Opinion
02 Civ. 666 (JSR)(FM)
January 27, 2003
MEMORANDUM DECISION
Over the past six months, the Court has held frequent conferences in this case pursuant to Judge Rakoff's referral for general pretrial supervision. Only three of the many motions presented to the Court during this period remain undecided: (a) the plaintiffs' motion for discovery sanctions; (b) the plaintiffs' motion for assessment of the legal fees and expenses incurred in connection with certain depositions that never took place; and (c) the plaintiffs' motion to compel (i) nonparty UBSAG ("UBS") to produce documents and (ii) the defendants to consent to the release of their foreign banking records. All three motions are resolved herein. For the sake of brevity, familiarity with all of the prior proceedings in this case is presumed.
I. Discovery Sanctions
Following the filing of their sanctions motion, the plaintiffs submitted a memorandum withdrawing certain of their requests. Their motion, as amended, asks this Court to (a) find that the defendants did not conduct a diligent search for, and production of, documents and (b) order that the factfinder be instructed to draw an adverse inference therefrom. As the colloquy before Judge Rakoff at a recent conference confirms, the finder of fact in this case will be a jury. (See 1/3/03 Tr. at 11-12).
At virtually every discovery conference, the plaintiffs have complained about significant gaps in the defendants' document production, and the defendants (through their counsel) have countered with suggestions that they in fact have produced whatever is available. M y clear sense is that the latter representation by the defendants (as distinguished from their counsel) is untrue. Indeed, at one point during the frequent discussions regarding the completeness of the defendants' document production, I suggested that defense counsel send an attorney to Turkey to review the defendants' discovery obligations with them in greater detail. (See 9/27/02 Tr. at 32 ("it seems to me that . . . somebody is going to have to shake the tree in Turkey. And its going to have to be somebody from Baker Botts [counsel for the Uzan defendants] pretty much stationed there."); 10/02/02 Tr. at 70 (repeating the recommendation)). Although defense counsel apparently followed my recommendation, (10/15/02 Tr. at 26), the plaintiffs have continued to complain that the defendants' document production is incomplete, and the defendants have continued to dispute that assertion.
To make a finding that the defendants have failed to participate in required discovery, the Court might need to engage in a painstaking review of the plaintiffs' document requests, the defendants' objections thereto, and any documents that the defendants produced. However, there is no need to resolve the parties' dispute regarding the completeness of the defendants' document production in order to rule on the plaintiffs' motion. Rather, one need look no further than the defendants' total nonparticipation in depositions to establish that the defendants have failed to comply with their discovery obligations. The history of that noncompliance is recorded in considerable detail in the transcripts of the numerous discovery conferences before me and cannot seriously be disputed.
In brief, after this case first was referred to me, it was unclear whether the defendants would, in fact, participate in discovery and mount a defense. Accordingly, I deferred any detailed discussion of a deposition schedule until September 6, 2002, so that defense counsel could travel to Turkey over the Labor Day weekend to confer with their clients to determine their intentions. Upon his return, R. Stan Mortenson, Esq., lead counsel for the individual Uzan defendants, reported to me that his mandate w as "to engage totally and move forward." (9/6/02 Tr. at 2). In keeping with that representation, he suggested that, over "the course of this next week, we're going to have to . . . try to hammer out some proposed deposition schedules and present them" to the Court. (Id. at 26).
The following week, I directed that the depositions of the defendants' representatives take place in Zurich unless the parties were able to agree on another location. (9/13/02 Tr. at 23). I further directed that the depositions of defendants Kemal Uzan, Melahut Uzan, and Aysegul Akay be taken first. (Id. at 23, 47-48, 59). Zurich was selected as a neutral location for the defendants' depositions because the defendants were unwilling to come to New York, and plaintiffs' counsel were unwilling to travel to Turkey for fear that they might be arrested on trumped-up charges.
On September 19, 2002, the parties confirmed that depositions in Zurich — even on consent — would require local court approval. I therefore directed that the defendants' depositions be taken in Spain until such time as the necessary Swiss court approval was received. (9/19/02 Tr. at 13). I selected Spain because the defendants' Swiss counsel had indicated that no approvals were required to proceed there. (Id. at 9). I also indicated, however, that any other site that the parties might be able to agree on amongst themselves would be equally acceptable. (Id. at 13).
