purpose of conducting or giving advice in relation to litigation, either pending or in contemplation. The trial judge did not err in applying this notoriously slippery doctrine. Thus, he had correctly considered that a “mere possibility” of litigation would not suffice to establish litigation privilege. He also properly decided that the fact that there was a distinct possibility that sooner or later someone might make a claim was not enough nor was a general fear of future litigation.
“In any event, I consider that it would be impossible to conclude that litigation against BATCo itself was reasonably in prospect when that company engaged Mr Foyle’s services to advise it. The last time anyone had sued that company had been as long ago as 1969, and there had been no letters before action or other precursors of contentious litigation when Mr Foyle was advising it between 1986 and 1994. In his third witness statement, the most that Mr Gilbey [BATCo's current senior litigation counsel] could say was that ‘it would be reasonable for BATCo to have anticipated that it might be made a defendant to litigation in the United States or elsewhere’.”
“This tentative assessment accords well with the contemporary view, expressed in a minute dated 26th February 1986, to the effect that litigation experts in the UK had been briefed concerning ‘possible’ liability litigation against BATCo. Similarly, on 21st May 1986 there was a statement by a senior BATCo executive that he did not wish it to be seen that the company had only instituted a destruction policy when the possibility of their being involved in litigation became real.” [¶ 69]
On the legal advice privilege, the Court quotes Balabel v. Air India [1988] 2 All E.R. 246 as the leading modern English authority. “Although originally confined to advice regarding litigation, the privilege was extended to non litigious business. Nevertheless, despite that extension, the purpose and scope of the privilege is still to enable legal advice to be sought and given in confidence. In my judgment, therefore, the test is whether the communication or other document was made confidentially for the purposes of legal advice. …”
“Where information is passed by the solicitor or client to the other as part of the continuum aimed at keeping both informed so that advice may be sought and given as required, privilege will attach. …Moreover legal advice is not confined to telling the client the law; it must include advice as to what should prudently and sensible [sic] be done in the relevant legal context.” [¶ 75]
Appellants charged the lower court with “watering down” the legal-advice privilege as set forth in Balabel. The appellate court, however, is not convinced. “[The judge] was simply concerned to deny blanket approval to a claim for privilege in relation to all communications passing between Mr Foyle and anyone in the BATCo organisation (or outside it) over a nine year period, and in my judgment he was right to do so.”
“The judgment in Balabel pegs out the ground rules, and the procedure the judge selected will give him the chance of expressing a view on the proposed lines of questioning at the forthcoming directions hearing, and will then leave it to the examining judge to exercise further control over individual questions. It will also provide an opportunity to identify more precisely the person or people who should be treated as Mr Foyle’s clients to whom he was furnishing legal advice on their rights, liabilities and obligations.” [¶ 81]
The appellate court also stresses that the issue presented on the legal advice privilege is not an all-or-nothing proposition.
“There are likely to be areas which are quite plainly covered by legal advice privilege. There will be other areas which quite plainly are not. In the debatable areas the judge, at the restored directions hearing, and the judge examiner will both have to proceed with care. But this is no good reason why the whole enterprise should be called off now.”
“It must be remembered that it is the duty and pleasure of the English court to respond positively to a letter of request if it can. It is also in the public interest that a court (on either side of the Atlantic) should have all relevant material available to it when it decides a case, let alone a case as important as this one, unless it is clear even at this early stage that the overwhelming majority of relevant questions will be successfully resisted on the grounds of legal advice privilege. This, in my judgment, cannot be said in this case.” [¶ 88]
Citation: United States v. Philip Morris, Inc., [2004] E.W.C.A. CIV. 330, [2004] All E.R. (D) 448 (Mar.), (Approved judgment)(March 23); “BAT under pressure on memorandum” by Neil Buckley, The Financial Times (London), April 27, 2004, page 27.
Filed in: 2004 International Law Update, Issue4
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Noting split in Circuits and pending Supreme Court consideration of 28 U.S.C. Section 1782, Seventh Circuit reverses order to produce documents by stockholder of subsidiary companies abroad for use in foreign court action based on distinction between investor and entity itself
Kestrel Coal, an Australian company, brought an action in the Supreme Court of Queensland against Longwall Roof Supports, a British company, for allegedly defective roof supports under a 1991 contract. Among the co-defendants is Joy Global, a Delaware company with its principal place of business in Milwaukee, which indirectly controls all of Longwall’s stock.
Kestrel sought to discover certain documents from Joy Global’s Australian and British subsidiaries. The Australian court considered the documents unnecessary. Kestrel then brought an action in district court in Wisconsin under 28 U.S.C. Section 1782, seeking production of those documents abroad for use in the Australian proceeding.
The district court in fact ordered the production of the documents. This appeal ensued
The U.S. Court of Appeals for the Seventh Circuit reverses. Section 1782(a) provides that “[t]he district court of the district in which a person resides or is found may order him to give testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal … To the extent that the order does not prescribe otherwise, the testimony or statement shall be taken, and the document or thing produced, in accordance with the Federal Rules of Civil Procedure.”
Here, Joy Global resides in Wisconsin and the intended use is for a pending foreign proceeding. However, to obtain documents under Rule 26 and other discovery rules, one must seek them from the person or company who actually possesses them, and not from an investor.
Furthermore, even though Section 1782(a) does not specify that the evidence must be present in the U.S., there is an implied requirement that such discovery not interfere with court processes in other countries.
“Joy Global leads with the argument that courts of this nation should not order disclosure of information that the court handling the underlying suit has held not discoverable. Five Circuits have adopted that rule. Two have held otherwise. They observe that, if the foreign court denies the request because it believes that disclosure of evidence in the United States should be governed by U.S. law, it would be perverse for the U.S. court to take the foreign decision as blocking use of Section 1782. The Supreme Court may decide this Term which view is correct, and whether foreign decisions that leave discovery to U.S. tribunals should be distinguished from those that … deny discovery because the evidence is not important to the underlying suit. See Advanced Micro Devices, Inc., v. Intel Corp., 292 F.3d 664 (9th Cir. 2002), cert. granted,… 124 S.Ct. 531 (to be argued April 20, 2004). We need not try to anticipate the outcome of Intel, because there are other grounds on which to resolve this dispute. Nor need we determine whether Section 1782 ever permits a district judge to require evidence to be imported from a foreign nation so that it may be handed over here and then exported. … ”
[Slip op. 7-9]
[Editors' Note: In Intel, the Ninth Circuit held that an investigation before the Directorate-General Competition of the European Commission is a qualifying "tribunal” for purposes of Section 1782, and rejected the argument that material normally producible under Section 1782 in U.S. for use in that EU antitrust proceeding must also be discoverable under EC procedures. See 2002 International Law Update 82.]
