Opinion
Civil Action 24-MC-0013 (JGK) (RFT)
02-14-2024
In Re Ex Parte Application of IBIUNA CREDITO GESTÃO DE RECURSOS LTDA., et al., Petitioners, for an Pursuant to 28 U.S.C. § 1782 To Take Discovery for Use in Proceedings in the Federative Republic of Brazil.
TO THE HONORABLE JOHN G. KOELTL, UNITED STATES DISTRICT JUDGE:
REPORT AND RECOMMENDATION
ROBYN F. TARNOFSKY UNITED STATES MAGISTRATE JUDGE
Ibiuna Credito Gestão de Recursos Ltda. (“Ibiuna”), Travessia Securitizadora de Creditos Financeiros XXXII S.A. (“Travessia XXXII”), and Travessia Securitizadora de Creditos Financeiros S.A. (“Travessia”) (collectively, “Petitioners”) submitted an ex parte Application and Petition (the “Application”) pursuant to 28 U.S.C. § 1782 for an order authorizing Petitioners to serve subpoenas on Goldman Sachs Group Inc. (“Goldman Sachs Group”), Goldman Sachs & Co. LLC (“Goldman Sachs”), Santander Bank, N.A. (“SBNA”), The Clearing House Payments Company LLC (“CHIPS”), and the Federal Reserve Bank of New York (“NY Federal Reserve”) (together, “Respondents”).
Petitioners ask to obtain discovery for use in four judicial proceedings pending in Brazil: two civil proceedings in the State of Sao Paulo, Brazil (the “Civil Proceedings”), in which Petitioners are seeking payments on certain commercial notes from the defendants in those matters, including Kenneth Steven Pope (“Mr. Pope”), the owner of SouthRock Group, which includes, among other companies, SouthRock Capital Ltda. (“SouthRock Brazil”), Starbucks Brazil Comercio de Cafes Ltda. (“Starbucks Brazil”), and Wahalla Ltda. (“Wahalla”); a judicial reorganization proceeding filed by Starbucks Brazil, Wahalla, and other companies, in which
Petitioners are creditors (the “Reorganization Proceeding”); and an ongoing criminal investigation by the Brazilian Criminal Authority into alleged fraud by Mr. Pope and SouthRock Brazil executives, which was initiated after a complaint by Petitioners (the “Criminal Proceeding”); together, these four proceedings are the “Foreign Proceedings.” (ECF No. 1, Application; ECF 2, Memo. of Law at 2; ECF 4, Declaration of Jose Luiz Bayeux Neto Dated January 8, 2024 (“Bayeux Decl.”) ¶¶ 7-9, 51-53, 72-78.)
The Bayeux Declaration attaches 22 exhibits written in Portuguese, without including certified translations. (See ECF 4, Bayeux Decl. Exs. D-V, X, Z.) I drew this issue to Petitioners' attention at an ex parte conference on February 2, 2024. In a supplemental declaration filed on February 9, 2024, citing cost concerns, Mr. Bayeux attached certified translations of Exhibits E, F, M, Q, R, S, T, X, and Z and offered to provide translations of any other exhibits requested by the Court. (See ECF 13, Declaration of Jose Luiz Bayeux Neto Dated February 9, 2024 (“Supp. Bayeux Decl.”) Exs. 1-9.) I strike sua sponte Bayeux Declaration Exhibits C-D, G-L, N-P, U-W and Y, as well as all references to those exhibits in the Bayeux Declaration. See, e.g., Sicom S.P.A. v. TRS Inc., 168 F.Supp.3d 698, 709 & n.9 (S.D.N.Y. 2016) (foreign-language documents, even if authenticated, “cannot be reviewed or relied on by the Court . . . unless they are accompanied by certified translations into English”); In re Advanced Battery Techs., Inc. Secs. Litig., No. 11-CV-2279 (CM), 2012 WL 3758085, at *9 (S.D.N.Y. Aug. 29, 2012) (“The fact that the [defendants] failed to provide certified translations of the words that appear on the screen shots precludes my consideration of them”). I do not need the exhibits I have stricken or the stricken references to those exhibits to make this report and recommendation. Petitioners also indicated that they intend to submit under seal an additional exhibit - a financial statement. (ECF 8, Declaration of Jose Luiz Bayeux Neto Dated February 1, 2024 ¶ 4.) Petitioners are free to make that submission, but I do not need that exhibit to make this report and recommendation.
Petitioners seek from Respondents documents relating to: (1) Petitioners' efforts to locate assets that could be used to satisfy debts at issue in the Reorganization Proceeding; and (2) Petitioners' claims that Mr. Pope and SouthRock Group might have engaged in fraudulent transfers to the United States with the intent of defaulting on payments due in Brazil on commercial notes and other debts at issue in the Reorganization Proceeding. (ECF 4, Bayeux Decl. ¶¶ 10, 57.) Specifically, Petitioners seek financial records from institutions that hold accounts and/or processed payments for SouthRock Group and/or Mr. Pope from 2013 through the present. (Id. ¶ 10.)
