Does Seeking Discovery on Parties in Foreign Countries Under Bank...

This article addresses foreign discovery pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and the application of the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (the “Hague Convention” or the “Convention”) to such discovery. It concludes that discovery under the Hague Convention, including Bankruptcy Rule 2004 discovery, may end up being a drawn-out and difficult process.

Bankruptcy Rule 2004

                                                                                               

Bankruptcy Rule 2004 is an important discovery tool for a party in interest in a chapter 11 bankruptcy case. Bankruptcy Rule 2004(b)’s definition of the scope of discovery is broad and includes any matter that may relate to the property and assets of the estate, to the financial condition of the debtor, or that may affect the administration of the estate.[1] Bankruptcy Rule 2004 is also commonly used as a prelitigation device that affords estate representatives the opportunity to assess whether to pursue estate claims.[2] However, once litigation associated with a bankruptcy case begins, Bankruptcy Rule 2004 discovery ceases to apply and Bankruptcy Rules 7026–7037[3] govern discovery under the resulting adversary proceeding.[4]

Application of the Hague Convention on the Taking of Evidence in Civil or Commercial Matters to Bankruptcy Rule 2004 Discovery

 

The Hague Convention provides a procedure for propounding discovery requests relating to foreign proceedings through the issuance of letters of request (letters of request and letters rogatory are synonymous terms).[5] Article 1 of the Convention provides that “[i]n civil or commercial matters a judicial authority of a Contracting State may . . . request the competent authority of another Contracting State, by means of a Letter of Request, to obtain evidence.”[6] Further, Article 1 of the Convention prohibits the use of letters of request to obtain evidence “which is not intended for use in judicial proceedings, commenced or contemplated.”[7] Therefore, a letter of request under the Convention must, at the very least, seek discovery in “contemplated” judicial proceedings.

Article 23 of the Convention provides that “[a] Contracting State may at the time of signature, ratification, or accession, declare that it will not execute Letters of Request issued for the purpose of obtaining pre-trial discovery of documents as known in Common Law countries.”[8] Convention signatories may file a complete or limited reservation under Article 23 of the Convention. For example, China’s limited reservation states that it will accept letters of request for pretrial discovery “only [if] the request for obtaining the discovery of documents [is] clearly enumerated in the Letters of Request and of direct and close connection with the subject matter of the litigation.”[9]

Many western European nations have also entered reservations disallowing letters of request that seek pretrial discovery.[10] Thus, Article 23 of the Convention presents an obstacle to prosecuting Bankruptcy Rule 2004 discovery requests abroad. A letter of request that seeks discovery within the scope of Bankruptcy Rule 2004, such as a request targeting information that is designed to test the strength of an estate claim prior to litigation, may be barred by a reservation entered by the country where such discovery is sought. In contrast, discovery sought under the adversary proceeding discovery rules will likely not run into the same problem posed by reservations for Bankruptcy Rule 2004 discovery.

Obtaining Discovery Under the Hague Convention         

                                     

The first step for a party in a United States bankruptcy proceeding that seeks to obtain discovery through the Hague Convention is to file a Motion for the Issuance of Letters of Request for International Judicial Assistance with the bankruptcy court.[11] If granted, the bankruptcy court issues, or directs the party seeking discovery to forward, the court-approved letter of request to the applicable central authority[12] of the jurisdiction where discovery is sought.[13] Next, the central authority typically forwards the letter of request to the appropriate judicial authority to execute the request. Article 9 of the Convention provides that “the judicial authority that executes a Letter of Request shall apply its own law to the methods and procedures to be followed.”[14] The procedures followed by the central authority and then the judicial authority of the signatory nation that receives the letter of request can vary greatly depending on the law of the receiving jurisdiction.

One example of the functionality of this discovery procedure is found in the internal procedure of Switzerland. If a party seeks discovery in Switzerland, the bankruptcy court directs the letter of request to the proper central authority at the Swiss cantonal level. Switzerland also requires that the letter of request be translated to the correct language of the cantonal authority requested to execute it.[15] The letter of request should provide specific details about the judicial action and the discovery sought — it should contain the name of the requesting party, the nature of the judicial action, and must specify the discovery it seeks.[16] The discovery sought may be a list of documents or the names and addresses of witnesses to examine, accompanied by a statement of the subject matter upon which the witness will be examined.[17] After discovery is conducted, the Swiss central authority then draws up documents confirming execution in its official language and sends them back to the United States.