During an October 2, 2002 conference, Mr. Mortenson responded to my inquiry regarding the depositions of the first three defendants slated to be deposed with what he termed a "very direct answer." He stated that "my clients have informed me that they will not go to Spain[,]" but "continue their offer to go to Switzerland." (10/02/02 Tr. at 4; see also id. at 7). Although I was dubious, Mr. Mortenson also expressed optimism that the necessary Swiss court approval could be secured within two weeks. (Id. at 5). Accordingly, I suggested that the parties develop a schedule predicated on "[d]epositions in Switzerland commencing in approximately three weeks." (Id. at 14).
The parties eventually agreed to take the depositions of defendants Kemal Uzan, Melahut Uzan, and Aysegul Akay in Zurich, and those of Telsim employees Sema Sanigok and Enver Ibek in London, during the week of October 28, 2002. As defense counsel later forthrightly conceded, by Friday, October 25, 2002, the Swiss court had approved the depositions in Zurich. (10/29/02 Tr. at 3). Nevertheless, on "Saturday night, Sunday morning," the defendants unilaterally decided not to appear there. (Id.). On the morning of Monday, October 28, 2002, the defendants apparently made a similar decision not to proceed with the London depositions of the Telsim witnesses. (Id.). The ostensible reason for both abrupt cancellations was that the depositions might somehow lead to adverse publicity in connection with the Turkish national election then underway, in which defendant C em Uzan played a significant role. (Id. at 3-4).
The notion that the depositions of the Telsim employees in London would somehow tip the scales of a Turkish national election seems ludicrous. Moreover, although the defendants expressed concern about the mischief that might result from the depositions being videotaped, I previously had directed that only one recording be made and that it be retained by Mr. Mortenson or his designee until further court order (which in no event would be issued before the Turkish election). (See Docket No. 209).
Still striving to accommodate the plaintiffs' desire to depose the defendants, I directed that the depositions previously scheduled for Zurich be taken there beginning November 12, and that the depositions previously scheduled for London be taken there beginning November 14, 2002. (See Docket No. 247). Given past events, I further directed that "if any of the . . . depositions are not to go forward according to [this] schedule for any reason, counsel for the [d]efendants shall notify counsel for the [p]laintiffs and the Court no later than the close of business on November 8, 2002." (Id.).
Perhaps not surprisingly, on November 8, 2002, defense counsel notified the plaintiffs and the Court that none of the depositions scheduled for the week of November 12 would take place. (See letter from Peter M. Skinner, Esq., to the Court, dated Nov. 8, 2002). Defense counsel subsequently advanced two reasons for the defendants' failure to comply with my order: the mischief that might arise from misuse of the videotapes and the pendency of an appeal from Judge Rakoff's order declining to stay this action pending an arbitration in Switzerland. (See 11/18/02 Tr. at 3; letter from James R. Heavner, Esq., to the Court, dated Nov. 11, 2002). The first of these purported justifications for noncompliance obviously was absurd in light of my prior order directing that M r. Mortenson or his designee hold the videotapes until further order of the Court. The second justification was flatly rejected by Judge Rakoff, who has decided to proceed with the trial of this action on February 10, 2003, notwithstanding the defendants' appeal. (See, e.g., 1/3/03 Tr. at 4 ("So barring some further development, we have a firm and fixed trial date.")).
My order directing that three of the defendants be deposed in Zurich arguably did not require any action on the part of the remaining defendants. Consequently, to ensure that they would not mistakenly be tarred with the same brush as the three defendants who had failed to appear, I gave the remaining defendants an opportunity to participate in deposition discovery. By order dated November 19, 2002, I directed that those defendants — Cem Uzan, Murat Uzan, Antonio Luna Betancourt, and the corporate representatives of Unikom Iletism Hizmetleri Pazarlama A.S., Standart Pazarlama A.S., and Standart Telekomunikasyon Bilgisayar Hizmetleri A.S. — appear for depositions in New York, London, or Zurich on or before November 22, 2002. (See Docket No. 278). None of those defendants complied with that order or, to the best of my knowledge, has expressed any interest in appearing at a later date.
