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Nml Capital Ltd. v. The Republic of Argentina

United States District Court, D. Nevada

August 11, 2014

NML CAPITAL LTD., Plaintiff,
v.
THE REPUBLIC OF ARGENTINA, Defendant.

ORDER

CAM FERENBACH, Magistrate Judge.

This matter involves NML Capital, Ltd.'s post-judgment execution proceeding against the Republic of Argentina. Before the court is NML's Motion to Compel (#1[1]), which seeks discovery from 123 nonparty corporations. NML and the nonparties filed four supplemental briefs, (Docs. #20, #22, #29, #30), and the court held three hearings. (Mins. Proceedings #12, #26, #31). For the reasons stated below, NML's Motion to Compel is granted.

BACKGROUND

In 2001, the Republic of Argentina underwent a depression and sovereign-default crisis. The majority of Argentina's bondholders voluntarily restructured their investments and suffered a 70% loss. However, one bondholder refused: NML Capital Ltd. ("NML"). Beginning in 2003, NML commenced eleven collection actions against Argentina in the Southern District of New York. NML argued that its debt-which totals $1.7 billion-should be repaid in full. The court agreed. See EM Ltd. v. Republic of Argentina, 695 F.3d 201, 203 n.1 (2d Cir. 2012) aff'd Republic of Argentina v. NML Capital, Ltd., 134 S.Ct. 2250, 2251 (2014).

To date, Argentina has failed to satisfy NML's judgments.[2] This has caused NML to travel the globe in search of property owned by Argentina, which NML may attach to execute its judgments. See NML Capital, Ltd. v. Republic of Argentina, No. 03-cv-8845-TPG, 2011, WL 3897828, at *1 (S.D.N.Y. Sept. 2, 2011) (affirmances omitted). This search brought NML to Las Vegas, Nevada.

NML suspects that 123 Nevada corporations were used to launder $65 million of embezzled Argentine funds. Now, as Argentina suffers its second sovereign default in thirteen years-(in part because of this action[3])-NML seeks information from these corporations to locate the $65 million. In August of 2013, NML served subpoenas on the 123 corporations and their commercial registered agent, M.F. Corporate Services. M.F. Corporate Services produced responsive documents; but the corporations did not. They contend that no responsive documents exist.[4] NML contends this is false.

NML asserts that the 123 corporations have responsive documents for two reasons. First, in April 2013, the Argentine government initiated an investigation, dubbed La Ruta Del Dinero K (i.e., "the K Money Trail"), into Argentina's former president, Nestor Kirchner, his wife, current Argentine President Cristina Fernández de Kirchner, their confident Lázaro Báez, and the trios' sordid financial affairs. All three allegedly embezzled millions of pesos from public-infrastructure projects and laundered the proceeds and other embezzled funds through Panama and various international shell corporations. The investigation's lead prosecutor, Jose María Compagnoli, authored a report stating that Báez laundered $65 million through 150 Nevada corporations. The report also states that all 150 Nevada corporations have the same director, Aldyne, Ltd., a Seychellois corporation. After submitting the report to Argentina's National Supreme Court of Justice, the Kirchner government retaliated and removed Compagnoli from office.

Second, NML suspects that the 123 corporations are the same 150 corporations referred to in Compagnoli's report because the 123 corporations' registered agent, M.F. Corporate Services, produced documents connecting the 123 corporations to Aldyne, Ltd. and other Seychellois entities. These documents are mirror-image operating agreements for 17 of the 123 corporations. ( See Ex. List #34). Each of the operating agreements identifies M.F. Corporate Services as the registered agent and Aldyne, Ltd., Gairns Ltd., or both as the corporations' member and director. The addresses for Aldyne and Gairns are identical: Suite, 13, First Floor, Oliaji Trade Centre, Francis Rachel Street, Victoria, Mahe, Republic of Seychelles. This address is also shared by a Panamanian law firm, Mossack & Fonseca. See MOSSACK & FONSECA, GLOBAL PRESENCE, SEYCHELLES, http://www.mossackfonseca.com/our_offices/seychelles/ (last visited August 2, 2014). Mossack & Fonseca is known for incorporating shell companies. Shells and Shelves, THE ECONOMIST, April 7, 2012, available at: http://www. economist.com/node/21552196.[5]