Conclusion

Obtaining discovery abroad via the Hague Convention may be a cumbersome and complicated process, and especially so for a party that seeks Bankruptcy Rule 2004 discovery. A letter of request seeking pretrial discovery through Bankruptcy Rule 2004 may be blocked by a reservation entered by signatory nation pursuant to Article 23 of the Hague Convention. Even when a discovery request made under the adversary proceeding rules is sought by a letter of request, the procedures followed by the receiving jurisdiction vary greatly.

Foreign discovery, including Bankruptcy Rule 2004 discovery, under the Hague Convention may end up being a drawn-out and frustrating endeavor. The United States Department of State counsels generally that service via the letters rogatory process “is not recommended given the routine time delays of up to a year or more in the execution of requests.” Thus, parties should be wary of these roadblocks when deciding to pursue foreign discovery.

 

[1] Bankruptcy Rule 2004’s scope is broad because the purpose behind the rule “is to assist a party in interest in determining the nature and extent of the bankruptcy estate, revealing assets, examining transactions and assessing whether wrongdoing occurred.” In re Recoton Corp., 307 B.R. 751, 755 (Bankr. S.D.N.Y. 2004).

[2] In re Wash. Mut., Inc., 408 B.R. 45, 53 (Bankr. D. Del. 2009). For example, one bankruptcy court approved a Bankruptcy Rule 2004 request for investigation into a debtor’s potential antitrust claims against a third-party manufacturer. In re Table Talk, Inc., 51 B.R. 143, 145 (Bankr. D. Mass. 1985). The court found the requested Bankruptcy Rule 2004 examination proper because the trustee sought to determine “whether the estate has potential anti-trust claims against [the manufacturer].” Id.

[3] These are the rules governing adversary proceedings. They incorporate the Federal Rules of Civil Procedure. See Fed. R. Bankr. P. 7026–7037.

[4] Wash. Mut., Inc., 408 B.R. at 50. “The ‘pending proceeding’ rule states ‘that once an adversary proceeding or contested matter has been commenced, discovery is made pursuant to Federal Rules of Bankruptcy Procedure 7026 et seq., rather than by a [Bankruptcy Rule] 2004 examination.’” Id. (quoting In re Bennett Funding Grp., Inc., 203 B.R. 24, 28 (Bankr. N.D.N.Y. 1996)).

[5] See The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, March 18, 1970, 23 U.S.T. 2555, 847 U.N.T.S. 231. This multination treaty currently has fifty-nine signatories, including the United States. See Hague Conference on Private International Law, Status Table, https://www.hcch.net/en/instruments/conventions/status-table/?cid=82 (last updated January 12, 2017).

[6] The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, supra note 5, art. 1.

[7] Id.

[8] Id. art 23.

[9] See Hague Conference on Private International Law, supra note 5.

[10] See id. Spain, for instance, does not accept letters of request seeking pre-trial discovery. Id.

[11] See, e.g., Qimonda Richmond, LLC v. Kingston Technology Int’l (In re Qimonda Richmond, LLC), Adv. Pro. No. 09-52137 (D.I. 47) (Bankr. D. Del. July 19, 2010); SNMP Research Int’l v. Nortel Networks (In re Nortel Networks), Adv. Pro. No. 11-53454 (D.I. 258) (Bankr. D. Del. Sept. 4, 2015).

[12] Article 2 of the Convention directs signatories to designate a “Central Authority” that will receive letters of request from judicial authorities of other signatories. See The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, supra note 5, art. 2.

[13] See Qimonda Richmond, LLC v. Kingston Technology Int’l (In re Qimonda Richmond, LLC), Adv. Pro. No. 09-52137 (D.I. 49) (Bankr. D. Del. July 23, 2010); SNMP Research Int’l v. Nortel Networks Inc. (In re Nortel Networks), Adv. Pro. No. 11-53454 (D.I. 281) (Bankr. D. Del. Sept. 25, 2015).

[14] The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, supra note 5, art. 9.

[15] Id. Depending on which cantonal authority in Switzerland executes the letter of request, that language could be German, French, or Italian.

[16] See Dr. Peter C. Honegger and Andreas Kolb, Mutual Assistance in Switzerland, https://www.nkf.ch/wAssetsnkf2/docs/publikationen/peter_c_honegger/nkf_h...

[17] Id.

 

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