United States: US District Court Holds That A Non-Party Foreign Bank Must Prepare A Witness With Documents Overseas

Keywords: non-US litigants, discovery protections

A recent decision in the Southern District of New York imposes a significant burden on non-US litigants by requiring a non-party bank to prepare a Rule 30(b)(6) witness with information that is available only overseas. Judge Shira Scheindlin's decision in Wultz v. Bank of China, Ltd., overruling a magistrate judge's order, cuts back on the discovery protections that Rule 45 provides to non-parties and conflicts with other decisions from the Southern District of New York.¹

Rule 30(b)(6) allows parties to seek the testimony of a corporation, which must designate a representative who is prepared on the identified topics. A 30(b)(6) deposition of a non-party may be compelled by subpoena under Rule 45. Rule 45, however, has an important jurisdictional limit—the court cannot compel a non-party to attend a deposition more than 100 miles from where the witness lives, is employed or regularly does business.

In Wultz, the plaintiffs alleged that Bank of China allowed money to be wired to an account held by an alleged terrorist (Shurafa), facilitating a suicide bombing in Tel Aviv. The plaintiffs further alleged that the Israeli government had warned Chinese regulators about Shurafa's accounts at Bank of China, but Bank of China disclaimed knowledge of any connection between the wire transfers and the terrorist organization that allegedly carried out the bombing. To support that defense, Bank of China pointed out that Bank Hapoalim, an Israeli bank, had sent wires to Shurafa around the same time that Israeli officials supposedly had warned the Chinese about Shurafa. Bank of China reasoned that if an Israeli bank was still sending wires to Shurafa, it was implausible that Israeli officials had warned the Chinese government of his alleged terrorist ties. Thus, Bank of China sought 30(b)(6) testimony from non-party Bank Hapoalim regarding the Shurafa wire transfers and any communications that the bank had with Israeli officials regarding Shurafa's ties to terrorist organizations.

Bank Hapoalim moved to quash. It argued that Rule 45 did not require it to prepare a witness when there were no employees in its New York office with knowledge of the subpoena topics. To comply, the bank would have to produce a witness from Israel, which would violate the 100-mile rule in Rule 45. Bank of China responded that, because the court had jurisdiction over the New York branch, Rule 30(b)(6) required Bank Hapoalim to prepare a New York employee to testify.

Magistrate Judge Gabriel Gorenstein quashed the subpoena because compelling a non-party to educate a New York witness with information from abroad would skirt Rule 45's 100-mile rule. In so doing, Magistrate Judge Gorenstein relied on several other decisions from the Southern District of New York that had reached the same conclusion. In Sokolow v. Palestine Liberation Organization, for example, the court applied the same rationale to deny a motion to compel a non-party UK corporation to produce a 30(b)(6) deponent in New York.² Although the plaintiff had served the subpoena on the New York office, the non-party explained that no New York employee had knowledge of the relevant topics. This result is consistent with case law that prioritizes Rule 45's limits on non-party discovery over the obligations that Rule 30(b) imposes on parties and non-parties alike. In Price Waterhouse LLP v. First Am. Corp. (another case cited by Magistrate Judge Gorenstein), the court held that "allowing a subpoena served pursuant to Rule 30(b)(6) to evade the proscriptions of Rule 45(c) would render Rule 45 surplusage and subject nonparties to the same level of burdensome discovery that can be imposed upon a party."³ Magistrate Judge Gorenstein also ruled that educating a New York witness would be an undue burden because the subpoena topics were extensive and the information had nothing to do with the New York office.

On appeal, the district court effectively overruled Magistrate Judge Gorenstein's order.⁴ While Judge Scheindlin acknowledged the 100-mile rule and her inability to compel Bank Hapoalim to designate a particular 30(b)(6) witness, she concluded that the obligation to prepare a witness included educating a New York employee with information, even if that information originated in Israel. She also determined that the deposition was not an undue burden, in part because Bank of China had narrowed the subpoena and also because, in the court's view, the information easily could be conveyed by telephone, email or videoconference.

As noted, Wultz conflicts with prior decisions that strictly enforce Rule 45's 100-mile rule. Moreover, Judge Scheindlin's use of a bank's New York toehold to permit what amounts to extra-territorial discovery comes at a time when New York state courts, at least in some respects, are cutting back on such efforts. For instance, in Ayyash v. Koleilat, decided in March, the First Department denied a request for discovery from non-party banks with New York branches because the discovery would cause "great annoyance" and "expense," violate "principles of international comity since the underlying dispute did not originate in the United States," evade the Hague Convention, and "risk . . . undermining important interests of other nations by potentially conflicting with their privacy laws or regulations."⁵ In time, it may be that the decision in Wultz will be recognized as an anomalous "outlier." Nevertheless, banks need to be aware that there is authority by which Rule 30(b)(6) can be used to require non-party banks to disclose information in US proceedings, even when such information can only be retrieved from overseas sources.

Footnotes

1. __ F.R.D. __, No. 11 Civ. 1266 (SAS), 2014 WL 572527 (S.D.N.Y. Feb. 13, 2014).

2. No. 04 Civ. 397 (GDB)(RLE), 2012 WL 3871380, at *4 (S.D.N.Y. Sept. 6, 2012).

3. 182 F.R.D. 56, 62-63 (S.D.N.Y. 1998).

4. The district court explained that it was not reviewing the magistrate judge's decision but rather addressed the issue de novo because Bank of China had narrowed its subpoena and Rule 45 had been amended since the magistrate judge issued his opinion.

5. 115 A.D.3d 495, 495 (1st Dep't 2014).

Originally published 29 April 2014

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