17 July 2012
Judge Naomi Buchwald of the federal District Court for the Southern District of New York recently provided clarity on the scope of third-party bank discovery obligations with respect to materials located abroad: this is an issue that has caused a split in the jurisdiction. Recent cases from the Southern District, all involving Chinese banks, have disagreed on whether the Federal Rules of Civil Procedure or the Hague Evidence Convention is the appropriate vehicle for compelling the disclosure of overseas documents from non-party banks.
Tiffany (NJ) LLC v. Forbse is a trademark infringement action against several defendants allegedly operating websites to sell counterfeit Tiffany products. Tiffany sought records from three Chinese banks with which defendants were said to have had accounts: Bank of China (BOC), China Merchants Bank (CMB) and Industrial and Commercial Bank of China (ICBC). The banks moved to quash the subpoena, arguing that they would suffer civil and criminal liability under Chinese bank-confidentiality laws if they were to disclose the requested records.
Where the disclosure of documents located abroad could violate foreign law, courts often decide whether the Federal Rules or Hague Convention should apply by using a comity-based analysis derived from the Restatement (Third) of Foreign Relation Law. The factors include: (i) the importance to the litigation of the documents requested; (ii) the specificity of the request; (iii) whether the information originated in the United States; (iv) the availability of alternative means of securing the information; (v) the effect of compliance or noncompliance on US interests and the interests of the country where the information is located; (vi) the hardship of compliance on the party from whom discovery is sought; and (vii) whether the party from whom discovery is sought has acted in good faith.
Judge Buchwald applied these standards to the three banks. First, she considered whether Hague-based discovery was a viable option for the requested discovery. Although Tiffany presented evidence showing the history of slow and unsuccessful processing of Hague discovery requests in China, Judge Buchwald, relying on a letter from Chinese regulatory bodies expressing China’s commitment to satisfying Hague requests in a reasonable time, refrained from declaring Hague procedures categorically unreasonable in China. Tiffany was ordered to use Hague procedures to seek records from CMB and ICBC.
The court’s analysis differed with respect to BOC. At oral argument, Tiffany informed the court that one of the websites it thought had been shut down following a preliminary injunction was operating again and that BOC was facilitating credit card services for the site. While BOC denied knowledge of this, the court surmised that BOC had the means to discover and prevent the ongoing infringement by searching its records or investigating the registered owners of its secondary merchants. The court found this conduct suggestive of bad faith. Moreover, the court concluded that the asserted risk, that BOC would face civil or criminal liability for producing records in response to US-issued subpoenas, was “speculative at best.” Finally, in line with its conclusion that the BOC documents were particularly important to the litigation, the court ordered BOC to comply with the discovery requests under the Federal Rules.
This decision is significant for two reasons. First, it demonstrates that a foreign government’s submission in support of a motion to quash can influence a court to require parties to use the Hague Convention. However, courts may be skeptical of claims that parties will face hardship under foreign law, in the form of civil and criminal liability, for complying with US subpoenas absent evidence that such liability is actually imposed. Second, the court’s suggestion that BOC could have executed searches to discover whether one of the defendants was affiliated with a secondary customer and that its failure to do so implicated bad faith may have particularly far-reaching repercussions. Multinational banks with large numbers of primary and secondary customers may find it difficult to scour their records for alleged wrongdoers.