Tiffany (NJ) LLC et al v. Andrew et al
Filing
38
OPINION AND ORDER. For all the foregoing reasons, plaintiffs are directedto request the information they seek in China through the Hague Convention at this time. Should this process prove futile, plaintiffs may renew their application to enforce their subpoenas. (Signed by Magistrate Judge Henry B. Pitman on 7/25/11); Copies sent by Chambers. (djc)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------X
TIFFANY (NJ) LLC and
TIFFANY AND COMPANY,
:
:
10 Civ. 9471 (WHP)(HBP)
:
OPINION
AND ORDER
Plaintiffs,
-against:
QI ANDREW, GU GONG, SLIVER DENG
and KENT DENG, all d/b/a
TIFFANYSTORES.ORG, FASHION STYLE
and STORESORG; ABC COMPANIES; and
JOHN DOES,
:
:
:
Defendants.
:
-----------------------------------X
PITMAN, United States Magistrate Judge:
I.
Introduction
Plaintiffs move for an Order compelling non-parties
Bank of China ("BOC"), Industrial and Commercial Bank of China
("ICBC") and China Merchants Bank ("CMB") (collectively the
"Banks") to produce documents pursuant to a subpoena duces tecum
that was served upon them in January 2011.
The Banks oppose
plaintiffs' motion.
For the reasons set forth below, plaintiffs' motion to
compel is denied without prejudice to renewal.
II.
Facts
Plaintiffs Tiffany (NJ) LLC and Tiffany and Company are
the well-known, high-end manufacturers of jewelry and other
products which hold "various federally registered and common law
trademarks used to identify the high quality goods merchandised
or manufactured by Tiffany" (Complaint, dated Dec. 20, 2010
(Docket Item 1), ¶ 1).
Plaintiffs allege that defendants sold
counterfeit Tiffany products through several websites hosted in
the United States.
Plaintiffs claim that defendants accepted
payment in U.S. dollars and used PayPal, Inc. ("PayPal") to
process customers' credit card transactions, then transferred the
profits to accounts held by the Banks (Memorandum of Law in
Support of Plaintiffs' Motion to Compel, dated May 3, 2011
(Docket Item 21), ("Pl.'s Mem. in Supp.") at 1).
PayPal was the
sole method of payment for these goods (Pl's Mem. in Supp. at 4;
Declaration of Robert Weigel, dated May 3, 2011 (Docket Item 22),
("Weigel Decl.") ¶¶ 4, 8, 11–13).
Defendants have not responded
to the complaint, nor have they responded to the Court's order
requiring them to produce documents related to their counterfeiting operation (Pl.'s Mem. in Supp. at 3).
The Honorable William H. Pauley, III, United States
District Judge, entered a Preliminary Injunction on January 3,
2
2011 (Preliminary Injunction, dated January 3, 2011 (Docket Item
7), (the "PI Order")).
The PI Order directed that
Plaintiffs' motion for continued expedited discovery
from financial institutions is granted, and that any
banks . . . or other companies or agencies that engage
in the transfer of real or personal property, who
receive actual notice of this order by personal service
or otherwise, shall provide to Plaintiffs all records
in their possession, custody, or control, concerning
the assets and financial transactions of Defendants or
any other entities acting in concert or participation
with Defendants, including but not limited to records
concerning the following: . . . any and all Bank of
China accounts in the name of or associated with Defendants . . . any and all Industrial and Commercial Bank
of China accounts in the name of or associated with
Defendants
(PI Order at 8).
The PI Order further directed that these
institutions could "apply to this Court for relief from the terms
of this paragraph within seven (7) days of service of this order"
(PI Order at 9).
On January 5, 2011, plaintiffs served the New York
branches of BOC and ICBC ("BOCNY" and "ICBCNY" respectively) with
copies of the PI Order, and on January 7, 2011, plaintiffs served
these branches with subpoenas pursuant to Federal Rule of Civil
Procedure 45 (Declaration of Lanier Saperstein, dated May 17,
2011 (Docket Item 27), ("Saperstein Decl.") ¶¶ 5-6) seeking the
following documents:
(1) communications concerning defendants or
defendants' accounts; (2) documents containing contact information associated with defendants' accounts; (3) documents relating
3
to any and all credit card transactions processed in connection
with purchases from defendants or defendants' websites; (4)
documents concerning any open or closed checking, savings, or
money market accounts, and certificates of deposit held in the
name of any of the defendants, including bank statements; (5)
documents concerning any open or closed loans or mortgages
relating to any of the defendants; (6) wire transfer documents
and files relating to any of the defendants, including documents
reflecting the source of funds for wires into defendants' accounts and (7) documents relating to Currency Transaction Reports
and Suspicious Activity Reports concerning any of the defendants
(see Pl.'s Mem. in Supp. at 4-5; Subpoenas, attached to Weigel
Decl. as Exs. 7, 9, 11).
On January 7, 2011, BOCNY informed plaintiffs that it
had searched its computer system, but did not find any accounts
held in the names of defendants.
BOCNY requested additional
information to distinguish common Chinese names, as well as the
full account number of the abbreviated account number set forth
in the PI Order.
It agreed to search for that account, as well
as any responsive wire transfer documents for which BOCNY acted
as an intermediary.
BOCNY also asserted that it "ha[d] no access
to or control over any customer accounts or any customer account
information located outside the United States" (Letter of Lanier
4
Saperstein to Anne Coyle, dated Jan. 7, 2011 and attached to
Saperstein Decl. as Ex. D).
On January 21, 2011, BOCNY informed plaintiffs that
after a search, it had not located any responsive wire transfers,
though it claimed it needed additional identifying information to
identify responsive wire transfers for "Ma Li" because it was too
common a name.
BOCNY also offered to assist plaintiffs in
preparing and submitting a discovery request to Chinese authorities pursuant to the Hague Convention, a proposal to which
plaintiffs did not agree (Letter of Lanier Saperstein to Jennifer
Halter, dated Jan. 21, 2011 and attached to Saperstein Decl. as
Ex. E).
On January 24, 2011, BOCNY served objections and
responses to the subpoena, and stated that it did not have
"possession, custody or control" of documents at any branch or
office outside of the United States.
It also objected to produc-
ing any information to the extent such production would violate
domestic or foreign law (BOCNY's Objections and Responses to
Plaintiffs' Rule 45 Subpoena, dated Jan. 24, 2011 and attached to
Saperstein Decl. as Ex. F).
On February 24, 2011, BOCNY con-
firmed that it had no accounts matching the numbers provided by
plaintiffs, nor did it have any wire transfer documents to or
from those accounts during the relevant time period (Letter of
5
Lanier Saperstein to Jennifer Halter, dated Feb. 24, 2011 and
attached to Saperstein Decl. as Ex. G).
Similarly, on January 7, 2011, ICBCNY informed plaintiffs that it held no accounts relating to any of the defendants
(Letter of Ying Wang to Anne Coyle, dated Jan. 7, 2011 and
attached to Saperstein Decl. as Ex. H).
ICBCNY later informed
plaintiffs that it had no accounts matching the numbers provided
by plaintiff, but proposed to assist plaintiffs in preparing a
request pursuant to the Hague Convention (Letter of Lanier
Saperstein to Jennifer Halter, dated Feb. 24, 2011 and attached
to Saperstein Decl. as Ex. G).
On January 24, 2011, ICBCNY served its formal objections and responses to the subpoena and stated that it did not
have "possession, custody or control" of documents at any branch
or office outside of the United States, and objected to producing
any information to the extent such production would violate
domestic or foreign law (ICBCNY Objections and Responses, dated
Jan. 24, 2011 and attached to Saperstein Decl. as Ex. I).
On January 26, 2011, plaintiffs served a copy of the PI
Order and a Rule 45 Subpoena on CMB's New York branch ("CMBNY")
seeking the same documents as those requested from BOC and ICBC
(PI Order and Subpoena, dated Jan. 26, 2011 and attached to
Weigel Dec. as Ex. 11).
In a letter dated January 28, 2011,
6
CMBNY's counsel informed plaintiffs that it "ha[d] no accounts or
assets for the defendants listed in the PI [Order] and identified
in your letter" and noted that CMBNY would serve "objections and
responses to the Subpoena within the time called for in the
Subpoena" (Letter of Dwight Healy to Jennifer Halter, dated Jan.
28, 2011 and attached to Declaration of Dwight Healy, dated May
17, 2011 (Docket Item 24), ("Healy Decl.") as Ex. A).
CMBNY then
objected to the production of any documents not in the custody
and control of CMBNY, noting that it did not have control over
documents located in any other office of CMB.