Judge John G. Koeltl issued an order of reference to a magistrate judge for general pretrial supervision on January 12, 2024. (ECF 6.) Having reviewed Petitioners' submissions and argument by Petitioners' counsel at an ex parte conference on February 2, 2024, for the reasons set forth below, I respectfully recommend that the Application be GRANTED as to all Respondents except SBNA, and DENIED as to Respondent SBNA.
“Until recently, the consensus view in this District was that ‘rulings on § 1782 applications are not dispositive,' and therefore that such an application could be disposed by order of the Magistrate Judge to whom it was referred ....” In re Libyan Asset Recovery and Mgmt. Office, No. 21 Misc. 0852 (JGK) (BCM), 2023 WL 8445811, at *1 n.1 (S.D.N.Y. Nov. 16, 2023) (quoting In re Hulley Enter. Ltd., 400 F.Supp.3d 62, 71 (S.D.N.Y. 2019)). However, in Associacao dos Profissionais dos Correios v. Bank of N.Y. Mellon. Corp., No. 22-2865, 2023 WL 3166357 (2d Cir. Mar. 28, 2023), a panel of the Second Circuit decided that it lacked jurisdiction to review the order issued by a Magistrate Judge denying an application under Section 1782 and remanded so that the order could be “treated as a report and recommendation.” 2023 WL 3166357, at *1. While the Second Circuit did not explain its reasoning, the theory would be that the entire purpose of a Section 1782 petition is to seek discovery, so that any decision regarding whether discovery may proceed is dispositive. I therefore make a Report and Recommendation on the Application rather than issuing an Opinion and Order.
BACKGROUND
I. Factual Background
Mr. Pope is the founder and Chief Executive Officer of the SouthRock Group, which holds exclusive rights for the use in Brazil of well-known brands in the food and beverage market, including Starbucks. (ECF 4, Bayeux Decl. ¶ 11.) After March 23, 2018, Mr. Pope became the ultimate owner of Starbucks Brazil (through companies of which he was the majority owner). (Id. ¶ 14.)
Mr. Pope has 100% ownership of an American company, SouthStone Capital LLC, previously called Gosouth Investments LLC, which in turn owns a majority interest in SouthRock Brazil, which owns a majority interest in Star Participates S.A., which owns 99.9% of Starbucks Brazil. (Id. ¶ 15; ECF 12-1, Letter Ex. 1.)
In 2021. Mr. Pope began to leverage SouthRock Group's business by borrowing money from private investors, including through the issuance of commercial notes that were guaranteed by him and/or companies he controlled. (Id. ¶ 17.) Between January of 2021 and June of 2023, Mr. Pope borrowed the equivalent of $160 million from different creditors in Brazil, including Petitioners. (Id.) Petitioners contend that Mr. Pope fraudulently concealed the amount of debt carried by SouthRock Group to induce them to lend the equivalent of $24 million for the benefit of SouthRock Group in connection with commercial notes issued by two members of SouthRock Group, Starbucks Brazil, which issued commercial notes in November of 2022, and Wahalla, which issued commercial notes in December of 2022. (Id. ¶¶ 18, 25-28.) Mr. Pope and SouthRock Brazil are guarantors of those notes. (Id. ¶ 30.) (Together, these notes issued by Starbucks Brazil and these notes issued by Wahalla are the “Commercial Notes”). In March of 2023, Petitioners provided a bridge loan to SouthRock Brazil for the equivalent of an additional $3 million. (Id. ¶ 31.)
On September 6, 2023, Starbucks Brazil defaulted on its payments in connection with the commercial notes issued in November of 2022, and on September 9, 2023, Wahalla defaulted on its payments in connection with the commercial notes issued in December of 2022. (Id. ¶¶ 32-33.) On October 31, 2023, 22 of SouthRock Group's companies, including Starbucks Brazil and Wahalla, initiated the Reorganization Proceeding. (Id. ¶ 19.) Petitioners learned the full extent of the indebtedness of Mr. Pope and the SouthRock Group companies in connection with that proceeding. (Id. ¶ 19.) Based on that information, Petitioners filed the Civil Proceedings against Mr. Pope, Starbucks Brazil, and SouthRock Brazil, among others, alleging fraud (id. ¶¶ 52-53); they also lodged a criminal complaint that led to the Criminal Proceeding, (id. ¶ 72.)
