Securities and Exchange Commission v. Gibraltar Global Securities, Inc. et al

Filing 52

MEMORANDUM AND ORDER. For the reasons set forth in this Memorandum and Order, the defendants' motion for a protective order (Docket no. 43) is denied. The defendants shall produce the requested documents within two weeks of the date of this order. Denying 43 Motion for Protective Order. (Signed by Magistrate Judge James C. Francis on 4/1/2015) Copies Sent By Chambers. (rjm)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - -:
SECURITIES AND EXCHANGE COMMISSION,:
:
Plaintiff,
:
:
- against :
:
GIBRALTAR GLOBAL SECURITIES, INC. :
and WARREN A. DAVIS,
:
:
Defendants.
:
- - - - - - - - - - - - - - - - - -:
JAMES C. FRANCIS IV
UNITED STATES MAGISTRATE JUDGE

13 Civ. 2575 (GBD) (JCF)
MEMORANDUM
AND ORDER

An ineffective voluntary liquidation -- in effect, a failed
attempt at corporate suicide -- does not excuse a party from its
discovery obligations. This is an action brought by the Securities
and Exchange Commission (the “SEC”) alleging violations of the
federal securities laws.

The SEC charges that Gibraltar Global

Securities, Inc. (“Gibraltar”), a Bahamian broker-dealer, under the
direction of its president and sole shareholder, Warren A. Davis,
operated as an unregistered broker-dealer in the United States, in
violation of 15 U.S.C. § 78o.

(Complaint, ¶¶ 1-2, 4).

The SEC

also asserts that the defendants participated in the unlawful
unregistered offering and sale of shares of a company called Magnum
d’Or, in violation of 15 U.S.C. §§ 77e(a) and (c).

(Complaint, ¶¶

3-4).
The SEC seeks the production by Gibraltar and Mr. Davis of all

1

Gibraltar files concerning its United States customers.

The

defendants have moved for a protective order on the grounds that
(1) the documents located in the Bahamas are not within their
possession, custody, or control; (2) their disclosure of the
documents could expose them to liability in the Bahamas; and (3) in
light of considerations of comity, the SEC should be required to
use alternative means to seek to obtain the information.
The defendants’ motion is denied.
Background
The SEC commenced this action on April 18, 2013.
defendants

issued

their

initial

disclosures

pursuant

When the
to

Rule

26(a)(1) of the Federal Rules of Civil Procedure, they represented
that
Gibraltar has retained on its server and in hard copy
form documents pertaining to its approximately 1,200
customers and over 100,000 transactions as required by
Bahamian law.
These materials are being preserved.
Gibraltar also maintains an email server containing
emails dating to approximately 2009. These materials are
also being preserved.
(Defendants’ Required Initial Disclosures Pursuant to Fed. R. Civ.
P. 26(a)(1), attached as Exh. A to Plaintiff’s Memorandum of Law in
Opposition to Defendants’ Motion for a Protective Order, at 4).
On August 29, 2012, Gibraltar’s Board of Directors passed a
resolution dissolving the company and appointing a liquidator.
(Declaration of Raynard S. Rigby dated Dec. 4, 2014 (“Rigby
2

Decl.”), attached as Exh. A to Declaration of Philip C. Patterson
dated Dec. 5, 2014 (“Patterson Decl.”), ¶ 7).

Thereafter, on

January 31, 2013, Gibraltar sought permission from the Securities
Commission of the Bahamas (the “SCB”) to surrender its Bahamian
broker’s license.

(Rigby Decl., ¶ 6).

The SCB, however, has

refused to accept surrender of the license or approve Gibraltar’s
voluntary liquidation.

(Rigby Decl., ¶¶ 6, 8).

Gibraltar has

responded by filing an action against the SCB in the Bahamas,
seeking to compel it to accept the company’s liquidation.
Decl, ¶¶ 4, 6, 8).

That matter is still pending.

(Rigby

(Rigby Decl., ¶

6).
Discussion
A. Control
Relevant documents must be produced if they are within the
“possession, custody, or control” of the party from whom discovery
is sought. Fed. R. Civ. P. 34(a)(1). “‘[D]ocuments 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.’”

United States ex rel. Kester v.

Novartis Pharmaceuticals Corp., No. 11 Civ. 8196, 2014 WL 6655703,
at *3 (S.D.N.Y. Nov. 24, 2014) (quoting Bank of New York v.
Meridien BIAO Bank Tanzania Ltd., 171 F.R.D. 135, 146 (S.D.N.Y.
1997)).

“In

the

face

of

a

denial
3

by

a

party

that

it

has

possession, custody or control of documents, the discovering party
must make an adequate showing to overcome this assertion.”

