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Wultz v. Bank of China Ltd.

United States District Court, S.D. New York

May 1, 2013

SHERYL WULTZ, individually, as personal representative of the Estate of Daniel Wultz, and as the natural guardian of plaintiff Abraham Leonard Wultz; YEKUTIEL WULTZ, individually, as personal representative of the Estate of Daniel Wultz, and as the natural guardian of plaintiff Abraham Leonard Wultz; AMANDA WULTZ; and ABRAHAM LEONARD WULTZ, minor, by his next friends and guardians Sheryl Wultz and Yekutiel Wultz, Plaintiffs,
v.
BANK OF CHINA LIMITED, Defendant

Page 453

For Plaintiffs: Lee S. Wolosky, Esq., Steven I. Froot, Esq., Marilyn C. Kunstler, Esq., Jaime Sneider, Esq., Boies, Schiller & Flexner LLP, New York, NY.

For Defendant: Mitchell R. Berger, Esq., Patton Boggs LLP (DC), Washington, D.C.; Zachary Carter, Esq., Lanier Saperstein, Esq., Neil McDonell, Esq., Eric Epstein, Esq., Daniel Goldberger, Esq., Dorsey & Whitney LLP, New York, NY.

OPINION

Page 454

OPINION & ORDER

Shira A. Scheindlin, U.S.D.J.

I. INTRODUCTION

This suit 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 Bank of China (" BOC" ), alleging acts of international

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terrorism under the Antiterrorism Act (" ATA" ),[1] among other claims.

All of plaintiffs' non-federal claims against BOC have now been dismissed.[2] In addition, plaintiffs' attempt to hold BOC liable for aiding and abetting international terrorism under the ATA has been categorically foreclosed by the Second Circuit.[3] Thus, plaintiffs' only remaining claim against BOC is for acts of international terrorism under the ATA, based on BOC allegedly having provided material support and resources to a terrorist organization.[4]

Before this Court is plaintiffs' second motion to compel BOC to produce documents that BOC argues it is prohibited from producing under the banking laws of the People's Republic of China (" the Chinese government," or " the PRC" ).[5] For the reasons stated below, plaintiffs' motion is granted in part.

II. BACKGROUND

Plaintiffs summarize their allegations as follows:

[I]n 2005, a year before the terrorist attack in Israel that killed 16-year old U.S. citizen Daniel Wultz and seriously wounded his father Yekutiel Wultz (also a U.S. citizen), Israeli officials began a series of meetings with Chinese government officials to warn the Chinese government and BOC about various BOC account-holders, including Said al-Shurafa (" Shurafa" ). Subsequently, U.S. officials initiated similar meetings in China concerning the use of BOC by state sponsors of terrorism, such as Iran, and terrorist organizations supported by Iran, such as the Palestinian Islamic Jihad (" PIJ" ) and Hamas. These meetings all covered BOC's facilitation of terrorist violence in Israel. They included BOC's bank regulator, the People's Bank of China (" PBOC" ), and other agencies responsible for foreign affairs, security, and law enforcement in China, including the Ministry of Foreign Affairs (" MFA" ), Ministry of State Security (" MSS" ), and Ministry of Public Security (" MPS[" ]) (together with PBOC, the " PRC Agencies" ). Some meetings are believed to have also included BOC officials, including Geng Wei, BOC's Chief Compliance Officer.
During approximately ten meetings that took place in China from 2005-2007, Israeli officials asked the PRC Agencies to take action to ensure that BOC -- which was at the time, and remains today, a majority state-owned bank -- stop[ped] supporting the PIJ and Hamas, and close[d] the accounts of Shurafa and his affiliates (the " Shurafa Accounts" ). BOC nonetheless continued to process numerous wire transfers through the Shurafa Accounts for the

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benefit of PIJ and Hamas, up to and after the murder of Daniel Wultz.[6]

In 2008, after Daniel Wultz's survivors sent a demand letter to BOC threatening this lawsuit, BOC conducted an internal investigation and, according to plaintiffs, " finally began closing the Shurafa Accounts." [7]