CMBNY also ob-
jected to producing documents that "would violate any applicable
domestic or foreign law, including the banking, commercial and
criminal laws of the People's Republic of China" (CMB's Objections and Responses, dated Jan. 24, 2011 and attached to Weigel
Decl. as Ex. 14).
Plaintiffs now move to compel the Banks to provide all
documents called for by the subpoenas and the PI Order (Docket
Item 20).
The Banks oppose this motion arguing:
(1) the Banks
do not have custody or control of documents located in China and
(2) plaintiffs' motion should be denied in accordance with
notions of comity.
7
III.
Analysis
A.
Scope of Subpoena
Served Pursuant to Rule 451
1.
Applicable Law
Rule 45 of the Federal Rules of Civil Procedure states
that a subpoena may command a non-party to produce documents that
are in its "possession, custody, or control."
Fed.R.Civ.P. 45;
see also Linde v. Arab Bank, PLC, 262 F.R.D. 136, 141 (E.D.N.Y.
2009).
"Control is defined not only as possession, but as
the legal right to obtain the documents requested upon
demand." Searock v. Stripling, 736 F.2d 650, 653 (11th
Cir. 1984). "Control" may also be found where an
entity has "access to" and the "ability to obtain the
documents." Bank of New York v. Meridien BIAO Bank
Tanzania Ltd., 171 F.R.D. 135, 144 (S.D.N.Y. 1997); see
also, e.g., In re Ski Train Fire of November 11, 2000
Kaprun Austria, 2006 WL 1328259, *5 (S.D.N.Y. 2006)
(same); Addamax Corp. v. Open Software Found., Inc.,
148 F.R.D. 462, 467 (D.Mass. 1993) (same). The party
seeking to compel a subsidiary to produce the documents
of its foreign parent has the burden of showing that
the documents are within the local subsidiary's con-
1
The New York branches of the Banks are branches of the same
corporate entities as their counterparts in China. Accordingly,
this Court has personal jurisdiction over the Banks. The New
York branches are not affiliates or subsidiaries. See Milliken &
Co. v. Bank of China, 09 Civ. 6123 (LMM), 2010 WL 5187744 at *8
(S.D.N.Y. Dec. 6, 2010) (McKenna, D.J., adopting Report &
Recommendation of Francis, M.J.); Dietrich v. Bauer, 95 Civ. 7051
(RWS), 2000 WL 1171132 at *4 (S.D.N.Y. Aug. 16, 2000) (Sweet,
D.J.). The Banks do not contest this Court's jurisdiction.
8
trol. See, e.g., State of New York v. Nat'l R.R.
Passenger Corp., 233 F.R.D. 259 (N.D.N.Y. 2006). "Access" and "ability to obtain documents" have been found
where "documents ordinarily flow freely between" parent
and subsidiary. Hunter Douglas, Inc. v. Comfortex
Corp., No. CIV. A. M8-85, 1999 WL 14007, at *3 (S.D.N.Y. Jan. 11, 1999).
Linde v. Arab Bank, PLC, supra, 262 F.R.D. at 141 (footnote
omitted).
See also Shcherbakovskiy v. Da Capo Al Fine, Ltd., 490
F.3d 130, 138 (2d Cir. 2007) (documents are within a party's
possession, custody or control when it has the practical ability
to obtain them); Vacco v. Harrah's Operating Co. Inc., No. 1:07CV-0663 (TJM/DEP), 2008 WL 4793719 at *9 (N.D.N.Y. Oct. 29, 2008)
("The touchstone of control, which has been variously defined by
the courts, is the ability, whether through the exercise of a
legal right or authority or through other means, to obtain the
requested documents."); see George Hantscho Co. v. Miehle-GossDexter, Inc., 33 F.R.D. 332, 334-35 (S.D.N.Y. 1963) (Palmieri,
D.J.).
Regardless of the witness' legal relationship to a
document, for the purposes of a Rule 45 subpoena, a document is
within a witness's "possession, custody, or control" if the
witness has the practical ability to obtain the document.
Babaev
v. Grossman, No. CV03-5076 (DLI)(WDW), 2008 WL 4185703 at *3
(E.D.N.Y. Sept. 8, 2008) ("Documents are under a party's control
when it has the right, authority or practical ability to obtain
9
them from a non-party."); In re NTL, Inc. Sec. Litig., 244 F.R.D.
179, 195 (S.D.N.Y. 2007) (Peck, M.J.) ("Under Rule 34, control
does not require that the party have legal ownership or actual
physical possession of the documents at issue; rather, documents
are considered to be under a party's control when that party has
the right, authority, or practical ability to obtain the documents from a non-party to the action.") (internal quotation marks
and citations omitted), aff'd sub nom., Gordon Partners v.
Blumenthal, 02 Civ. 7377 (LAK), 2007 WL 1518632 (S.D.N.Y. May 17,
2007) (Lewis, D.J.); see In re Zyprexa Prods. Liab. Litig., 254
F.R.D. 50, 58 (E.D.N.Y. 2008), aff'd, 04-MD-1596, 2008 WL 4682311
(E.D.N.Y. Oct. 21, 2008); Bank of New York v. Meridien BIAO Bank
Tanzania, Ltd., 171 F.R.D. 135, 146-47 (S.D.N.Y. 1997) (Francis,
M.J.); George Hantscho Co. v. Miehle-Goss-Dexter, Inc., supra, 33
F.R.D. at 334-35.2
If the party subpoenaed has the practical
ability to obtain the documents, the actual physical location of
the documents -- even if overseas -- is immaterial.
Matter of
Marc Rich & Co., A.G., 707 F.2d 663, 667 (2d Cir. 1983); In re
2
Although some of the cases cited herein involve requests
for the production of documents served pursuant to Fed.R.Civ.P.
34 rather than a Rule 45 subpoena, the difference is immaterial.
"The scope of the two rules is coextensive . . . at least with
respect to documentary discovery." SEC v. Credit Bancorp, Ltd.,
194 F.R.D. 469, 471 n.4 (S.D.N.Y. 2000) (Sweet, D.J.), citing
First Am. Corp. v. Price Waterhouse LLP, 154 F.3d 16, 21 (2d Cir.
1998).
10
Flag Telecom Holdings, Ltd. Sec. Litig., 236 F.R.D. 177, 180
(S.D.N.Y. 2006) (Conner, D.J.); Cooper Indus., Inc. v. British
Aerospace, Inc., 102 F.R.D. 918, 920 (S.D.N.Y. 1984) (Edelstein,
D.J.).
However, "[l]egal and practical inability to obtain the
requested documents from the non-party, including by reason of
foreign law, may place the documents beyond the control of the
party who has been served with the Rule 34 request."
Cohen v.
Horowitz, 07 Civ. 5834 (PKC), 2008 WL 2332338 at *2 (S.D.N.Y.
June 4, 2008) (Castel, D.J.), citing Shcherbakovskiy v. Da Capo
Al Fine, Ltd., supra, 490 F.3d at 138.
The burden of demonstrating that the party from whom
discovery is sought has the practical ability to obtain the
documents at issue lies with the party seeking discovery.
Golden
Trade S.r.L. v. Lee Apparel Co., 143 F.R.D. 514, 525 n.7 (S.D.N.Y. 1992) (Dolinger, M.J.) ("In the face of a denial by a party
that it has possession, custody or control of documents, the
discovering party must make an adequate showing to overcome this
assertion."); accord Honda Lease Trust v. Middlesex Mut. Assur.
Co., No. 3:05CV1426 (RNC), 2008 WL 3285242 at *2 (D. Conn. Aug.
7, 2008); SEC v. Credit Bancorp, Ltd., supra, 194 F.R.D. at 472;
In re Lozano, 392 B.R. 48, 54 (Bnkr.S.D.N.Y. 2008) (Glenn, B.J.).
"[A] corporation is presumed to have custody and
control of its own records ordinarily required in the course of
11
business, and the burden of proving otherwise is on the corporation" (Pl.'s Mem. in Supp. at 7, citing Hunter Douglas, Inc. v.
Comfortex Corp., CIV. A. M8-85 (WHP), 1999 WL 14007 at *3 n.6
(S.D.N.Y. Jan. 11, 1999) (Pauley, D.J.); Cooper Indus. Inc. v.
British Aerospace, Inc., supra, 102 F.R.D. at 920 n.2; In re
Equitable Plan Co., 185 F. Supp. 57, 60-61 (S.D.N.Y. 1960)
(Herlands, D.J.) (requiring foreign banks to respond to document
subpoenas served on New York branches)).