Golden

Trade S.r.L. v. Lee Apparel Co., 143 F.R.D. 514, 525 n.7 (S.D.N.Y.
1992); accord Securities and Exchange Commission v. Strauss, No. 09
Civ. 4150, 2009 WL 3459204, at *7 (S.D.N.Y. Oct. 28, 2009); Wiwa v.
Royal Dutch Petroleum Co., Nos. 96 Civ. 8386, 01 Civ. 1909, 02 Civ.
7618, 2009 WL 529224, at *2 (S.D.N.Y. Feb. 17, 2009).

However,

where the alleged obstacle to production is foreign law, the burden
of proving what that law is and demonstrating why it impedes
production

falls

International

on

the

Resources

party

resisting

Holdings,

LLC

v.

discovery.
S.A.

See

Minerals

CE

Ltd.

Partnership, No. 12 Civ. 8087, 2013 WL 2661037, at *5 (S.D.N.Y.
June 12, 2013); British International Insurance Co. v. Seguros La
Republica, S.A., No. 90 Civ. 2370, 2000 WL 713057, at *8 (S.D.N.Y.
June 2, 2000); Alfadda v. Fenn, 149 F.R.D. 28, 34 (S.D.N.Y. 1993).
Here, the defendants have not met that burden.

Section 73 of

the Securities Industry Act of the Bahamas (the “SIA”), entitled
“Voluntary liquidation,” states:
A registered firm shall not go into voluntary liquidation
without the prior approval of the Commission and if
proceedings for an involuntary liquidation are commenced
against a registered firm the Commission shall be
immediately notified in writing by the affected
registered firm or by one of its partners, directors or
officers.
(Securities Commission of the Bahamas, Securities Industry Act
4

(“SIA”),

50-51

(June

1,

2011),

available

at

www.scb.gov.bs/SIA_Bill_2011.html (follow “Securities Industry Act,
2011” hyperlink) (emphasis added)).

The defendants fault the SEC

for relying on the plain language of the SIA. (Reply Memorandum of
Law in Further Support of Defendants’ Motion for a Protective Order
(“Def. Reply”) at 2-3).

Yet, statutory construction generally

begins with an analysis of the language of the statute and, if that
language is clear, ends there as well.
Jacobson, 525 U.S. 432, 438 (1999).

Hughes Aircraft Co. v.

This principle applies to

interpretation of foreign as well as domestic law.
The language of Section 73 of the SIA could not be more clear.
As against the words of the statute, the defendants proffer only
the declaration of their Bahamian counsel, Raynard S. Rigby, who
states that “[t]he SCB, under section 73 of the SIA, must approve
a registrant’s decision to proceed to a voluntary liquidation.”
(Rigby Decl., ¶ 8).

The opinion of an expert as to foreign law

does not bind the court, even if it is uncontradicted.

See CE

International, 2013 WL 2661037, at * 5; Batruk v. Mitsubishi Motors
Corp., No. 94 Civ. 7593, 1998 WL 307383, at *3 (S.D.N.Y. June 19,
1998). Here, Mr. Rigby, who is hardly a disinterested expert,
provides no legal support for his opinion. His ipse dixit does not
warrant disregarding the plain text of the statute. See Bodum USA,
Inc. v. La Cafetiere, Inc., 621 F.3d 624, 628-29 (7th Cir. 2010)
5

(criticizing reliance on party experts’ “self-serving declarations”
to establish foreign law); id. at 633 (Posner, J., concurring)
(questioning

why

“judges

should

prefer

paid

affidavits

and

testimony to published materials”).
Because Gibraltar’s liquidation and attempted surrender of its
registration are ineffective, then, it remains in control of the
documents sought by the SEC.
B. Confidentiality
Although Gibraltar controls the information requested, it
might be excused from disclosing it if to do so would violate
Bahamian

law.

Like

the

defendants

here,

the

defendants

in

Securities and Exchange Commission v. Renert, No. 3:01 CV 1027,
2002 WL 32503671 (D. Conn. June 17, 2002), argued that they would
be exposed to liability if they produced financial information of
their customers to the SEC.

Specifically, they maintained that

they could be considered in violation of “Bahamian bank secrecy
laws, specifically the Mutual Funds Act of 1995 [], the Banks and
Trust Companies Act [] and the Bahamian constitution.”
The

court

rejected

these

contentions

and

concluded

Id. at *2.
that

the

“defendants have not established a realistic possibility of civil
liability as it is their burden to do when refusing to comply with
a legitimate discovery request.”

Id. at *4.

Here, the defendants’ argument is more nebulous.
6

Mr. Rigby

asserts that “Bahamian law recognizes the principles of client
confidentiality

under

the

common

law

as

established

by

the

celebrated case of Tournier v. National Provincial & Union Bank of
England, [1924] 1 K.B. 461.”
fails

for

several

reasons.