The Court then turns to the question of whether a district court can order a stockholder to produce company documents. “Legal distinctions between corporations and their investors (even owners of 100% of the stock are just investors ….) are embedded in both statute and common law. Section 1782(a) itself neither instructs, nor permits, courts to disregard the distinction between the corporation that owns a set of documents, and a different corporation that owns stock in the first entity. Kestrel does not contend, and the district court did not find, that the requirements for piercing the corporate veil under Delaware law have been met. Kestrel does not deny that Joy Global has adhered fully to the forms of separation between investment and management; it does not contend that Joy Global has broken a unitary enterprise into slivers in order to hide assets or bamboozle creditors. …”
“Kestrel asks us to apply a federal common law that supersedes state-law rules distinguishing investors from the entities whose shares they own. But why? Nothing in Section 1782 so much as hints at such a revolutionary approach. … One uses Fed.R.Civ.P. 34 to get documents from firms that possess them, not from their corporate affiliates. Even when federal law supplies the rule of decision, it routinely absorbs from state law the legal distinctness of corporations and their investors. … Prior decisions have assumed this when managing international discovery …” [Slip op. 9-11]
If these documents are not important to the Australian action at this point, as the Australian court determined, then there is no reason to even seek discovery under Section 1782. If these documents do become important, discovery should be requested before the Australian court.
Citation: Kestrel Coal Pty. Ltd. v. Joy Global Inc., No. 03-3604 (7th Cir. March 25, 2004).
Filed in: 2004 International Law Update, Issue4
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Seventh Circuit upholds ruling that criminal defendant in Ireland was entitled to production of U.S. journalists’ tape recordings of their interviews with key government witness pursuant to 28 U.S.C. Section 1782 since material sought was not privileged
Authorities are prosecuting Michael McKevitt in Ireland for belonging to a banned organization and for leading terrorism. Invoking 28 U.S.C. Section 1782, he petitioned a federal court in Chicago for an order against a group of journalists who are under contract to write a biography of a David Rupert, alleging that Rupert is the main prosecution witness. The order would require them to produce the tape recordings of their interviews with Rupert. The district court granted the petition and the defendants took an appeal.
On July 3, 2003, the U.S. Court of Appeals for the Seventh Circuit denied the journalists’ motion to stay the order to produce. Defendants then turned the tapes over to McKevitt. Dismissing the appeal as moot, the Court files an explanatory opinion on August 8.
The Court first notes that Section 1782 (a) grants discretion to federal district courts to compel the production of evidence for use in foreign or international tribunals unless the materials are privileged. “The defendants claim that the tapes in question are protected from compelled disclosure by a federal common law reporter’s privilege rooted in the First Amendment. See Fed. R. 501.”
“Although the Supreme Court in Branzburg v. Hayes, 408 U.S. 665 (1972) declined to recognize such a privilege, Justice Powell, whose vote was essential to the 5 4 decision rejecting the claim of privilege, stated in a concurring opinion that such a claim should be decided on a case by case basis by balancing the freedom of the press against the obligation to assist in criminal proceedings. Id. at 709 10.”
“Since the dissenting Justices would have gone further than Justice Powell in recognition of the reporter’s privilege, and preferred his position to that of the majority opinion (for they said that his ‘enigmatic concurring opinion gives some hope of a more flexible view in the future,’ id. at 725), maybe his opinion should be taken to state the view of the majority of the Justices though this is uncertain, because Justice Powell purported to join Justice White’s ‘majority’ opinion.” [531-32]
The Circuit Court then points to the important function of international judicial assistance. “The federal interest in cooperating in the criminal proceedings of friendly foreign nations is obvious; and it is likewise obvious that the newsgathering and reporting activities of the press are inhibited when a reporter cannot assure a confidential source of confidentiality. Yet that was Branzburg and it is evident from the result in that case that the interest of the press in maintaining the confidentiality of sources is not absolute.”
“There is no conceivable interest in confidentiality in the present case. Not only is the source (Rupert) known, but he has indicated that he does not object to the disclosure of the tapes of his interviews to McKevitt.” [532]
Since Section 1782 does not specify whether the federal or the state law of privilege controls, the Court also speaks to the choice-of-law issue. “Illinois has enacted a statutory version of the reporter’s privilege. 735 I.L.C.S. 5/8 901 [Cite]. But it has no application to this case.”
“Section 1782(a) of the Judicial Code provides that ‘a person may not be compelled to give his testimony or statement or to produce a document or other thing in violation of any legally applicable privilege’ (emphasis added). State law privileges are not ‘legally applicable’ in federal question cases like this one. Fed.R.Evid. 501; [Cite]”
“In any event, while the reporters’ motion included a citation to the Illinois statute as part of a string cite, it failed to discuss, even minimally, why the statute should apply here. As a result, even if the statute were applicable, the reporters waived reliance on it.”
