Linde v. Arab Bank, PLC, 2009 WL 1456573 (E.D.N.Y. May 22, 2009)
In this case, defendant Arab Bank moved to compel production of documents, pursuant to subpoena, by non-parties Israel Discount Bank, Ltd. (“IDB”), its indirect, wholly –owned subsidiary, Israel Discount Bank of New York (“IDBNY”), and Bank Hapoalim (“Hapoalim”). Arab Bank served its first subpoena on IDBNY seeking, among other things, the production of IDB documents located in Israel. Arab Bank also served a second subpoena on IDBNY seeking “the production of identical information from its parent, IDB.” Hapoalim was also served with a subpoena seeking the production of documents located in Israel. IDBNY generally complied with the first subpoena but objected to the production of IDB documents located in Israel. As to the second subpoena, IDBNY accepted service on behalf of itself, but not IDB, and IDB resisted the production of the documents sought based on the court’s lack of personal jurisdiction. Hapoalim also resisted production arguing that much of the information sought was protected from discovery by Israeli law. The court denied Arab Bank’s motion as to IDB documents located in Israel upon finding that IDBNY lacked sufficient control of such documents and because the court lacked personal jurisdiction over IDB. The court also denied Arab Bank’s motion as to those documents protected by Israeli law, but indicated its willingness to require production of the other documents requested.
Israel Discount Bank of New York and Israel Discount Bank, Ltd.
Despite generally complying with Arab Bank’s subpoenas to the extent they sought documents within IDBNY’s control, IDBNY objected to the extent that they called for the production of IDB documents located in Israel. Arab Bank argued that IDBNY should be compelled to produce the requested IDB documents because it had the “practical ability” to obtain them and that IDB should be compelled to produce the requested documents because IDBNY was a “mere department” of IDB, thus establishing IDB’s presence in New York for purposes of personal jurisdiction.
The court began its analysis of IDBNY’s obligation to respond to the first subpoena by highlighting the relevant law. Under Fed. R. Civ. P. 45, a subpoena may command a nonparty served to produce documents that are in its "possession, custody, or control."
"Control is defined not only as possession, but as the legal right to obtain the documents requested upon demand." "Control" may also be found where an entity has "access to" and the "ability to obtain the documents." The party seeking to compel a subsidiary to produce the documents of its foreign parent has the burden of showing that the documents are within the local subsidiary’s control. "Access" and "ability to obtain documents" have been found where "documents ordinarily flow freely between" parent and subsidiary. [Citations omitted.]
The court next acknowledged IDBNY’s submission of sworn statements stating that it had no access to its parent’s documents, that they shared no computers systems or confidential information concerning customer transactions, and that “IDBNY does not even expect that IDB would provide documents about a customer to IDBNY so that IDBNY could defend itself in litigation.” The court also noted the lack of evidence to indicate that the documents sought “flowed freely” between subsidiary and parent and rejected Arab Bank’s arguments and evidence to the contrary. Accordingly, the court denied Arab Bank’s motion to compel IDBNY’s production of IDB documents.
Addressing IDB’s obligation to respond to the second subpoena, the court turned to Arab Bank’s arguments that IDBNY was a mere department of IDB and that service on IDB was effective through service on its New York subsidiary. “For New York courts to acquire personal jurisdiction over the parent based on a subsidiary’s presence in New York, the parent’s ‘control over the subsidiary’s activities … must be so complete that the subsidiary is, in fact, merely a department of the parent.’” [Citation omitted.] Such a determination requires a fact-specific inquiry taking into consideration four factors: "(1) common ownership between the parent and subsidiary; (2) the financial dependency of the subsidiary on the parent corporation; (3) the degree to which the parent corporation interferes in the selection and assignment of the subsidiary’s executive personnel and fails to observe corporate formalities; and (4) the degree of control over the marketing and operational policies of the subsidiary exercised by the parent." [Citation omitted.]
Engaging in a fact specific analysis of the relevant factors, the court found that all but the first weighed against a finding that IDBNY was a “mere department” of IDB. Accordingly, Arab Bank’s motion to compel was denied.
The court next considered the objections of Bank Hapoalim based on a “host of Israeli laws” and international comity which prevented the disclosure of much of the information requested.
Beginning its analysis, the court first rejected the assertion that the Israeli laws against self incrimination and protecting commercial secrets prohibited the discovery of the documents sought where appropriate measures could be taken to address Hapoalim’s concerns and noted that “these laws do not present a true conflict with the United States such that a comity analysis is necessary.” The court recognized, however, that the remaining laws cited by Hapoalim did “erect prohibitions on disclosure that raise a true conflict between United States discovery rules and Israeli confidentiality laws.” Accordingly, an international comity analysis was necessary.
The court laid out five factors to consider when deciding whether to compel production, as articulated by the Restatement Third of the Foreign Relations Law of the United States:
(1) the importance of 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 underline important interests of the United States, or compliance with the request would undermine important interests of the state where the information is located.
The court also noted that prior courts have considered the nonparty status of the party from whom discovery is sought when evaluating the hardship imposed by discovery.
Of the articulated factors, the court found that only one factor, the specificity of the request, weighed against recognizing Israel’s bank confidentiality laws as a bar to discovery.
Notably, regarding the fifth factor, the court determined that compliance with the requests would “undermine important Israeli interests, including maintaining privacy rights of bank clientele and the confidentiality of sensitive communications with Israel’s central bank” and that noncompliance “would not greatly undermine important interests of the United States.” The court also pointed to the potential hardship that could be imposed on Hapoalim by an order compelling the production of the requested materials. Specifically, the court stated that violation of the relevant laws “could lead to substantial civil liability and criminal punishment” and that Hapoalim’s non-party status weighed against an order to compel where such an order “should be imposed on a nonparty…only in extreme circumstances.”
Accordingly, as to the materials that fell within the protection of the relevant laws cited, the court denied Arab Bank’s motion to compel. As to the remaining materials requested, the court granted Arab Bank’s motion to compel.