II. The Application
Petitioners brought the Application on January 9, 2024. (ECF 1, Application.) They allege that Mr. Pope and SouthRock Group might have transferred funds to and concealed assets located in the United States, with the intent of defaulting on the payments due in Brazil on the Commercial Notes and other debts at issue in the Reorganization Proceeding; and that Mr. Pope and SouthRock Group may have assets in the United States that could be used to satisfy the payments due on the Commercial Notes. (ECF 4, Bayeux Decl. ¶¶ 10, 57, 69, 78.) Petitioners are seeking financial records from institutions that hold accounts and/or processed payments for SouthRock Group and/or Mr. Pope. (ECF 2, Mem. at 2.) Specifically, Petitioners allege that Goldman Sachs Group and Goldman Sachs engaged in related-party transactions with Mr. Pope's companies; that SBNA was “the financial institution regularly used by Mr. Pope”; and that CHIPS and the NY Federal Reserve likely processed or settled many of the wire transfers from Mr. Pope and/or his companies to other accounts. (ECF 4, Bayeux Decl. ¶¶ 59-62.)
On February 2, 2024, I heard argument from counsel at an ex parte conference, and I requested that Petitioners make a supplemental submission addressing my outstanding questions about the Foreign Proceedings and SBNA's contacts with this District and attaching revised versions of the proposed subpoenas that were narrower and clearer. On February 9, 2024, Petitioners filed a supplemental letter in support of the Application (ECF 12, Letter); a supplemental declaration from Brazilian counsel (ECF 13); and new versions of the proposed subpoenas for three of the Respondents. (ECF 12-2, 12-3, 12-4.) On February 12, 2023, Petitioners filed new versions of the proposed subpoenas for the remaining two Respondents. (ECF 15-1, 15-2.)
DISCUSSION
I. Legal Standard
Under 28 U.S.C. § 1782(a), a federal district court may order any person who “resides or is found” in the district “to produce a document or other thing for use in a proceeding in a foreign or international tribunal . . . upon the application of any interested person.” Under the statute, the party making the application must show that: “(1) the person from 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 for use in a foreign proceeding before a foreign [or international] tribunal, and (3) the application is made by a foreign or international tribunal or any interested person.” In re Guo., 965 F.3d 96, 102 (2d Cir. 2020).
When the statutory requirements are met, the court is “free to grant discovery in its discretion.” In re OptimalInvs. Servs., S.A., 773 F.3d 456, 460 (2d Cir. 2014). Although that discretion is broad, it “must be exercised ‘in light of the twin aims of the statute: 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.'” Mangouras v. Boggs, 980 F.3d 88, 97 (2d Cir. 2020).
The Supreme Court has identified four discretionary factors (the “Intel Factors”) that a court considers when ruling on a Section 1782 application: “(1) whether the person from whom discovery is sought is a participant in the foreign proceeding, in which case the need for § 1782(a) aid generally is not as apparent; (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 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.” Id. at 9798 (citing Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 264-65 (2004)).
The fourth Intel Factor - whether the request is “unduly intrusive or burdensome” - is measured by the standards of Rule 26 of the Federal Rules of Civil Procedure. In reXPO Logistics, Inc., No. 15 Misc. 205 (LGS), 2017 WL 6343689, at *4 (S.D.N.Y. Dec. 11, 2017) (citing Mees v. Buiter, 793 F.3d 291, 302 (2d Cir. 2015)). As applied to Section 1782 applications, Rule 26 “contemplate[s] that discovery requests be tailored to seek information relevant to the parties' claims and defenses and proportional to the needs of the case.” Associacao dos Profissionais dos Correios v. Bank of N.Y. Mellon. Corp., No. 22 Misc. 132 (RA) (KHP) (“Correios”), 2022 WL 4955312, at *8 (S.D.N.Y. Oct. 4, 2022), remanded on other grounds, 2023 WL 3166357. The “proportionality analysis depends on the relevance of the information sought - and, in the case of a § 1782 petition, relevance is assessed with regard to the foreign proceeding.” In re Catalyst ManagerialServs., DMCC, 680 Fed.Appx. 37, 39 (2d Cir. 2017).
The Second Circuit has instructed that “it is far preferable for a district court to reconcile whatever misgivings it may have about the impact of its participation in the foreign litigation by issuing a closely tailored discovery order rather than by simply denying relief outright.” Mees, 793 F.3d at 302. Thus, where the Court finds that discovery sought under Section 1782 is overbroad, “before denying the application it should ordinarily consider whether that defect could be cured through a limited grant of discovery.” Id.; see, e.g., In re Fed. Republic of Nigeria, No. 21 Misc. 7 (JGK) (VF), 2022 WL 4234556, at *6 (S.D.N.Y. Sept. 14, 2022).
II. Analysis
A. The Statutory Requirements Are Met for Each Respondent Except SBNA
Petitioners argue that they have met the Section 1782 statutory requirements. (ECF 2, Mem. at 19-22.) I agree with regard to each Respondent except SBNA.
1. Respondents Are Found in this District
Respondents Goldman Sachs Group, Goldman Sachs, CHIPS, and NY Federal Reserve are found within this District, because publicly available information confirms that each is headquartered here.
