Judge Scheindlin Weighs Comity Concerns and Orders Production of Documents from Bank of China Despite Violation of Chinese Laws

In Aerospatiale v. District Court of Iowa the United States Supreme Court admonished lower courts that international comity compels them to “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.” As previously noted, some prominent groups such as the ABA and The Sedona Conference® recently have developed principles and standards to help courts heed that advice.

In an Order dated May 1, 2013, in Wultz v. Bank of China Ltd., 11-CV-1266 (S.D.N.Y.), Federal District Judge Shira Scheindlin grappled with the plaintiffs’ most recent attempt to obtain documents from the Bank of China (“BOC”) “that would be discoverable under the Federal Rules of Civil Procedure, but that BOC was withholding because production of the documents would violate Chinese bank secrecy laws.” The Court noted that these documents were already the subject of a prior order compelling production that was decided on October 29, 2012 (id. at 5), however BOC’s objections this time stemmed from the fact that the production sought would violate certain Chinese Anti-Money Laundering (“AML”) laws that previously were not brought to the Court’s attention.

Wultz arises out of the death of Daniel Wultz and the injuries of Yekutiel Wultz, suffered in a 2006 suicide bombing in Tel Aviv, Israel. Four members of the Wultz family brought suit against the BOC alleging acts of international terrorism under the Antiterrorism Act (“ATA”). All non-federal claims against BOC were dismissed and the only remaining claim is for acts of international terrorism under the ATA, based on BOC allegedly having provided material support and resources to a terrorist organization. Plaintiffs have long sought information about BOC’s alleged ties to the terrorist organization in question and records indicating that the bank knew about the organization and its funding activity. BOC maintained that the information sought in discovery should not be produced for a variety of reasons, including that the confidentiality provisions of Chinese AML laws, meant to foster communication between banks and regulators, would be violated by such production (id. at 10-11).

The Court acknowledged that, based on the parties’ submissions, “it is more likely than not that BOC is prohibited under Chinese laws and regulations from producing the materials requested by plaintiffs” (id. at 23). When this is established, Aerospatiale and decisions from the Second Circuit require the District Court to analyze seven factors (id. at 13): (1) the importance to the investigation or litigation of the documents or other 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; (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; (6) the hardship of compliance on the party or witness from whom discovery is sought; and (7) the good faith of the party resisting discovery.

Taking each factor in turn, the Court noted that there was no question that the documents were important to the case and specifically tailored, and thus factors 1 and 2 favored production. Factor 3 cut against production because the materials originated outside of the United States, but factor 4 favored production because “there may be no alternative source of evidence for establishing one of the central elements of plaintiffs’ claim” — namely, “that BOC had notice” that the accounts in question “were being used to fund the terrorist organization whose attack on April 17, 2006 killed Daniel Wultz and injured Yekutiel Wultz” (id. at 29).

Factor 5 — the extent to which noncompliance with the request would undermine important interests of the United States — also favored production, because the denial of the sought-after discovery could mean that “a bank that recklessly or knowingly funded the terrorists who murdered an American citizen would continue to operate with impunity in the United States, with the benefits and protections of U.S. laws” (id. at 30). The Court did acknowledge that the production of certain documents might “risk infringing China’s sovereignty and violating the spirit of international comity in a way that this Court has sought to avoid” — but went on to say that China has no legitimate interest in trying to keep “confidential” whether “BOC received warnings” regarding the accounts in question and “may be liable under the ATA for a terrorist attack on American citizens” (id. at 32). Finally, factors 6 and 7 also weighed in favor of production, because BOC could show no significant burden and years into the litigation the evidence of BOC’s selective disclosure, delay, and highly implausible interpretation of past discovery order meant that “BOC has shown bad faith toward its discovery obligations” (id. at 33). Remarkably, the Court noted, after years of discovery it appeared that BOC still “had failed to produce a single e-mail  of any kind in this case” (id. at 34 n. 79).

Ultimately the Court ordered production of the documents sought, allowing for certain redactions or highly sensitive material to be first produced in camera for review before the materials were turned over. The Court recognized “the seriousness of this Order” yet believed that it was “compatible with the goals of international comity, including the notion of reciprocity” (id. at 38). Were the circumstances reversed, and a “U.S. bank operating in China were accused of funding a terrorist organization responsible for the death of a Chinese citizen, it would be appropriate in the wake of an ineffective Hague request for a Chinese court to order the U.S. bank to produce equally sensitive documents — appropriately redacted and under protective order, as here.” (Id.) In the end, Judge Scheindlin’s detailed opinion appears to have carefully balanced the interests at stake in this litigation as required by Aerospatiale and gave “due respect” for BOC’s objections.