(Rigby Decl., ¶ 16).
First,

Tournier

This rationale
addressed

the

confidentiality of bank records, id. at 467, and Gibraltar is not
a bank. Indeed, the court in Tournier made the explicit point that
The privilege of non-disclosure to which a client or
customer is entitled may vary according to the exact
nature of the relationship between the client or the
customer and the person on whom the duty rests. It need
not be the same in the case of the counsel, the
solicitor, the doctor, and the banker, though the
underlying principle may be the same.
Id. at 474. Gibraltar has made no showing that the confidentiality
rule discussed in Tournier applies to broker-dealers.

Second,

Gibraltar has made no showing that the holding of Tournier, a case
from a court in the United Kingdom, has been adopted in the
Bahamas.
applied

Finally, even if the British common law of bank secrecy
with

full

force

to

Gibraltar,

withholding documents in this case.

it

would

not

justify

There are “at least four

exceptions” to Tournier’s duty of bank secrecy: “(1) where there is
an independent duty to the public to disclose; (2) where the
customer expressly or impliedly consents to disclosure; (3) where
the interests of the bank require disclosure; and (4) where
disclosure is under compulsion of the law.” United States v. Chase
7

Manhattan Bank, N.A., 584 F. Supp. 1080, 1084 (S.D.N.Y. 1984)
(citing Tournier, 1 K.B. at 473).

At a minimum, the fourth

exception applies here: an order from this court constitutes legal
compulsion that would insulate Gibraltar from liability.

See NML

Capital, Ltd. v. Republic of Argentina, Nos. 03 Civ. 8845, 05 Civ.
2434, 06 Civ. 6466, 07 Civ.1910, 07 Civ. 2690, 07 Civ. 6563, 08
Civ. 2541, 08 Civ. 3302, 08 Civ. 6978, 09 Civ. 1707, 09 Civ. 1708,
2013 WL 491522, at *8 (S.D.N.Y. Feb. 8, 2013); Chase Manhattan
Bank, 584 F. Supp. at 1084.
In addition to relying on a common law bank secrecy privilege,
the defendants contend that “Section 55 of the SIA recognizes the
right of legal professional privilege in relation to certain
documents in the possession of a registrant.” (Rigby Decl., ¶ 17).
Indeed it does, but this is of little assistance to the defendants.
Section 55 simply provides that no one shall be required under the
SIA to divulge attorney-client communications. (SIA, 43).

Yet the

defendants have not suggested that any of the requested documents
reflect such communications.

Accordingly, there is no duty of

confidentiality that precludes the disclosure of the requrested
information.
C. Comity
In the absence of a true conflict between domestic and foreign
law, it is unnecessary to engage in a comity analysis. See Société
8

Nationale Industrielle Aérospatiale v. United States District Court
for the Southern District of Iowa, 482 U.S. 522, 555 (1987); Yukos
Capital S.A.R.L. v. Samaraneftegaz, 592 F. App’x 28, 29 (2d Cir.
2015) (“‘International comity comes into play only when there is a
true

conflict

between

American

law

and

that

of

a

foreign

jurisdiction.’” (quoting In re Maxwell Communication Corp., 93 F.3d
1036, 1049 (2d Cir. 1996)); Eikenberry v. Celsteel Ltd., No. 13
Civ. 4661, 2013 WL 5308028, at *5 (S.D.N.Y. Sept. 19, 2013).
discussed above, there is no such conflict here.

As

Neither Bahamian

securities law relating to the liquidation of a registrant nor any
Bahamian principle of customer confidentiality has been shown to
conflict with discovery requirements imposed by United States law.
Furthermore, even if a comity analysis were appropriate, it would
not assist the defendants.
In Aérospatiale, the Supreme Court identified five factors to
consider in determining whether to order foreign discovery under
the Federal Rules of Civil Procedure: (1) the importance to the
litigation

of

the

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; and (5) the relative interests of the
United States and the foreign nation.