See Form 10-K for The Goldman Sachs Group, Inc., GOLDMAN SACHS https://www.goldmansachs.com/investor-relations/financials/10k/2022/2022-10-k.pdf (last visited February 14, 2024); Form 13F-NT for Goldman, Sachs & Co, LLC, SECURITIES AND EXCHANGE COMMISSION https://perma.cc/DZP9-QUBN (last visited February 14, 2024); Form 990 for The Clearing House Association LLC, INTERNAL REVENUE SERVICE https://perma.cc/BX9L-ZDYZ (last visited February 14, 2024); Contacts, FEDERAL RESERVE BANK OF NEW YORK https://www.newyorkfed.org/contacts (last visited February 14, 2024).
SBNA, however, is not found in this District. It is a national banking association with its principal place of business in Boston, Massachusetts. See In re del Valle Ruiz, 939 F.3d 520, 525 n.4 (2d Cir. 2019). The Second Circuit has held that Section 1782's reach extends “to the limits of personal jurisdiction consistent with due process.” In re del Valle Ruiz, 939 F.3d at 527. The constitutional limits of personal jurisdiction allow for a showing either of general jurisdiction or of specific jurisdiction over a respondent. See Bristol-Myers Squibb Co. v. Super. Ct. of Cal., 525 U.S. 255, 262 (2017).
Petitioners here initially asserted that this Court has general jurisdiction over SBNA, arguing that it is “one of the country's largest retail and commercial banks” and that it is “principally located in this District.” (ECF 2, Memo. at 4.) It does not appear that they maintain this position in their supplemental letter of February 9, 2024.
To the extent that Petitioners intend their citation to In re Kleimar N.V., 220 F.Supp.3d 517, 521 (S.D.N.Y. 2016), to support the position that this Court has general personal jurisdiction over SBNA, I find such an argument unpersuasive. It is true that Kleimar held that a subpoena target was “found” in this District due to the target's “systematic and regular business in United States and New York,” including trading ADRs on NYSE, regularly filing forms with SEC, and significant ties to its New York-based affiliate. See In re Kleimar N.V., 220 F.Supp.3d 517, 521 (S.D.N.Y. 2016). However, the parties in Kleimar “never raised arguments about personal jurisdiction.” In re Petrobras Sec. Litig., 393 F.Supp.3d 376, 381 (S.D.N.Y. 2019); see also In re Del Valle Ruiz, 342 F.Supp.3d 448, 457 (S.D.N.Y. 2018) (stating that “[t]he Kleimar court . . . was never asked to grapple with the Supreme Court's view of general personal jurisdiction”), aff'd, 939 F.3d 520 (2d Cir. 2019) Moreover, In re Kleimar was decided before the Second Circuit provided guidance on whether the “‘resides or is found' language in § 1782 means that a court must have personal jurisdiction over the party from whom the movant seeks discovery.” In re Petrobras Sec. Litig., 393 F.Supp.3d at 381. The Second Circuit provided that guidance in del Valle Ruiz, when it held that a grant of discovery under Section 1782 requires a court to have personal jurisdiction over the party from whom the applicant seeks discovery. See 939 F.3d at 527. Since the Second Circuit's decision in del Valle Ruiz, courts in this Circuit have been obligated to determine whether they have either general or specific personal jurisdiction over the target of a subpoena sought pursuant to Section 1782. And in Daimler AG v. Bauman, 571 U.S. 117, 138 n.18 (2014), the Supreme Court clarified that the “touchstone” of general personal jurisdiction for corporations is “whether that corporation's ‘affiliations with the State are so “continuous and systematic” as to render [it] essentially at home in the forum,'” id. at 138-39 (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)). The Supreme Court explained that the place of incorporation and principal place of business are “paradig[m] . . . bases for general jurisdiction.” Id. at 137 (alterations in original). This Court in del Valle Ruiz, performing the analysis required by Daimler, concluded that SBNA (and related entities) were not found in this District based on principles for determining whether a court has general personal jurisdiction over a company. See In re Del Valle Ruiz, 342 F.Supp.3d at 457. Petitioners have pointed to nothing that has changed since that case was decided.
Instead, in their February 9, 2024 supplemental letter, Petitioners argue that this Court has specific personal jurisdiction over SBNA. (See ECF 12.) The Second Circuit has explained that, “[translated to account for a § 1782 respondent's nonparty status,” the requirements for specific personal jurisdiction, where, as here, the respondent's contacts are broad and significant, are that “the evidence sought would not be available but for the respondent's forum contacts.” In re Del Valle Ruiz, 939 F.3d at 530. (The test is slightly different where, unlike here, the respondent has less-substantial contacts with the district.) See id.