Plaintiffs' attempts to obtain discovery from BOC have a long, complex, and contested history. This has been especially true of plaintiffs' attempts to obtain evidence concerning BOC's communications with the PRC, and internal BOC communications located in China.[8]

In an order issued on October 29, 2012 (" the October 29 Order" ), I addressed plaintiffs' first motion to compel BOC to produce various categories of documents in contravention of Chinese law.[9] Applying the Second Circuit's seven-factor comity test,[10] I granted plaintiffs' motion in part, ordering BOC to produce documents requested by plaintiffs 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. I created a single, narrow exclusion from this general rule: " to the extent that plaintiffs' narrowed discovery requests call for the production of confidential regulatory documents created by the Chinese government whose production is clearly prohibited under Chinese law, I decline to order production of such regulatory documents." [11] I added in a footnote: " To be perfectly clear, this exception does not apply to materials created by BOC and provided to the Chinese government in the course of regulatory reviews." [12]

Rather than resolving the parties' dispute, the October 29 Order had little effect. On November 9, 2012, BOC responded to plaintiffs' third set of document

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requests by " reiterating its objection to producing regulatory communications and filings barred by the laws and regulations of the PRC." [13] It eventually became clear that BOC was refusing to produce the requested Chinese documents not only based on the bank secrecy laws discussed in the October 29 Order, but also based on other laws, including laws primarily concerned with combating money laundering and other illegal financial transactions.[14] With the benefit of hindsight, BOC's briefing prior to the October 29 Order contains references to such laws.[15] Instead of promptly bringing to the Court's attention the importance of these laws to BOC's position, however, BOC failed to comply with the Court's order and claimed that its behavior was justified by the language in the footnote quoted above. Once again: the October 29 Order stated that BOC was required to produce relevant documents except " confidential regulatory documents created by the Chinese government whose production is clearly prohibited under Chinese law." [16] The Order emphasized in a footnote that this exception did " not apply to materials created by BOC and provided to the Chinese government in the course of regulatory reviews." [17] Despite the absence of any statement in the Order that BOC was permitted to withhold documents

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created by BOC and provided to the Chinese government outside the course of regulatory review -- which would have been a significant exclusion -- BOC claimed to believe that this exclusion was implied simply by the Court's use of the phrase " in the course of regulatory reviews" in the footnote.[18]

In an order on January 10, 2013 (" January 10 Order" ), I rejected BOC's interpretation of the footnote in the October 29 Order,[19] but recognized the validity of BOC's concerns regarding materials whose production is prohibited under Chinese laws other than the bank secrecy laws addressed in the October 29 Order.[20] The January 10 Order concluded that under the multi-factor comity test, Chinese laws that are " primarily concerned not with protecting the confidentiality of bank

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clients, but with combating money laundering and other illegal financial transactions" would offer stronger protection to BOC than Chinese bank secrecy laws.[21] As a result, I held that BOC would not be required automatically to produce " communications from BOC to the Chinese government whose disclosure is specifically and categorically prohibited under" several Chinese laws cited by BOC:[22]

" Article 5(1) of the Anti-money Laundering Law of the PRC; Articles 7, 15(2) and 16 of the Rules for Anti-money Laundering by Financial Institutions; and Article 6 of the Measures for the Administration on Financial Institutions' Reports of Large-sum Transactions and Suspicious Transactions." [23]

I also provisionally accepted BOC's representation that two specific types of document transmitted from banks to Chinese regulators -- Suspicious Transaction Reports (" STRs" ) and Large-value Transaction Reports (" LTRs" ) -- are analogous to Suspicious Activity Reports (" SARs" ), which U.S. regulations prohibit banks from producing in discovery.[24] But I invited the parties to provide further briefing regarding the laws cited by BOC as the basis for its withholding of Chinese discovery materials despite the October 29 Order.[25] That briefing is the subject of this Opinion.