482 U.S. at 544 n.28.

“Courts in the Second Circuit also consider: (6) the hardship of
9

compliance on the party or witness from whom discovery is sought;
and (7) the good faith of the party resisting discovery.” Wultz v.
Bank of China Ltd., 298 F.R.D. 91, 96 (S.D.N.Y. 2014).
Here, the information requested is plainly central to the
SEC’s claims. It is necessary to identifying Gibraltar’s customers
in the United States, its potentially illegal transactions, and its
communications regarding the nature of Gibraltar’s operations.
While not highly specific, the SEC’s discovery requests are
appropriately

limited

to

documents

customers in the United States.

relating

to

Gibraltar’s

Given the discrete nature of

Gibraltar’s business and the relation of the SEC’s claims to that
business, the SEC’s discovery demands could not be much more
specific.
Although

the

information

requested

is

maintained

in

Bahamas, it all relates to individuals in the United States.
communications

originated

with

those

individuals,

and

the
Some

their

transaction records were accessible to them in the United States
through Gibraltar’s website.
The
position

one
is

factor
the

that

apparently

availability

of

supports

procedures

the
under

defendants’
the

Hague

Convention on the Taking of Evidence Abroad in Civil or Commercial
Matters (the “Hague Convention”) as an alternative means for
securing the requested information.
10

To be sure, courts have

expressed concern that the Hague Convention process may be “unduly
time consuming and expensive, as well as less certain to produce
needed

evidence

than

direct

Aérospatiale, 482 U.S. at 542.

use

of

the

Federal

Rules.”

However, the SEC has presented no

evidence of any special difficulties with the Hague Convention
protocol in the Bahamas, nor has it apparently made any effort to
utilize those procedures.

Nevertheless, Aérospatiale itself made

clear that the Hague Convention process “is neither the exclusive
means for obtaining discovery from a foreign entity, nor is it a
first resort.” CE International Resources, 2013 WL 2661037, at *11
(citing Aérospatiale, 482 U.S. at 534, 542).
“The fifth factor -- the balancing of national interests -- is
the most important, as it directly addresses the relations between
sovereign nations.”

Madanes v. Madanes, 186 F.R.D. 279, 286

(S.D.N.Y. 1999); accord Milliken & Co. v. Bank of China, 758 F.
Supp. 2d 238, 246 (S.D.N.Y. 2010); Strauss v. Credit Lyonnais,
S.A., 249 F.R.D. 429, 439 (E.D.N.Y. 2008).

In this case, the

interest of the United States is particularly strong: “the United
States possesses a keen interest in its securities markets and the
SEC is the regulator appointed by Congress to protect the integrity
of those markets.”

SEC v. Euro Security Fund, No. 98 Civ. 7347,

1999 WL 182598, at *4 (S.D.N.Y. April 2, 1999).

The Bahamian

government, on the other hand, has voiced no objection to the
11

requested discovery, a fact that “‘militates against a finding that
strong national interests of the foreign country are at stake.’”
Gucci America, Inc. v. Curveal Fashion, No. 09 Civ. 8458, 2010 WL
808639, at *6 (S.D.N.Y. March 8, 2010) (quoting Minpeco, S.A. v.
Conticommodity Services, Inc., 116 F.R.D. 517, 525 (S.D.N.Y. 1987).
There is no apparent hardship to Gibraltar in complying with
the SEC’s requests.

The relevant information is in storage and,

since the firm is not currently operating, the task of segregating
responsive documents would not drain resources from its day-to-day
activities.
Finally, there is evidence from which it may be inferred that
the defendants have not acted in good faith.

On August 28, 2012,

the SEC served the defendants with a Wells Notice, alerting them
that

an

enforcement

action

was

imminent;

Gibraltar’s

board

purported to dissolve the company the very next day. And, although
Gibraltar commenced a proceeding in the Bahamas on September 16,
2013, seeking to force the SCB to recognize the liquidation, it has
apparently taken no action to move the case since then, as the SCB
has moved to dismiss the proceeding for failure to prosecute.
(Affidavit of Christine R. Rolle dated Feb. 24, 2015, filed in
Gibraltar Global Securities Inc. v. Securities Commission of the
Bahamas, PUB/con/00027, attached as Exh. A to Notice of Filing of
Affidavit, ¶¶ 3-4.1).
12

In sum, with the exception of the availability of alternative
means

of

discovery,

all

of

the

factors

relevant

to

a

comity

analysis favor granting the SEC the discovery it requests.
Conclusion
For the reasons set forth above, the defendants' motion for a
protective order (Docket no. 43) is denied.

The defendants shall

produce the requested documents within two weeks of the date of
this order.
SO ORDERED.

Q_.~CM.t~ I

v

C. FRANCIS IV
D STATES MAGISTRATE JUDGE

Dated: New York, New York
April 1, 2015
Copies transmitted this date:
Kevin P. O'Rourke, Esq.
Douglas C. McAllister, Esq.
Gerald W. Hodgkins, Esq.
Robert A. Giallombardo, Esq.
Securities and Exchange Commission
100 F Street. N.E.
Washington, D.C. 20549
Nicholas M. DeFeis, Esq.
Philip C. Patterson, Esq.
Allison S. Menkes, Esq.
De Feis O'Connell & Rose, P.C.
500 Fifth Ave., 26th Floor
New York, NY 10110

13