“It seems to us that rather than speaking of privilege, courts should simply make sure that a subpoena duces tecum directed to the media, like any other subpoena duces tecum, is reasonable in the circumstances, which is the general criterion for judicial review of subpoenas. Fed.R.Crim.P. 17( c). [Cites] We do not see why there need to be special criteria merely because the possessor of the documents or other evidence sought is a journalist.” [533]
In the Court’s view, the First Amendment is not germane to this case. “When the information in the reporter’s possession does not come from a confidential source, it is difficult to see what possible bearing the First Amendment could have on the question of compelled disclosure. If anything, the parties to this case are reversed from the perspective of freedom of the press, which seeks to encourage publication rather than secrecy. [Cite]”
“Rupert wants the information disclosed; it is the reporters, paradoxically, who want it secreted. The reason they want it secreted is that the biography of him that they are planning to write will be less marketable the more information in it that has already been made public.” [533]
But reliance on a theory of common law misappropriation does not help this plaintiff. “The present case is sharply different, since McKevitt has no commercial motive in ‘stealing’ the defendant reporters’ work product. And yet to the extent that such ‘thefts’ can be anticipated, the incentive to gather information, in this case for the projected biography, will be diminished…” [534]
The Court points out that the state cases typically place tight limitations on misappropriation claims. It concludes that legal protection for the gathering of facts is available only when unauthorized copying of the facts gathered is likely to deter the plaintiff, or others similarly situated, from gathering and disseminating those facts.
“We are far from that in the present case. No showing has been made, or would be plausible, that the reporters will have to abandon the Rupert biography if the information contained in the recordings of their interviews with him is made public. It is a consideration that a district court might properly consider in deciding on a challenge to a subpoena, but it would add nothing to the court’s consideration to analyze it in legal categories drawn from the First Amendment. And in this case it provides no support for the reporters’ claim.” [535]
Filed in: 2003 International Law Update, Issue9
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In aid of complex New York federal court proceedings brought by Motorola charging Turkish defendants with fraud, English Court of Appeal (Civil Division) approves issuance of global freeze order against defendants’ assets
The claimant, Motorola Credit Corp., is a large multinational U. S. company that, with its affiliates, is active inter alia in the global sale of cellular telephone equipment. The defendants are four members of a wealthy and powerful Turkish family who (among other substantial business interests) own a telecommunications company, Telsim Mobil Telekomunikayson Hizmetleri A.S. (Telsim). It is the second largest supplier of mobile telephone services in Turkey. Defendant #2 (D2) is the patriarch of the family while D1 and D3 are his sons, and D4 his daughter.
In January 2002, claimant (and Nokia, another international telecommunications company) sued Telsim in a New York federal court (the U.S. Action). Claimant alleged that D1-D4 conspired to fraudulently persuade claimant to agree to various forms of financing Telsim. Under these arrangements, claimant advanced very large sums of money to make it possible for Telsim (1) to buy cellular infrastructure telephone equipment from companies within the Motorola group of companies and (2) to obtain a license to operate Telsim’s cellular telephone system in Turkey. The claimant alleged, inter alia, that each of the defendants borrowed large sums with no intention of repaying the loans and that each is personally liable for the whole outstanding amount. Claimant also brought similar suits against Telsim in the courts of England, Germany, France, Bermuda and the Channel Islands.
In April 2002, District Judge Jed Rakoff held a 6 day inter partes hearing involving oral testimony (though not from the defendants personally) upon the claimant’s and Nokia’s application in the U.S. Action for a preliminary injunction and attachment order. Judge Rakoff granted that relief on May 9, 2002, ordering, inter alia, that defendants deposit with the court many shares of Telsim as collateral.
He found that: “The plaintiffs have clearly demonstrated that they are substantially likely to succeed on the merits of their claims, and have further demonstrated that very serious damage is likely to result if the requested relief is not granted.” [¶ 12] Defendants failed to comply with any of the New York court’s orders.
In the English Commercial Court, claimant, on May 30, obtained the instant worldwide freezing order against the global assets of the four Turkish defendants in aid of the U.S. Action. The order contained the customary provisions ordering the defendants to provide asset information. The first instance judge dismissed the defendants’ applications to revoke the freezing orders because they had enabled the Turkish courts to effectively bar the transfer of Telsim shares outside of Turkey.
In time, the English judge ordered all four defendants to submit themselves to cross examination on the nature, extent and location of their assets. The defendants, however, all failed to turn up for cross examination. As a result, the judge held all of them contempt of court, and sentenced them to varying terms in prison.
On appeal, defendants first challenged the global freezing orders. They mainly relied on Section 25 of the Civil Jurisdiction and Judgments Act of 1982 which generally allows the English courts to grant interim relief in aid of foreign courts. Specifically, they argued that, since the Commercial Court admittedly lacked independent jurisdiction over the subject matter involved in the U.S. Action, it was “inexpedient” under the Act for the English Court to authorize interim relief. Defendants also objected to the related orders requiring them to attend court to be cross-examined about their assets and to their committals for contempt of court.
In addition to supporting the propriety of the freezing orders, the claimant pointed out that, should the defendants lose their appeal, they concededly intended to flout whatever orders the Court may issue. Consequently, it urged, the appellate court would be wasting its time and resources even to hear them. All the defendants are currently believed to be in Turkey although it is conceded that the Court has acquired personal jurisdiction over them.
The English Court of Appeal (Civil Division) allows the appeals in part. It discharges the imprisonments for contempt against D2 and D3 but retains those against D1 and D4.
The Appellate Court first refuses to deny defendants a hearing. “… [W]e bear in mind that the defendants’ appeals are essentially defensive in nature. Their stance in this jurisdiction has been one of resistance to a series of restrictive and intrusive orders sought by the claimant in foreign proceedings, rather than a voluntary invocation of the powers of the English court for their own benefit. This seems to us to bear on the proportionality of precluding them, as parties in contempt, from what would otherwise be their right of appeal against the freezing orders to which the orders for cross examination were ancillary. In all the circumstances, we take the view that the defendants should be heard upon, and their arguments treated as addressed to, all of their appeals and applications now before us.” [¶ 55]
The Court then lists the five basic questions that bear on the expediency vel non of issuing global freeze orders under English law. “First, whether the making of the order will interfere with the management of the case in the primary court, e.g., where the order is inconsistent with an order in the primary court or overlaps with it. That consideration does not arise in the present case. Second, whether it is the policy in the primary jurisdiction not itself to make worldwide freezing [and] disclosure orders.”