III. APPLICABLE LAW

A. Multi-Factor Comity Analysis

In Société Nationale Industrielle Aé rospatiale, the Supreme Court established that the use of the Hague Convention process is optional, not mandatory, and does not deprive a District Court of the jurisdiction it would otherwise possess " to order a foreign national party before it to produce evidence physically located within a signatory nation." [26] At the same time, the Supreme Court emphasized that " international comity" (" the spirit of cooperation in which a domestic tribunal approaches the resolution of cases touching the laws and interests of other sovereign states" ) " requires in this context a . . . particularized

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analysis of the respective interests of the foreign nation and the requesting nation." [27]

When evaluating the propriety of an order directing the production of information or documents in contravention of foreign law, courts in the Second Circuit consider the following five factors, drawn from Aé rospatiale :

(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; and
(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.[28]

Courts in the Second Circuit also consider:

(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.[29]

B. Chinese Law

The party objecting to a discovery motion based on foreign law bears the burden " 'of demonstrating that such law actually bars the production or testimony at issue.'" [30] " 'In order to meet that burden, the party resisting discovery must provide the Court with information of sufficient particularity and specificity to allow the Court to determine whether the discovery sought is indeed prohibited by foreign law.'" [31] The party must describe, among other things, " 'the provisions of the foreign law, the basis for its relevance, and the application of the foreign law to the facts of the case.'" [32]

" 'Foreign law, though formerly treated as an issue of fact, is now recognized as an issue of law, to be established by any relevant source, including testimony.'" [33] Federal Rule of Civil Procedure 44.1 establishes that " [t]he court's determination [of foreign law] must be treated as a ruling on a question of law."

Chinese courts do not routinely issue opinions: " '[t]here is no system of guidance by precedent, judges deciding cases do not issue explanatory published opinions, and their judgments do not bind co-ordinate or lower courts in other cases.'" [34]

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As I noted in a prior opinion in this case, " [t]he interpretation of Chinese law should be informed by attention to the general practices and features of China's legal institutions, rather than by relying solely on inferences drawn from indeterminate legal language." [35]

[T]he contemporary history of Chinese law began only in 1978, when Deng Xiaoping instituted a policy of legal reform in the wake of the lawlessness of the Cultural Revolution. Since that time, the Chinese legal system has undergone exceptional growth and development, but it continues to lack some characteristics of the rule of law commonly assumed in the West. Black letter law in the PRC is often " general and vague," " poorly drafted," " subject to frequent change," " out-of-date," and, perhaps most significantly for the current case, " at odds with reality and current practices." . . . The discrepancy between language and legal reality in Chinese law calls into question the attempt to deduce Chinese law simply from the language of Chinese legal sources, without critical attention to the practices of Chinese legal institutions.[36]

IV. DISCUSSION

In the present motion to compel, plaintiffs request the following categories of documents from BOC's Chinese operations: " internal communications and communications with the Chinese government about the Shurafa accounts, visits of foreign officials asking that those accounts be closed, and . . . money-laundering and terrorist financing generally." [37] Plaintiffs state that BOC has withheld these documents because it claims it is prohibited from producing these documents under Chinese laws. Plaintiffs argue, however, that the Chinese laws cited by BOC do not create the protections that BOC claims, and that this Court should order production.[38]

BOC provides no definitive statement of the categories of requested documents it is withholding based on the Chinese laws discussed in its brief.[39] Elsewhere, in a privilege log, BOC has identified three " categories of potentially responsive regulatory communications, to the extent such communications exist, that BOC is prohibited under PRC law and regulations from disclosing." [40]

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BOC's three withheld categories of PRC regulatory communications, however, do not encompass all of the materials that plaintiffs describe as the subject of the current motion. For example, there may be as-yet unproduced internal communications by BOC in China that are " about the Shurafa accounts, visits of foreign officials asking that those accounts be closed, [or] money-laundering and terrorist financing generally," but that do not contain or reveal the materials listed on the log. Such materials do not appear to be covered by any category on the privilege log.[41] More generally, the reference to " potentially responsive regulatory communications " that precedes the three categories of the log raises the possibility that BOC may be withholding, based on as-yet unstated arguments, materials located in China that are not regulatory communications, but that fall within the scope of plaintiffs' requests in the present motion.