Petitioners assert that their proposed subpoena is directed at the New York branch of SBNA and that the discovery they seek “‘would not be available but for the respondent's forum contacts.'” (ECF 12 (quoting del Valle Ruiz, 939 F.3d at 530).) In support of their position, Petitioners cite Pfaff v. Deutsche Bank AG, et al., No. 20 Misc. 25 (KPF) (S.D.N.Y. July 15, 2020), which held, over the foreign banks' objection, that the banks were “found” in district because “the discovery material sought - which largely relates to Moving Respondents' silver trading through COMEX - proximately resulted from the respondents' forum contacts.” 2020 WL 3994824, at *8-10. But Petitioners here have made no effort to link the discovery sought to SBNA's activities in this District, aside from saying that the proposed subpoena is directed at SBNA's New York branch. For example, they never suggest that Mr. Pope or SouthRock Group entities maintained accounts at SBNA's New York branch. Under the circumstances, I do not believe that Petitioners have demonstrated that SBNA is found in this district based on the principles underlying specific personal jurisdiction. See Johnson v. UBS AG, 791 Fed.Appx. 240, 242-43 (2d Cir. 2019) (finding no specific personal jurisdiction where “neither the complaint nor any of the other documents in the record suggest that UBS's connections with New York relate to the circumstances of this case” and explaining that “UBS's New York presence cannot make up for the utter lack of any alleged connection between that presence and the events in this case”).
Accordingly, I recommend declining to issue the requested subpoena to SBNA.
Petitioners are not without recourse. They can submit an application pursuant to Section 1782 in the District of Massachusetts, where SBNA has its headquarters.
2. The Discovery Sought Is for Use in a Foreign Proceeding
In analyzing whether discovery being sought under Section 1782 is “for use in a proceeding before a foreign tribunal,” the Second Circuit has focused on “whether [the] foreign proceeding is adjudicative in nature” as well as whether “there is actually a foreign proceeding.” Euromepa, S.A. v. R. Esmerian, Inc., 154 F.3d 24, 27 (2d Cir. 1998); see also In re Gorsoan Ltd., 843 Fed.Appx. 352, 354 (2d Cir. 2021) (declining to decide whether Section 1782 “reaches discovery sought only to identify assets,” because on the record before the Court, even assuming Section 1782 did reach such discovery, the petitioner had not demonstrated that its intended “‘use' of the discovery it s[ought] [was] in ‘reasonable contemplation' of planned proceedings”). Here, the four Foreign Proceedings are currently pending (ECF 4, Bayeux Decl. ¶ 8), and so “there is actually a foreign proceeding.” Euromepa, 154 F.3d at 27.
As I explain below, it is not as clear whether Petitioners have demonstrated that the Civil Proceedings are the types of foreign proceedings contemplated by Section 1782. However, Petitioners seek the very same discovery for use in those proceedings and in the Reorganization Proceeding and the Criminal Proceeding, and Petitioners have demonstrated, as discussed below, that the Reorganization Proceeding and the Criminal Proceeding are the types of foreign proceedings contemplated by the statute. Accordingly, Petitioners have satisfied the requirement that the discovery they seek be for use in a foreign proceeding.
a. Discovery for Use in the Two Civil Proceedings
The Application seeks discovery that would be used in the two Civil Proceedings both “to identify and prove any fraudulent transfers that [Mr. Pope and his companies] may have made and that can be used to satisfy the debt” and “to identify assets . . . that may be brought to the Brazilian courts' attention for possible satisfaction of the debts.” (ECF 4, Bayeux Decl. ¶ 57.) The Sao Paulo State Court has issued orders in the Civil Proceedings requiring Mr. Pope and the other defendants in those actions to pay the outstanding balances on the Commercial Notes within three days of service of the orders on them. (Id. ¶¶ 52-53.) Therefore, while Petitioners state that they would use the discovery they seek to prove in the Civil Proceedings that Mr. Pope made fraudulent transfers, it appears that the primary use of the discovery sought would be to locate assets that could be used to satisfy the orders requiring Mr. Pope and the other defendants to pay the outstanding balances on the Commercial Notes.
It is unclear whether a proceeding for the sole purpose of locating assets that could be used to satisfy judgments or debts is an adjudicative proceeding as required by Section 1782. Euromepa, 154 F.3d at 28 (finding that the proceeding in which the requested discovery would be used was “not an adjudicative proceeding within the meaning of the statute,” because the “merits of the dispute . . . have already been adjudicated,” leaving nothing left to adjudicate in the proceeding, which was brought for the sole purpose of enforcing an existing judgment). While there have certainly been times that this Court has concluded that a proceeding to identify assets to satisfy a judgment was adjudicative, in those cases, the petitioners had identified an issue that remained to be decided or a hearing that needed to be held. For example, in Union Fenosa Gas, S.A. v. Depository Tr. Co., Judge Engelmayer concluded that a post-judgment proceeding to enforce an arbitration award in an English court was adjudicative in nature because one of the potential enforcement remedies would require an English court to determine whether “the targeted assets are executable under English law.” No. 20 Misc. 0188 (PAE), 2020 WL 2793055, at *5 (S.D.N.Y. May 29, 2020). Similarly, in Matter of YS GM Marfin II LLC, Judge Gardephe ruled that a post-judgment proceeding in England to locate assets to satisfy a judgment was adjudicative, because the proceeding could entail a court hearing at which the judgment debtors would be questioned about their assets. See No. 20 Misc. 0182 (PGG), 2022 WL 624291, at *5 (S.D.N.Y. Mar. 2, 2022); see also In re Lake Holding & Fin. S.A., No. 20 Misc. 0652 (RA) (KNF), 2021 WL 2581427, at *16 (S.D.N.Y. June 23, 2021) (“The petitioner having presented evidence that discovery is for use in the ‘recognition and enforcement of the Russian Judgments' proceedings pending before the District Court in Nicosia and that the District Court in Nicosia will hear evidence and adjudicate facts in those proceedings, the Court is satisfied that the petitioner established that the discovery is for use in a proceeding before a foreign tribunal.”).
