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denying "merits" discovery on FNC motion, except allowing deposition of Russian law expert
Summary of this case from Varnelo v. Eastwind TransportOpinion
00 Civ. 9627 (JGK)(FM)
May 13, 2002
MEMORANDUM DECISION
I. Introduction
This action has been referred to me for the limited purpose of determining whether, and to what extent, the Plaintiffs should be permitted to take discovery related to the forum non conveniens and comity issues raised by the Defendants' recently-filed motions to dismiss. Although the determination of a party's entitlement to discovery in these circumstances inevitably requires some consideration of the substance of the underlying motion, I am mindful that the reference to me is a narrow one, and that the merit of the parties claims and defenses are beyond the scope of the referral. Having reviewed the facts only to the extent necessary to decide the present applications, I have determined that the Plaintiffs will be permitted to depose the foreign law experts who have submitted affidavits in support of the dismissal motions. The Plaintiffs' remaining discovery requests are denied.
II. Relevant Facts
A. Pleadings
This case arises out of the bankruptcy of two Russian companies dealing in metals and ore. In the original complaint, filed in December 2000, the plaintiffs alleged that they were the primary suppliers of the essential ingredients to make aluminum to, and the primary purchasers of finished aluminum products from, NKAZ, a bankrupt manufacturer of aluminum. (Compl. ¶ 196). All three plaintiffs (the "Aluminum Plaintiffs") alleged that they were wrongfully deprived of their contract rights through an elaborate conspiracy by eleven defendants (the "Aluminum Defendants"), one object of which was to declare NKAZ insolvent when, in fact, it was not. (Id. ¶¶ 1-311, 312-319).
The complaint contained a number of claims including RICO claims. (Id. ¶¶ 286-90).
After certain of the Aluminum Defendants filed motions to dismiss the complaint on several grounds, including comity and forum non conveniens, the Plaintiffs filed a First Amended Complaint which mooted these motions. The Amended Complaint added a fourth Aluminum Plaintiff, which had operated NKAZ until its management contract was terminated by Sergey Chernyshev, who served as the Russian "External Manager" for NKAZ, a role similar to that of a bankruptcy trustee. (Am. Compl. ¶¶ 29-31).
The First Amended Complaint also named additional plaintiffs and defendants in connection with claims arising out of the bankruptcy of a second Russian company, known as GOK, which operated a vanadium plant. (Id. ¶¶ 32-40, 86-93). Five of the new plaintiffs were GOK shareholders; a sixth alleged that it had contracts with GOK which were terminated (and later reinstated) by Oleg Kozyrev the GOK External Manager. (Id. ¶¶ 86-93). The allegations of these additional plaintiffs (the "Vanadium Plaintiffs") concerning GOK led to the naming of nine additional defendants (the "Vanadium Defendants"), many of whom were alleged to have acted unlawfully during the GOK bankruptcy. (Id. ¶¶ 32-40).
This overly brief description of the Plaintiffs' allegations is not intended to be comprehensive. Indeed, the First Amended Complaint is more than one hundred pages long and contains more than six hundred separately-numbered paragraphs. The key fact to be gleaned from the First Amended Complaint, however, is that both the Aluminum and the Vanadium Plaintiffs, by bringing this action, have asked that this Court not defer to the decisions of the Russian courts concerning the NKAZ and GOK bankruptcies.
B. Discovery
The Defendants contend that Judge Koeltl denied the Plaintiffs' April 30, 2001 letter-request for "broad jurisdictional discovery" during a May 21, 2001 conference. (Letter dated Mar. 19, 2002 from Ira M. Feinberg, Esq., to Judge Koeltl ("Feinberg Letter") at 1).
In addition, it is undisputed that Judge Koeltl stayed all discovery (except as to the existence and location of one of the Defendants) on October 5, 2000, following the filing of the First Amended Complaint. (Docket No. 44).
In January and February 2002, the Defendants filed a number of motions, including motions to dismiss the First Amended Complaint on comity and forum non conveniens grounds. Thereafter, by letters dated March 5 and 22, 2002, the Aluminum and Vanadium Plaintiffs asked Judge Koeltl to lift the October 5 stay to permit them to take discovery related to the issues of forum non conveniens and comity before being required to submit their opposition papers. Each set of Plaintiffs seeks to depose the External Manager of the relevant company, to depose the legal experts whose declarations were submitted in support of the Defendants' motions, and to obtain extensive document discovery. The Defendants, in turn, submitted letters to Judge Koeltl opposing these requests.
The document discovery sought by the Plaintiffs relates principally to the two bankruptcies that give rise to this case. The object of their requests is to lay the groundwork for their continuing efforts to question, on various grounds, the conduct and outcome of the bankruptcy proceedings. The requested depositions of the External Managers would serve essentially the same purpose. Finally, the depositions of the Defendants' Russian law experts apparently are intended to address both the adequacy of the Russian judicial system and the fairness of the specific proceedings at issue here.
