Sec. v. Stanford Int'l Bank

• Citation: 776 F.Supp.2d 323
• Decision Date: 06 April 2011
• Docket Number: Civil Action No. 3:09–CV–0298–N.
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff,v.STANFORD INTERNATIONAL BANK, LTD., et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

776 F.Supp.2d 323

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.STANFORD INTERNATIONAL BANK, LTD., et al., Defendants.

Civil Action No. 3:09–CV–0298–N.

United States District Court, N.D. Texas, Dallas Division.

April 6, 2011.

David B. Reece, D. Thomas Keltner, J. Kevin Edmundson, Michael D. King, Steve J. Korotash, U.S. Securities & Exchange Commission, Fort Worth, TX, for Plaintiff.Bradley W. Hoover, Paul D. Flack, Richard P. Keeton, Robert S. Bennett, Nickens Keeton Lawless Farrell & Flack, Ronald E. Cook, Cook & Roach, Stephen R. Cochell, The Cochell Law Firm, Gregg Anderson, Terry Bryant PLLC, Houston, TX, Lee H. Shidlofsky, Shidlofsky Law Firm PLLC, Austin, TX, David M. Finn, Milner Finn Price, Jeffrey M. Tillotson, Chris J. Akin, John D. Volney, Lynn Tillotson Pinker & Cox LLP, John M. Helms, Jr., Helms Johnson & Diaz LLP, Dallas, TX, Brent R. Baker, Erik A. Christiansen, Parsons Behle & Latimer, Salt Lake City, UT, for Defendants.

ORDER

DAVID C. GODBEY, District Judge.

This Order addresses matters related to the Receiver's notice of request for discovery hearing [1224]. At a hearing held on February 28, 2011, the Court took under advisement the Receiver's request to proceed with discovery against nonparty Société Générale Private Banking (Suisse) S.A. (“SG Suisse”) under the Federal Rules of Civil Procedure. See Tr. of Hr'g of Feb. 28, 2011 [1280]. Because the Court finds discovery conducted pursuant to the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters ¹ (the “Convention”) reasonable under the circumstances, the Court denies the Receiver's request and directs him to obtain discovery from SG Suisse under the Convention. Should that method prove unfruitful, the Receiver may renew his request under the Federal Rules to obtain documents that the Court considers to be property of the Receivership.

I. Origins of the Receiver's Discovery Request

This international discovery dispute concerns matters related to the Securities and Exchange Commission's (the “SEC”) ongoing securities fraud action against R. Allen Stanford, his associates, and various entities under Stanford's control (the “Stanford Defendants”). As part of that litigation, this Court “assume[d] exclusive jurisdiction and t[ook] possession of the” “Receivership Assets” and “Receivership Records,” (collectively, the “Receivership Estate”). See Second Am. Order Appointing Receiver, July 19, 2010 [1130] (the “Receivership Order”). The Court appointed Ralph S. Janvey to serve as Receiver of the Receivership Estate and vested him with “the full power of an equity receiver under common law as well as such powers as are enumerated” in the Receivership Order. Id. at 3.

Among these enumerated powers, the Court “authorized [the Receiver] to immediately take and have complete and exclusive control, possession, and custody of the Receivership Estate and to any assets traceable to assets owned by the Receivership Estate.” Id. at 4. Additionally, the Court “specifically directed and authorized [the Receiver] to ... [c]ollect, marshal, and take custody, control and possession of all the funds, accounts, mail, and other assets of, or in the possession or under the control of, the Receivership Estate, or assets traceable to assets owned or controlled by the Receivership Estate, wherever situated,” id., and to file in this Court “such actions or proceedings to impose a constructive trust, obtain possession, and/or recover judgment with respect to persons or entities who received assets or records traceable to the Receivership Estate.” Id. at 5. The Court also ordered that, “[u]pon presentment of [the Receivership] Order, all persons, including financial institutions, shall provide account balance information, transaction histories, all account records and any other Receivership Records to the Receiver or his agents, in the same manner as they would be provided were the Receiver the signatory on the account.” Id. at 10.

The Receiver now seeks to obtain documents and information concerning the Stanford Defendants and their related entities from SG Suisse, which apparently holds accounts in the Stanford Defendants and entities' names. SG Suisse incorporated under Swiss law and maintains its headquarters in Geneva, Switzerland. Resp. at 3 [1266]. It operates one office in the United States, an “international representative office” in Miami, Florida. Id. In that capacity, the “Miami office merely markets the products and services of the SG Suisse home office in Switzerland and acts as a liaison between SG Suisse's Latin American customers and the SG Suisse home office.” Id. SG Suisse claims that “[n]o banking activities are conducted through the Miami office” because Florida law limits the office to “solicit[ing] new business and perform[ing] informational, marketing, and promotional activities on behalf of the SG Suisse home office in Geneva.” Id. & n. 7. SG Suisse avers that the Miami office does not have any “documents responsive to the” Receiver's request and lacks “the ability to obtain customer records from” or to “access the [computer and email] systems” of the home office. Id. at 5. According to SG Suisse, “any responsive documents, if they exist, would be located in Switzerland and are governed by Swiss financial privacy laws.” Id.