In their papers opposing the imposition of discovery sanctions, the defendants suggest that this suit should not proceed because the parties' disputes must instead be resolved through an arbitration in Switzerland pursuant to certain written agreements between the plaintiffs and Telsim. The defendants also contend that they have tried to comply with this Court's orders but have been stymied by several Turkish injunctions which prevent them from transferring certain shares of Telsim to the registry of the Court and which have exposed them to substantial fines imposed by Judge Rakoff.
Neither of these rationales justifies the defendants' failure to appear for their depositions. With respect to the arbitration agreements, as noted above, Judge Rakoff has rejected the defendants' contentions that the claims raised in this RICO suit should be arbitrated. See, e.g., Motorola Credit Corp. v. Uzan, 202 F. Supp.2d 239, 250-51 (S.D.N.Y. 2002). Accord Motorola Credit Corp. v. Uzan, 2002 WL 31319932, at *3 (S.D.N.Y. Oct. 16, 2002) (noting that "Swiss law discourages, if not prohibits, joinder of non-parties to an arbitration"). Judge Rakoff also has ruled that the Turkish injunctions were the product of collusive behavior among the defendants and the third parties who applied for them, and that the disputes that gave rise to them could easily be resolved if the defendants chose to do so. Motorola Credit Corp., 2002 WL 31319932, at *4.
In sum, the record in this case establishes that the defendants have knowingly and without justification refused to comply with this Court's proper discovery orders.
The remaining aspect of the plaintiffs' sanctions motion is their request that the fact finder be instructed to draw an adverse inference from the defendants' discovery misconduct. Given the unusual circumstances of this case, in which the defendants and their counsel have apparently chosen not to participate in the upcoming jury trial, despite a potential multi-billion dollar judgment against them, it seems preferable that Judge Rakoff determine what the consequences of the defendants' failure to comply with my discovery orders should be. Accordingly, unless Judge Rakoff otherwise directs, I w ill defer to him as to whether an adverse inference instruction is warranted, and, if so, how it should be phrased.
II. Attorney's Fees and Expenses
The plaintiffs also seek to recover the fees and expenses that they incurred in connection with the court-ordered depositions during the week of November 12, 2002 that the defendants unilaterally cancelled. The expenditures for which reimbursement is sought relate to attorney and paralegal time, the fees charged by the plaintiffs' Swiss counsel, and certain out-of-pocket administrative expenses.
A. Attorney Time
In this Circuit, a party seeking an attorney's fee award must submit "contemporaneous time records specifying `the date, the hours expended and the nature of the work done'" for each attorney involved. Pressman v. Estate of Steinvorth, 886 F. Supp. 365, 367 (S.D.N.Y. 1999) (quoting N.Y.S. Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1148 (2d Cir. 1983)). Alternatively, summaries of such records, accompanied by affidavits attesting that the summaries are accurate, may be submitted to reduce the burden on counsel. See id. (citing Cruz v. Local Union No. 3 of Int'l Bhd. of Elec. Workers, 34 F.3d 1148, 1160 (2d Cir. 1994)). See also Bankers Fed. Savings Bank FSB v. Off W. Broadway Developers, 224 A.D.2d 376, 378 (1st Dep't 1996) (quoting Matter of T.J. Ronan Paint Corp., 98 A.D.2d 413, 419 (1st Dep't 1984) ("award of fees must be predicated upon a `proper and sufficient affidavit of services'").
1. Motorola
In support of its application for legal fees, Motorola has submitted the detailed time entries of its attorneys and paralegals at Steptoe Johnson, together with a schedule of their hourly rates. Those entries indicate that most of the time for deposition preparation was charged by a single partner, (Steven K. Davidson — 66.5 hours), aided by two associates (Kevin B. Muhlendorf — 94.25 hours; Gordon M. Clay — 116.5 hours). Other associates and paralegals, and the senior partner assigned to this case, also played supporting roles. The total amount billed by Steptoe Johnson for deposition preparation is $99,737.50.
After reviewing the entries, I find that the time charged to the deposition preparation effort by these timekeepers is reasonable. Additionally, although Motorola's papers do not set forth the background and experience of the lawyers who billed the time, I have taken the liberty of consulting the biographies set forth on the Steptoe Johnson website (www.steptoe.com), which confirm the reasonableness of the hourly rates sought.
