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IN RE APPLICATION OF IMANAGEMENT SERVICES LTD.

August 16, 2005.

IN RE: APPLICATION OF IMANAGEMENT SERVICES LTD. TO TAKE THE TESTIMONY OF SVETLANA GONCHAROV, SVETLANA KUDRYAVTSEVA AND GALINA ORLOVSKAYA FOR USE IN AN ACTION PENDING IN THE MOSCOW COURT OF ARBITRATION IN MOSCOW, RUSSIA.


The opinion of the court was delivered by: FREDERIC BLOCK, District Judge

MEMORANDUM AND ORDER

The Bank of New York ("BNY") has moved for vacatur of an order of the Court, dated May 2, 2005, granting the ex parte application of Imanagement Services Ltd. ("Imanagement") for discovery pursuant to 28 U.S.C. § 1782. On May 20, 2005 the Court granted a stay of discovery pending briefing and oral argument on BNY's motion. For the reasons set forth below, the Court denies BNY's motion and refers the matter to the assigned Magistrate Judge to determine the scope of discovery that may be sought by Imanagement.

  I.

  According to the parties' moving papers, on April 25, 2005, Imanagement filed suit against BNY and JSC AB Inkombank ("Inkombank") in a Russian court*fn1 (the "Russian Action"), alleging a conspiracy between BNY and Inkombank pursuant to which BNY improperly transferred Inkombank's assets out of Russia. Imanagement's complaint in the Russian Action states that it is the assignee to a currency swap agreement with Inkombank, under which Imanagement is currently owed close to $280 million. The complaint alleges that in coordinating the transfer of Inkombank's assets, BNY misused its license to maintain accounts and conduct settlements, to Imanagement's ultimate economic detriment. (Def. Mem. 3)

  On April 28, 2005, Imanagement applied for discovery under 28 U.S.C. § 1782, which allows a federal district court to order a person found within its district to provide discovery for use in a foreign proceeding. Imanagement seeks documents and deposition testimony from three individuals residing in Brooklyn whom Imanagement believes to have been witnesses in a criminal proceeding against BNY; two of the individuals are former employees of BNY. (Def. Mem. 4) BNY moves for a protective order denying Imanagement's application under § 1782 on the grounds that the discovery requested by Imanagement is not "for use" in a foreign proceeding, and that even if it were, the Court should deny Imanagement's application in the exercise of its discretion. Alternatively, BNY seeks an order curtailing the scope of discovery or providing for reciprocal discovery.

  In support of its motion BNY submitted the affidavit of Vladimir Yarkov, a Professor at Urals State Law Academy in the Russian Federation. Professor Yarkov opines that under the Russian court's rules of procedure, the court will not accept the written testimony of a person residing outside the Russian Federation, except pursuant to an order issued by the Russian court. Imanagement countered with the opinion of Vladimir Sherstyuk, a Professor of Law at Moscow State University, who asserts that written evidence and other documents and materials obtained abroad without the assistance of the Russian court can be accepted as evidence by the Russian court. Following completion of briefing on BNY's motion, the parties submitted a second set of affidavits to the Court, describing a hearing before the Russian court during which the Russian court refused to stay the proceedings in the Russian action pending the discovery requested by Imanagement under § 1782. A translation of the Russian court's ruling appended to BNY's affidavit reflects that the Russian court refused to stay the Russian proceedings because, pursuant to Russian procedural rules, a transcript of witness testimony obtained without an order from the Russian court may not "serve as due evidence." The Russian court declined to opine on the relevance or admissibility of the documents sought by Imanagement because Imanagement could not describe those documents with sufficient specificity.

  II.

  Courts are authorized to grant discovery under § 1782 when "(1) . . . the person from whom discovery is sought reside[s] (or [is] found) in the district of the district court to which the application is made, (2) . . . the discovery [is] 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.'" In re Application of Esses, 101 F.3d 873, 875 (2d Cir. 1996) (quoting In re Application of Gianoli Aldunate, 3 F.3d 54, 58 (2d Cir. 1993)). When a foreign evidentiary proceeding has concluded and the foreign tribunal will no longer accept any evidence, the discovery sought cannot be "for use" in the foreign proceeding. See In re Application of Euromepa, 154 F.3d 24, 29 (2d Cir. 1998); In re Application of Ishihara Chemical Co., Ltd., 251 F.3d 120, 125 (2d Cir. 2001). BNY does not dispute that Imanagement is an "interested person" and that the parties from whom discovery is sought reside in this district. BNY argues, however, that the evidence sought by Imanagement would be inadmissible in the ongoing Russian Action, and that it therefore cannot be "for use" in a foreign tribunal.

  The Court concludes that § 1782 contains no requirement that particular evidence be admissible in an ongoing foreign proceeding. Contrary to BNY's assertions, the Second Circuit has never held that in order for discovery sought pursuant to § 1782 to be "for use" in a foreign proceeding, it must be admissible under the rules of the foreign tribunal. In both Euromepa, 154 F.3d at 29, and Ishihara Chemical Co., 251 F.3d at 125, the foreign proceedings had concluded and the Second Circuit found that because the tribunals would no longer accept any evidence, the discovery sought therefore could not be "for use" in a foreign proceeding. The Court's decisions in these cases do not direct the district court to undertake an analysis of the admissibility of each piece of evidence sought when there is an ongoing foreign proceeding in which the foreign tribunal will accept and consider evidence submitted by the parties. See Europmepa, 154 F.3d at 27 ("In analyzing the second element . . . we have, as discussed below, previously focused on two questions: (1) whether a foreign proceeding is adjudicative in nature; and (2) when there is actually a foreign proceeding.").