In this case, plain-
tiffs' subpoenas were directed to the corporate entities of BOC,
ICBC and CMB –- entities which actually have branch offices (not
subsidiaries or affiliates) in New York.
2.
Location of the Documents
The New York branch offices all claim that the documents at issue are located in their China branches, and they
assert that the New York and China branches do not share computer
systems that can access the information sought and do not otherwise exchange the type of information requested (Declaration of
Richard Pagnotta, dated May 17, 2011 (Docket Item 26), ("Pagnotta
Decl.") ¶¶ 2-3; Declaration of John Beauchemin, dated May 17,
2011 (Docket Item 28), ("Beauchemin Decl.") ¶¶ 3-6; Declaration
of Xintao Luo, dated May 17, 2011 (Docket Item 30), ("Luo Decl.")
¶¶ 3-6).
Therefore, the Banks claim that the documents are not
12
in the New York branches' custody and control and cannot be
produced.
They also claim that their personnel "do not have the
authority to direct personnel at the head offices or at Chinese
branches to disclose customer account information" and lack the
"ability" or "legal right" to obtain the information plaintiffs
request (Memorandum of Law in Opposition to Plaintiffs' Motion to
Compel the Production of Documents from Non-parties Bank of China
and Industrial and Commercial Bank of China, Ltd., dated May 17,
2011 (Docket Item 31), ("BOC/ICBC Mem. in Supp.") at 12-13,
citing Linde v. Arab Bank, PLC, supra, 262 F.R.D. at 141 and
Zenith Electronics v. Vizio, Misc. No. M8-85, 2009 WL 3094889, at
*2 (S.D.N.Y. Sept. 25, 2009) (Pauley, D.J.)).
The Banks further
note that although their foreign customers can access their
accounts electronically in the United States, the United States
branches of the Banks cannot themselves access this information
(see Pagnotta Decl. ¶ 4; Beauchemin Decl. ¶ 4).
Plaintiffs claim that because "[n]one of the Banks' New
York branches are separately incorporated from the branches that
operate overseas, including the branches in China," the Banks
should be deemed to have custody and control over the documents
at issue (Pl.'s Mem. in Supp. at 5).
13
3.
The Banks have Custody
and Control of the Documents
As noted by plaintiffs, "a corporation is presumed to
have custody and control of its own records ordinarily required
in the course of business, and the burden of proving otherwise is
on the corporation" (Pl.'s Mem. in Supp. at 7, citing Hunter
Douglas, Inc. v. Comfortex Corp., supra, 1999 WL 14007 at *3
n.6).
"Clear proof of lack of possession and control is neces-
sary to rebut the presumption."
616, 618 (2d Cir. 1959).
First Nat'l v. IRS, 271 F.2d
In this case, plaintiffs' subpoenas are
directed to the corporate entities of BOC, ICBC and CMB.
Though
they were served on their branch offices in New York, the subpoenas are directed to these corporate entities in their entirety.
The Banks do not dispute that their New York and China branches
are part of the same corporate entity.
The necessary inquiry,
therefore, is whether the Banks have overcome the presumption
that they control the documents within their China branches.
This case is analogous to Ssangyong Corp. v. Vida Shoes
Int'l, Inc., 03 Civ. 5014 (KMW)(DFE), 2004 WL 1125659 (S.D.N.Y.
May 20, 2004) (Eaton, M.J.), in which the New York branch of a
bank headquartered in Hong Kong claimed it did not have custody
and control over the documents in the foreign branch.
The Court
held that where the foreign bank and its New York branch were not
14
"separate entities," and account holders were aware that documents could be sent outside the foreign branch, the New York
branch had custody and control of the documents regardless of
their location abroad.
Ssangyong Corp. v. Vida Shoes Int'l,
Inc., supra, 2004 WL 1125659 at *4-5.
Although the Banks are
correct that an analysis of the "reality of whether the entity
from which discovery is sought has actual control over the
records" has been used to determine the reach of a subpoena or
document request (Memorandum of Law of Third Party China Merchants Bank in Opposition to the Plaintiffs' Motion to Compel,
dated May 17, 2011 (Docket Item 23), ("CMB Mem. in Supp.") at 7),
this analysis is usually warranted only "[w]here there are two
entities."
Ssangyong Corp. v. Vida Shoes Int'l, Inc., supra,
2004 WL 1125659 at *4 (emphasis added).
The Banks cite several cases in which motions to compel
discovery were denied because one branch of an entity was found
to lack control over the documents of another (CMB Mem. in Supp.
at 7, 10; BOC/ICBC Mem. in Supp. at 13 n.3, citing New York ex
rel. Boardman v. Nat'l R.R. Passenger Corp., 233 F.R.D. 259, 268
(N.D.N.Y. 2006); Zenith Electronics v. Vizio, supra, 2009 WL
3094889 at *2; Linde v. Arab Bank, PLC, supra, 262 F.R.D. at 14245).
However, these cases are not instructive because they give
no insight into the fact-specific question of whether the Banks
15
in this case, the New York branches of which are not legally
separate entities, have overcome the presumption that they have
control over their own documents.
The Banks also discuss several cases in which a corporate branch was either found to have control over documents in
another branch, or did not argue otherwise (CMB Mem. in Supp. at
8-10; BOC/ICBC Mem. in Supp. at 13 n.13, citing First Nat'l v.
IRS, supra, 271 F.2d at 618; United States v. First Nat'l City
Bank, 396 F.2d 897, 898 n.23 (2d Cir. 1968); Ings v. Ferguson,
282 F.2d 149, 151-52 (2d Cir. 1960); In re Equitable Plan Co.,
supra, 185 F. Supp. at 59)).
Again, these cases are not helpful
because they do nothing to answer the factual question of whether
the Banks have custody and control of the documents requested in
this case.
The Banks attempt to overcome the presumption that they
have custody and control over the documents by asserting that
their New York and China branches have separate computer systems,
and that their New York personnel cannot compel the China headquarters to produce account information.
These facts are of no
moment, however, because the subpoena is directed to the Banks as
a whole, not solely the New York branches.
3
The Banks do not
CMB cites footnote 3, but quotes footnote 2.
16
argue that BOC, ICBC and CMB lack control over documents in
China.
Accordingly, I find that the documents requested are, in
fact, in the Banks' custody and control.
B.
Existence of a
True Conflict
In addition to arguing that they do not have possession
and control of the documents, the Banks resist production on the
ground that production is prohibited by Chinese law.
They rely
on the following provisions of Chinese law, among others, in
asserting this contention:
•
Commercial Bank Law Article 6 which provides that
commercial banks shall safeguard the legal rights and
interests of depositors against the encroachment of any
entity or individual
•
Article 24 of the Corporate Deposit Regulations which
provides that a financial institution shall keep secret
the deposits of corporate depositors
•
Article 28 of the Corporate Deposit Regulations which
provides that savings institutions, defined to include
banks, and their personnel shall keep secret depositors' savings and related information. A commercial
bank that discloses information about the deposit of a
corporate depositor in violation of the provisions of
Article 24, or looks into, freezes or debits the funds
of a corporate depositor on behalf of others in violation of Chinese law, can be punished according to
Article 73 of the Law of the People's Republic of China
on Commercial Banks
•
The Provisions on the Administration of Financial
Institutions' Assistance in the Inquiry into, Freeze or
Deduction of Deposits which provide the procedure for
17
inquiring into, freezing, or debiting banks' accounts.
At least two conditions must be met before such an
action can take place: first, the request for inquiry
into, freezing or debiting funds from the deposit
account must be from an authorized governmental entity;
second, the governmental entity must present the bank
with a document called "a notice on the assistance with
the inquiry into, or freeze or deduction of deposits"
issued by the governmental entity at the appropriate
level
•
Article 73 of the Commercial Bank Law which provides
that if a commercial bank illegally discloses information about, freezes, or debits an account, it shall pay
interest for the deferred payment and the banking
regulatory organ of the State Council shall order the
commercial bank to take corrective action and impose on
it a fine of not less than RMB 50,000 Yuan and not more
than RMB 500,000 Yuan. The bank may also be subject to
civil liability from the depositors
•
Article 78 of the Commercial Bank Law which provides
that if a commercial bank violates Chinese law as
described in Article 73, its directors, senior management personnel and other persons who are held directly
responsible shall be given disciplinary punishment,
which may include a note in the individual's human
resources file, demotion or dismissal
•
Article 253(A) of China's Criminal Law which pertains
to staff members of particular institutions, including
state and financial entities. If these staff members
sell or illegally provide personal information of
citizens to others in violation of Chinese law, which
they obtained during the entity's performance of duties
or provision of services, those staff members shall, if
the circumstances are serious, be sentenced to a fixed
term of imprisonment of not more than three years,
additional criminal detention and/or a fine. Where any
entity commits such a crime, it shall be fined, and the
individuals in charge as well as any other individual
who may be directly liable for the crime, shall be
punished in accordance with the applicable law. These
restrictions apply in the absence of customer consent
18
(see Declaration of Zhipan Wu, dated May 17, 2011 (Docket Item
25), ("Wu Decl.") ¶¶ 9-33; Translation, attached to Wu Decl. as
Exs. B-1, B-2, B-3, B-4, B-6; Declaration of James Feinerman,
dated May 17, 2011 (Docket Item 29), ("Feinerman Decl.") ¶¶ 2153).