2. Nokia
The Nokia application similarly reflects the principal involvement of one partner, (Jason Brown — 48.4 hours), aided by two associates (Allison Kort — 50.1 hours; Parisa Dehghani-Tafti — 66.7 hours). The total amount of attorney's fees for which reimbursement is sought is $48,905.00. I find that the time charged by the Holland Knight attorneys and support personnel for deposition preparation is reasonable. I further find, based upon my review of the Holland Knight website (www.hklaw.com), that the hourly rates for the Holland Knight attorneys are reasonable.
3. Defendants' Objections
The defendants raise two objections to the Motorola and Nokia attorney's fee applications which merit brief discussion. First, they contend that any time charged during the week prior to the scheduled depositions was unreasonable because the plaintiffs had "repeatedly stated that they did not believe defendants would show up for depositions." (Defs.' Att'y's Fees Mem. at 3). In view of the defendants' prior cancellations, however, the Court had ordered that the defendants provide advance notice if they were not going to appear. If the defendants wanted to limit the plaintiffs' expenditure of time — particularly during the first week of November — they should have notified opposing counsel of their intention not to appear prior to November 8, 2002, the very last day that they were permitted to do so pursuant to my order.
Second, the defendants object that some of the time charges reflected on the legal services bills relate to depositions which were not among the first slated to be taken, or do not indicate on their face that they were related to those depositions. (Id. at 4). Suffice it to say, prior to November 8, the defendants had not expressed their intention not to appear for any depositions in this case. Since the defendants themselves had pressed to increase the number of depositions that the Court would permit, it ill behooves them to complain that the plaintiffs should have prepared to depose some smaller group.
B. Other Expenses
Motorola also seeks to recover the amount it was billed by a Swiss law firm retained to assist in the process of obtaining approval to depose certain of the witnesses in Zurich. This engagement was necessitated by the defendants' insistence that certain of their depositions be taken in Switzerland, rather than England, Spain, or the United States. In support of this application, Motorola has submitted the fee statement of its Swiss counsel, Pestalozzi Lachenal Patry, in the amount of 36,229.75 Swiss francs, or $25,303.07. Although the statement does not contain a breakdown of hours by a timekeeper or disclose their hourly rates, the fees of Swiss counsel are, in my view, akin to a disbursement. Moreover, even if the time charges or hourly rates were disclosed, the Court obviously is not in a position to evaluate the fees charged by foreign lawyers with the same degree of precision as the fees charged by attorneys practicing in this country. On its face, the amount billed by Swiss counsel seems reasonable. A few of the time entries nevertheless appear to relate to issues other than the defendants' depositions. For that reason, it is appropriate to reduce the fees reflected on the statement by ten percent, resulting in an adjusted award of $22,772.76.
Additionally, Motorola and Nokia seek to recover certain additional deposition preparation expenses, including translation, duplicating, and travel cancellation costs. I find that these expenses are reasonable. Motorola shall therefore recover $5,901.33 and Nokia shall recover $331.30 for such expenses.
Finally, Motorola and Nokia also seek to recover an allocable share of their lawyers' administrative expenses for this case by multiplying the total monthly charges for such expenses by the percentage of the monthly time charges attributable to deposition preparation. I find this method too speculative to w arrant its adoption by the Court. Accordingly, Motorola's application to recover such expenses in the amount of $1,582.32, and Nokia's application for such expenses in the amount of $3,413.52, are disallowed.
C. Total Award
For the reasons set forth above, Motorola is awarded fees and expenses in the amount of $128,411.59 ($99,737.50 + $22,772.76 + $5,901.33), and Nokia is awarded fees in the amount of $49,236.00 ($48,905.00 + $331.00).
III. UBS Records
On July 23, 2002, Judge Rakoff issued an order temporarily restraining the defendants' accounts at several banks, including UBS. (See Affirm. of Paul J. Bschorr, Esq., dated Nov. 13, 2002 ("Bschorr Affirm."), Ex. B). A copy of the order evidently was mailed to the UBS Legal Department in Stamford, Connecticut, which froze any New York accounts. (See Brunner Dep. at 38, 175-76). The following month, Judge Rakoff issued an order preliminarily attaching their contents. (Bschorr Affirm. Ex. A at 3).
