Ayyash v. CROWE HORWATH LLP et al
Filing
40
MEMORANDUM OPINION & ORDER re: 29 SECOND MISCELLANEOUS CASE INITIATING DOCUMENT - MOTION for Discovery . filed by Adnan Abou Ayyash. Accordingly, the application is denied. This resolves Docket Number 29. (As further set forth in this Order.) (Signed by Judge Alison J. Nathan on 6/13/2018) (cf)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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Petitioner,
17-mc-482 (AJN)
-vMEMORANDUM
OPINON & ORDER
Crowe Horwath LLP & Crowe Horwath
International,
Respondents.
ALISON J. NATHAN, District Judge:
Petitioner Adnan Abou Ayyash petitions the Court to grant his application for an order
permitting discovery for use in a foreign proceeding under 28 U.S.C. § 1782. Ayyash originally
filed an application in December 2017, and the Court denied that application on April 17, 2018.
See Dkt. No. 28. However, the Court permitted Ayyash to "refile an application narrowing the
request and explaining in greater detail why each discovery request would lead to relevant
information that would help him succeed in the proceeding in Lebanon." Dkt. No. 28 at 6. That
second application is now before the Court. For the reasons explained below, the Court denies
the application.
I.
BACKGROUND
In the April 17 Order, the Court set forth the relevant factual background. See Dkt. No.
28 at 1-3. Briefly, Ayyash was the majority owner of two Lebanese banks that were defrauded.
Dkt. No. 29 (Refiled App.) ,i,i 5-7. Ayyash initiated a criminal complaint in Lebanese court in
2007 against Horwath Abou Chakra and Co., the main auditor of Ayyash's two banks. See id.
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9. Horwath Abou Chakra and Co. subsequently merged into Crowe Horwath Professional
Auditors. See id.
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l 0.
Because Ayyash's banks used a Crowe Horwath-affiliated auditor, Ayyash seeks
discovery from Crowe Horwath International and Crowe Horwath LLP. 1 See id.~~ 10-13. He
seeks "disclosure of non-privileged documents and records that explain the managerial
relationship between [Crowe Horwath LLP/Crowe Horwath International and Horwath Abou
Chakra and Co. and/or Crowe Horwath Professional Auditors], including but not limited to any
guidance and oversight [Crowe Horwath LLP] provides ... on the common standard, strategy,
and methodology of the auditing work of the Crowe Horwath global brand." Id. ,-i 32; see Dkt.
No. 30, Exs. A-B. According to Ayyash, understanding that relationship will "allow[] the
Lebanon Comi to gauge the kind of professional standard expected of Crowe Horwath members
and have a baseline to benchmark the performance of [Horwath Abou Chakra and Co./Crowe
Horwath Professional Auditors] against." Refiled App. ,-r 32.
Ayyash also requests documents and records that demonstrate the legal relationship
between the companies so that the Lebanon Court can "determine whether [Horwath Abou
Chakra and Co.] has separate liability from [Crowe Horwath LLP] and [Crowe Horwath
International]." Refiled App.~ 33; see Dkt. No. 30, Exs. A-B.
Finally, Ayyash requests documents and records that explain the financial relationship
· between the companies because "[u]nderstanding the legal relationship between [them will]
allow[] the Lebanon Court to decide whether there is commingling of funds between [the
1
On June 8, 2018, Crowe Horwath International informed the Court that its name had changed to
Crowe Global, Dkt. No. 38, and Crowe Horwath LLP informed the Court that its name had
changed to Crowe LLP, Dkt. No. 37. Because the parties' briefs use "Crowe Horwath
International" and "Crowe Horwath LLP," for the sake of clarity the Court uses those names to
refer to Respondents.
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companies] and determine which parties besides [Horwath Abou Chakra and Co./Crowe
Horwath Professional Auditors], if any, it can seek recovery from." Refiled App. 134; see Dkt.
No. 30, Exs. A-B.
Respondents oppose Ayyash's application. See Dkt. No. 34 (CHLLP Memo); Dkt. No.
35 (CHI Memo).
II.
LEGAL FRAMEWORK
Section 1782 provides, "The district court of the district in which a person resides or is
found may order him to give his testimony or statement or to produce a document or other thing
for use in a proceeding in a foreign or international tribunal, including criminal investigations
conducted before formal accusation." 28 U.S.C. § l 782(a). A district court may grant discovery
under Section 1782 if three statutory conditions are satisfied: (1) the party from whom discovery
is sought is found in the district in which the discovery application is made; (2) the discovery
will be used in a foreign proceeding; and (3) the party applying for discovery is an interested
person in the foreign proceeding. Brandi-Dohrn v. IKB Deutsche lndustriebank AG, 673 F.3d
76, 80 (2d Cir. 2012). Discovery is "for use" in a foreign proceeding "if it is relevant to the
subject matter of the proceeding," and if the evidence would '"increase [the applicant's] chances
of success' in the proceeding." In re Asia Maritime Pacific Ltd., 253 F. Supp. 3d 701, 706
(S.D.N.Y. 2015) (alteration in original) (quoting Mees v. Buiter, 793 F.3d 291,299 (2d Cir.
