Second Circuit denies interlocutory appeal of discovery sanctions requiring foreign defendant to violate bank secrecy laws.

Author:Duval, J. Daniel

Linde v. Arab Bank, PLC, 706 F.3d 92 (2d Cir. 2013).

The Federal Rules of Civil Procedure assure all litigants that legal actions will be determined in a legitimate and uniform fashion. (1) During discovery, bank secrecy laws protect the private information of foreign banks and their clients, and United States courts frequently have considered what information is protectable in litigation involving American plaintiffs and foreign bank defendants. (2) In Linde v. Arab Bank, PLC,3 the United States Court of Appeals for the Second Circuit considered whether foreign bank secrecy laws should protect documents allegedly linking Arab Bank (Bank) to multiple terrorist organizations. (4) The Second Circuit held that Arab Bank's interlocutory appeal challenging an order for sanctions was not within its jurisdiction, and refused to vacate the district court's order. (5)

Early in 2005, thousands of victims and family members of victims who had been injured or killed in terrorist attacks in Israel and Palestinian Territories brought a class action suit against the Bank. (6) The plaintiffs alleged that the Bank unlawfully provided financial resources to foreign terrorist organizations to engage in various acts of terror and crimes against humanity in an attempt to rid the Middle East of any Israeli presence. (7) The plaintiffs' allegations rested on two theories. (8) The first was that the Bank administered a "death and dismemberment benefit plan," by distributing cash payments to terrorists and their families. (9) The plaintiffs alleged that the Bank provided cash incentives for suicide bombers who killed or injured plaintiffs and their relatives. (10) Furthermore, the plaintiffs claimed that families of terrorists could claim rewards from the Bank by obtaining official certification that the deceased terrorist was a martyr, which included an official martyr identification number. (11)

The plaintiffs' second theory was that the Bank provided various financial services to terrorist entities and individuals acting on behalf of Hamas and similar organizations. (12) Because the plaintiffs were comprised of U.S. citizens and foreign nationals, they asserted claims under two different U.S. laws. (13) Based on their two theories, the plaintiffs requested the production of certain documents regarding specified accounts kept at the Bank. (14) The Magistrate Judge assigned to the case issued specific production orders requiring the Bank to turn over banking information linked to suspected terrorists. (15) In response to the order, the Bank asserted that such information was protected from disclosure under numerous bank secrecy laws, and that permission was necessary from regulatory authorities in those countries in order to release the information. (16) In 2006, the Bank received permission from the proper authorities, and produced the documents requested by the plaintiffs. (17)

Problems arose when the district court granted plaintiffs' motion to compel previously requested documents allegedly linking the Saudi Committee to terrorist organizations, and which the Bank again claimed were protected by bank secrecy laws. (18) Relevant authorities denied the Bank's release request, and the Bank subsequently refused to produce the materials, prompting the plaintiffs to move for sanctions against the Bank. (19) The Magistrate Judge granted the motion, and provided jury instructions to the district court should the case go to trial. (20) The Bank appealed the order for sanctions to the Second Circuit, claiming that the jury instruction would inevitably result in a finding for the plaintiffs, and notwithstanding the Bank's right to appeal, result in irreparable financial consequences for the Bank by virtue of the verdict alone. (21) The Bank also claimed that the district court abused its discretion when it issued the sanctions, and requested a writ of mandamus to direct the district court to correct its erroneous order. (22) The Second Circuit held that it did not have jurisdiction to dismiss the sanctions, and that the Bank was not entitled to a writ of mandamus vacating the sanctions order. (23)