At the conference, I requested a further submission on this issue, which Petitioners provided on February 9, 2024. (ECF 13, Supp. Bayeux Decl.) Brazilian counsel explained that Petitioners are obligated to present to the judges in the two Civil Proceedings a list of assets belonging to Mr. Pope, both in Brazil and elsewhere; the judges will then issue attachment orders, including international attachment orders, to satisfy Mr. Pope's obligation as guarantor of the Commercial Notes. (Id. ¶ 7.) Unlike in Union Fenosa Gas, there is no indication that the judges in the Civil Proceedings will determine whether listed assets are executable under Brazilian law; unlike in Matter of YS GM Marfin II and In re Lake Holding & Fin., there is no evidence suggesting the Civil Proceedings will involve court hearings where witnesses testify and the judges make factual determinations. Petitioners have identified no issue the Sao Paulo State Court still needs to decide, and no hearing that still needs to be held in the Civil Proceedings. Under these circumstances, I cannot conclude that the Civil Proceedings qualify as the types of proceedings in connection with which Section 1782 authorizes discovery.
b. Discovery for Use in the Reorganization Proceeding
Petitioners also seek discovery for use in the Reorganization Proceeding. (ECF 4, Bayeux Decl. ¶ 9.)
The Second Circuit takes a case-by-case approach to determining whether a particular bankruptcy-type proceeding qualifies as an adjudicative proceeding under Section 1782. Compare Euromepa, 154 F.3d at 28 (finding that the French bankruptcy proceeding where the requested discovery would be used was not an adjudicative proceeding because the merits had already been determined) with Lancaster Factoring Co. Ltd. v. Mangone, 90 F.3d 38, 42 (2d Cir. 1996) (holding that the Italian bankruptcy proceeding at issue was adjudicative because it was “one in which the value of the debtor's estate is adjudicated”) and In re Habib, No. 21 Misc. 0522 (KMK), 2022 WL 1173364, at *2 (S.D.N.Y. Apr. 20, 2022) (finding that a proceeding was adjudicative where the court would determine, among other things, whether there were improper payments made for the purpose of avoiding payment of a judgment and if so whether those payments could be clawed back).
In their supplemental submission, Petitioners explain that the judge in the Reorganization Proceeding has determined that the not all SouthRock Group companies were included in the reorganization request, and that there may have been fraudulent transfers shortly before the reorganization request from SouthRock Group companies that were included in the reorganization request to other SouthRock Group companies that were not included. (ECF 13, Supp. Bayeux Decl. ¶¶ 10-12.) Petitioners state that would use the discovery they seek to support a finding in the Reorganization Proceeding that there were such fraudulent transfers; if they can make such a showing, the judge in the Reorganization Proceeding will order the assets of the SouthRock Group companies that received fraudulent transfers to be included in the reorganization. (Id. ¶ 13.) Petitioners also state that they would use the evidence they seek to demonstrate in the Reorganization Proceeding that Mr. Pope transferred funds to entities in the United States with the intent to default on his debts in Brazil, which could lead to a criminal conviction of Mr. Pope for defrauding creditors as well as to Mr. Pope's removal from his position in SouthRock Group's management. (Id. ¶¶ 16-17; ECF 4, Bayeux Decl. ¶ 69.) Based on the foregoing, I conclude that Petitioners have demonstrated that the Reorganization Proceeding is an adjudicative proceeding, as required by Section 1782.