Due to the gaps and ambiguities in and between the categories of BOC's privilege log, plaintiffs' definition of the materials at issue in this motion is the only explicit and comprehensive definition in the parties' submissions. Accordingly, I adopt plaintiffs' definition of the subject matter of the motion. Plaintiffs have requested (a) BOC's internal communications in China, and (b) BOC's communications with the Chinese government, about (i) the Shurafa accounts, (ii) visits of foreign officials asking that those accounts be closed, and (iii) money-laundering and terrorist financing generally.[42] These materials are clearly relevant to plaintiffs' claim, and BOC has not argued that they fall outside plaintiffs' pending discovery requests. Moreover, plaintiffs' opening brief put BOC on notice that plaintiffs sought these materials in the current motion to compel.

BOC's arguments against production, interpreting BOC's assertions of privilege as broadly as possible, are as follows. First, BOC argues that it is prohibited by various PRC laws related to AML and CTF from disclosing requested STRs, LTRs, any other requested communications between BOC and the PRC, and any requested internal BOC materials that it has

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not already produced.[43] Second, BOC asserts that " all communications between BOC and the PBOC" have been classified by PBOC as " most confidential," " classified," and/or " confidential," and thus BOC is barred from producing these communications under the PRC State Secrets Law.[44] With respect to both the AML/CTF laws and the State Secrets Law, BOC also argues that under Aé rospatiale, it should not be ordered to produce requested materials in contravention of these laws. Third, BOC argues that some or all of its internal communications " may also be immune from disclosure under the attorney-client or work product privileges." [45]

1. PRC AML/CTF and State Secrets Laws

BOC bears the burden of establishing that Chinese law prohibits BOC from complying with plaintiffs' discovery requests.[46] In support of that conclusion, BOC offers a lengthy declaration from Dr. Randall Peerenboom, an expert on Chinese law, arguing that " PRC laws and regulations impose broad confidentiality obligations on PRC banks and financial institutions." [47] This Court relied on Dr. Peerenboom's general views on Chinese law in its November 5 Order, concluding that " [t]he interpretation of Chinese law should be informed by attention to the general practices and features of China's legal institutions, rather than by relying solely on inferences drawn from indeterminate legal language." [48] This conclusion was based in part on Dr. Peerenboom's observations concerning Chinese law, including that black letter law in the PRC is often " 'at odds with reality and current

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practices.'" [49]

Despite Dr. Peerenboom's general expertise, however, the conclusions in his declaration are for the most part not based on empirical evidence of how the laws he discusses have (or have not) been implemented. Dr. Peerenboom's conclusions are instead based largely, though not entirely, on interpretations of the general, abstract language of Chinese laws and regulations, supplemented by his own considerations of policy.[50] As Dr. Peerenboom concedes, " the Chinese anti-money laundering and counter-terrorist regimes are relatively new and still in the process of developing, and . . . the rules cannot be expected to be as comprehensive, specific or consistent in their details as similar rules in other jurisdictions." [51] Indeed, Dr. Peerenboom repeatedly phrases his overarching conclusions not as statements of what Chinese law is, but as statements of how it " should be interpreted." [52]

Nevertheless, Dr. Peerenboom's arguments concerning Chinese law are more persuasive than those of plaintiffs' experts, which I will not discuss at length.[53] 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 in the present motion. The clearest statement of the prohibition appears in article 15(2) of the PBOC AML Provisions, which states: " 'Financial institutions and their staff shall keep confidential . . . suspicious transaction reports, their cooperation with the PBOC in the investigation of suspicious transactions[,] and other information related to anti-money laundering activities, which shall not be provided to clients or others in violation of regulations.'" [54]