Since the initiation of formal discovery rules in the United States, courts have encountered obstacles in complex international cases when documents requested by an American litigant are considered privileged under the laws of a foreign country. (24) Issues are often determined according to a treaty or international agreement between the United States and the home country of a foreign litigant. (25) Despite international agreements and treaties, the United States has carved out unilateral reasonableness tests, which provide its courts with a framework to assess foreign litigants who refuse to disclose documents during discovery. (26) In response, many foreign countries have combated U.S. discovery procedures by adopting blocking laws that prevent disclosure of privileged documents. (27) In response to the terrorist attacks of September 11, Congress created laws forbidding terrorist financing, resulting in the increase of discovery between litigants located in the United States and those located in suspected terrorist countries. (28) Because of the importance of uniform discovery procedure, U.S. courts have traditionally emphasized the role of U.S. procedural rules in ordering the production of documents, regardless of whether the disclosure of documents would violate the laws of a foreign country. (29)

In Societe Internationale v. Rogers, the United States Supreme Court considered whether a Swiss plaintiff had to produce specific banking records even though doing so would violate Swiss penal laws. (30) Rogers set the precedent that foreign law does not prevent American courts from ordering a party to produce evidence, even where the act of production may violate the laws of that country. (31) The Court further stated that a district court could draw inferences unfavorable to the party failing to produce requested documents as to particular information allegedly contained in those documents. (32)

The Court has affirmed the maxims it set forth in Rogers. (33) Following Rogers and its progeny, courts consider several factors in determining whether to issue a document production order for information located abroad. (34) When deciding whether to impose sanctions on a party for not fulfilling requests for information during discovery, courts employ a good-faith analysis based on the Rogers holding, which established that sanctions should not be ordered when a party is legally unable to produce documents, rather than when a party acts in bad faith. (35)

Despite these established threads of analysis, U.S. courts do not apply them uniformly in determining whether to compel the production of documents from a foreign litigant. (36) During trial. American plaintiffs have the potential to enjoy a favorable position merely because of the inability of a foreign defendant to produce requested documents, which could subsequently point to the defendant's liability before the trial actually begins. (37) Consequently, a mere discovery test has largely determined the outcomes of many trials based on similar sets of facts. (38) The lack of judicial uniformity compounds the problem of limited access to appellate review for parties seeking interlocutory appeals pursuant to the discovery test, thus placing one litigant at an immediate disadvantage. (39) The vast discretion granted to the circuit courts has resulted in the blurring of boundaries within the judiciary, and between the judicial and legislative branches of the U.S. government. (40)

In Linde v. Arab Bank, PLC, the Second Circuit considered whether jurisdiction existed to grant an interlocutory appeal based on sanctions ordered by the district court. (41) First, the Bank argued that the sanctions order were vital to the outcome of the case and should be reversed immediately. (42) Second, the Bank requested a writ of mandamus to vacate the sanctions order by arguing that the district court abused its discretion in issuing the sanctions. (43) The Second Circuit rejected the Bank's first argument, determining that it did not have jurisdiction to hear the Bank's appeal under the collateral order doctrine, which prohibits the interlocutory appeal of non-final matters. (44) The court reasoned that because the order for sanctions was intertwined with the merits of the case, and was appealable after the jury reached a verdict, there was no need for immediate review. (45)

The court also denied the Bank's request for a writ of mandamus, determining that the Bank did not meet the demanding requirements necessary for issuance. (46) The court explained that the district court's actions did not constitute an abuse of discretion, even if it made an incorrect determination regarding the issue of sanctions. (47) The Second Circuit dismissed the Bank's appeal, effectively affirming the district court's order for sanctions. (48)

In holding that it did not have jurisdiction to hear the Bank's interlocutory appeal, the Second Circuit essentially raised the bar for what constitutes a final judgment of a district court. (49) The Linde court brought new meaning to the Supreme Court's definition of "final" judgment by denying the interlocutory appeal of a highly prejudicial jury instruction that would likely determine the outcome of the trial regardless of the Bank's defenses. (50) Two problems likely will arise from Linde's holding. First, litigants will be prevented from appealing an order for discovery sanctions, even when the sanctions encompass a prejudicial jury instruction. (51) Second, in following the model set forth in Rogers, the Second Circuit denigrated international comity to a mere figment of the legal world's imagination, once again proving that it is America's way or the highway. (52)

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