Nonetheless, the Receiver contends that the Court has the authority to order SG Suisse to comply with his request through the Federal Rules. SG Suisse objects on several grounds, but primarily because it contends that compliance will subject it and its employees to criminal, civil, and administrative penalties under Swiss law. SG Suisse argues that the Receiver should utilize instead the procedures in the Convention, of which Switzerland is a signatory. At this juncture, then, the Court need only decide the limited question of whether the Receiver should seek discovery first under the Federal Rules or the Convention.²

II. The Court May Order that Discovery Proceed Under the Convention

The Convention's text, “as well as the history of its proposal and ratification by the United States, unambiguously supports the conclusion that it was intended to establish optional procedures that would facilitate the taking of evidence abroad.” Société Nationale Industrielle Aérospatiale v. United States District Court, 482 U.S. 522, 538, 107 S.Ct. 2542, 96 L.Ed.2d 461 (1987) [hereinafter Aérospatiale ] (citing Amram, The Proposed Convention on the Taking of Evidence Abroad, 55 A.B.A. J. 651, 655 (1969); President's Letter of Transmittal, in S. EXEC. DOC. A, 92d Cong., 2d Sess. (1972)). And, it “draws no distinction between evidence obtained from third parties and that obtained from the litigants themselves; nor does it purport to draw any sharp line between evidence that is ‘abroad’ and evidence that is within the control of a party subject to the jurisdiction of the requesting court.” Id. at 541, 107 S.Ct. 2542. The Supreme Court has “conclude[d] accordingly that the ... Convention d[oes] not deprive [a] District Court of the jurisdiction it otherwise possesse[s] to order a foreign national party before it to produce evidence physically located within a signatory nation,” id. at 539–40, 107 S.Ct. 2542, and has refused to “require first resort to Convention procedures whenever discovery is sought from a foreign litigant.” Id. at 542, 107 S.Ct. 2542.

Aérospatiale, however, did not create a system that allows litigants to obtain discovery under the Federal Rules as of right. Rather, the Supreme Court made clear that district courts have the discretion to order discovery under the Convention,³ and provided a three prong test to guide courts' comity analyses.⁴ But, in practice, courts often cite the Aérospatiale Court's observation that the Convention serves as a “permissive supplement, not a pre-emptive replacement, for other means of obtaining evidence located abroad,” ⁵ id. at 536, 107 S.Ct. 2542, as a green light to generally “discard[ ] the treaty as an unnecessary hassle.” In re Automotive Refinishing, 358 F.3d at 306 (Roth, J., concurring); ⁶ see, e.g., Schindler Elevator Corp. v. Otis Elevator Co., 657 F.Supp.2d 525, 530 (D.N.J.2009) (“It has been the experience of this and many other courts that utilization of Hague procedures are slow and cumbersome and usually take far longer than discovery procedures under the Federal Rules.”).

That approach ignores Aérospatiale's admonition to “exercise special vigilance” in international discovery disputes, 482 U.S. at 546, 107 S.Ct. 2542, and exemplifies courts' intrinsic “proforum bias” warned against by both the Aérospatiale minority and the Fifth Circuit.⁷ Id. at 553 & n. 4, 107 S.Ct. 2542 (Blackmun, J., concurring in part and dissenting in part); ⁸ In re Anschuetz & Co., GmbH, 838 F.2d 1362, 1364 (5th Cir.1988) [hereinafter Anschuetz II ], modifying 754 F.2d 602 (1985) [hereinafter Anschuetz I ], vacated sub nom. Anschuetz & Co., GmbH v. Mississippi River Bridge Auth., 483 U.S. 1002, 107 S.Ct. 3223, 97 L.Ed.2d 730 (1987) (mem. op.) (remanding in light of Aérospatiale ). “[M]any foreign countries, particularly civil law countries, do not subscribe to our open-ended views regarding pretrial discovery, and in some cases may even be offended by our pretrial procedures.” Anschuetz II, 838 F.2d at 1364. “American courts should therefore take care to demonstrate due respect for any special problem confronted by the foreign litigant on account of its nationality or the location of its operations, and for any sovereign interest expressed by a foreign state.” Aérospatiale, 482 U.S. at 546, 107 S.Ct. 2542; see also Anschuetz II, 838 F.2d at 1364 (“We would note, however, as the Supreme Court noted, that sensitive interests of sovereign powers are involved and that it would be a serious mistake for the district court not to respect properly such interests in the course of deciding the appropriate discovery techniques to be applied.”).

Beyond the three...