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Banks in New York are routinely served with subpoenas seeking information and documents for use in other parties’ disputes. Where the banks are branches of foreign entities, and the subpoenas seek confidential depositor or client information held outside the United States, the consequence can be more than just expense and distraction, but legal and reputational risk as well. Disclosure potentially would involve breaches of confidentiality agreements and even foreign blocking statutes, and may suggest claims to eager plaintiffs that the banks themselves had participated in illegal activities. The grounds on which third-party recipients of the subpoenas can fight compliance are unsettled, but a recent decision by a U.S. District Court in the Southern District of New York provides significant support for aggressive efforts to resist disclosure. Still, the scope of non-party discovery obligations to which a New York branch bank remains subject are unclear, and this uncertainty points to actions the branches can take to minimize the exposure of their parents.

The ‘ANZ Bank’ Litigation

In Australia and New Zealand Banking Group v. APR Energy Holding, No. 17-MC-00216 (VEC), 2017 WL 3841874 (S.D.N.Y. Sept. 1, 2017), Judge Valerie Caproni of the Southern District of New York found no general or specific personal jurisdiction to enforce a nonparty subpoena served on a foreign bank’s New York branch office where “there is no nexus between [the foreign bank’s] New York contacts and the subject matter of the discovery sought[.]” Id. at *5. The case involved a motion by Australia and New Zealand Banking Group Ltd. (ANZ Bank) to quash a nonparty subpoena served by APR Energy Holding Ltd. (APR) pursuant to 28 U.S.C. §1782, requesting documents for use in a foreign arbitration where APR accused the country of Australia of unlawfully expropriating mobile gas turbines previously leased by a bankrupt entity called Forge Group Power Pty. Ltd. (Forge). APR served the subpoena on ANZ Bank’s New York branch office seeking, among other information, documents located anywhere in the world regarding ANZ Bank’s financial transactions with Forge and Forge’s financial condition.

In deciding the motion to quash, Judge Caproni first addressed the parties’ dispute over the requirement of 28 U.S.C. §1782 that “the person from whom discovery is sought must ‘reside’ or ‘be found’ in the district”; specifically, whether this equates to a requirement that the court have personal jurisdiction over the person in order to enforce a section 1782 subpoena. Id. at *2-3. Judge Caproni observed that the question remained unsettled, but that its resolution was unnecessary because the due process protections of the Constitution apply and had not been met in this case. Judge Caproni explained that “[t]here is no meaningful distinction from a constitutional standpoint” between a subpoena issued to a nonparty pursuant to Rule 45 of the Federal Rules of Civil Procedure, as to which it is settled that subpoena respondents have due process protections, and one issued pursuant to section 1782. Id. at *3.

Consistent with U.S. Supreme Court precedent, Judge Caproni explained that courts can exercise general personal jurisdiction over a company where the company’s contacts with the forum are so “continuous and systematic as to render [it] essentially at home in the forum [s]tate”—a test usually satisfied only as regards to the company’s place of incorporation or principal place of business. Id. (quoting Daimler AG v. Bauman, 134 S. Ct. 746, 761-62 (2014)). That was not the case as to ANZ Bank, and Judge Caproni found no basis to depart from the general rule, as the bank’s singular New York branch office comprised only 2 percent of the bank’s overall income and profits. Id. at *3-4. The court also rejected APR’s position that ANZ Bank submitted to general personal jurisdiction by virtue of its New York branch office being regulated by the International Banking Act of 1978. Id. at *4. Relying on Second Circuit precedent outside the banking context, the court reasoned that “federal due process rights likely constrain an interpretation that transforms a run-of-the-mill registration and appointment statute into a corporate ‘consent’ … to the exercise of general jurisdiction by state courts.” Id. at *4 (quoting Brown v. Lockheed Martin, 814 F.3d 619, 637 (2d Cir. 2016)).