2015) ). However, "discovery sought pursuant to § 1782 need not be necessary for the party to
prevail in the foreign proceeding in order to satisfy the statute's 'for use' requirement." Mees,
793 F.3d at 298.
If the statutory conditions are satisfied, a court may grant discovery in its discretion. In
deciding whether to grant a discovery order, courts consider (1) whether the party from whom
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discovery is sought is a participant in the foreign proceeding, in which case there is little need for
§ 1782(a) aid; (2) "the nature of the foreign tribunal, the character of the proceedings underway
abroad, and the receptivity of the foreign government or the court or agency abroad to U.S.
federal-court judicial assistance"; (3) whether the request constitutes "an attempt to circumvent
foreign proof-gathering restrictions or other policies of a foreign country or the United States";
and (4) whether the request is "unduly intrusive or burdensome." Intel Corp. v. Advanced Micro
Devices, Inc., 542 U.S. 241, 264-65 (2004). A court should also consider the purposes of
§ 1782: "providing efficient means of assistance to participants in international litigation in our
federal courts and encouraging foreign countries by example to provide similar means of
assistance to our courts." Mees, 793 F.3d at 297-98 (internal quotation marks omitted).
III.
DISCUSSION
As explained in the Court's April 17 Order, the first and third statutory requirements are
satisfied here. See Dkt. No. 28 at 4-5. The question is thus whether the requested discovery is
"for use" in the foreign proceeding.
As to the materials explaining the managerial relationship, Respondents contend that
Lebanese law sets forth the standard for bank auditors, so "an auditing firm's particularized
internal standards and managerial practices are not relevant." CHLLP Memo at 6; see CHI
Memo at 5-8; Dkt. No. 33 (Skaff Supp. Dec.)~~ 5-11. Ayyash does not refute this point. See
Dkt. No. 36 (Ayyash Reply). Accordingly, the Court denies the application for documents and
records explaining the managerial relationship between the countries because there is no
evidence that the Lebanon court would use such information to "to gauge the kind of
professional standard expected of Crowe Horwath members and have a baseline to benchmark
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the performance of [Horwath Abou Chakra and Co./Crowe Horwath Professional Auditors]
against." 2 Refiled App., 32.
For the documents and records demonstrating the legal relationship or financial
relationship, the Court is concerned that Ayyash is using the § 1782 petition as a fishing
expedition to determine if it should pursue litigation against Respondents. Indeed, Ayyash states
that he seeks materials regarding the legal relationship because such materials will allow the
Lebanon court to determine whether Respondents can be held liable or whether Horwath Abou
Chakra and Co. "should be the solely [sic] party held liable in the Lebanon proceeding," Refiled
App., 33, and he asserts that the materials describing the financial relationship will allow the
Lebanon court to "determine which parties besides [Horwath Abou Chakra and Co./Crowe
Horwath Professional Auditors], if any, it can seek recovery from," id. , 34. Even if the legal or
financial relationship materials can be construed as "for use" in a foreign proceeding, the Court
would use its discretion to deny the request for those materials. See In re Harbour Victoria Inv.
Holdings Ltd. Section 1782 Petitions, No. 15-MC-127, 2015 WL 4040420, at *7-8 (S.D.N.Y.
June 29, 2015).
IV.
CONCLUSION
Accordingly, the application is denied. This resolves Docket Number 29.
2
In his reply, Ayyash puts forth an additional reason that discovery regarding the managerial
relationship would satisfy the "for use" standard: That discovery might "provide some help to
the Lebanese court in determining and understanding various issues surrounding Chakra and
Co's background and actual role in the fraud including, inter alia, whether Chakra and Co. was
communicating directly with [Crowe Horwath International] and [Crowe Horwath LLP] in any
meaningful way regarding their actions in relation to the criminal proceeding (including whether
they held any money in any CHI or CHHLP accounts)." Ayyash Reply at 2-3. To the extent that
Ayyash is suggesting that materials describing the managerial relationship may demonstrate that
Horwath Abou Chakra and Co. engaged in fraud, he has offered no reason or explanation for that
suggestion.
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SO ORDERED.
Dated: June
'2018
New York, New York
ISON J. NA THAN
United States District Judge
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