Xitrans Fin. Ltd. v. Adelson (In re Accent Delight Int'l Ltd.), No. 16-3655 (2d Cir. Aug. 28, 2017) [click for opinion]
Petitioners-Appellees Accent Delight International Ltd. and Xitrans Finance Ltd. (collectively, "Petitioners") are British Virgin Island companies owned by family trusts of Dmitry Rybolovlev, a Russian national residing in Monaco. Intervenor-Appellant Yves Bouvier is a Swiss businessman who invests and deals in art through his co-intervenor MEI Invest Ltd., a Hong Kong company that he controls (collectively, "Bouvier).
From 2003–2014, Petitioners acquired thirty-eight artworks on Rybolovlev's behalf. Bouvier brokered the transactions, acting as a middleman and earning a two-percent commission on each artwork sold. It was a happy relationship until 2014, when the New York Times reported that Sotheby's—one of the world's largest brokers of fine art—had brokered a private sale of Leonardo da Vinci's Christ as Salvator Mundi in May 2013 for between $75 million and $80 million. This news came as a surprise to Petitioners, who believed that they had purchased the same work through Bouvier, also in May 2013, for $127.5 million. Petitioners alleged that Bouvier's account of the sale was entirely false, that he failed to disclose Sotheby's role, and that he inflated the purchase price in order to pocket the $52 million difference. They alleged further that Bouvier lied about the prices of the other thirty-seven artworks whose purchase he facilitated, defrauding Petitioners of $1 billion in secret margins over their eleven-year relationship.
After becoming aware of this potential fraud, Petitioners initiated or joined foreign proceedings against Bouvier in Monaco, France, and Singapore. In Monaco, Petitioners initiated a criminal proceeding against Bouvier, later joining the case as civil parties. The criminal proceeding in France was brought by Pablo Picasso's stepdaughter, Catherine Hutin-Blay, who alleged that two of the thirty-eight works acquired by Bouvier—Picasso's Tête de femme and Espagnole à l'éventail—were stolen from her. Finally, Petitioners filed a civil suit in Singapore, where they sought damages from Bouvier for his alleged fraud. Importantly, Petitioners disclaimed their right to damages in the Monégasque proceeding as a condition imposed by the Singaporean trial court in order to proceed in Singapore. On appeal by Bouvier, the Singaporean high court granted a stay of the litigation on forum non conveniens grounds, effectively terminating the case in Singapore, and leaving only two foreign proceedings pending at the time this case came before the Second Circuit: the criminal cases in France and Monaco, in neither of which Petitioners sought damages.
This action originated in the Southern District of New York when Petitioners filed a 28 U.S.C. § 1782 ("Section 1782") application for discovery in aid of the Monégasque, French, and Singaporean proceedings, naming as respondents Sotheby's and the three individuals who had sold da Vinci's Christ as Salvator Mundi in May 2013. After Sotheby's was released pursuant to a settlement agreement, Bouvier intervened and objected to the agreed-upon production. Bouvier argued that one or both of two developments was likely to occur. First, he maintained that he would succeed on his appeal in Singapore and that the suit there would be dismissed. Second, he argued that, even if the Singaporean litigation continued, the Singaporean court nonetheless would require Petitioners to withdraw entirely from the Monégasque proceeding, as opposed to withdrawing only their damages claim. Either way, in his view, Petitioners would shortly have no "use" for the discovery requested as required by Section 1782. Nevertheless, the district court granted Petitioners' application with respect to the two Picasso paintings at issue in the French proceeding at an initial conference, later issuing a memorandum opinion and order granting the remainder of the application. Two weeks later, the court executed a protective order limiting use of the discovery "in the first instance to the foreign proceedings referenced in [Petitioners' application] – namely, Monaco, France, and Singapore." Bouvier appealed.
In affirming the district court's orders, the Second Circuit addressed two primary issues on appeal regarding the scope of Section 1782: (1) whether discovery sought pursuant to 1782 is "for use in a proceeding in a foreign or international tribunal" where the applicant is a crime victim authorized to submit the discovery to the foreign tribunal, but is not making a claim for damages therein; and (2) whether an applicant that lawfully has obtained discovery under Section 1782 as to one foreign proceeding may use that discovery in other foreign proceedings. The Second Circuit answered both questions in the affirmative.
With regard to the question of the meaning of "for use," the thrust of Bouvier's argument was that, by disclaiming their interest in damages in the Monégasque proceeding, Petitioners could not employ the discovery to their advantage in the manner that the statute and the Second Circuit require. He argued that Petitioners' sole remaining interest in the Monégasque proceeding is to see justice done as crime victims, which on the "unique facts of this case" renders them unable to satisfy the "for use" requirement. The Second Circuit rejected this argument, stating, "[w]e never have required, as Bouvier now urges us to do, that an applicant be pursuing a certain type of relief in that tribunal." Rather, in order to satisfy the "for use" requirement, an applicant must merely demonstrate that (1) he or she has the practical ability to inject the requested information into a foreign proceeding, and that (2) the requested discovery is "something that will be employed with some advantage or serve some use in the proceeding." Here, the court stated, (1) Petitioners are parties to that proceeding who, while they have abandoned any claim there for monetary relief, retain the procedural right to submit the requested documents to the magistrate overseeing the investigation, and (2) Petitioners' introduction of the discovery would be to their "advantage" and "serve some use" if it tends to prove Bouvier's alleged fraud against them.
With regard to the second issue addressed on appeal, the Second Circuit held that both the text and the legislative history of Section 1782 demonstrate that Congress enacted Section 1782 with the "twin aims of providing efficient means of assistance to participants in international litigation in our federal courts and encouraging foreign countries by example to provide similar means of assistance to our courts." As such, the manner in which discovery under the statute is produced, handled, and used, and thus the decision to prohibit an applicant from using the discovery obtained with respect to one foreign proceeding in another, is committed to the district court alone.