c. Discovery for Use in the Criminal Proceeding
The Petitioners also seeks discovery of evidence of improper financial transactions by Mr. Pope, which would be presented by Petitioners in the Criminal Proceeding as evidence that Mr. Pope committed the crimes of fraud and embezzlement; under Brazilian criminal law, crime victims have the right to present evidence “to support [their] case or contradict the accused's version.” (ECF 4, Bayeux Decl. ¶ 78.) Courts in this Circuit have permitted discovery under Section 1782 for use in a criminal investigation where, as here, the petitioners would be able to present the evidence to the relevant criminal authorities. See, e.g., In re Optimal Invs. Servs., 773 F.3d at 457, 461-62 (2d Cir. 2014) (“The Swiss criminal investigation in the instant case is exactly the type of proceeding that” Section 1782 “intended to reach.”); In re B&C KB Holding GmbH, No. 22 Misc. 0180 (LAK) (VF), 2023 WL 1777326, at *3 (S.D.N.Y. Feb. 6, 2023) (permitting discovery under Section 1782 for use in German criminal proceedings), objections overruled, 2023 WL 4544775 (S.D.N.Y. June 8, 2023); In re Aguila Energia e Participates Ltda., No. 22 Misc. 0228 (RA) (SLC), No. 2023 WL 7001445 (RA) (SLC), at *5 (S.D.N.Y. Aug. 22, 2023) (finding that Section 1782 discovery is permitted for use in a criminal proceeding, among other proceedings, in Brazil). Accordingly, Petitioners have demonstrated that the discovery they seek is for use in the Criminal Proceeding is for use in the type of foreign proceeding contemplated by Section 1782.
3. The Application Is Brought by Interested Parties
The Application is brought by Petitioners, who are interested parties in the Foreign Proceedings; they are plaintiffs in the Civil Proceedings, creditors in the Reorganization Proceeding, and victims in the Criminal Proceeding. (ECF 4, Bayeux Decl. ¶ 85.)
B. The Discretionary Factors Favor Granting the Application in Part
Petitioners argue that each of the Intel Factors weighs in favor of granting the discovery requested by the new versions of the proposed subpoenas. I agree.
1. The First Intel Factor
The first Intel Factor examines whether “the person [or entity] from whom discovery is sought is a participant in the foreign proceeding, in which case the need for Section 1782(a) aid generally is not as apparent.” Mangouras, 980 F.3d at 97. This factor weighs in favor of Petitioners: Respondents are not parties to the Foreign Proceedings. (ECF 4, Bayeux Decl. ¶ 79.)
2. The Second Intel Factor
The second Intel Factor concerns “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.” Mangouras, 980 F.3d at 97-98. “Absent specific directions to the contrary from a foreign forum, the statute's underlying policy should generally prompt district courts to provide some form of discovery assistance[,]” and a court “should deny discovery on the basis of lack of receptiveness only where it is provided with ‘authoritative proof that [the] foreign tribunal would reject evidence obtained with the aid of section 1782.'” In re Atvos Agroindustrial Investimentos S.A., 481 F.Supp.3d 166, 176-77 (S.D.N.Y. 2020) (quoting Euromepa S.A. v. R. Esmerian, Inc., 51 F.3d 1095, 1100-02 (2d Cir. 1995)); see also In re Safra, No 21 Misc. 0640, 2022 WL 3584541, at *5 (S.D.N.Y. Aug. 22, 2022) (noting that “objection to U.S. federal-court judicial assistance would have to come from an official source, such as an agent of the [foreign] government”); Schmitz v. Bernstein Leibhard & Lifshitz, LLP, 376 F.3d 79, 84 (2d Cir. 2004) (denying the discovery request where the German Ministry of Justice and local German prosecutor asked the district court to do so).
This factor weighs in Petitioners' favor because “[t]here is no evidence before this Court suggesting that Brazil or Brazilian Courts are unreceptive to requests by U.S. persons for judicial assistance [and] Courts in this district recently have granted requests for section 1782 discovery for use in Brazilian proceedings.” Ex parte Abdalla, No. 20 Misc. 727 (PKC), 2021 WL 168469, at *5 (S.D.N.Y. Jan. 19, 2021) (collecting cases). Indeed, Petitioners have submitted a declaration from their Brazilian counsel, which states that “The State Court of Sao Paulo and the Brazilian Criminal Authority are receptive to the evidence sought in the 1782 Application. The Brazilian legal system allows and welcomes foreign evidence for use in Brazilian litigation, and neither the Sao Paulo State Court nor the Brazilian Criminal Authority have issued orders or directives prohibiting the Petitioners from obtaining foreign evidence.” (ECF 4, Bayeux Decl. ¶ 84.) Petitioners' Brazilian counsel goes on to say that Petitioners are not circumventing any “proof-gathering restrictions of the Brazilian legal system.” (Id. ¶ 87.) Moreover, Petitioners' Brazilian counsel states that courts in Brazil regularly accept evidence that is obtained by way of Section 1782 discovery in the United States and that they regularly accept it from parties in a similar position to Petitioners in the Reorganization Proceeding (creditors) and in the Civil Proceedings (plaintiffs); and that the Brazilian Criminal Authority likewise would receive all relevant evidence obtained through this procedure in the Criminal Proceeding. (Id. ¶ 85.)