  Moreover, construing § 1782's "for use" provision to contain an admissibility requirement would run counter to the Second Circuit's admonition against reading additional barriers into the plain language of § 1782. See In re Application of Gianoli Aldunate, 3 F.3d 54, 59 (2d Cir. 1993) (declining to read a foreign discoverability requirement into the plain language of § 1782 and observing that "[a]s we recently made clear in Malev, we are not free to read extra-statutory barriers to discovery into section 1782.") (citing In re Application of Malev Hungarian Airlines, 964 F.2d 97, 100 (2d Cir. 1992). Such a construction would also require district courts to predict or construe the procedural substantive law of the foreign jurisdiction, which would place a "significant burden on the litigants and the federal district courts," and "would seem to exceed the proper scope of section 1782." Euromepa, 51 F.3d at 1099 (citing John Deere Ltd. v. Sperry Corp., 754 F.2d 132, 136 (3d Cir. 1985); Walter B. Stahr, Discovery Under 28 U.S.C. § 1782 for Foreign and International Proceedings, 30 Va. J. Int'l. L. 597, 613 (1990)). The Court, therefore, agrees with those courts that have considered the issue and concludes that discovery assistance pursuant to § 1782 is not dependent upon the ultimate admissibility in the foreign jurisdiction of the evidence sought. See, e.g., In re Application of Grupo Qumma, 2005 WL 937486 at * 2 (S.D.N.Y. 2005) (holding that court was statutorily authorized to grant discovery request and stating that the "for use" requirement was not "limited to the actual receipt of materials into evidence in the foreign proceedings. It is sufficient that the evidence will be offered by Qumma; that constitutes `for use.'").*fn2 Because the evidence sought by Imanagement is "for use" in a proceeding before a foreign tribunal, the Court is accordingly authorized to grant discovery assistance under § 1782.

  III.

  Although Imanagement has demonstrated that it meets the statutory requirements for judicial assistance under § 1782, the Court's inquiry does not end there. Section 1782 "authorizes, but does not require, a federal district court to provide judicial assistance to foreign or international tribunals or interested people." Intel Corp. v. Advanced Micro Devices, Inc., 124 S. Ct. 2466, 2473 (2004). Once the applicant has demonstrated compliance with the statute's requirements, therefore, the district court must exercise its discretion in determining whether to grant the requested relief. The Supreme Court has identified four factors the district court should consider in the exercise of its discretion: (1) whether the person from whom discovery is sought is a participant in the foreign proceeding; (2) the nature of the foreign tribunal, the character of the proceedings underway, and the receptivity of the foreign government or court to U.S. federal-court judicial assistance; (3) whether the request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of the foreign country; and (4) whether the request is unduly intrusive or burdensome. See Intel, 124 S. Ct. at 2483.

  With respect to the first factor, the Supreme Court has noted that "when the person from whom discovery is sought is a participant in the foreign proceeding . . . the need for § 1782(a) aid generally is not as apparent as it ordinarily is when evidence is sought from a nonparticipant in the matter arising abroad." Id. By contrast, the parties from whom Imanagement seeks discovery are not parties to the Russian Action, and because they "may be outside the foreign tribunal's jurisdictional reach . . . their evidence, available in the United States, may be unobtainable absent § 1782(a) aid." Id. The first factor therefore clearly weighs in favor of granting an order to allow Imanagement to collect evidence from non-parties located in this district.

  BNY argues that the second factor identified by the Supreme Court weighs against granting the requested assistance. While the admissibility of evidence is not a statutory barrier to the authorization of discovery assistance under § 1782, it may appropriately be considered by the district court in determining whether to exercise its discretion. See Intel, 124 S. Ct. at 2483 (stating that the second factor a court should consider is the nature of the foreign tribunal, the character of the proceedings underway, and the receptivity of the foreign government or court to U.S. federal-court judicial assistance); Grupo Qumma, 2005 WL 937486 at *2 ("admissibility of the evidence . . . is a relevant consideration, for . . . this Court should take into account the `receptivity' of the foreign court to U.S. federal-court assistance and the `nature, attitude, and procedures' of the foreign jurisdiction."). Nonetheless, in exercising its discretion, "a district court's inquiry into the discoverability of requested materials should consider only authoritative proof that a foreign tribunal would reject evidence obtained with the aid of § 1782. Such proof, as embodied in a forum country's judicial, executive or legislative declarations that specifically address the use of evidence gathered under foreign procedures, would provide helpful and appropriate guidance to a district court in the exercise of its discretion. Absent this type of clear directive . . . a district court's ruling should be informed by section 1782's overarching interest in `providing equitable and efficacious procedures for the benefit of tribunals and litigants involved in litigation with international aspects.'" Euromepa, 51 F.3d at ...


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