Third Party Discovery of Foreign Bank Records Should First Proceed Under the Hague Convention

by Proskauer - Privacy & Data Security
Contact

Where U.S. litigation discovery obligations were argued to be in conflict with foreign civil and criminal privacy statutes, many recent opinions found that discovery should proceed under the Federal Rules over the protest of the foreign data custodians. See, e.g., Gucci Amer., Inc. v. Curveal Fashion, No. 09 Civ. 8458, 2010 WL 808639 (S.D.N.Y. Mar. 8, 2010) (compelling the third-party U.S. parent of a foreign bank to produce documents located at its subsidiary despite claims that such production was illegal under Malaysian law) discussed further in prior blog posts here and here. However, in SEC v. Stanford International Bank Ltd, the court departed from this pattern in finding that discovery should first proceed under the Hague convention “in the interest of comity.” Civil Action No. 3:09–CV–0298–N, 2011 WL 1378470 at *14 (N.D.Tex. April 6, 2011).

In this case, the court previously determined that R. Allen Stanford, his associates, and various entities under Stanford's control (collectively “Stanford”) operated “a massive Ponzi scheme that stole approximately $8 billion from an estimated 50,000 investors scattered over more than 100 countries,” and accordingly, the Court appointed a Receiver to identify and take control of Stanford’s assets. Id. at *1. As third-party Société Générale Private Banking (Suisse) S.A. (“SocGen”) was believed to hold accounts belonging to Stanford, the Receiver sought to discover account records under the Federal Rules of Civil Procedure (“FRCP”). Id. at *2. SocGen, opposing discovery under the FRCP, argued that as the sought-after documents were located in Switzerland, compliance with the FRCP discovery request would “subject it and its employees to criminal, civil, and administrative penalties under Swiss law.” Id. Instead, SocGen argued that the Receiver should first utilize the discovery procedures of the Hague Convention, of which Switzerland is a signatory.

To determine under which mechanism discovery should proceed, the court applied the balancing of factors set out in Société Nationale Industrielle Aérospatiale v. U.S. District Court, 482 U.S. 522, 538, 107 S.Ct. 2542, 96 L.Ed.2d 461 (1987) (“Aérospatiale”) and Minpeco, S.A. v. Conticommodity Serv., Inc., 116 F.R.D. 517, 523 (S.D.N.Y. 1987). These factors include: (1) the importance to the litigation of the documents or other information requested; (2) the degree of specificity of the request; (3) whether the information originated in the United States; (4) the availability of alternative means of securing the information, (5) the competing interests of the nations whose laws are in conflict; (6) the hardship of compliance on the party or witnesses from whom discovery is sought; and (7) the good faith of the party resisting discovery under the Federal Rules. See id. at *4.

The court’s application of these factors was initially fairly typical. Factors 1, 2, and 4 were found to favor the Receiver, as the documents were “vital” to the receivership proceedings and not available anywhere else. In particular, the court noted that as it considered the Receiver to essentially be SocGen’s customer, the discovery request “constitutes no more than a bank customer asking for a copy of its own records.” Id. at *5-6, 8, and 11. Counseling the opposite conclusion, factors 3, 6, and 7 were found to favor SocGen, as the documents were only located in Switzerland; this defense was not raised in bad faith; and “comity counsels deference” to SocGen’s “potentially well-founded fear” that compliance with the discovery request under the Federal Rules could lead to prosecution. Id. at *7-8, and 12-13.

Where the Court’s analysis deviates significantly from other opinions is its consideration of the fifth factor, which in this case involves the competing interests of the U.S. and Switzerland. Whereas other courts found that U.S. discovery interests trumped foreign privacy concerns, the Stanford court found this factor to be neutral, after noting that any such balancing of interests would be “political” and “especially inapposite in this case, where the legislative authorities of both nations essentially have spoken by adopting the Convention.” Id. at *9.  Compare id. (“the Convention inherently, and adequately, balances the competing sovereign interests here because its use will benefit U.S. interests by providing the needed evidence, and protect Swiss interests by avoiding intrusions upon Swiss sovereignty.”) with Gucci, 2010 WL at *7 (“[T]he Court concludes that the United States interest in fully and fairly adjudicating matters before its courts . . . outweighs Malaysia’s interest in protecting the confidentiality of its banking customers’ records.”).

On balance, the Stanford court found that the comity factors weighed in SocGen’s favor “at least in the first instance.” Id. at *13. Accordingly, the Receiver was to proceed with discovery under the Hague Convention, but was not precluded from renewing its request for discovery under the FRCP should its efforts be unsuccessful. Id. at *13-14. In so holding, the court acknowledged that others relied on the discretion provided by the Supreme Court in Aérospatiale as a “green light to generally ‘discard[ ] the treaty as an unnecessary hassle.’” Id. at *3 (citing In re Automotive Refinishing, 358 F.3d 288, 306 (3rd Cir. 2004)). However, this approach “ignores Aérospatiale's admonition to ‘exercise special vigilance’ in international discovery disputes . . . and exemplifies courts' intrinsic ‘proforum bias’ warned against by . . . the Aérospatiale minority.” Id.

While it is unclear the extent to which this approach will be followed by other courts in the future, this opinion illustrates that it is possible for litigants and third parties to successfully navigate cross border discovery conflicts even where privacy interests are at stake.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Proskauer - Privacy & Data Security | Attorney Advertising

Written by:

Proskauer - Privacy & Data Security
Contact
more
less

Proskauer - Privacy & Data Security on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!