Where a party from whom discovery is sought asserts
foreign law as a bar to production, courts perform a comity
analysis to determine the weight to be given to the foreign
jurisdiction's law.
In re Maxwell Commc'n Corp., 93 F.3d 1036,
1049 (2d Cir. 1996); see also Strauss v. Credit Lyonnais, S.A.,
No. CV-06-0702 (CPS), 2006 WL 2862704 at *18 (E.D.N.Y. Oct. 5,
2006); Container Leasing Int'l, LLC v. Navicon, S.A., No.
CIV303V00101 (AWT), 2006 WL 861012 at *6 (D. Conn. Mar. 31,
2006); Alfadda v. Fenn, 149 F.R.D. 28, 34 (S.D.N.Y. 1993) (Katz,
M.J.).
Plaintiffs do not dispute that there is a true conflict
between United States and Chinese law on this issue and that
resort to a comity analysis is appropriate.
19
C.
Comity Analysis4
In determining whether to order discovery of foreign
documents and information, courts in this Circuit follow the
Restatement (Third) of Foreign Relations Law § 442(1)(c) and
consider:
(1) the importance of the documents or information
requested to the litigation; (2) the degree of specificity of the
request; (3) whether the information originated in the United
States; (4) the availability of alternative means of retrieving
the information; and (5) the extent to which noncompliance with
the request would undermine important interests of the United
States, or compliance with the request would undermine the
important interests of the state where the information is located.
See Gucci America, Inc. v. Curveal Fashion, 09 Civ. 8459
(RJS)(THK), 2010 WL 808639 at *2 (S.D.N.Y. Mar. 8, 2010) (Katz,
M.J.); Minpeco, S.A. v. Conticommodity Servs., Inc., supra, 116
4
Comity is defined,
in the legal sense, [a]s neither a matter of absolute
obligation, on the one hand, nor of mere courtesy and
good will, upon the other. But it is the recognition
which one nation allows within its territory to the
legislative, executive or judicial acts of another
nation, having due regard both to international duty
and convenience, and to the rights of its own citizens
or of other persons who are under the protection of its
laws.
Hilton v. Guyot, 159 U.S. 113, 163-64 (1895).
20
F.R.D. at 523.
"In addition, courts in the Second Circuit may
also consider the hardship of compliance on the party or witness
from whom discovery is sought [and] the good faith of the party
resisting discovery."
Gucci America, Inc. v. Curveal Fashion,
supra, 2010 WL 808639 at *2 (internal quotations omitted).
1. Importance of the Information
Plaintiffs claim that discovery of defendants' operations and finances from the Banks is vital to the litigation
because defendants have not appeared in the action and it appears
that defendants themselves will not be providing any discovery
(Pl.'s Mem. in Supp. at 11).
Plaintiffs maintain that the Banks'
records include information regarding "'the sources and uses of
the funds'" from the counterfeiting operation, and that without
this information, plaintiffs will not be able to determine the
size and scope of defendants' illegal enterprise (Pl.'s Mem. in
Supp. at 11-12; Circular of the People's Bank of China, dated
Jan. 1, 2005 and attached to Weigel Decl. as Ex. 23).
The Banks
argue that plaintiffs have already obtained this information from
GoDaddy.com, the website provider, and PayPal, and, therefore, it
is not crucial that plaintiffs obtain it from the Banks.
The
Banks claim that because plaintiffs have established that PayPal
was the sole method of payment for the counterfeit goods sold on
21
defendants' websites, the Banks have no additional information.
In reply, plaintiffs note that PayPal records do not identify the
recipients of the funds or where the funds were transferred
following their deposit (BOC/ICBC Mem. in Supp. at 14-15; CMB
Mem. in Supp. at 13; Reply Memorandum of Law in Further Support
of Plaintiffs' Motion to Compel the Production of Documents from
Third-Parties, dated May 24, 2011 (Docket Item 32), ("Pl.'s Reply
Mem.") at 10-11).
Plaintiffs are correct in this regard.
Because the
Banks' records could potentially reveal the identities of those
involved in the counterfeiting operation, they are important to
plaintiffs' claims.
Moreover, account transaction records could
allow plaintiffs to discover if the funds from the accounts were
used to create counterfeit goods, thereby identifying manufacturers, or to compensate others involved in the operation, thereby
identifying other defendants.
This information cannot now be
obtained from the websites' records or from defendants, making
its production by the Banks all the more important.
Both plaintiffs and the Banks assert several additional
arguments concerning the importance of the information, including
whether plaintiffs may obtain discovery concerning enforcement of
a judgment at this time.
Because these documents are relevant to
the litigation at this, the pre-judgment stage, their importance
22
does not depend on whether they would be discoverable in connection with the enforcement of any judgment that may be entered in
this matter.
Likewise, it does not matter at this stage whether
the extraterritorial assets could be restrained by the PI Order
or some other mechanism.
Because plaintiffs have demonstrated
that the information they seek from the Banks is important for
pursuing their claims at the present stage of the litigation,
this factor weighs in favor of plaintiffs.
2.
The Requests' Specificity
The Banks next argue that plaintiffs' subpoenas are
overly broad, but do not single out any particular request5 to
demonstrate overbreadth (BOC/ICBM Mem. in Supp. at 16; CMB Mem.
in Supp. at 16).
In fact, plaintiffs' subpoenas here are virtu-
ally identical to that at issue in Curveal, which was found to be
narrowly tailored (see Curveal Subpoena, dated Nov. 5, 2009 and
attached to Declaration of Jennifer Halter, dated May 24, 2011
(Docket Item 33), ("Halter Decl.") as Ex. 5).
Gucci America,
Inc. v. Curveal Fashion, supra, 2010 WL 808638 at *3.
However,
CMB argues that, unlike in Curveal, plaintiffs' current requests
5
BOC and ICBC claim that plaintiffs request suspicious
activity reports which the Banks are prohibited from producing by
law (BOC/ICBC Mem. in Supp. at 16). The inclusion of this
request does not render the subpoena overly broad.
23
are not targeted at specific accounts (CMB Mem. in Supp. at 16;
BOC Subpoena, dated Jan. 7, 2011 and attached to Weigel Decl. as
Ex. 7; ICBC Subpoena, dated Jan. 7, 2011 and attached to Weigel
Decl. as Ex. 9; CMB Subpoena, dated Jan. 26, 2011 and attached to
Weigel Decl. as Ex. 11).
To the contrary, these requests, like
those in Curveal, are directed to the accounts of the defendants.
In addition, plaintiffs provided account numbers for some defendants (see Emails of Jennifer Colgan, attached to Weigel Decl. as
Ex. 10).
Certainly, these requests are sufficiently specific.
This prong, then, also weighs in favor of plaintiffs.
3.
Whether Information
Originated in the United States
Plaintiffs claim that because the funds in the relevant
accounts originated in the United States, and because the Banks'
customers can access their foreign accounts in the United States,
the information at issue cannot be said to originate solely in
China (Pl.'s Mem. in Supp. at 14-15).
The Banks do not deny
these facts, but correctly note that the actual information that
plaintiffs seek is located abroad and cannot be accessed by
personnel at BOCNY, ICBCNY or CMBNY (BOC/ICBC Mem. in Supp. at
24
16-17; CMB Mem. in Supp. at 16).6
The overseas location of this
information weighs in favor of the Banks.
Linde v. Arab Bank,
PLC, supra, 262 F.R.D. at 150; Gucci America, Inc. v. Curveal
Fashion, supra, 2010 WL 808639 at *3.
4.
Alternative Means for
Securing the Information
All parties acknowledge that a request for discovery by
way of the Hague Convention is potentially an alternative means
of securing the information at issue.
Plaintiffs have asserted
five reasons why such a request would be futile (Pl.'s Mem. in
Supp. at 15-19).