Turning to the issue of specific personal jurisdiction, Judge Caproni acknowledged that case law in the context of nonparty discovery requests is “sparse and unsettled.” Id. at *5. Typically, when a defendant is served with a complaint, specific personal jurisdiction requires that the claims arise from or are “closely related” to the defendant’s contacts with the forum. Id. Although the Supreme Court has not addressed the standard for applying specific personal jurisdiction over nonparties, at least one Court of Appeals (the Tenth Circuit) has articulated a test centered on “the nonparty’s contacts with the forum and the discovery order at issue.” Id. Judge Caproni did not expressly adopt this standard but appears to have applied it, concluding that specific personal jurisdiction could not be exercised because there was “no nexus between ANZ Bank’s New York contacts and the subject matter of the discovery sought.” Id. In support of its conclusion, the court found that the subject matter of the subpoena was turbines located and leased in Australia to an Australian company that received loans from an Australian bank. Further, addressing implicitly a factor found relevant in other cases involving discovery directed to U.S. branches of foreign banks, “[n]one of the requested discovery is located in the United States.” Id.

Different View From Posner

Especially to the extent it instructs that the focus of the inquiry should be the subject matter of an underlying dispute, the decision in the ANZ Bank case favors a conservative approach to analyzing discovery requests served on nonparty financial institutions regarding accounts held outside of New York. This approach, however, does not stand on its own. For example, Judge Richard Posner, writing for a Seventh Circuit panel in Leibovitch v. Islamic Republic of Iran, No. 16-2504, 2017 WL 1160943 (7th Cir. Feb. 23, 2017), may have left the door slightly open to a more liberal view. In Leibovitch, the decedent’s estate and surviving family members brought suit against the Republic of Iran and one of its ministries for damages arising from a fatal terrorist attack. After receiving a default judgment against the defendants, the plaintiffs served subpoenas on the Chicago branches of two foreign banks that did not currently hold Iranian assets, but had done so in the past, directing the parent banks to reveal Iranian assets held in any of the bank’s branches worldwide. The parent banks moved to quash the subpoenas for lack of personal jurisdiction, and the district court granted the motion.

The Seventh Circuit affirmed. As the parent banks were neither incorporated nor headquartered in the United States and their contacts with the forum through their Chicago branches were not so “constant and pervasive” as to render them “at home in the forum State,” the requirements of general personal jurisdiction were not met. Id. at *2. Judge Posner also agreed that the district court could not exercise specific personal jurisdiction over the parent banks, emphasizing that the subpoenas “are not tailored to the banks’ presence or activities in the United States.” Id. Interestingly, Judge Posner suggested that jurisdiction over a foreign bank’s Chicago branches would exist for a subpoena seeking information about assets held at those branches, including “any knowledge of where those assets might be held.” Id. Thus, the Leibovitch opinion could be interpreted to permit disclosure of information possessed by U.S. bank branches regarding the location of assets held by parent banks anywhere in the world. The opinion is silent as to the exercise of jurisdiction where information does not reside in the United States, but could be accessed from the U.S. branch’s computers. Non-U.S. banks should be aware of this potential exposure and might be counseled to limit access to information about accounts and assets located outside of the United States by people working in their U.S. branches.

Other Potential Arguments

Moreover, apart from constitutional considerations, foreign banks should be aware of other arguments that could potentially be used to resist compliance. Jurisdiction over U.S. branches may also limited by New York’s long-arm statute, N.Y. C.P.L.R. §302(a)(1), which may be more restrictive than the Due Process Clause. In addition, principles of comity may also counsel against enforcement of subpoenas, especially where local “blocking statutes” might be seen as precluding compliance by a foreign bank with a U.S. court’s orders. Section 442 of the Restatement (Third) of Foreign Relations Law outlines the factors considered in the comity analysis which balances national interest and social policies with the interest of the foreign entity. Applying the §442 factors, at least one New York court has extended jurisdiction over the compliance by a foreign bank to subpoenas issued to its U.S. branch as consistent with the principles of comity. See Gucci America v. Weixing Li, 135 F. Supp. 3d 87, 102-03 (S.D.N.Y. Sept. 29, 2015). In that case, however, the court declined to find that its order would be in conflict with local law. Other situations may well present clearer cases.