“Third, whether there is a danger that the orders made will give rise to disharmony or confusion and/or risk of conflicting inconsistent or overlapping orders in other jurisdictions, in particular the courts of the state where the person enjoined resides or where the assets affected are located. If so, then respect for the territorial jurisdiction of that state should discourage the English court from using its unusually wide powers against a foreign defendant. Fourth, whether at the time the order is sought there is likely to be a potential conflict as to jurisdiction rendering it inappropriate and inexpedient to make a worldwide order. Fifth, whether, in a case where jurisdiction is resisted and disobedience to be expected, the court will be making an order which it cannot enforce.” [¶ 115]
On the issue of whether the New York federal court can issue global freeze orders, the Court notes that, in Grupo Mexicano de Desarrollo S.A. v. Alliance Bond Fund Inc., 527 U.S. 308 (1999), the U.S. Supreme Court held that the general equitable powers of the Federal Court did not include the broad power to issue pre judgment Mareva type relief, as granted and developed in the United Kingdom since 1975.
Under the procedure rules governing federal courts, however, Civil Rule 64 empowers a federal court to attach or seize specific property prior to judgment where the law of the state where the federal court sits allows it. In this case, New York state law does permit temporary restraining orders of a kind roughly equivalent to freezing orders in England. This extends to assets within the jurisdiction of the New York courts, but not to assets outside that jurisdiction.
Treating each defendant separately, the Court of Appeal then addresses the propriety of the ancillary disclosure orders. Under the authorities, the question is whether, under all the circumstances, it would be “just and convenient” to compel defendants to reveal details of their assets. “The purpose of disclosure is to make the freezing order effective. In the ordinary way, a defendant is required to disclose all his assets above a certain value. This is because, if he can choose which assets to disclose he is likely to choose those which are the least available or accessible to the claimant for the purposes of execution.”
“That is what the claimant says the defendants have done in this case. If there are assets which are more readily available, a claimant is entitled to be told what they are. In such circumstances a freezing order may be varied, so that particular assets are attached and others are released and, in this way, the order may be made more effective.” [¶ 146]
[Editorial Note: On July 31, 2003, U.S. District Judge Rakoff after a lengthy opinion ordered Turkey's Uzan family, which owns Telsim, Turkey's No. 2 wireless carrier, to pay MotorolaCredit Corp. more than $4.26 billion plus post-judgment interest in a civil fraud and racketeering case against the Uzans. He also ordered the family to transfer to the court shares in Telsim that together amounted to 73.5 percent of the ownership and control of Telsim. Plaintiffs were Motorola Credit Corp., a unit of Motorola, the world's number two cell-phone maker, and Nokia, its larger rival.]
Citation: Motorola Credit Corp. v. Uzan et al., [2003] E.W.C.A. Civ. 752, [2003] All E.R. (D) 150 (June 12); New York Times Online (by Reuters), filed Thursday, July 31, at 10:49 a.m. ET [see also 2003 WL 21757706 (S.D.N.Y. 2003)].
Filed in: 2003 International Law Update, Issue8
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Under English Criminal Justice Act, Court of Appeal (Civil Division) dismisses appeal by former wife of convicted U. S. citizen who objected to registry in England of confiscation order from U.S. federal court designed to help uncover assets owed to U.S. government as fines for husband’s fraudulent activity
In November 1995, a Florida federal court entered a [revised] confiscation order against Kathleen Conway Montgomery (respondent) and her former husband, Larry Barnette. The order arose out of Barnette’s failure to fully comply with an October 1984 order based on his convictions for fraud and related offenses, including offenses under the RICO Act. Barnette controlled two laundry companies which carried out contracts in Germany on behalf of the U. S. Government. The government alleged that Barnette had defrauded it of about $15 million in connection with those contracts and had shunted part of the proceeds to Old Dominion S.A.(ODSA), a Panamanian company he controlled.
Shortly before a grand jury indicted him for fraud, Barnette transferred 800 of the 900 shares he held in ODSA to respondent, Mrs. Montgomery. An October 1984 order required him to forfeit his interests in the shares and to pay the Government US $7 million or the market value of the shares, whichever was greater. Barnette paid the US $7,000,000, but failed to comply with an order to provide information about the market value of the shares.
In December 1992, the federal district court made an order for discovery against Mrs. Montgomery who had left Mr. Barnette in 1983 and was living in England. She failed to comply with it. The district court entered a confiscation order against Barnette’s assets in November 1995. Mrs. Montgomery and Barnette had appealed this order to the U.S. Court of Appeals for the Eleventh Circuit. That court, however, had dismissed the appeal without a hearing under the “fugitive disentitlement” doctrine.
In June 2002, the English High Court granted an application by the United States to register the order as an external confiscation order under Section 97 of the Criminal Justice Act of 1988 (CJA). Respondent then filed this appeal, claiming that the confiscation order would implicate Articles 6 of the European Convention on Human Rights and Fundamental Freedoms (ECHR) and Article 1 of the First Protocol thereto. If the Convention applied to the United States, respondent urged, then the English courts would be violating Section 6 of the English Human Rights Act of 1998 by registering the order. The Court of Appeal (Civil Division), however, is not persuaded and dismisses respondent’s appeal.
In the Court’s view, a central issue on appeal is whether the High Court judge, as a matter of law, was entitled to register the confiscation order under CJA Section 97. The order involved the sum of US$ 7,876,207.60.
The appellate court accepts that the U.S. has met most of the requirements of CJA Section 97. It points out that the U.S.A. is a “designated country” under the CJA as amended and that the U. S. order is indisputably in force and not subject to further appeal. “In addition it is not contended before us that Mrs. Montgomery did not have due notice of the proceedings.”
“What is in dispute is whether it would be contrary to the interests of justice to register the order. [The High Court judge] decided it would not be contrary to the interests of justice to register the order, even though he accepted that the order would have been made in breach of the requirements of article 6 of the ECHR if article 6 had applied to the making of that order (which of course it did not as it was made in the U.S.A.).”