Especially in light of the numerous other laws indicating the Chinese government's intention to impose broad confidentiality obligations on Chinese banks,[55] the most plausible interpretation of article 15(2) is that BOC, a financial institution, must keep confidential, and not produce to others (such as plaintiffs or this Court),[56] the following categories of materials: (i) STRs, (ii) information related to BOC's cooperation with PBOC in the investigation of suspicious transactions, and (iii) any other information related to anti-money laundering activities. With regard to

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STRs, article 6 of PBOC's LTR and STR Measures provides an additional source of confidentiality.[57] This suggests that STRs, and perhaps LTRs as well, are especially confidential under PRC law, just as SARs are accorded special protections under U.S. law.[58]

It would be highly implausible to conclude that the PBOC intended article 15(2) to imply a distinction between " anti-money laundering activities" and " counter-terrorist financing activities," and to prohibit the production of information related to the former but not the latter. In any case, the parties' briefing indicates no basis for drawing distinctions between the two activities. Thus, article 15(2) is most likely intended to prohibit BOC from producing any information related to either AML or CTF activities. As a result, article 15(2) prohibits BOC from producing any of the documents that plaintiffs request in the present motion: " internal communications and communications with the Chinese government about the Shurafa accounts, visits of foreign officials asking that those accounts be closed, and . . . money-laundering and terrorist financing generally" [59] are all examples of information related to BOC's AML/CTF activities in China.

Plaintiffs' argument that article 15(2) implicitly permits BOC to disclose confidential information in a legal proceeding in a foreign court is unpersuasive.[60] Nothing in the language of article 15(2) indicates such a permission, nor have plaintiffs cited any other provision of Chinese law authorizing a bank to disclose confidential information to a foreign court or in the course of foreign litigation. Instead, plaintiffs cite the analysis of a senior partner at a Chinese law firm, who concludes that the laws cited by BOC " do not prevent a Chinese court from compelling production of documents as part of a civil litigation." [61] Obviously, a rule permitting a Chinese court to compel the production of confidential documents from BOC does not imply that BOC is legally permitted under Chinese law to produce such documents pursuant to a foreign court's order.[62]

In addition to relying on the AML/CTF laws above, BOC also argues that some of

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the documents requested by plaintiffs -- including " all communications between BOC and the PBOC" -- have been classified by PBOC as " most confidential," " classified," and/or " confidential," and that BOC is thus barred from producing these communications under the PRC State Secrets Law.[63] Article 3 of the State Secrets Law states: " 'All . . . enterprises, institutions and citizens shall have the obligation to guard state secrets.'" [64] Article 30 provides an exception, but only after approval has been obtained from the proper government authority.[65] Plaintiffs do not contest the statement by BOC's Chinese counsel that " [t]he exceptions of Article 30 do not apply here, because approval has not been obtained from the central government." [66]

2. Multi-Factor Comity Analysis

Based on the foregoing discussion, plaintiffs' present motion is a request to compel BOC to produce materials in contravention of Chinese law. To determine whether BOC should be ordered to do so -- and if so, to what extent -- this Court must again apply the multi-factor comity test discussed in the October 29 and January 10 Orders.[67]

With regard to the importance to the litigation of the requested materials and the specificity of the request, it is now possible to say with greater confidence than in the October 29 Order that plaintiffs' requests are specifically tailored to their claims, and highly important to the success of their claims. BOC's internal communications and communications with the Chinese government about the Shurafa accounts are crucial to establishing whether BOC was put on notice that the Shurafa accounts were being used to fund terrorism (if, in fact, they were), and how BOC responded to any such notice. BOC's internal communications and communications with the Chinese government about visits of foreign officials asking that the Shurafa accounts be closed are perhaps the most essential pieces of evidence in this category. Finally, BOC's internal communications and communications with the Chinese government about money-laundering and terrorist financing generally are important to establishing the scienter element of plaintiffs' claim, and may also lead to the identification of other evidence relevant to this case.