Thereafter, the plaintiffs served UBS in New York with a subpoena seeking documents relating to any UBS accounts in Switzerland, the United States, or elsewhere, maintained in the name of more than 150 entities affiliated with the defendants. (Id. Ex. C). In response, UBS furnished the relevant documents for accounts located in New York State and, subject to its prior written objections, also disclosed that there were no other responsive accounts in the United States. (See Brunner Dep. at 137-38 (remarks of Mr. Bschorr)). UBS objected, however, to the production of any additional documents on various grounds, including the Swiss bank secrecy laws.
On October 2, 2002, the plaintiffs moved to compel the production of the withheld UBS documents, and for an order requiring the defendants to consent to the production of their foreign bank records. After the issues were briefed, the Court heard oral argument with respect to this motion to compel on December 5, 2002.
The plaintiffs contend that UBS should be treated as a single entity for purposes of determining whether its New York branch can be compelled to produce records from branches outside the United States, including those located in Switzerland. It makes this argument on the basis of (a) the deposition testimony of Thomas B runner, an Executive Director of UBS's Private Banking Division, who served as the Uzan's relationship manager in New York; and (b) advertisements on the Internet, in the New York Times, and presumably elsewhere, in which UBS describes itself as a unitary global bank.
A fair reading of the Brunner deposition and the other papers submitted by the parties establishes that UBS's New York branch does not have access in the ordinary course of business to information about UBS accounts or banking relationships outside the United States. (See, e.g., Bschorr Affirm. Ex. G (Affidavit of Thomas Brunner, sworn to on Nov. 12, 2002) H (Affidavit of Christopher Rowland, sworn to on November 12, 2002)). Production of the requested documents therefore cannot be compelled on the theory that the New York branch of UBS has the practical ability to gain access to them in the ordinary course.
Moreover, as the Swiss Ambassador to the United States has stated in a recent letter to the Court, an order compelling UBS to produce documents from Switzerland would raise serious questions of international comity. Among other concerns, UBS and its Swiss employees might face criminal sanctions if they were to respond to the plaintiffs' subpoena without the authorization of a Swiss court. (See letter from the Hon. Christian B lickenstorfer to the Court, dated Nov. 18, 2002, at 3; see also Affirm. and Stmnt. of Georg Friedli, Esq., dated Nov. 13, 2002 (detailing those sanctions)).
In these circumstances, it is appropriate that the plaintiffs be required to secure the additional documents through the Hague Convention on The Taking of Evidence Abroad in Civil or Commercial Matters, 23 U.S.T. 2555, T.I.A.S. No. 7444. While the delay resulting from this procedure may be extensive, the plaintiffs have not shown an adequate basis for the Court to require otherwise.
Turning to the plaintiffs' request for an order directing that the defendants consent to the release of their foreign banking records, Judge Wood issued such a directive in Bank of Crete v. Koskotas, 1989 WL 46587 (S.D.N.Y. Apr. 21, 1989), finding that it was both constitutional and consistent with the Court's broad discretion over discovery matters. Judge Wood nevertheless required that the consent forms bear a legend ("executed pursuant to court order") so that the forms would not misleadingly suggest that they had been signed voluntarily. Id. at *3.
Given the present posture of this case, it is unlikely that the defendants will comply with a directive to sign "consent" forms. Moreover, as UBS points out, Swiss courts do not consider court-ordered waivers to be voluntary. (See UBSO pp'n Mem. at 24 (citing Friedli Affirm. ¶ 39)). Nonetheless, there is no reason why the plaintiffs should not be permitted to pursue this potentially more expeditious route to securing the defendants' bank records in Switzerland and elsewhere. Accordingly, the defendants are directed to sign within ten days forms consenting to the release of their foreign bank records which bear a suitable legend indicating that they have been executed pursuant to court order.
IV. Conclusion
(a) The Court finds that the defendants have knowingly refused to comply with this Court's discovery orders and that there is no justification therefor. The instruction, if any, that the jury will be given as a consequence of this finding is a matter best left to Judge Rakoff, who will preside at the trial.
(b) Motorola is awarded legal fees and expenses in the amount of $128,411.59, and Nokia is awarded legal fees and expenses in the amount of $49,236.00.
(c) The plaintiffs' motion to compel UBS to produce additional documents relating to accounts or relationships outside the United States is denied, but the defendants are directed to sign within ten days forms consenting to the release of their foreign bank records, which forms shall bear a legend indicating that they have been executed pursuant to court order.
SO ORDERED.