“The Judge also came to the conclusion that the proceedings in the United States should be classified as criminal for the purposes of article 6. He decided that article 6.3, and in particular paragraph 6.3(c), would have been contravened by the proceedings in the U.S.A. if they had taken place in a country that was a party to the ECHR.” [¶ 4]
After a briefly discussing the facts, the Court quotes the following explanation of events from a speech in the House of Lords in an earlier phase of this case (see 2001 International Law Update 37):
“8. In a judgment dated 18 August 1995, the court found that the value of the ODSA shares as at 15 October 1984 was $11,217, 833.01. That meant that, after giving credit for the $7 million already paid, Mr Barnette owed the United States $4,217,833.01. The court held that Mr and Mrs Barnette were both in contempt and made an order against both of them for payment of the $4,217,833.01. This is the second of the confiscation orders upon which the U.S. government now relies.”
“9. Neither side was satisfied with this order and they both invited the court to revise it. Mr. Barnette wanted credit for the $3,758,127.93 which the government had seized in Liechtenstein. In addition, the $7,000,000 paid into court had earned $459,705.08 interest. If credit was given for both these sums, the debt to the government would be extinguished. The government, on the other hand, said that the sum of $4,217,833.01 reflected only what should have been paid in 1984. That sum should be increased to reflect the value to Mr. and Mrs. Barnette of having retained this forfeited property for over 10 years. In addition, the Barnettes should pay the government’s legal, investigative and expert fees.”
“10. In an order dated 15 November 1995, the court made an order giving effect to all these adjustments. Mr. Barnette was allowed credit for the Liechtenstein money and the interest. On the other hand, the sum to be forfeited was increased from $4,217,835.01 to $11,767,754 by applying U.S. Treasury interest rates from January 1985 to June 1995.” [¶ 10]
The English Court of Appeal then turns to the legal arguments on the appeal before it. Counsel for defendant argued that registering the order would contravene section 6 of the Human Rights Act of 1998. “He submits the act of registration will directly expose a claimant to enforcement of an order which was made in breach of article 6 and in direct violation of article 1 of Protocol 1 assuming the orders of the U.S. court are subjected to the standards of justice required by article 6 and article 1 of Protocol 1.” [¶ 22]
The Court of Appeal disagrees. “Here it cannot be said, even if the conduct of the District Court and the Courts of Appeal in the United States has been inconsistent with the standards of conduct required by article 6 or article 1 of the First Protocol, that the decision to register under the 1988 [CJA] gives rise to any breach of article 6 of the Convention [by the English Court]. This is for the simple reason that any conduct which could be a breach of the Convention in the United States had already taken place prior to the English proceedings.” [¶ 25]
The Court of Appeal next decides whether the trial judge had acted “in the interests of justice” when he registered the U.S. confiscation order. “I do not suggest that the jurisprudence under article 6 is necessarily irrelevant. It may throw light on what is to be regarded as in the interests of justice. However, in the majority of cases, I suggest it will be unnecessary to refer in detail to the ECHR jurisprudence. In most cases, whether or not it is in the interests of justice to register, will be answered by examining the facts of what occurred in the foreign jurisdiction in which the judgment which is intended to be registered was given.” [¶ 29]
“However, looking at the situation as a whole, I agree entirely with [the trial judge's] view that it is in the interests of justice to register the confiscation order. There is no dispute that the confiscation order which was made was an order falling within [CJA] Section 97. In addition the order was no longer subject to appeal. As to receipt of notice of the proceedings, that is again not in dispute.”
“… [W]here the court has a discretion as to whether to do so, the normal course is for our courts to register an external confiscation order that satisfies the conditions of Section 97. This is for reasons of comity and because the order is by definition aimed at recovering money or other property obtained as a result of, or in connection with, crime. It is usually in the interests of justice that the courts in different jurisdictions should assist each other in the fight against crime.” [¶ 32]
The Court also notes that, in Mrs Montgomery’s case, the basis for applying the disentitlement doctrine by the American court was because that court thought it was the only available sanction which could achieve obedience to its orders.
“In our courts, if a party flagrantly disobeys an order of the court, the court can dismiss his claim or give judgment for the other party or stay the proceedings. Here Mrs. Montgomery was not deprived of being represented. The merits of her contentions had been fully considered at first instance. On appeal some of her contentions had been considered. She was, on the findings of the first instance court, undoubtedly assisting her former husband to place beyond the reaches of the court, the profits of his fraudulent conduct.”
“There will be many situations where there will be alternatives open to a court which make it unnecessary to adopt the approach of the U.S. Courts of Appeal. In such cases it may be unjust to register the order. The answer depends on the facts. Here in the circumstances of this case, judged against the background of the standards of justice required by article 6, [the lower court] was right to register the order.” [¶¶ 35 37]
Citation: Government of the United States v. Montgomery, [2003] E.W.C.A. Civ. 392, [2003] All E.R. (D) 351 (Ct. App. Civ. Div.).
Filed in: 2003 International Law Update, Issue8
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Ninth Circuit affirms denial of discovery requests in California federal court by foreign company for use in Chinese and Taiwanese litigation where foreign company had previously misappropriated trade secrets, and material in question was subject to protective order in Ohio proceedings
A Taiwanese company, Four Pillars Enterprises Co., Ltd. (FPE), sought to take depositions and to have documents produced under 28 U.S.C. Section 1782 from Avery Dennison Corporation (ADC) for use in FPE’s suits against ADC in China and Taiwan. Both FPE and ADC manufacture adhesive tape and labels. Several years ago, they began working on an Asian joint venture that later went sour over charges of stealing trade secrets.
FPE sued ADC in an Ohio federal court over misappropriation of trade secrets, and the jury found for ADC. The Ohio court entered a protective order for any material produced by ADC. It required that the parties could only use the confidential material in the Ohio proceedings.
FPE later brought the Section 1782 petition in a California federal court. A magistrate judge granted FPE the right to serve three of its document requests, but denied several others. FPE appealed. The U.S. Court of Appeals for the Ninth Circuit, however, affirms.
