In re Kazakhstan, 15 Misc. 0081 (S.D.N.Y. June 22, 2015) [click for opinion]

Anatolie Stati, Gabriel Stati, Ascom Group, S.A. and Terra Raf Trans Traiding Ltd. (collectively, the “Stati Group”) moved to vacate an order allowing the Republic of Kazakhstan (“ROK”) to obtain discovery from a third party law firm under 28 U.S.C. § 1782 (“§ 1782”) and to quash asubpoena duces tecum served on that law firm.  The U.S. District Court for the Southern District of New York ultimately denied the Stati Group’s motion and allowed discovery to proceed.

An arbitral tribunal in Sweden had earlier determined that ROK improperly seized a liquefied petroleum gas plant and issued an award to the Stati Group which valued the plant at $199 million. ROK appealed the decision in Sweden, arguing, inter alia, that the plant’s valuation should have been lower. During the pending Swedish appeal, ROK also filed a petition under § 1782 in the Southern District of New York, seeking documents from a third party law firm. The requested documents, which were from three earlier arbitration proceedings, discussed the valuation of this same plant.ROK made this request since it believed the Stati Group provided improperly high estimates of the value of the plant as compared to lower valuations in those prior arbitrations. After ROK’s discovery request was permitted, the Stati Group moved to vacate the court’s decision.

The court first considered whether ROK’s petition met the statutory requirements under § 1782. In the Second Circuit, the statutory requirements are met if (1) the person for whom discovery is sought resides (or is found) in the district of the district court to which the application is made; (2) the discovery is to be for use in a proceeding before a foreign tribunal; and (3) the application is made by a foreign or international tribunal or “any interested person.”

The court found that all three prongs were met in this case. As for the first prong, while the third party law firm was headquartered in London, it was still found in the district because the New York office (where the subpoena was served) was not a separate entity. Rather, by working with its colleagues in London, it “operat[ed] as a single law firm.” The Stati Group conceded the second prong of the test. The third prong was also met: while a sovereign cannot be ordered to produce documents under § 1782, it can rely on § 1782 to obtain discovery. There is a longstanding presumption that “person” does not include a sovereign, but the presumption is not insurmountable, as prior case law suggested that states can be considered “interested persons” to obtain discovery under § 1782. The court thus held that ROK’s petition met the statutory requirements of § 1782.

Once the requirements of § 1782 are shown, a district court can grant discovery as per its own discretion.Some of the factors that courts consider include (1) whether “the person from whom discovery is sought is [not] a participant in the foreign proceeding”; (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 § 1782(a) request conceals 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.”

The court found these factors favored disclosure. The first factor favored ROK’s petition since discovery was sought from non-parties to the action. The second and third factors were also in ROK’s favor, as there was no authoritative proof that the Swedish tribunal would reject this evidence, and there was no requirement that ROK first request this discovery from the foreign tribunal. Finally, the fourth factor was not an issue because neither the law firm nor Stati Group objected to the scope of ROK’s requests.

Thus, the court denied the Stati Group’s motion to vacate the § 1782 order and refused to quash a subpoena that was issued with that order.

Adam Pascarella of the New York office contributed to this summary.