Generally, they argue that China's Hague
Convention procedures "do not offer a meaningful avenue to
discovery" because the process is likely to be "'unduly time
consuming and expensive, as well as less certain to produce
needed evidence than direct use of the Federal Rules'" (Pl.'s
Mem. in Supp. at 16, quoting Societe Nationale Industrielle
Aerospatiale v. United States District Court for the Southern
District of Iowa, 482 U.S. 522, 542-44 (1987)).
6
Plaintiffs also claim that BOC did not search its Los
Angeles branch for relevant documents and it is possible that
responsive documents exist at that location (Pl.'s Mem. in Supp.
at 14). Because the parties have not adequately briefed this
issue, my decision addresses only the production of documents
from the Banks' China branches.
25
(1)
China's Record of Enforcement
of Hague Convention Requests
First, plaintiffs argue that the United States Department of State had previously posted on its website that
While it is possible to request compulsion of evidence
in China pursuant to a letter rogatory or letter of
request (Hague Evidence Convention), such requests have
not been particularly successful in the past. Requests
may take more than a year to execute. It is not unusual for no reply to be received or after a considerable time has elapsed, for Chinese authorities to
request clarification from the American court with no
indication that the request will eventually be executed
(Pl.'s Mem. in Supp. at 17; State Department Circular, attached
to Weigel Decl. as Ex. 29, (the "Circular") at 5).
The Banks
correctly note that this language has been removed from the State
Department website (BOC/ICBC Mem. in Supp. at 18; CMB Mem. in
Supp. at 17-18).
The State Department has not explained its
reason for the removal, but BOC and ICBC claim that it suggests
that the State Department no longer believes the statement to be
accurate (BOC/ICBC Mem. in Supp. at 2).
CMB correctly points out that plaintiffs fail to cite
the language from the State Department's website that states "The
United States is seeking clarification from the Government of the
People's Republic of China concerning how the Hague Evidence
Convention will be applied in China" (CMB's Mem. in Supp. at 1718 n.18; Circular at 6).
CMB further notes that when this
26
passage was posted, the Circular included citations to sources
that were over fifteen years old, and ante-dated China's ratification of the Hague Convention in 1997 (CMB Mem. in Supp. at 17
n.18; Circular at 7-8, citing Hague Conference on Private International Law, Status Table, http://www.hcch.net/
index_en.php?act=conventions.status&cid=82).
Moreover, CMB
claims that China has actively implemented the Convention, and in
2003 designated China's highest local courts to directly forward
and transfer judicial assistance requests in accordance with the
Hague Convention (CMB's Mem. in Supp. at 18 n.18, citing Huang
Jin et. al., Chinese Judicial Practice in Private International
Law:
2006, 8 Chinese J. Int'l L. 715, 717 (2009)).
BOC and ICBC
specify that the Chinese Ministry of Justice has reported that
over the last five years it has executed approximately 50% of the
requests it has received, and that it takes an average of six to
twelve months for a request to be executed.
In the first half of
2010, the Ministry of Justice honored thirty-seven requests for
evidence in commercial and civil matters (BOB/ICBC Mem. in Supp.
at 2; Feinerman Decl. ¶ 12).
I agree with the Banks that the deletion of the language from the State Department's Circular that is critical of
China's enforcement of Hague Convention requests implies that the
conditions described by the omitted language no longer exist.
27
There would be no reason for the State Department to withdraw the
language if it were still accurate.7
Accordingly, I conclude that the Banks have demonstrated that the State Department website language should no
longer be given any weight since it has been deleted.
(2) Plaintiffs' Contention that
the Southern District
Has Concluded the Hague
Convention in China is Futile
Plaintiffs cite Milliken & Co. v. Bank of China, supra,
758 F. Supp. 2d at 248, and claim that the Southern District has
specifically rejected the argument that plaintiffs may easily
obtain documents in China through the Hague Convention (Pl.'s
7
The Banks further note that there are several examples of
New York courts requiring parties to utilize the Hague Convention
(BOC/ICBC Mem. in Supp. at 17-18; CMB Mem. in Supp. at 16-17,
citing Laker Airways Ltd. v. Pan American World Airways, 607 F.
Supp. 324, 326-27 (S.D.N.Y. 1985) (Brieant, D.J.); Societe
Nationale Industrielle Aerospatiale v. United States District
Court for the Southern District of Iowa, supra, 482 U.S. at 54244; Hudson v. Hermann Pfauter GmbH & Co., 117 F.R.D. 33, 38
(N.D.N.Y. 1987); Orlich v. Helm Bros., Inc., 160 A.D.2d 135, 143,
560 N.Y.S.2d 10, 14-15 (1st Dep't 1990); Ings v. Ferguson, supra,
282 F.2d at 152; In re Vivendi Universal, S.A. Sec. Litig., 02
Civ. 5571 (RJH), 2004 WL 3019766 at *1 (S.D.N.Y. Dec. 30, 2004)
(Holwell, D.J.); Intercont'l Credit Corp. v. Roth, 154 Misc.2d
639, 641-42, 595 N.Y.S.2d 602, 603 (Sup. Ct. New York Co. 1991)).
However, because none of these cases involve contemporary Hague
Convention requests to China, they provide no assistance in
predicting the effectiveness of the Hague Convention requests
suggested by the Banks.
28
Mem. in Supp. at 17).
The Banks argue that this case is not
controlling because it was based on the language that has now
been removed from the State Department's website (BOC/ICBC Mem.
in Supp. at 18; CMB Mem. in Supp. at 18 n.19).
They also note
that it is factually distinguishable because Milliken involved a
"turnover" action following an unpaid judgment against a BOC
customer.
BOC asserted an affirmative defense, claiming that the
account holder's property was subject to "'claims of and security
interests held by the Bank that are superior to any claim of
Petitioner's,'"
Milliken & Co. v. Bank of China, supra, 758 F.
Supp. 2d at 241-42, while also arguing that it should not be
required to answer interrogatories or produce documents unless
such demands were made pursuant to the Hague Convention.
Milliken & Co. v. Bank of China, supra, 758 F. Supp. 2d at 243.
The Banks claim that the court's discussion of the Hague Convention was "at best an alternative holding" in light of the court's
suggestion that as a party asserting an affirmative claim, BOC
was in a poor position to resist the discovery procedures set
forth in the Federal Rules of Civil Procedure (CMB Mem. in Supp.
at 18 n.19, citing Milliken & Co. v. Bank of China, supra, 758 F.
Supp. 2d at 245 (footnote omitted)).
Plaintiffs' argument is based on a fundamental misapprehension of the principles of stare decisis.
29
An opinion of a
District Judge does not bind the court in which the District
Judge sits.
Hawkins v. Steingut, 879 F.2d 317, 321 (2d Cir.
1987); Bishop v. Henry Modell & Co., 08 Civ. 7541 (NRB), 2009 WL
3762119 at *10 n.10 (S.D.N.Y. Nov. 10, 2009) (Buchwald, D.J.);
Strategic Value Master Fund, Ltd. v. Cargill Fin. Servs., Corp.,
421 F. Supp. 2d 741, 768 n.22 (S.D.N.Y. 2006) (Leisure, D.J.).
Milliken does not, therefore, constitute binding precedent,
although it does have some persuasive power.
(3) Expert Opinions
Plaintiffs next rely on the opinion of Donald Clarke, a
professor at George Washington University Law School (Pl.'s Mem.
in Supp. at 18-19).
Specifically, plaintiffs rely on Clarke's
opinion that "'a Hague Convention request [to China] issued by a
United States court is not a realistic or meaningful option for
the Plaintiffs in [a counterfeiting] case to obtain the information that they seek' concerning the bank records of the counterfeiters" (Pl.'s Mem. in Supp. at 17-18; Declaration of Donald
Clarke, dated Jan. 3, 2010 and attached to Weigel Decl. as Ex. 22
("Clarke Decl."), ¶¶ 21-22).
BOC and ICBC correctly note that Professor Clarke cites
to a website entitled "China Law Blog," which in turn cites to
the obsolete version of the State Department's website, to
30
support his opinion (BOC/ICBC Mem. in Supp. at 18-19; see Dan
Harris, How to Sue a Chinese Company. Part II. Discovery, China
Law Blog, Nov. 9, 2010, http://www.chinalawblog.com/2010/
11/how_to_sue_a_chinese_ company_part_ii_discovery.html).8
Plaintiffs also rely on the opinion of William Alford,
Director of East Asian Legal Studies at Harvard Law School, in
which he states "'it does not seem likely that a Hague Convention
request issued by a United States court would result in Plaintiffs in this case obtaining the information they seek.'" Alford,
in turn, cites to five other reports supporting a similar conclusion (Pl.'s Reply Mem. at 14-15; Declaration of William Alford,
dated May 24, 2011 (Docket Item 34), ("Alford Decl.") ¶¶ 23, 26).