Section 1782 provides in part that: “(a) The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation. The order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal or upon application of any interested person and may direct that the testimony or statement be given, or the document or other thing produced, before a person appointed by the court …”
The Court agrees with the lower court’s application of Section 1782 here. “The magistrate judge did not abuse his discretion in denying much of the relief sought by [FPE] pursuant to 28 U.S.C. Section 1782. Congress gave the federal district courts broad discretion to determine whether, and to what extent, to honor a request for assistance under 28 U.S.C. Section 1782. (Cite).” [Slip op. 7]
“Here, the magistrate was presented with a set of special circumstances that he was entitled to take into account. [ADC] had produced extensive confidential and trade-secret material in the Ohio civil litigation over the theft of such secrets. That litigation ended in a verdict finding that [FPE] had stolen secrets. In addition, [FPE] had been criminally convicted of attempt and conspiracy to steal [ADC's] secrets.”
“The purpose of the Ohio protective order was to prevent misuse of the confidential material, including its use against [ADC] in retaliatory litigation. Faced with this unusual and unequivocal scenario, the magistrate judge did not abuse his discretion in concluding that a discovery order for this material under Section 1782 would improperly frustrate the order of the District Court for the Northern District of Ohio.” [Slip op. 10]
Although the judge below had also spoken of Section 1782′s possible application to discover material located in Asia, the appellate Court does not rule on the issue. “The magistrate judge denied [FPE's] requests for documents that [ADC] possessed in Asia, observing that he did ‘not view the purpose of Section 1782 as encompassing the discovery of material located in foreign countries.’”
“There is some support for the magistrate judge’s view. (Cite). We ourselves have described Section 1782 as legislation ‘which permits domestic discovery for use in foreign proceedings,’ but we did not rule on any attempted discovery outside the United States. (Cite) …”
“In this case the responsive materials in issue were in China, where [FPE] was pursuing civil litigation against [ADC]. The Chinese courts are well situated to determine whether such material is subject to discovery, and in what manner.” [Slip op. 12-13].
Citation: Four Pillars Enterprises Co., Ltd. v. Avery Dennison Corp., 308 F.3d 1075 (9th Cir. 2002).
Filed in: 2002 International Law Update, Issue 12
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In passing on request for deposition testimony filed by parties to French litigation, Second Circuit decides that “is found” phrase in 28 U.S.C. Section 1782 includes witnesses who are temporarily sojourning in district of federal court which has issued subpoena
Asher B. Edelman and five investment funds he controls (collectively, petitioner) are minority shareholders in a French corporation, Societe du Louvre (SDL), whose shares are traded on the Paris Stock Exchange. Between 1997 and 1999, petitioner made three distinct, but unsuccessful, offers to buy SDL. Respondent, Claude Taittinger, one of several members of SDL’s Board of Directors, wrote the rejection letters. Respondent also heads Taittinger, S.A., a French company of champagne fame, which is SDL’s controlling shareholder.
SDL sued petitioner in the French courts charging that petitioner’s offers were phoney ways to unlawfully manipulate the market for SDL securities. Petitioner put in a counterclaim in the French suit. It claimed that respondent’s company had poorly managed SDL to advantage the Taittinger family to the damage of SDL and its minority shareholders.
Invoking 28 U.S.C. Section 1782(a), SDL persuaded a New York federal court to order Edelman and some of his companies to turn over documentary evidence for use in the French litigation. One of those companies was not a party to either the French or to the present Section 1782 proceedings.
In October 2000, petitioner responded by invoking Section 1782 to secure information from several named individuals and entities. Petitioner alleged that each of the designated individuals and companies lived or were found in the Southern District of New York. Petitioner’s application, however, did not list respondent Taittinger’s name. The court’s order did grant a broad authorization to take depositions of “additional individuals and entities with knowledge and information.”
On the date of the order, Taittinger was not within the Southern District. Three days later, officials served a subpoena on Taittinger while he was visiting the Gagosian Art Gallery in New York City. It ordered him to be deposed and to produce documentary evidence. Petitioner claimed that Taittinger was in the District on business but he denied it. Both sides agree, however, that he knows information pertinent to the French litigation.
A French citizen, Taittinger went back to France. In December 2000, Taittinger moved to quash the subpoena as beyond the scope of Section 1782(a). Citing Fed.R.Civ.P. 45, he also urged that the court lacked the power to force him to travel more than 100 miles from his residence because he was neither a party or a party’s officer in the French case.
The district court did not pass on the Rule 45 contention but did quash the subpoena. The judge’s analysis rested on the theory that it was improper to compel the discovery of evidence located in France. Petitioner took an appeal.
In a scholarly opinion, the U.S. Court of Appeals for the Second Circuit vacates and remands.
Section 1782(a) provides in relevant part that “[t]he district court of the district in which a person resides or is found may order him to give his testimony or statement … for use in a proceeding in a foreign or international tribunal. … To the extent that the order does not prescribe otherwise, the testimony or statement shall be taken … in accordance with the Federal Rules of Civil Procedure.”
Respondent argued to the Court that Section 1782(a) empowers the ordering of discovery only of evidence situated in the U.S. Alternatively, he contended that, at a minimum, the deponent had to be present in the district on the date the court issued the order.
In this case of first impression, the Court initially points out that Section 1782(a) geographically limits only the taking of testimony — not the production of documentary evidence. “The statute states that a person may be subject to a Section 1782(a) order only if he ‘resides or is found’ in the district in which the issuing court sits.” [177]
“Edelman does not dispute that Taittinger resides in France, and so what remains for us to construe is the phrase ‘is found’ in the Southern District. … Edelman contends [that] valid personal service alone shows that Taittinger was found in the Southern District, that is, he was physically present there, even though temporarily.” [Id.]
The incorporation of the Federal Rules of Civil Procedure into Section 1782(a), in the Court’s view, also suggests that courts should take a flexible approach to the phrase “resides or is found,” particularly under the terms of Rule 45. “[It] states: ‘a subpoena may be served at any place within the district of the court by which it is issued.’ Fed.R.Civ.P. 45(b)(2). The same rule further states that, unless a person is a party to the litigation or an officer of a party, he cannot be compelled to travel more than 100 miles from where he resides or works to be deposed. Fed.R.Civ.P. 45(c)(3)(A)(ii). That particular subdivision of Rule 45 gives nonparty deponents protection from expending time and money to comply with a subpoena. [Cite]”
“Further, Rule 26(c) of the Federal Rules authorizes a district court to modify or even quash a subpoena in order ‘to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.’ Together, Rules 45(c)(3)(A)(ii) and 26(c) provide ample protection from burdensome travel to those persons from whom discovery is sought under Section 1782(a). Accordingly, we see no need to interpret the statute’s language to provide even more protection to a nonresident prospective deponent.” [178]
“In addition, we question the degree of ‘protection’ that would be afforded by the temporal restriction suggested by Taittinger. Although it would allow him to avoid a deposition, it does not appear that such a rule would be of practical significance in the future.”