The precise scope of the materials requested by plaintiffs, and BOC's precise grounds for refusing to produce them, have not always been apparent. This is due to a combination of factors, including the inevitable difficulty of asserting and defending privileges over documents whose existence cannot be acknowledged; BOC's obfuscation (discussed below); the overbreadth of plaintiffs' initial requests; and BOC's failure to highlight the significance of Chinese AML laws in its submissions prior to the October 29 Order. However, the potential stakes of plaintiffs' discovery requests in the present motion are now sufficiently clear. If BOC is not

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ordered to produce plaintiffs' requested materials in contravention of PRC law, there may be no alternative source of evidence for establishing one of the central elements of plaintiffs' claim -- that BOC had notice that the Shurafa accounts were being used to fund the terrorist organization whose attack on April 17, 2006 killed Daniel Wultz and injured Yekutiel Wultz.[68] If BOC did, in fact, have such notice, and otherwise satisfied the conditions for liability under the ATA, then denial of plaintiffs' present motion could prevent the vindication of the interests that Congress sought to protect through passage of the ATA. In this scenario, 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. Obviously, such an outcome would undermine important interests of the United States -- the fifth factor under the comity test.

Under the fifth factor, however, this Court also considers the extent to which BOC's compliance with plaintiffs' request would undermine important Chinese interests. As I noted in the January 10 Order, China's AML/CTF laws are concerned with " depriving international terrorist and other criminal organizations of funding." [69] There is a risk that ordering BOC to produce internal communications or communications with the Chinese government concerning AML/CTF matters could have a chilling effect on future communications by Chinese banks, leading suspicious transactions to go unreported.[70] This would undermine the interests of both China and the United States. In addition, ordering production of materials designated by PBOC as state secrets, to the extent that such documents were properly designated, would risk infringing China's sovereignty and violating the spirit of international comity in a way that this Court has sought to avoid.[71]

It is deeply troubling that BOC did not explicitly mention the State Secrets Law until January 18, 2013, over a year after it described the Chinese laws prohibiting production of plaintiffs' requested materials.[72] If plaintiffs' requested materials

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genuinely contain significant state secrets, it is hard to believe that BOC would have failed to raise this potent ground for non-production during over a year of heated discovery disputes. In addition, it cannot be ignored that the PRC has a majority interest in BOC,[73] and thus has a special interest in protecting BOC from discovery and the risk of liability. If the " state secret" that PBOC wishes to keep confidential is that BOC received warnings regarding the Shurafa accounts and may be liable under the ATA for a terrorist attack on American citizens, then the U.S. interest in deterring terrorist attacks and seeing justice done between the parties would strongly outweigh even this Court's respect for the Chinese government's interest in preserving the confidentiality of its state secrets.

Finally, the Second Circuit directs this Court to consider BOC's hardship in complying with plaintiffs' discovery requests, and the good faith of BOC.[74] With regard to hardship, it remains the case that BOC has produced no evidence of a bank or its employees being meaningfully punished for disclosing confidential information to a U.S. court in contravention of Chinese law.[75] As Dr. Peerenboom states: " the Chinese authorities have apparently not yet actually sanctioned a bank for disclosing confidential information to a foreign court under threat of sanctions in violation of Chinese law." [76] I continue to agree with the remarks of Dr. William Alford, another scholar of Chinese law, who concluded in a case somewhat similar to this one that PRC sanctions against BOC for complying with a U.S. court's discovery orders were unlikely, in part because of the PRC's relationship to BOC.[77]

With regard to the final factor, the evidence is now sufficient to conclude that BOC has shown bad faith toward its discovery obligations. Judge Naomi Reice Buchwald recently reached a similar conclusion in another case involving BOC's resistance to the production of discovery materials in contravention of Chinese law:

BOC's actions reflect a conscious decision to selectively disclose information pertinent to the case, and to the discovery dispute more specifically, only as it suits BOC's litigation interests. Such a course of action is precisely the type of conduct that the Court may consider in undertaking the applicable comity analysis.[78]

BOC has not only shown bad faith in its interactions with plaintiffs,[79] it has also