In early April 2002, Judge Koeltl referred the discovery questions raised by the Defendants' motions and the Plaintiffs' applications to me to resolve. After receiving copies of the parties' letters to Judge Koeltl, I conducted a telephone conference in this matter on April 24, 2002. During that conference, among other things, counsel drew my attention to the principal authorities in support of their respective positions. Counsel for the Aluminum Plaintiffs argued that the dispositive question with respect to the Defendants' comity motions is whether the Russian bankruptcy proceedings were "the product of corruption" and that the Defendants' forum non conveniens motions implicated both that question and whether the Russian judicial system in general is capable of dispensing adequate justice. (Apr. 24, 2002 Tr. at 13-16). The Defendants contend that only the second of these issues — the fundamental fairness of the Russian courts — need be considered in order to resolve both their comity and forum non conveniens motions. (Feinberg Letter at 5-7).
III. Discussion
A. Comity
Under the doctrine of international comity, American courts are typically unwilling to review foreign judicial proceedings as long as "the foreign court had proper jurisdiction and enforcement does not prejudice the rights of United States citizens or violate domestic public policy." Finanz AG Zurich v. Banco Economico, S.A., 192 F.3d 240, 246 (2d Cir. 1999) (quoting Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 713 (2d Cir. 1987)). This policy of deferring to foreign courts applies equally to foreign bankruptcy proceedings. Victrix, 713 F.2d at 458; Finanz, 192 F.3d at 246.
Nevertheless, the party seeking to have the federal courts defer to a foreign proceeding must show that the "foreign court abides by `fundamental standards of procedural fairness.'" Finanz, 192 F.3d at 246 (quoting Allstate Life Ins. Co. v. Linter Group Ltd., 994 F.2d 996, 999 (2d Cir.), cert. denied, 510 U.S. 945, 114 S.Ct. 386, 126 L. Ed. 2d 334 (1993)) (in turn quoting Cunard S.S. Co. v. Salen Reefer Servs. AB, 773 F.2d 452, 457 (2d Cir. 1995)).
B. Forum Non Conveniens
Under the forum non conveniens doctrine,
"when an alternative forum has jurisdiction to hear [a] case, and when trial in the chosen forum would establish . . . oppressiveness and vexation to a defendant . . . out of all proportion to plaintiff's convenience, or when the chosen forum [is] inappropriate because of considerations affecting the court's own administrative and legal problems, the court may, in the exercise of its sound discretion, dismiss the case" even if jurisdiction and venue are established.
Eastman Kodak Co. v. Kavlin, 978 F. Supp. 1078, 1082 (S.D.Fla. 1997) (quoting Am. Dredging Co. v. Miller, 510 U.S. 443, 447-48, 114 S.Ct. 981, 985, 127 L.Ed.2d 285 (1994)).
When a defendant urges deference to another nation's judiciary on forum non conveniens grounds, the Court must consider whether there is an adequate alternative forum capable of exercising jurisdiction over the case, and, if so, whether the private interests of the litigants and the public interest tip the scales in favor of retaining or declining to hear the case. See Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947). The first of these factors "is ordinarily satisfied if the defendant is amenable to process in another jurisdiction, except in `rare circumstances' when `the remedy offered by the other forum is clearly unsatisfactory.'" Murray v. British Broad. Corp., 81 F.3d 287, 292 (2d Cir. 1996) (quoting Piper Aircraft Co. v. Reyno, 454 U.S. 235, 254 n. 22, 102 S.Ct. 252, 265 n. 22, 70 L.Ed.2d 419 (1981)).
C. Appropriateness Of Discovery
Turning first to the issue of fundamental fairness, I note that two judges in this District have recently found that the Russian courts are an adequate alternative forum for the adjudication of commercial disputes. See Pavlov v. Bank of New York Co., 135 F. Supp.2d 426, 438 (S.D.N.Y. 2001) (Kaplan, J.), vacated on other grounds, No. 99 Civ. 10347, 2002 WL 63576 (2d Cir. Jan. 14, 2002); Parex Bank v. Russian Sav. Bank, 116 F. Supp.2d 415, 423-24 (S.D.N.Y. 2000) (Sweet, J.). There is no indication that the plaintiffs in either of those cases were afforded an opportunity to depose the defendants' experts before the court ruled. On the other hand, there also is no indication that such discovery was sought.
It is settled law that the sparring concerning preliminary issues should not be permitted to degenerate into a full-blown trial on the merits. Accordingly, discovery concerning such issues as forum non conveniens and the need for comity should be narrowly focused and "not call for a detailed development of the entire case." Fitzgerald v. Texaco, Inc., 521 F.2d 448, 451 n. 3 (2d Cir. 1975).
Turning first to the request to take depositions, the Defendants have submitted the declarations of several Russian law experts in support of their motions.