Accordingly, on April 1, 2014, NML filed the instant motion to compel. NML argues that the corporations should either comply with the document subpoenas or produce a deponent to explain why no documents exist.[6] The corporations oppose NML's motion, arguing that no responsive documents exist and that the court cannot compel a witness to appear for a deposition on behalf of the 123 corporations because none the corporations have representatives within the court's subpoena power. In support, the corporations rely on the affidavit of Letcia Montoya. Montoya is one of Aldyne, Ltd.'s corporate officers, the custodian of records for some of the 123 corporations, and an attorney with the Panamanian law firm, Mossack & Fonseca-which employs M.F. Corporate Services as an independent contractor in Nevada. Montoya asserts that no responsive documents exist and that none of the companies reside in or regularly conduct business within 100 miles of Las Vegas.

The difficulty NML faces is appreciable. Normally, if a person responds to a discovery request and asserts that no responsive documents exist, the Federal Rules of Civil Procedure provide mechanisms for testing the responding person's assertion. Rules 30 and 45 authorize the requesting party to subject the responding person to a deposition, if the responding person is within the court's subpoena power. See FED. R. CIV. P. 30(a)(1) ("The deponent's attendance may be compelled by subpoena under Rule 45"). Similarly, Rule 26(g) requires counsel for a responding party (or an unrepresented party personally) to certify, after a reasonable inquiry, that the response is correct. See FED. R. CIV. P. 26(g)(1). Additionally, Rule 28 authorizes the requesting party to depose the responding person in a foreign country, pursuant to an applicable treaty or convention. See FED. R. CIV. P. 28(b)(1).

Montoya is not a party and she resides in Panama, thousands of miles beyond the court's subpoena power. Additionally, Panama is not a signatory to the Hague Evidence Convention, the standard Rule 28 treaty used to obtain evidence abroad. Panama is a party to the Inter-American Convention on Letters Rogatory, 28 U.S.C. § 1781 (1998), et seq. Obtaining discovery under this Convention is difficult: the procedure is cumbersome and compliance by the foreign nation is discretionary. See 8A CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE: CIVIL 3d § 2083. These circumstances deprive NML of the standard fallback discovery devices created by Rules 26(g), 28, 30, and 45.

While this dispute was pending, the United States Supreme Court decided Republic of Argentina v. NML Capital, Ltd., 134 S.Ct. 2250 (2014). The question presented was whether the Foreign Services Immunities Act of 1976, 28 U.S.C. §§ 1330, 1602, et seq., limits the scope of discovery available to a judgment creditor in a post-judgment execution proceeding against a foreign sovereign. NML Capital, Ltd., 134 S.Ct. at 2253. The court held that it does not: "We thus assume without deciding that... in a run-of-the-mill execution proceeding... the district court would have been within its discretion to order the discovery from third-part[ies] about the judgment debtor's assets located outside the United States." Id. at 2254 (quotation marks and citation omitted). NML's motion to compel presents the question of how to exercise that discretion.

To do so, the court held three hearings, which focused on three questions: (1) whether the court should compel the nonparty corporations to comply with NML's document subpoena; (2) whether the court may compel Montoya's deposition in Las Vegas; and (3) whether counsel for the nonparty corporations has a duty to certify Montoya's representations under Federal Rules of Civil Procedure 11(b), 26(g), or the Nevada Rules of Professional Conduct. This order follows.