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shown bad faith in its responses to this Court's orders. On more than one occasion, BOC has failed to comply with an order, said nothing to the Court, waited for plaintiffs to bring BOC's noncompliance to the Court's attention, and then, when confronted with its noncompliance, claimed to believe that the Court intended something other than what the Court clearly said. One example has already been noted above: BOC's bad-faith interpretation of the October 29 Order as permitting BOC to withhold materials provided to the Chinese government " outside the course of regular regulatory reviews." [80] Another, less egregious example of BOC's pattern of noncompliance occurred in response to this Court's April 9 and April 11 Orders concerning plaintiffs' motion to compel the production of U.S. regulatory materials. As summarized in an April 17 Memorandum Opinion and Order:

On April 9, 2013, this Court ordered defendant Bank of China Limited (" BOC" ) to produce [" the Shurafa Investigative Files" ]. . . . On April 10, 2013, plaintiffs informed this Court that BOC had stated (in plaintiffs' words) " it currently has no intention of producing the

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Shurafa Investigative Files or other documents that the Court ordered BOC to disclose, because BOC might file a motion for reconsideration." Plaintiffs requested the Court to order BOC to produce the Shurafa Investigative Files . . . by the close of business on Thursday, April 11, 2013, so that plaintiffs would be able to use the documents at the Rule 30(b)(6) depositions of BOC taking place in Hong Kong . . . .
After reviewing a response letter from BOC, this Court filed a letter endorsement on April 11, 2013 . . . ordering BOC to produce the Shurafa Investigative Files by close of business on Thursday, April 11, 2013 . . . . Rather than complying with the Court's order, BOC produced, according to a letter from plaintiffs submitted to the Court on April 12, a highly redacted version of [the Shurafa Investigative Report]. BOC had apparently redacted every portion of the document reflecting BOC's opinions, analysis, deliberations, or narrative descriptions of the transactions at the center of this lawsuit. . . .
BOC responded to plaintiffs' letter three days later, on April 15, 2013, arguing [to the Court] . . . that the redactions " are of the same character as those approved by this Court" in its discussion of the SAR privilege in the April 9 Order.[81]

However, as this Court concluded, " BOC's production was not . . . what the Court intended in its April 11 Order. Indeed, it is plain that BOC has violated the April 11 Order. BOC's interpretation of the April 9 Order is baseless." [82] There are two distinct issues here: first, whether BOC adopted a bad-faith misinterpretation of the plain meaning of the April 9 and April 11 Orders; and second, whether there was a persuasive argument for partial non-production that BOC could have raised prior to the April 9 and April 11 Orders, but failed to raise -- an argument that might have altered the holding in those Orders if BOC had adequately raised it.[83] While it may be the case that parts of the Shurafa Investigative Files are protected from production by a privilege that BOC cannot waive through inadequate briefing, it remains troubling that BOC did not candidly bring this issue to the Court's attention, but instead required the Court to infer BOC's arguments from its noncompliance. There are better, less dilatory ways of asserting even the most sensitive privileges.

In light of my finding that BOC has engaged in discovery at least partly in bad faith, as well as my findings in the foregoing multi-factor comity analysis, plaintiffs' motion to compel is granted in part, as described below. Before stating the terms of the order, however, I address several final considerations related to comity. BOC states in its opposition brief to the present motion that it " is only asking the Court to give the same regard to PRC laws as is given to similar U.S. laws in U.S. courts." [84] In fact, following Aé rospatiale's call for sensitivity to the concerns of foreign states and litigants,[85] the present order arguably gives greater deference to PRC laws than the April 9 Order gave to

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analogous U.S. laws -- and does so despite the lingering questions surrounding the application of the Chinese AML/CTF and State Secrets Laws to the materials at issue in this case. The present order is in many ways narrower than this Court's April 9 Order granting plaintiffs' motion to compel the production of non-public U.S. regulatory materials.[86]

This Court recognizes the seriousness of this Order, yet views it as compatible with the goals of international comity, including the notion of reciprocity.[87] If the circumstances were 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. If the U.S. bank had shown itself unwilling to engage in discovery in good faith, as BOC has in this case, it might similarly be appropriate for a Chinese court to order the production of especially sensitive materials solely for in camera review, as I do below.[88]