The declaration from Brazilian counsel confirms that the second Intel Factor weighs in Petitioners' favor. See In re Aguila Energia, 2023 WL 7001445, at *5 (reasoning that the declaration from the petitioner's Brazilian counsel stating that “there is no indication that a Brazilian court or authority would not be receptive to the documentary and testimonial evidence sought by [Petitioner] through its Application” supported a conclusion that the second Intel Factor favored the petitioner); Correios, 2022 WL 4955312, at *7 (S.D.N.Y. Oct. 4, 2022) (holding that the second Intel Factor weighed in the applicant's favor where the applicant had “submitted an affidavit from Brazilian counsel explaining that the Brazilian Court would be receptive to discovery obtained through [the] Section 1782 process”), remanded on other grounds, 2023 WL 3166357; Matter of Degens, No. 20 Misc. 237 (JGK) (RWL), 2020 WL 4252725, at *4 (S.D.N.Y. July 24, 2020) (ruling that the second Intel Factor favored the applicant and citing Brazilian counsel's declaration concluding that “[t]here is no reason to believe the Brazilian Court would not be receptive to evidence gathered under § 1782, and no Brazilian rule, policy, or law prohibits or discourages the Brazilian Court from considering such evidence”).
3. The Third Intel Factor
The third Intel Factor asks “whether the . . . request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States,” Mangouras, 980 F.3d at 98, which occurs if the application is an attempt to evade discovery procedures in the foreign jurisdiction, or if the application is otherwise a “bad faith endeavor to misuse Section 1782.” In re Bouka, 637 F.Supp.3d 74, 90 (S.D.N.Y. 2022); see In re Hansainvestment Hanseatische Inv.-GmbH, 364 F.Supp.3d 243, 251 (S.D.N.Y. 2018) (holding that the third Intel Factor weighed in the applicant's favor because “the Court is not persuaded that Applicants have engaged in any improper or bad faith evasion of German procedures”).
There is no indication here that the Petitioners are seeking to avoid any foreign restrictions on gathering evidence. (ECF 4, Bayeux Decl. ¶¶ 84-87.) There is no basis for concluding that any of the discovery sought by Petitioners violates any Brazilian law or public policy. Petitioners' Brazilian counsel states in his declaration that Brazilian law does not prohibit the collection of the information sought in the Application. (Id. ¶ 84.) Accordingly, the third Intel Factor weighs in favor of granting Petitioners' Application.
4. The Fourth Intel Factor
The fourth Intel Factor looks at “whether the request is ‘unduly intrusive or burdensome,'” Mangouras, 980 F.3d at 98, which is measured by the standards of Rule 26 of the Federal Rules of Civil Procedure. See In re XPO Logistics, Inc., 2017 WL 6343689, at *4 (citing Mees, 793 F.3d at 302). In this context, Rule 26 “contemplate[s] that discovery requests be tailored to seek information relevant to the parties' claims and defenses and proportional to the needs of the case.” Correios, 2022 WL 4955312, at *8. The “proportionality analysis depends on the relevance of the information sought”; in the case of a Section 1782 petition, “relevance is assessed with regard to the foreign proceeding.” In re Catalyst Managerial Servs., 680 Fed.Appx. at 39.
Petitioners argue that their proposed subpoenas addressed to each Respondent are narrowly tailored and directly relevant and proportional to the issues in the Foreign Proceedings. (ECF 2, Mem. at 26-27.) They say that they chose the documents they are seeking based on a review of the financial statements of SouthRock Brazil and/or the expert report from the Reorganization Proceeding, both of which identified institutions that hold accounts, sent or received payments, and/or processed payments for Mr. Pope and/or those of his companies that were involved in the operations of Starbucks in Brazil. (ECF 4, Bayeux Decl. ¶ 58.) I agree that the new versions of the subpoenas (ECF 12-2, 12-3, 12-4, 15-1, 15-2) seek information that is relevant to the Reorganization Proceeding and the Criminal Proceeding and is proportional to the needs of those matters.
Petitioners represent that if Respondents reasonably believe that any documents present confidentiality concerns, Petitioners are willing to consider accommodating such concerns, such as by stipulating to a protective order. (ECF 2, Mem. at 26-27) Petitioners cite Minatec Fin. S.A.R.L. v. SI Group Inc., No. 08-CV -269 (LEK) (RFT), 2008 WL 3884374, at *1 (N.D.N.Y. Aug. 18, 2008), for the proposition that Section 1782 allows courts to “impose a protective order that would extinguish any concern that privileged, confidential, or proprietary information” would be revealed if the application were granted. (ECF 2, Mem. at 26-27.)
CONCLUSION
For the foregoing reasons, I respectfully recommend that the Application be GRANTED as to Respondents Goldman Sachs Group, Goldman Sachs, CHIPS, and NY Federal Reserve and DENIED as to Respondent SBNA.
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO REPORT AND RECOMMENDATION
The parties shall have fourteen days (including weekends and holidays) from service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure to this Report and Recommendation. A party may respond to another party's objections within fourteen days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Such objections, and any response to objections, shall be filed with the Clerk of the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Koeltl.
THE FAILURE TO OBJECT WITHIN FOURTEEN DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b); Thomas v. Arn, 474 U.S. 140 (1985).