“To comply with the restriction, a party seeking discovery would have to wait until the unsuspecting prospective deponent wanders into the district, and then rush to the courthouse to have a judge sign an already drafted discovery order (or leave a drafted order with the judge and place a call requesting a signature once the prospective deponent enters the district). We see no benefit in requiring those involved in this process to be compelled to jump through such procedural hoops.” [Id.]
Moreover, Civil Rule 26(c) clearly gives a district court the discretion to bar or to modify discovery requests that appear to be abusing Section 1782(a). “The district court’s prudent exercise of discretion also counters the assertion that we risk setting an example that encourages other countries to nab our citizens traveling abroad and subject them to extensive discovery procedures as an aid to ongoing proceedings in U.S. courts.” [179]
In addition, what it means to be “found” in a locale is a well-settled term in the area of transient personal jurisdiction. “In Burnham v. Superior Court of California, 495 U.S. 604 (1990) (plurality opinion), the Supreme Court authorized the exercise of personal jurisdiction based on nothing more than physical presence. [Cite]”
“Given that this so called tag jurisdiction is consistent with due process, we do not think that Section 1782(a), which is simply a discovery mechanism and does not subject a person to liability, requires more. … It is consistent construction to endow the phrase ‘or is found’ in Section 1782 with the same breadth as that accorded it in Burnham.”[Id.]
The Court also points to references in the legislative history to temporary sojourners as “found” in a district. “Consequently, … we hold that if a person is served with a subpoena while physically present in the district of the court that issued the discovery order, then for the purposes of Section 1782(a), he is ‘found’ in that district.”
“As a matter of law, a person who lives and works in a foreign country is not necessarily beyond the reach of Section 1782(a) simply because the district judge signed the discovery order at a time when that prospective deponent was not physically present in the district. The district court therefore erred when it quashed the subpoena on the grounds that Taittinger was not ‘found’ in the United States.” [180]
On remand, the Court imposes an additional requirement. “On remand, the district court should consider whether Rule 45(c)(3)(A)(ii) requires the subpoena to be quashed. Petitioner contends that Taittinger qualifies as an ‘officer’ of a party in the French litigation [SDL] and therefore can be compelled to travel more than 100 miles from home and work. If such is found to be the case, the subpoena may be sustained.”[181]
Finally, even if the subpoena passes muster under both Section 1782(a) and Rule 45, basic discretionary issues remain. Judge Cardamone lays down some of the relevant factors.
“The statute has the twin aims of 1) providing equitable and efficient means to assist parties engaged in international litigation and, by so doing, 2) inviting foreign countries to provide similar assistance to our courts. [Cites] Further, Section 1782(a) should not be applied in a way that will create obvious confusion or skew the results in the foreign litigation. [Cites]”
“Accordingly, the district court should consider the effect of its decision on the ‘procedural parity’ of the parties to the French litigation. [Cites] In this case, [SDL] has already obtained discovery in the United States. In fact it was the French company, with which Taittinger is closely associated, that first filed for a discovery order under Section 1782(a). The district court should consider these factors if it reaches the point of having to exercise its discretion.” [Id.]
Citation: In re Application of Edelman, 295 F.3d 171 (2nd Cir. 2002).
Filed in: 2002 International Law Update, Issue 10
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House of Lords upholds power of British courts civilly to enforce RICO confiscation orders issued by U.S. District Court before British law granted that power to its courts
Larry Barnette is an American citizen whose companies had profitable contracts between 1977 and 1982 to run laundries which the U.S. had built in Germany to wash the clothes of American servicemen. During this period, he cheated the U.S. of about $15,000,000 and also decided to launder money instead of clothes. Some of the fraudulent proceeds went to Barnett’s Panamanian company, Old Dominion SA (ODSA), which, in turn, sent the money to its accounts in Switzerland, Liechtenstein and other places.
Just before his 1983 indictment for fraud, Barnette transferred 800 of the 900 shares he held in ODSA to his then wife (Kathleen) and 100 to his children. In 1984, a federal court convicted Barnette on several counts of fraud and connected offenses including violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Pursuant to RICO, the court next ordered Barnette on October 1, 1984 to forfeit his interest in ODSA stock.
In November 1984, the court sentenced Barnette and ordered him to pay $7,000,000 in restitution to the United States to be set off against the ODSA forfeiture orders. This arrangement limited Barnette’s liability to the greater of the two sums. The court also ordered Barnette to disclose all relevant information about ODSA’s net worth.
Although Barnette paid $7,000,000 into the court, he refused to provide valuation data on ODSA, claiming that, on the date of the forfeiture order, he no longer owned it. The court, however, held that the government’s title related back to the latest date of Barnette’s criminal activity. Meanwhile, Kathleen Barnette left her husband in 1983. She acquired citizenship in the Caribbean and now resides in England. In December 1992, she failed to obey a U.S. court discovery order because she was outside the jurisdiction.
In January 1995, the U.S. succeeded in persuading a Liechtenstein bank to turn over an ODSA account amounting to about $3,758,000. The U.S. then asked the court to assess the value of the ODSA shares as of October 15, 1984 based on the available data. It also moved the court to hold both Mr. and Mrs. Barnette in contempt of court for conspiring to elude the original forfeiture order. On November 15, 1995, the court credited Barnette for the Liechtenstein funds and the interest. Applying U.S. Treasury interest rates from January 1985 to June 1995, however, the court increased the sum to be forfeited to about $11,768,000.