Dr. Peerenboom states that past decisions by U.S. courts ordering the production of discovery materials in contravention of Chinese law " have been widely discussed, and widely criticized in PRC legal circles and even the more popular press." [89] This opposition " to unilateral actions by foreign courts that seek to compel China's entities to divulge information protected under Chinese law is best understood in light [of] China's history," including past abuses by foreign powers.[90] I emphasize, however, that the present Order would be no different if the AML/CTF and state secrets laws at issue were the laws of a European, African, or South American state. Indeed, the closest precedent for the present order is Strauss v. Credit Lyonnais, S.A., which involved a U.S. court's decision to compel a French bank to produce discovery in contravention of French AML/CTF and other laws.[91] As in the present case, the defendant bank in Strauss argued that it might be subject to punishment, including fines and imprisonment, if it complied with plaintiffs' discovery

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requests.[92] After consideration of this risk, as well as of the foreign state's " profound and compelling interest in eliminating terrorist financing," [93] the court in Strauss ultimately determined that ordering the defendant bank to provide plaintiffs with discovery " would not 'undermine the important interests of the state where the information is located,' but rather, enforce them." [94] The court noted that the state where the information was located was " a participant in the multi-national Financial Action Task Force, which 'calls upon all countries to take the necessary steps to bring their national systems for combating . . . terrorist financing into compliance with the new FATF Recommendations.'" [95] China is also a member of FATF,[96] and the same conclusions apply to it in this case as applied to France in Strauss . In particular, I note that Recommendation 37 of the 2012 FATF Recommendations states: " Countries should rapidly, constructively and effectively provide the widest possible range of mutual legal assistance in relation to . . . terrorist financing investigations, prosecutions, and related proceedings." [97]

Finally, I emphasize that if, as BOC has suggested, there is no evidence providing a reasonable basis for plaintiffs' claims,[98] this case will be resolved at the summary judgment stage,[99] BOC will face no trial and no liability, and many or perhaps all of the sensitive materials produced to plaintiffs will never become public.[100] If BOC seeks that outcome, the shortest route to it is through prompt, good-faith compliance with its discovery obligations and this Court's orders. Any alternative route will invite sanctions.[101]

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Based on the foregoing analysis, BOC is ordered to produce the following materials:

First, with regard to documents created by the Chinese government, BOC is ordered to produce any communications from the Chinese government to BOC from prior to January 23, 2008 (the date of plaintiffs' demand letter) concerning Shurafa or the Shurafa Accounts. BOC may redact these communications (if any exist) to remove any non-factual materials. BOC is ordered to produce unredacted versions of these communications to the Court solely for the purpose of in camera review to verify that the redactions were properly executed.

Second, with regard to documents not created by the Chinese government, BOC is ordered to produce (i) all materials concerning AML or CTF problems or deficiencies at BOC's Guangdong Branch from January 1, 2003 to September 2008; (ii) all materials concerning AML or CTF problems or deficiencies at BOC's Head Office from January 1, 2003 to September 2008, to the extent that those problems or deficiencies related to the PIJ, Hamas, or any terrorists allegedly involved with those organizations; and (iii) all materials concerning Shurafa or the Shurafa accounts, including visits of foreign officials related to those topics. The preceding order is subject to two exceptions: (1) BOC may withhold from plaintiffs any STRs and LTRs encompassed by the order. These materials, if they exist, must be produced to this Court under seal solely for in camera review to determine that the documents are in fact STRs or LTRs. Any materials upon which these STRs or LTRs are based, however, must be produced to plaintiffs in full. (2) BOC may withhold from plaintiffs any items subject to the attorney-client or work-product privileges. These items must be listed in a document-level privilege log produced to plaintiffs, providing enough information to determine whether the documents are in fact privileged.[102]

V. CONCLUSION

For the foregoing reasons, plaintiffs' motion is granted in part. BOC must complete all ordered production by twenty days from the date of this Order.

SO ORDERED:


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