Archive for September, 2015

Asset Hunting in the Wilds of Manhattan: What to Wear on Your Next Safari

Tuesday, September 1st, 2015

We are all collection lawyers, more or less. That is, those of us who act as advocates in international arbitration. If you don’t have a good collection plan, enterprising Claimant counsels, maybe don’t start the case until you do. A personal favorite move is to grab real estate in Canada on Day #1 of the arbitration. Vancouver is particularly lovely on the first day of an arbitration, when the demonstrably rogue Respondent owns three homes with substantial equity.

But sometimes even the well-heeled international finance types get ahead of themselves, and chart a course to win a battle (a Final Award) without a plan to fight the war (collection!). This seems to have been the recent plight of a foreign real estate vehicle of a U.S. bank that shall remain nameless here, lest they foreclose on your Commentator’s mortgages and cut off his credit lines. But read: In re Harbour Victoria Investment Holdings Section 1782 Petitions, 2015 WL 4040420 (S.D.N.Y. June 29, 2015).

So, you ask, where does Section 1782, of  fit into a collection plan on a Final Award confirmable under the New York Convention? Well, a Manhattan federal judge wondered also, in the case just cited and here reported. So please, do read on.

Petitioner won an Award in London against Respondents from India and first filed confirmation proceedings in India. But, fearing insufficiency of Respondent assets India, Petitioner started a confirmation action in New York, got an ex parte attachment order from a New York State judge against a $20 million apartment in Manhattan (nice!), and asked the judge to permit discovery so Petitioner could show that the record owner of the glam flat was only a flimsy front for the Respondents. Removal to the federal court ensued (no surprise there), and the federal judge, doubting personal jurisdiction over Respondents and equally doubting the alter ego claim, vacated the attachment and denied the discovery.

Enter Section 1782! Petitioner says please let me have this alter ego discovery on ownership of the glam flat “in aid of” the pending foreign confirmation proceedings in India, and “in aid of” the further confirmation proceedings contemplated in Singapore and the UK if Petitioners’ suspicions about who really owns the flat are confirmed. But “wait a minute,” says federal judge #2, who gets the 1782 case as a separate file from the confirmation case pending before her colleague down the corridor  (of the spectacularly-renovated old US Courthouse at 40 Centre St.) — “Isn’t this just the same discovery you were already denied by Judge #1, repackaged under 1782?” And moreover, she asked, “didn’t you settle the confirmation action in India, so you really don’t plan to use the discovery in a foreign proceeding?

Petitioner had only lame (well OK, unpersuasive) answers to these questions — mainly that other creditors were clamoring for the same assets in India, such that the settlement there might crumble. In the view of Judge #2, even if the proposed discovery could be seen as fitting in the 1782 cubbyhole as “in aid of” foreign proceedings, it was more likely than not that the main purpose of the 1782 petition was to end-run Judge #1’s denial of discovery in the confirmation case about true ownership the glam flat, and to eventually use the 1782 discovery in that U.S action — not foreign or international but right down the corridor —  a subversion of 1782. 1782 petition denied, case closed. (Except that WestLaw says an appeal was filed in the Second Circuit US Court of Appeals on August 19).

Is there a moral of the story here? As your Commentator I am committed to finding such, so let’s try this: It is well and good that the New York Convention permits recognition and enforcement proceedings to be taken concurrently in multiple jurisdictions. But a sound collection strategy requires a careful sorting of the issues — apart from whether the Award should be recognized — that each court may be asked to address. Here I wonder why the enforcement court in India could not have been asked to enter a global Mareva injunction against the Respondents and taken measures to permit Claimant to ascertain by disclosure the scope of those assets. The instinct to seek out discovery in a US forum because US courts are generally pro-discovery needs to be reality-checked against the specific context of a complicated international asset hunt in an award enforcement context.

Arbitral Subpoenas: The Good, the Bad, and the Ugly

Tuesday, September 1st, 2015

Shame on you (!!), subpoena-issuing international arbitrators sitting in Dallas, Texas. Here in NYC, where we have wrestled, maybe not to the ground but mightily, with the problem of arbitral subpoenas, we are reading about your case (Matter of Arbitration Between Tang Energy Group Ltd. and Catic USA, 2015 WL 4692459 (N.D. Cal. Aug. 6, 2015), and asking ourselves: “How ‘Bout Them Cowboys??!!

Dear colleagues, if a party in your case wants a subpoena for a non-party witness located in San Francisco — even if he is a recognized international arbitration lawyer in San Francisco — then take your hearts, go to San Francisco, and pack carefully for the return trip. Why would you think the Federal Arbitration Act would provide power to haul in a distant non-party witness for an arbitration hearing in Dallas when the federal district court in the same locale clearly could not? Surely the “in the same manner…” language in FAA Section 7 means this. (If  the lawyer-witness is within the control of a party to the arbitration, as one side seems to argue,  by reason of an attorney-client relationship, then why issue a subpoena? His appearance could be directed with the risk of an adverse inference if he does not appear).

Perhaps, Dallas-seated colleagues, you wonder whether Section 7 permits you, or one of you, to wander off to SFO, when the parties have agreed to arbitrate in Dallas? It is a fair question, but if the FAA clearly does not permit the witness to be forced by subpoena to come to you in Dallas, while the FAA does (post Rule 45 amendments) permit you to issue a subpoena to the witness in SFO, then traveling to SFO to hear the witness (or getting everyone to agree to to a video conference, on the basis that you could make that trip) seems like the way to go! After all, don’t your arbitration rules provide (as most international ones do) that the arbitrators may convene a hearing anywhere to hear a witness, despite the agreement on (and without effect upon) the seat of the arbitration?

We hope there is still time for this to be fixed by the sua sponte issuance of an amended subpoena. As matters stood by reason of the decision of the Magistrate Judge in SFO (the case cited herein), the party that sought the subpoena is required to move to compel compliance in the federal district court in Dallas — a motion doomed to failure because the witness has the same right as under Rule 45 to be compelled to attend a testimonial proceeding only if it is held closer to home.


Your Commentator takes note that the AAA has organized a CLE program for arbitrators whose title asks rhetorically if arbitral subpoenas are worth the paper they are written on. The partial answer, I suggest, is this: If arbitrators systematically issue the subpoena as requested by the party, and thereby expose themselves and the process to the errors that counsel may make in regard to enforceability of the subpoena, then the answer to the AAA’s rhetorical question may, unfortunately, avoidably,  and altogether too often, be “no.”