The U.S. then applied to the British courts for aid in collecting these sums. In August 1994, certain British statutes for the first time conferred power on the High Court to enforce “external confiscation orders” made in the United States. These provisions included the Criminal Justice Act 1988 (Designated Countries and Territories) Order (SI 1991/2873) (“the DCO”) as amended by the Criminal Justice Act 1988 (Designated Countries and Territories) (Amendment) Order 1994 (SI 1994/1639).
In September 1997, the High Court issued orders under Section 77 of the Criminal Justice Act of 1988 (CJA) that (1) restrained Kathleen Montgomery (the former Mrs. Barnette) and her husband, Lee Edwin Montgomery, from disposing of various assets and (2) demanded the revelation of relevant financial information.
On the application of the Montgomerys, however, the High Court dismissed the orders on February 20, 1998. First, the Court ruled that a party could not use the powers of the Act to enforce American confiscation orders issued before the Parliament made the DCO applicable to the United States. Second, it held that the orders of the U.S. district court did not constitute “external confiscation orders” for DCO purposes.
The U.S. government appealed to the Court of Appeal. The Court reversed the High Court on both points and reinstated the restraint orders. The Montgomerys then appealed to the House of Lords which dismisses their appeal.
The House first addresses the issue of whether the orders in question are “civil” in nature. It agrees with the U.S. position on this point, holding that the nature of the proceedings in which the original order was entered does not necessarily determine whether the courts should regard the machinery of judicial enforcement as a “criminal” matter.
“Modern legislation, of which Part VI of the 1988 Act is a good example, confers powers upon criminal courts to make orders which may affect rights of property, create civil debts or disqualify people from pursuing occupations or holding office. Such orders may affect the property or obligations not only of the person against whom they are made but of third parties as well. Thus the consequences of an order in criminal proceedings may be a claim or dispute which is essentially civil in character. There is no reason why the nature of the order which gave rise to the claim or dispute should necessarily determine the nature of the proceedings in which the claim is enforced or the dispute determined.” [para. 19]
The Montgomerys also contended, inter alia, that the general presumption against retrospective legislation governs here, precluding the enforcement of an order entered at a time when the DCO had not yet become applicable to the United States. The Lords disagree.
“In the case of the imposition of a confiscation order by the criminal court, I can see that there are strong arguments for applying the presumption so as to limit the power to offences committed after the legislation came into force. (Cit.) Indeed, in Welch v United Kingdom (1995) EHHR 76 the European Court of Human Rights decided that the application of the power to make a confiscation order in respect of an offence committed before Part VI came into force offended against the prohibition on retrospective penalties in article 7 of the European Convention for the Protection of Human Rights and Fundamental Freedoms.” [para. 30]
But this is not such a case. “There is no suggestion that the Florida confiscation order was imposed in respect of an offence committed before the power conferred by RICO came into force. It was made under existing powers in respect of property which Larry Barnette had obtained by a fraud upon the United States. In my opinion the enforcement in this country of rights conferred upon the United States by an order made before the DCO came into force is a very different matter from the retrospective imposition of a penalty. Even if there was nothing which the United States government could have done before 1 August 1994 to recover its assets from Mr or Mrs Montgomery by proceedings in this country, I see no unfairness in it now being allowed to do so.” [Id.]
The Montgomerys also argued that the judicially-imposed interest was to punish them for non-compliance with prior orders and, to that extent, could not be counted as part of the confiscation order itself. The House rejects this contention.
“The defendants’ acquisition of the assets which gave value to the ODSA shares was as a result of or in connection with criminal conduct of Larry Barnette and their continuing retention of those shares was likewise a result of the same conduct. Alternatively, if one looks at the pecuniary advantage which the defendants received, section 71(4) of the Act as applied by the DCO requires the defendants to be treated as if they had received ‘a sum of money equal to the value of the pecuniary advantage,’ i.e. the ODSA shares. The retention of such a sum for ten years is in itself a pecuniary advantage even if the whole of the original capital is repaid. In my opinion, therefore, an order which deprives the defendants of that further advantage is within the definition of an external confiscation order.” [para. 32]
Citation: United States of America v. Montgomery, No. [2001] UKHL/3, [2001] 1 W.L.R. 196, (2001) 151 N.L.J. 136 (House of Lords).
Filed in: 2001 International Law Update, Issue 3
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Ninth Circuit rules that foreign criminal proceedings need not be “imminent” before federal courts may grant foreign government’s requests for evidentiary assistance under 28 U.S.C. Section 1782
In the following case, a person who wishes to remain anonymous (“appellant”) challenged U.S. judicial assistance to the Russian Federation which is investigating appellant’s alleged tax fraud. After the Russian Federation asked for judicial assistance, the U.S. initiated proceedings under 28 U.S.C. Section 1782 with the U.S. Attorney acting as commissioner. Appellant moved to dismiss them.
The district court denied appellant’s motion. Appellant argued on appeal that Section 1782 does not permit the obtaining of evidence for use in foreign criminal investigations until an actual foreign proceeding is imminent. Rejecting this argument, the U.S. Court of Appeals for the Ninth Circuit affirms.
Neither the plain language of the statute nor precedent in the Ninth Circuit impose a requirement that foreign proceedings be “imminent.” Section 1782 provides that “[t]he district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation. …” In 1996, Congress amended Section 1782 to add the phrase “including criminal investigations conducted before formal accusation.”
If Congress had wanted to condition judicial aid on the imminence of foreign criminal proceedings, it could have said so. Moreover, imposing such a requirement could often create a “Catch-22″ absurdity, i.e., it may turn out to be impossible for some foreign proceedings to become “imminent” without the evidence being sought in the U.S. Furthermore, Ninth Circuit precedent only requires that the foreign investigation relate to a judicial or quasi-judicial controversy. It has upheld assistance in cases where there were ongoing criminal investigations but no charges or proceedings were imminent.
Finally, the Court notes that the district court must screen such a request to ensure that it is not used for improper purposes such as harassing political opponents. The district court may in its discretion grant or deny such foreign requests for assistance based on an evaluation of whether the foreign request is justified.
Citation: United States v. Sealed 1, No. 00-35347 (9th Cir. November 1, 2000).
Filed in: 2000 International Law Update, Issue 11
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