8
CMB also notes that three years ago Professor Clarke opined
that
Chinese law, at least insofar as its provisions have
been cited by the BOC, does not prohibit the BOC from
complying with the order of a United States court to
disclose information about customer accounts, to freeze
such accounts, or ultimately to transfer funds from
such accounts to a judgment creditor
(2008 Declaration of Donald Clarke, dated June 27, 2008 and
attached to Clarke Decl. as Ex. B). Now, however, Professor
Clarke claims that Chinese Law does have that effect (Clarke
Decl. ¶ 12). In fact, Professor Clarke appears to assert that
his prior impression was based solely on the provisions of
Chinese law BOC cited in 2008, while his current position is
informed by the additional provisions BOC currently cites (Clarke
Decl. ¶¶ 12-14). This potential equivocation is not relevant to
Clarke's analysis of the futility of the Hague Convention
request.
31
BOC and ICBC's expert, Professor James Feinerman,
professor of Asian Legal Studies at Georgetown University Law
Center, opines that "'China, especially now given its economic
and legal progress in the last few years, would honor a properly
tailored request for information through the Hague Convention'"
and notes that in the first half of 2010, the Chinese Ministry of
Justice honored thirty-seven requests for evidence in commercial
and civil matters (BOC/ICBC Mem. in Supp. at 19; Feinerman Decl.
¶¶ 12, 15; Chinese Ministry of Justice Report, attached to Healy
Decl. as Ex. C).
Similarly, Zhipan Wu, professor of law, Executive Vice
Chancellor and Dean Emeritus at Peking University Law School,
asserts that
China is going through rapid development, and in the
last 20 years has overhauled its judicial and regulatory systems to become in line with international
conventions. There is every reason to expect that
Chinese courts will follow through on this development
and will respond to a Hague Convention request issued
by a U.S. court
(Wu Decl. at ¶ 36).
Conflicting expert opinions are not unique to this
case.
To the extent these opinions, and the sources they cite,
rely on the formerly extant version of the State Department
website, they are less compelling.
However, because these
experts appear to interpret the same empirical data divergently,
32
these declarations do little to push this factor more clearly in
favor of plaintiffs or the Banks.
(4) Relevant Literature
Plaintiffs also cite a 2008 paper concerning China's
treatment of Hague Convention requests which states that few
litigants have successfully obtained documents from China through
the Hague Convention, and a 2011 article stating that utilization
of a Hague Convention request in China may prove difficult (Pl.'s
Mem. in Supp. at 18 n.14; International Discovery, dated August
2008 and attached to Weigel Decl. as Ex. 30, ("International
Discovery") at 35-36; Stephanie A. Scharf et al., Discovery of
Documents and People Abroad, PLIREF-PLL § 14:3 (2011)).
BOC and
ICBC correctly note that the sections in these articles concerning document discovery from China pursuant to the Hague Convention were based on Chinese laws restricting disclosure and the
now-deleted State Department language (BOC/ICBC Mem. in Supp. at
19).9
Thus, for the reasons set forth in Section III.C.4(1),
these articles are not useful for this analysis.
9
CMB also argues that the statement in the 2008 article that
lawyers in China have been told that the Beijing high court
executes one such request per year is unsupported, but
nevertheless provides evidence of the fact that China does
execute some Hague requests (International Discovery at 36).
33
(5)
China's Article 23 Reservation
Finally, plaintiffs note that in 1998 China adopted a
reservation under Article 23 of the Hague Convention in which it
stated that it will only execute pre-trial discovery requests for
documents which are clearly enumerated in the request and which
are of direct and close connection to the subject matter of the
litigation (Pl.'s Mem. in Supp. at 18; Circular at 5-6).
Plain-
tiffs claim that this reservation indicates that China retains
great discretion in determining whether to honor a request (Pl.'s
Mem. in Supp. at 18-19, citing International Discovery at 35-36
and Fang Shen, Are You Prepared for this Legal Maze?, 72 U. Mo.
Kan. C. L. Rev. 215 (2003), at 232).
CMB correctly points out
that the law review article plaintiffs cite contains no authority
for its conclusion (CMB Mem. in Supp. at 19 n.20).
More importantly, this reservation has been adopted by
thirty-six Hague Convention signatories, including the United
Kingdom and Switzerland, and, thus, the reservation does not
demonstrate that China would refuse to execute a request for the
documents plaintiffs seek (CMB Mem. in Supp. at 20, citing Hague
Evidence Convention, Declarations Reservations, http://www.hcch.
net/index_en.php?act=conventions.status&cid=82).
While it is not
possible to conclude definitively whether China would execute a
34
request for the documents plaintiffs seek, the documents at issue
certainly appear to be closely related to the litigation, and,
therefore, plaintiffs' request is not clearly prohibited by this
reservation.
Finally, while the Banks have not provided any examples
of China executing a Hague request submitted by a United States
trademark owner in a counterfeiting case (Pl.'s Mem. in Supp. at
19), CMB is correct to note that plaintiffs have not provided any
examples in which China rejected such a request (CMB Mem. in
Supp. at 20).
CMB notes that the Chinese legal system has been
developing rapidly over the last several years, and, therefore,
there is little precedent concerning Chinese handling of Hague
Convention requests (CMB Mem. in Supp. at 19).
However, there is
evidence that China has honored many judicial requests for
documents.
As noted in Section III.C.4(1), in the first half of
2010, the Chinese Judicial Assistance Center reported that it
provided assistance to the Foreign Affairs Department of the
Ministry of Justice "in respect of judicial assistance requests
for civil and commercial cases including . . . investigation and
evidence collection for 37 cases and 11 other cases" (Chinese
Ministry of Justice Report, attached to Healy Decl. as Ex. C).
35
(6) Summary of Plaintiffs'
Futility Argument
Plaintiffs' five arguments in support of their contention that the Hague Convention is not a viable alternative method
for obtaining the information sought are not entirely persuasive.
While it appears that the United States State Department has
expressed doubt about China's implementation of Hague Convention
requests in the past, the State Department no longer expresses
this view.
The State Department's deletion of this language
renders the expert opinions which relied on it less persuasive.
Moreover, it appears that the Chinese courts have increased their
execution of these requests over time, but because this is a
relatively recent enterprise, there is a dearth of information as
to the current efficiency of this procedure.
In light of the
evidence that China does execute these requests, albeit at a rate
that is likely not ideal for plaintiffs, I cannot conclude that
this avenue is futile.
This factor, therefore, weighs in the
favor of the Banks.
5.
Interests of the States
The Banks argue that China has a significant interest
in enforcing its bank secrecy laws.
Professor Feinerman asserts
that these laws have been adopted to create confidence in a
36
relatively new banking system and to "[e]ncourag[e] its citizens
who had historically been skeptical about the safety of their
deposits in banks –- and their continued access to them –- [to
utilize Chinese banks by providing] the strongest possible
assurances of confidentiality" (BOC/ICBC Mem. in Supp. at 20;
Feinerman Decl. ¶ 24; CMB Mem. in Supp. at 21; Wu Decl. ¶¶ 9-11).
Plaintiffs' arguments that this interest is entitled to
diminished consideration because "competent organs" in China can
gain access to these banking records, and account holders can
waive their confidentiality, are not persuasive.
Chinese law
provides that only a limited number of Chinese bodies,10 or
account holders themselves, may access this information, thereby
protecting individuals from indiscriminate intrusion.
While it
is true that "an absolute waiver of [] protections by the customer" has been considered significant in this analysis by the
Second Circuit, this is not the deciding factor.
See Gucci
America, Inc. v. Curveal Fashion, supra, 2010 WL 808639 at *6,
citing United States v. First Nat'l Bank, supra, 396 F.2d at 902.
Moreover, there is no evidence that the account holders who would
10
Chinese law provides that "competent organs" including
"'the judicial organs, administrative organs, military organs and
public institutions exercising administrative functions'" could
retrieve account information and potentially submit it to a
foreign court (Feinerman Decl. ¶ 33).
37
be affected by the execution of plaintiffs' requests here have,
in fact, waived their rights.
China's multitude of criminal and
civil regulations on the subject also evidence its strong interest in bank confidentiality.
Plaintiffs also claim that the true Chinese interest at
issue is protecting against illicit or corrupt disclosure only.
They claim that disclosure pursuant to a foreign court order does
not contravene this policy (Pl.'s Reply Mem. at 16-17; Alford
Decl. ¶ 12).