Some of these declarations are extensive. (See, e.g., Decl. of Paul B. Stephan, III, dated Jan. 28, 2002 (35 pages); Second Decl. of Sergei Zankovsky, dated Jan. 27, 2002 (58 pages in English; 61 pages in Russian)). In a preview of the arguments that they likely will advance in opposition to the present motions, the Aluminum Plaintiffs previously submitted their own extensive expert report concerning the Russian judicial system as part of their application to lift the discovery stay. (See Report of Ethan S. Burger, Esq., dated Feb. 24, 2001 (42 pages)).
Even a cursory review of these submissions establishes that the two sides have sharply differing views of the fundamental fairness of the Russian courts. Because that general issue does not require that the merits of the present action be explored in depth, I conclude that the Plaintiffs should be permitted to investigate the bases for the opinions of the Defendants' foreign law experts through depositions before being required to submit their opposition papers. See, e.g., In re Bridgestone/Firestone, 131 F. Supp.2d 1027, 1031 (S.D.Ind. 2001) ("the Court sees no reason to prohibit Plaintiffs from deposing Defendants' [foreign law] experts"). Accordingly, the requests to depose Messrs. Zankofsky and Stephan are granted, and the parties are directed to arrange to take these depositions as soon as possible.
The remaining deposition testimony sought by the Plaintiffs seems inextricably merits related. For example, the Aluminum Plaintiffs seek to depose Chernyshev, the NKAZ External Manager, and the Vanadium Plaintiffs seek to depose both Kozyrev, the GOK External Manager, and Samir Kapura, who participated in the Russian proceedings as "outside legal counsel" to GOK. The letters submitted by Plaintiffs' counsel to Judge Koeltl show that their proposed areas of inquiry go well beyond the narrow factual issues raised by the Defendants' motions and would address the merits in some detail.
The Plaintiffs argue that this merits-related discovery is relevant to the forum non conveniens motion because it allegedly will turn up evidence of corruption in the Russian bankruptcy proceedings and therefore establish that Russia is not a suitable forum. An improper result in a specific proceeding, however, even if established, hardly suggests the inadequacy of an entire judicial system. Indeed, if one could make such sweeping generalizations, the Russian courts presumably could decline to enforce judgments reached in American jurisdictions — including some within located within this City — in which the fairness of the judicial system has recently been called into question. See, e.g., John Marzulli and Leo Standora, Judge in Bribe Probe Moved, N.Y. DAILY NEWS, Feb. 23, 2002, at 6; Bench Stench Spreads to Bronx, N.Y. DAILY NEWS, Mar. 17, 2002, at 48.
The primary issue with respect to both of the Defendants' motions is whether the Russian courts are a fit forum. Unless the Plaintiffs are able to establish that they are fundamentally unfair, they probably will not be able to defeat the Defendants' motions. For that reason, it is appropriate that the debate, at least initially, focus on the attributes of the Russian judicial system in general, rather than the specific outcomes of the two bankruptcy proceedings at issue here. As to that general issue, the relevant proof will likely consist of expert testimony, U.S. State Department documents, and other sources that speak to the fitness of the Russian courts as an adjudicatory forum. Cf. Eastman Kodak, 978 F. Supp. at 1084 (determining that Bolivia was not a fit forum on the basis of affidavits, statements of the Bolivian Minister of Justice, and expert testimony that referenced U.S. State Department and World Bank documents); Bridgeway Corp. v. Citibank, 201 F.3d 134, 138, 141 (2d Cir. 2000) (finding on the basis of U.S. State Department documents, statements of the country's leaders, and affidavits that a judgment creditor could not enforce a judgment obtained in Liberia at a time when its courts were in "a state of disarray"). Indeed, to allow any more detailed investigation at this preliminary stage would be to defeat the purpose of a forum non conveniens motion. Piper Aircraft Co. v. Reyno, 454 U.S. 255, 258, 102 S.Ct. 252, 266, 70 L.Ed.2d 319 (1981). Accordingly, the Plaintiff's application to depose certain fact witnesses is denied.
Finally, the letters from Plaintiffs' counsel set forth in considerable detail the documentation that they seek so that they may properly depose the fact witnesses. For example, the Aluminum Plaintiffs seek all contracts for the purchase of raw materials or the sale of metal by NKAZ between January 7, 2000 and the present. The Vanadium Plaintiffs have made a similar request concerning GOK. Having concluded that the depositions of fact witnesses should not be taken at this juncture, there clearly is no reason to require the production of such documents. This aspect of the Plaintiffs' motions is therefore also denied.
IV. Conclusion
The Plaintiffs' March 5 and 22, 2002 letter-motions seeking discovery are denied, except insofar as they seek to depose the Defendants' Russian law experts, which depositions shall be scheduled as soon as practicable. Counsel are directed to confer within the next five days regarding a realistic schedule for these depositions and the submission of opposition and reply papers in connection with the presently-pending motions. Thereafter, counsel shall either promptly submit a stipulation setting forth an agreed discovery and briefing schedule or arrange a telephone conference so that I can set the schedule.
SO ORDERED.