LEGAL STANDARD

Federal courts have ancillary jurisdiction in post-judgment execution proceedings to exercise the federal courts' "inherent power to enforce its judgments." Peacock v. Thomas, 516 U.S. 349, 356 (1996). As stated by the Supreme Court, "[w]ithout jurisdiction to enforce a judgment entered by a federal court, the judicial power would be incomplete and entirely inadequate to the purposes for which it was conferred by the Constitution.'" Id. (quoting Riggs v. Johnson Cnty, 6 Wall 166 (1868)). The court's power to enforce judgments includes the power to hear proceedings under Federal Rule of Civil Procedure 69. See, e.g., Bryan v. Erie Cnty. Office of Children & Youth, 752 F.3d 316, 321 (3d Cir. 2014); 12 CHARLES A. WRIGHT, ARTHUR R. MILLER & RICHARD L. MARCUS, FEDERAL PRACTICE AND PROCEDURE: CIVIL 2d § 3013, p. 158.[7]

Rule 69 governs the procedure for executing judgments and obtaining discovery in aid of the execution. Rule 69(a)(2) states: "In aid of the judgment or execution, the judgment creditor or a successor in interest whose interest appears of record may obtain discovery from any person-including the judgment debtor-as provided in these rules or by the procedure of the state where the court is located." This rule is designed to "allow the judgment creditor to identify assets from which the judgment may be satisfied." 13 JAMES W. MOORE ET AL., MOORE'S FEDERAL PRACTICE-CIVIL § 69.04 (2008). As a result, discovery under Rule 69 is "quite permissive." Republic of Argentina v. NML Capital, Ltd., 134 S.Ct. 2250, 2254 (2014); see also WRIGHT & MILLER, supra, § 3014, pp. 160-62 ("The scope of examination is very broad, as it must be if the procedure is to be of any value.").

There is no question that Rule 69(a)(2) permits a judgment creditor to propound discovery on third parties. See FED. R. CIV. P. 69(a)(2) (stating that discovery may be obtained "from any person"); NML Capital, Ltd., 134 S.Ct. at 2255 (citation omitted); WRIGHT & MILLER, supra, § 3014, pp. 160-61 ("[T]hird persons can be examined"). Similarly, there is no question that Rule 69(a)(2) permits a judgment creditor to seek disclosures related to assets held outside the jurisdiction of the court where the discovery request is made. EM Ltd., 695 F.3d at 208 (citing, inter alia, Eitzen Bulk A/S v. Bank of India, 827 F.Supp.2d 234, 238-39 (S.D.N.Y. 2011) (holding that a subpoena on the New York branch of an Indian Bank "reaches all responsive materials within the corporation's control, even if those materials are located outside New York.")) aff'd NML Capital, Ltd., 134 S.Ct. at 2255.

Rule 69 provides judgment creditors with two paths for propounding discovery on third parties: federal law or the state law in which the district court sits. See FED. R. CIV. P. 69(a)(2); NML Capital, Ltd., 134 S.Ct. at 2254; WRIGHT & MILLER, supra, § 3014, p. 160. In both cases, the judgment creditor must make a threshold showing connecting the third party with discoverable information before propounding discovery on the third party. Under federal common law, the judgment creditor must show either (1) "the necessity and relevance of [the] discovery sought" or (2) that "the relationship between the judgment debtor and the nonparty is sufficient to raise a reasonable doubt about the bona fides of the transfer of assets." WRIGHT & MILLER, supra, § 3014, p. 162 (citing Tr. of N. Florida Operating Eng'g Health & Welfare Fund v. Lane Crane Serv., Inc., 148 F.R.D. 662, 664 (M.D. Fla. 1993); Strick Corp. v. Thai Teak Prod. Co., Ltd., 493 F.Supp. 1210, 1218 (E.D. Pa. 1980)).

Under Nevada law, the judgment creditor must show that "the relationship between the judgment debtor and nonparty raises reasonable suspicion as to the good faith of asset transfers between the two." Rock Bay, LLC v. Dist. Ct., 129 Nev. Adv. Op. 21, 298 P.3d 441, 443 (2013). Reasonable suspicion exists "if there are specific, articulable facts" in support of the inference that the asset transfers were not made in good faith. See, e.g., State v. Cantsee, 130 Nev. Adv. Op. 24, 321 P.3d 888, 893 (2014) (citations omitted) (defining reasonable suspicion).

If the judgment creditor satisfies either standard, Rule 69 opens the doors of discovery and permits the judgment creditor to use any discovery device afforded by the Federal Rules. See FED. R. CIV. P. 69, Advisory Comm. Notes (1970) ("The amendment assures that, in aid of execution on a judgment, all discovery procedures ...


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