However, the applicable Chinese regulations are not
limited to illicit or corrupt disclosures, and prosecutions have
not required it.
In fact, BOC reports that it has been held
liable for violating these laws unintentionally (BOC/ICBC Mem. in
Supp. at 21; Feinerman Decl. ¶¶ 26, 51).
Still, plaintiffs argue that the "'United States
interest in fully and fairly adjudicating matters before its
courts . . . outweighs [a foreign country's] interest in protecting the confidentiality of its banking customers' records'"
(Pl.'s Mem. in Supp. at 20, quoting Gucci America, Inc. v.
Curveal Fashion, supra, 2010 WL 808639 at *7; Milliken & Co. v.
Bank of China, supra, 2010 WL 5187744 at *9-10; Ssangyong Corp.
v. Vida Shoes Int'l, Inc., supra, 2004 WL 1125659 at *11; In re
Air Cargo Shipping Servs. Antitrust Litig., No. 06-MD-1775, 2010
WL 1189341 at *4 (E.D.N.Y. Mar. 29, 2010)).
38
Additionally,
plaintiffs note that the United States has a strong interest in
enforcing its trademark laws (Pl.'s Mem. in Supp. at 20, citing
Gucci America, Inc. v. Curveal Fashion, supra, 2010 WL 808639 at
*5; Hermes Int'l v. Lederer de Paris Fifth Ave., Inc., 219 F.3d
104, 107-08 (2d Cir. 2000); Gayle Martz, Inc. v. Sherpa Pet Grp.,
LLC, 651 F. Supp. 2d 72, 85 (S.D.N.Y. 2009) (Baer, D.J.)).
BOC and ICBC claim that the United States interest in
this matter is mitigated by the fact that this information is of
"'indirect and attenuated significance to the issues to be
decided'" (BOC/ICBC Mem. in Supp. at 20, quoting Linde v. Arab
Bank, PLC, supra, 262 F.R.D. at 151 and Peninsula Asset Mgmt.
(Cayman) Ltd. v. Hankook Tire Co., Ltd., 5:04 CV 1152, M8-85
(HB), 2005 WL 3046284 at *2 (S.D.N.Y. Nov. 14, 2005) (Baer,
D.J.)).
However, as noted in Section III.C.1., this information
is directly related to plaintiffs' claims.
Still, the Banks'
status as non-parties does attenuate the United States interest
in enforcing discovery obligations.
Peninsula Asset Mgmt.
(Cayman) Ltd. v. Hankook Tire Co., Ltd., supra, 2005 WL 3046284
at *2, citing Minpeco v. Conticommodity Servs., Inc., supra, 116
F.R.D. at 530.
Moreover, CMB is correct that the cases plain-
tiffs cite that recognize the United States interest in the
enforcement of its trademark laws do not hold that this interest
39
necessarily trumps a foreign sovereign's interest in bank confidentiality (CMB Mem. in Supp. at 22).
While the present case bears some similarities to
Curveal in that the protections afforded by Chinese law can be
waived by the customer and China has not yet voiced any objection
to the production of the documents, it is distinguishable because
Chinese law, unlike the Malaysian law at issue in Curveal,
explicitly prohibits disclosure of the information plaintiffs
seek.
Gucci America, Inc. v. Curveal Fashion, supra, 2010 WL
808639 at *6-7.
China's pertinent regulations appear to have
very narrow exceptions, while those in Malaysia had several,
indicating that there is a stronger foreign interest in this case
than in Curveal.
Plaintiffs' reliance on Milliken & Co. v. Bank of
China, supra, 758 F. Supp. 2d at 244-45, is also somewhat misplaced because the Court noted that because it was dealing with
initial disclosures, required by a party, the sovereignty of the
foreign state was implicated to a lesser extent than if it were
dealing with demands for production directed to a non-party
witness.
Plaintiffs also cite In re Air Cargo Shipping Servs.
Antitrust Litig., supra, 2010 WL 1189341 at *4, which dealt with
a French blocking statute –- a statute that has the objective of
40
"controlling access to information within [France's] borders" –as opposed to the Chinese regulations which are meant to foster a
greater trust in the Chinese banking system.
Because the inter-
ests are not comparable, this case is not instructive.
Likewise,
plaintiffs also rely on Hermes Int'l v. Lederer de Paris Fifth
Ave., Inc., supra, 219 F.3d at 107-08, and Gayle Martz, Inc. v.
Sherpa Pet Grp., LLC, supra, 651 F. Supp. 2d at 85.
In those
cases, the Court discussed the important public policy concerns
protected by trademark law, but did not do so in the context of
enforcement of a subpoena directed to a foreign entity, and did
not address any conflicting foreign interests similar to those
protected by China.
Accordingly, those cases do little to
determine whether those interests should outweigh the foreign
interests in this case.
While the United States certainly has an interest in
enforcing its orders and protecting trademark rights, the Chinese
interest in protecting its account holders' confidentiality
appears more significant in this case.
The regulations at issue
have few exceptions and appear to provide harsh consequences for
violations.
The fact that the Banks are non-parties further
pushes this factor in favor of the Banks.
41
6.
Nature of the Hardship
The Banks argue that they and their personnel would be
forced to violate Chinese law and be subject to civil and criminal punishment if they were required to produce customer account
information located in China (ICBC/BOC Mem. in Supp. at 21; CMB
Mem. in Supp. at 22; Wu Decl. ¶¶ 21-28).
The Banks' status as non-parties weighs against compelling production of documents in violation of Chinese law because
such an order "'should be imposed on a nonparty . . .
only in
extreme circumstances'" (BOC/ICBC Mem. in Supp. at 21, citing
Linde v. Arab Bank, PLC, supra, 262 F.R.D. at 151).
See also
Peninsula Asset Mgmt. (Cayman) Ltd. v. Hankook Tire Co., Ltd.,
supra, 2005 WL 3046284 at *2; Minpeco S.A. v. Conticommodity
Services, Inc., supra, 116 F.R.D. at 526-27.
The Banks need not
prove that they will certainly be punished if forced to comply
with plaintiffs' subpoenas, but they must show that the possibility of civil and/or criminal punishment for disclosure is more
than speculative.
British Int'l Ins. Co. Ltd. v. Seguros La
Republica, S.A., 90 Civ. 2370 (JFK)(FM), 2000 WL 713057 at *8
(S.D.N.Y. June 2, 2000) (Maas, M.J.) ("[T]he party relying on
foreign law has the burden of showing that such law actually bars
[the] production.") (internal quotations and citations omitted);
42
see also Milliken & Co. v. Bank of China, supra, 758 F. Supp. 2d
at 249-50.
Contrary to plaintiffs' argument, Milliken & Co. v.
Bank of China, supra, 758 F. Supp. 2d at 249-50, does not resolve
this issue.
In Milliken, BOC was attempting to assert a prior
claim to the assets at issue without providing discovery.
The
Court there compelled discovery notwithstanding the prohibition
of Chinese law because it found that BOC had "'cited no instance
in which such sanctions have been imposed'" and that the threat
of prosecution was, therefore, speculative.
Milliken & Co. v.
Bank of China, supra, 758 F. Supp. 2d at 249-50, citing In re Air
Cargo Shipping Servs. Antitrust Litigation, No. 06 MD 1775, 2010
WL 2976220 at *2 (E.D.N.Y. July 23, 2010)11; Gucci America, Inc.
v. Curveal Fashion, supra, 2010 WL 808639 at *7.
Unlike Millik-
en, the Banks here have cited Chinese cases in which a commercial
bank was held liable to its customer after turning over the
individual's funds or information to a third party.
For example,
in Ruihua Li v. Agricultural Bank of China Jinggangshan Branch,
Jing Min Chu Zi No. 220 (People's Court of Jiggangshan City,
11
It is unclear from the record whether BOC ever produced
the information requested in Milliken. It appears that the case
settled before production occurred. It is therefore not possible
to ascertain whether BOC was, or would have been, sanctioned
civilly or criminally for complying with the Court's order.
43
Jiangxi Province, Nov. 10, 2008), (attached to Wu Decl. as Ex. B7), an account holder sued BOC for transferring funds from his
bank account to his creditor.
The court ruled that the bank had
to return the funds, unless the creditor did so first, because
BOC may not "'disclose information about, freeze or turn over
funds from the account of a depositor in favor of a third party'"
without following the proper legal procedures (Wu Decl. ¶ 23; see
Ruigua Li case, attached to Wu Decl. as Ex. B-7; Feinerman Decl.
¶ 45).
