Reluctant Guests Board Rule 69’s Fishing Charter

June 30, 2014

Ben Cutchshaw and Glenn Dassoff

As non-sovereign judgment debtors know all too well, post-judgment asset discovery can be extensive, intrusive, and very broad in scope.[1] A recent ruling by the United States Supreme Court has helped clarify the rules that apply to discovery of a sovereign’s extraterritorial assets, holding that the Foreign Sovereign Immunities Act (“FSIA”) does not bar such discovery.[2]

Pursuant to Rule 69(a)(2) of the Federal Rules of Civil Procedure, a judgment creditor “may obtain discovery from any person—including the judgment debtor—as provided in the[] rules or by the procedure of the state where the court is located.” Not only are all discovery tools available, there is a presumption in favor of full discovery of any matters arguably related to the creditor’s efforts to trace the debtor’s assets and otherwise to enforce the judgment.[3] Even where the discovery requested is a fishing expedition, Courts have recognized and that “a judgment creditor is entitled to fish for assets of the judgment debtor.”[4]

 Republic of Argentina v. NML Capital Ltd.

Near the brink of economic collapse in 2001, Argentina defaulted on external bond obligations. New York hedge fund NML Capital, Ltd. (“NML”), one of Argentina’s spurned bondholders, brought suit against Argentina, and prevailed in the Southern District of New York. In aid of executing on its judgment NML sought discovery of Argentina’s property, serving subpoenas on two nonparty banks for records relating to Argentina’s assets and financial transactions throughout the world. Argentina and the banks moved to quash on the basis that the subpoenas sought information about property that was immune from attachment under the FSIA. The District Court denied the motions to quash and granted NML’s motions to compel compliance. The Second Circuit affirmed, rejecting Argentina’s argument that the District Court’s order transgressed the protections of a foreign sovereign under the FSIA. The Supreme Court also affirmed, ruling that the FSIA does not immunize foreign sovereigns from post-judgment discovery of extraterritorial assets.

Sovereigns saved by the footnote?

Judgment creditors hoping to cite the Court’s Republic of Argentina holding should be cautioned, however, about footnote 6. On the very last page of the majority’s opinion, the Court acknowledges that while FSIA may not preclude this type of discovery, “’other sources of law” ordinarily will bear on the propriety of discovery requests of this nature and scope, such as ‘settled doctrines of privilege and the discretionary determination by the district court whether the discovery is warranted, which may appropriately consider comity interests and the burden that the discovery might cause to the foreign state.’”

Although execution upon a sovereign’s assets in the United States remains barred by the FSIA, the Court’s decision here clearly improves a judgment creditor’s visibility of transactions and assets held both in the United States and abroad. Whether or not this added visibility will benefit judgment creditors or merely add to the delays and burdens in discovery remains to be seen.

[1] Unites States v. Conces, 507 F.3d 1028, 1040 (6th Cir.2007)

[2] Republic of Argentina v. NML Capital, Ltd., 134 S. Ct. 2250 (2014)

[3] Credit Lyonnais, S .A. v. SGC Int'l, Inc., 160 F.3d 428, 430–31 (8th Cir.1998)

[4] Banco Central De Paraguay v. Paraguay Humanitarian Found., Inc., 01 Civ. 9649(JFK), 2006 WL 3456521 at *9 (S.D.N.Y. Nov. 30, 2006); Regan v. Garfield Ridge Trust & Sav. Bank, 247 Ill.App.3d 621, 187 Ill.Dec. 361, 617 N.E.2d 818, 820 (1993) (holding “fishing expedition” permissible “if it is based on a belief that such assets are in the third party’s possession).

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