Discovery Sanctions — Rule 37 — Meaning of “Substantially Justified” — Requirements for Civil Contempt and Adverse Factual Determinations — Court May Not Sanction Foreign Instrumentality for Violations Committed by Its Sovereign

Thai Lao Lignite (Thailand) Co., Ltd. v. Gov’t of Lao People’s Democratic Republic, 2013 U.S. Dist. LEXIS 110353 (S.D.N.Y. Aug. 2, 2013):

On August 5, 2011, this Court entered a judgment in favor of Thai-Lao Lignite (Thailand) Co., Ltd. and Hongsa Lignite (Lao PDR) Co., Ltd. (collectively, "Petitioners"), enforcing a $56 million arbitral award against the Government of the Lao People's Democratic Republic ("Respondent" or "the Lao Government"). See Thai-Lao Lignite (Thailand) Co., Ltd. v. Gov't of the Lao People's Democratic Republic, 10 Civ. 5256, 2011 WL 3516154 (S.D.N.Y. Aug. 3, 2011), aff'd, 492 F. App'x 150 (2d Cir. 2012), cert. denied, No. 12-878, 2013 WL 182791 (Feb. 21, 2013) [Dkt. No. 50]. The parties have since been engaged in protracted post-judgment discovery, supervised by Magistrate Judge Debra C. Freeman, regarding assets potentially available to satisfy the award. Presently before the Court is Petitioners' motion for discovery sanctions against Respondent and Respondent's lead counsel ... Branson, pursuant to Federal Rule of Civil Procedure 37. For the following reasons, Petitioners' motion for sanctions is DENIED. ***

A. Request for Attorney's Fees and Costs

Rule 37 authorizes discovery sanctions where a party "fails to provide or permit discovery." Fed. R. Civ. P. 37(b)(2)(A). The court "must order the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, including attorney's fees, caused by the failure." Fed. R. Civ. P. 37(b)(2)(C). Fees must be imposed unless the "failure was substantially justified or other circumstances make an award of expenses unjust." Fed. R. Civ. P. 37(b)(2)(C). A party's noncompliance is "substantially justified" where "reasonable people could differ as to the appropriateness of the contested action." Pierce v. Underwood, 487 U.S. 552, 565 (1988) (citing Fed. R. Civ. P. 37 advisory committee note). ***

B. Request for a Contempt Finding

Petitioners also seek a "coercive" civil contempt finding and the imposition of a $1,000 per day prospective fine, doubling every four weeks until reaching a maximum of $80,000 per week. A court may hold a party in contempt for violation of a court order when (1) the order violated is "clear and unambiguous," (2) "the proof of non-compliance is clear and convincing," and 3) the party "was not reasonably diligent in attempting to comply." S. New England Tel. Co. v. Global NAPs Inc., 624 F.3d 123, 145 (2d Cir. 2010); see also Linde, 706 F.3d at 110 (noting that contempt should not be imposed "except in cases of failure to make a good faith effort to comply" (internal quotation marks omitted)). ***

C. Request for Adverse Factual Designations

Finally, Petitioners request that the Court deem certain facts, relating to the relationship between the Lao Bank and the Lao Government, established for the duration of the enforcement proceedings. The Court finds that this sanction is inappropriate.

Footnote 6. Specifically, Petitioners want the Court to find: (1) the Lao Bank takes possession in the United States of funds owed to Respondent using an account the Lao Bank maintains in its own name and for its own purposes; (2) By using accounts in the United States to process assets owed to Respondent, the Lao Bank commingles its funds with payments made to Respondent; (3) Respondent, through its Deputy Prime Minister and Minister of Finance, has the ability to obtain information and records concerning the Lao Bank's accounts in the United States and elsewhere; and (4) Respondent has the ability to direct the disposition of funds held by the Lao Bank in the United States and elsewhere.

First, Petitioners have failed to show that the evidence Respondent has not produced is "relevant to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense." Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 107 (2d Cir. 2002). To show that evidence is relevant, "the party seeking an adverse inference must adduce sufficient evidence from which a reasonable trier of fact could infer that 'the...unavailable evidence would have been of the nature alleged." Id. at 109. Petitioners have provided no evidence to support their proposed inferences, while Respondent has provided evidence supporting a contrary inference. (See Oth Decl. ¶ 14 [Dkt. No. 123] (noting that the Lao Government does not have access to the Lao Bank's accounts in the U.S.); Outakeo Decl. ¶ 13 (explaining that no individual member of the Lao Bank's board may disclose its account information)).

Second, a court may not sanction a foreign instrumentality for discovery violations committed by its sovereign. See De Letelier v. Republic of Chile, 748 F.2d 790, 795 n.2 (2d Cir. 1984). In Letelier, the district court entered discovery sanctions against Chile, including an adverse evidentiary finding that the national airline of Chile was not a separate juridical entity from Chile. Id. at 793. The Second Circuit reversed, holding that "one party to litigation will not be subjected . . . to sanctions because of the failure of another to comply with discovery." Id.; see also Funnekotter v. Republic of Zimbabwe, No. 09 Civ. 08168, 2011 WL 5517860, at *3-4 (S.D.N.Y. Nov. 10, 2011) (refusing to impose sanction that non-party was alter ego of Zimbabwe "since it would subject their assets to attachment"); Fed. R. Civ. P. 37(b)(1) (limiting remedies for non-party failing to comply with a subpoena to contempt). Here, the Lao Bank is not a party to the litigation, and the findings Petitioners seek would adversely affect the Bank because they expose its assets to potential attachment.

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