In another case, Yongsheng Wang v. Bank of China
Nanjing Hexi Branch, Gazette of the Supreme People's Court of the
Republic of China, Issue No. 2 2009, pp. 44-48 (People's Court of
Gulou District, Nanjing City, Jiangsu Province, Nov. 26, 2008),
(attached to Wu Decl. as Ex. B-8), BOC was held liable to a
customer whose information and deposited funds were illegally
obtained by three individuals using an ATM card reader and
miniature video camera (Wu Decl. ¶ 24; Wang Case, attached to Wu
Decl. as Ex. B-8; Feinerman Decl. ¶ 40).
The BOC branch was held
liable to the customer in part because "'it is the obligations of
a commercial bank under the Commercial Bank Law to keep the
information of the depositor confidential . . . against the
encroachment of any entity or individual'" (Wu Decl. ¶ 24; Wang
Case, attached to Wu Decl. as Ex. B-8; Feinerman Decl. ¶ 41).
44
The Banks' experts argue that if BOC's unintentional breach of
its obligation to protect account information and funds was
punished, "a Chinese court will have no qualms in adjudging [the
Banks] liable to the customer" for intentional breaches (Wu Decl.
¶ 25; Feinerman Decl. ¶ 47).12
In addition, the Banks' expert, Zhipan Wu notes that
Article 253(A), which was enacted in October 2009, was used to
prosecute defendants who illegally acquired personal information
about individuals in China and sold it for profit.
Those defen-
dants were sentenced to between three and eleven years in jail
(Wu Decl. ¶ 28, citing People's Prosecutor of Xiangzhou District,
Zhuhai Municipality v. Shao Guosong, Zhou Jianping, Xiang Xing
Chu Zi No. 1337 (2009), attached to Wu Decl. as Ex. B-9).
Although these circumstances are distinguishable, the case
demonstrates that Article 253(A) statute has been used to prosecute individuals and that violations can result in serious
punishment.
12
Plaintiffs' argument that the Banks are less likely to be
prosecuted because the Chinese government owns an interest in
these institutions is unpersuasive. It is clear that account
holders can sue such institutions pursuant to these regulations,
and have done so (Feinerman Decl. ¶¶ 54-57; Wu Decl. ¶¶ 31-33).
Moreover, plaintiffs have presented no evidence that the Chinese
authorities will fail to apply Chinese law to the Banks simply
because they are partially owned by the Chinese government (Pl.'s
Mem. in Supp. at 23-24).
45
While plaintiffs are correct that none of these examples are identical to the present case, they fail to cite any
instances in which Chinese banks complied with a United States
court order compelling production of documents without negative
consequence.
Plaintiffs inability to cite such evidence, how-
ever, may be the result of the fact that there is no comprehensive compilation of judicial or prosecutorial actions in China
(Wu Decl. ¶ 30).
Nevertheless, because these regulations have
been used to the detriment of banks in the past, and the potentially harsh sanctions are applicable to both the Banks and their
personnel, the potential for hardship places this factor in favor
of the Banks.13
13
Plaintiffs claim that Gucci America, Inc. v.
MyReplicaHandbag.com, 07 Civ. 2438 (JGK), 2008 WL 512789
(S.D.N.Y. Feb. 26, 2008) (Koeltl, D.J.), demonstrates that the
Banks are unlikely to be sanctioned for producing the requested
documents because BOC allowed inspection of similar documents
during that litigation and did not suffer any negative
consequences (Pl.'s Mem. in Supp. at 22 n.17). However, that
case involved a defendant who appeared and consented to abide by
a TRO which provided for disclosure, only to refuse to provide
additional written consent to BOC (Stipulation, dated April 17,
2007 and attached to Saperstein Decl. as Ex. O; Letter of Walter
Loughlin, dated June 21, 2007 and attached to Weigel Decl. as Ex.
20). BOC claims that the defendant threatened to sue BOC in
China following the freeze of his account (BOC/ICBC Mem. in Supp.
at 22). Because it appears these issues were resolved in a
series of settlements, the specifics of which are not stated in
the record (BOC/ICBC Mem. in Supp. at 22), and because of its
distinguishable factual situation, I do not find this case
instructive.
46
Finally, to the extent plaintiffs contend that because
the Banks do business in the United States they should be compelled to produce the documents, their argument is unavailing.
An entity's presence in the United States, without more, does not
obviate the need for a comity analysis where compliance with a
discovery request would violate foreign law.
Likewise, plain-
tiffs' claim that the Banks "made the decision to seek profits by
participating in" this counterfeiting scheme is inaccurate;
plaintiffs have submitted no evidence suggesting that the Banks
had any awareness of the source of the funds at issue (Pl.'s Mem.
in Supp. at 24).
7.
Good Faith of the
Party Resisting Discovery
There is no evidence in the record that the Banks are
acting in bad faith.
Plaintiffs are incorrect that the Banks
have acted like the bank in Milliken in repeatedly failing to
produce requested documents (Pl.'s Mem. in Supp. at 25).
The
Banks contacted plaintiffs after receiving the PI Order and
subpoenas, relayed the information found in their New York
branches, and offered to help draft a Hague Convention request.
The fact that the Banks chose to object to the subpoenas as
47
opposed to seeking relief from the PI Order does not indicate bad
faith.14
D.
Summary of Comity Analysis
While the first two prongs of the comity analysis,
namely the importance of the information and the specificity of
the request, weigh in favor of plaintiffs, every other factor
weighs in favor of the Banks.
Specifically, the fact that the information requested
is located in China puts the third factor in favor of the Banks.
The fourth factor, analyzing whether there is an alternative
means for securing the information, similarly favors the Banks.
The fact that the State Department removed language on its
website critical of China's enforcement of Hague Convention
requests implies that the omitted language is no longer accurate.
Accordingly, case law, secondary sources and expert opinions
which rely on this language to conclude that a Hague Convention
request in China is not a viable mechanism for this kind of
discovery are not persuasive.
Moreover, I do not believe that
China's Article 23 reservation will necessarily preclude discov-
14
Plaintiffs also claim that the Banks acted in bad faith by
not contacting the account holders at issue to request consent
(Pl.'s Mem. in Supp. at 25). It is unclear from the record
whether the Banks have done so.
48
ery of the documents plaintiffs seek because this reservation
purports to limit execution of pre-trial discovery requests to
those which are clearly enumerated and concern documents directly
and closely related to the subject matter of the litigation.
Because I find that these documents are so related, I do not
agree that this will necessarily be a barrier to production.
The fifth factor, the respective interests of the
states, also resolves in favor of the Banks, albeit more narrowly.
While the United States certainly has a general interest
in enforcing its laws and protecting trademark rights, the Banks'
non-party status mitigates against these interests in this case.
China's interest in protecting bank customers' privacy and
encouraging use of, and confidence in, its relatively new banking
system is evidenced by the multitude of civil and criminal
regulations it has enacted to protect these interests.
The
potentially harsh sanctions and narrow exceptions to these
regulations indicate that China's interests in cases such as this
one are more significant than those at issue for the United
States.
The sixth factor, examining the nature of the hardship
imposed upon the foreign party, also weighs in favor of the
Banks.
Were the Banks to disclose the requested information in
contravention of Chinese law, they could be subject to civil and
49
criminal sanctions.
Plaintiffs are correct that the examples in
the record in which the Banks have been held liable for violations of these regulations are not analogous to the case at hand.
However, there is no indication that the Banks will not be
prosecuted for violating these same regulations pursuant to a
Court Order from the United States.
The lack of records of
Chinese judicial decisions on this issue prevents a comprehensive
review of the application of these regulations.
Because the
Banks and their personnel could potentially be severely sanctioned for such disclosure, this factor also weighs in favor of
the Banks.
Finally, there is no indication that the Banks have
acted with bad faith in this matter.
Accordingly, this prong
also weighs in their favor.
IV.
Conclusion
For all the foregoing reasons, plaintiffs are directed
to request the information they seek in China through the Hague
50
Convention at this time.
Should this process prove futile,
plaintiffs may renew their application to enforce their subpoe
nas.
Dated: New York, New York
July 25, 2011
SO ORDERED,
United States Magistrate Judge
Copies transmitted to:
Robert Weigel, Esq.
Gibson, Dunn & Crutcher, LLP (NY)
47th Floor
200 Park Avenue
New York, New York 10166
Lanier Saperstein, Esq.
Allen & Overy, LLP
1221 Avenue of the Americas
New York, New York 10020
Dwight Healy, Esq.
White & Case, LLP
1155 Avenue of the Americas
New York, New York 10036
51
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