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In re Application of MTS Bank

United States District Court, S.D. Florida

June 27, 2018




         This matter is before the Court on MTS's (“MTS”) motion to include Kara Burkut Recovery Limited (“Kara Burkut”) as a party applicant pursuant to 28 U.S.C. § 1782 and Federal Rules of Civil Procedure 19, 20, and 25. [D.E. 42]. Sky Ocean International Inc. (“Sky Ocean”) responded on June 15, 2018 [D.E. 44] to which MTS replied on June 22, 2018. [D.E. 45].[1] Therefore, MTS's motion is now ripe for disposition. After careful consideration of the motion, response, reply, relevant authority, and for the reasons discussed below, MTS's motion is GRANTED.

         I. BACKGROUND

         MTS is a foreign bank registered in the Russian Federation. MTS had prior business and financial dealings with a private Russian airline company, commonly referred to as Transaero - a company also registered in the Russian Federation.

         Transaero is currently the subject of bankruptcy proceedings pending in Arbitrazh Court, Saint Petersburg, Russia. MTS is a creditor of Transaero, who was notified of the Russian bankruptcy, filed a claim in bankruptcy, and is a party to those proceedings. MTS previously issued an initial line of credit to Transaero in 2010, and subsequent loans were extended each year until Transaero's bankruptcy in 2015. At the time of the bankruptcy petition in 2015, Transaero owed MTS over fifty-seven million U.S. dollars and the debt remains unpaid while the bankruptcy case remains pending. Following the bankruptcy application, MTS Bank supposedly conducted a forensic audit of Transaero's accounting records and documents submitted in support of the credit line applications. The audit allegedly revealed widespread falsifications of data and hidden operational losses in Transaero's financials. The funds obtained from creditors were purportedly siphoned out of Transaero through creative financial structures, accounting loopholes, and payments of unlawfully inflated dividends.

         A.K. is a former top-level executive of Transaero who allegedly negotiated the loans and signed the loan agreements on behalf of Transaero. Public records purportedly establish that A.K. owns and maintains a million-dollar residence at 16175 Rio Del Paz, Delray Beach, Florida, 33446 and maintains a local Florida phone number. [D.E. 3-2]. He apparently pays real estate taxes and has two automobiles registered in his name with the Florida Department of Highway Safety and Motor Vehicles.

         In April 2017, MTS came to this Court ex parte seeking discovery - both testimony and documentary items - from A.K. and the Florida Banks regarding A.K.'s personal financial and account holdings. The purpose of the ex parte application is to obtain evidence from persons and custodians of records in Florida for use in the Russian bankruptcy court and in a contemplated civil action against Transaero's former directors and shareholders in the British Virgin Islands and/or Russia for debt recovery, securities fraud, civil money laundering, conversion, and other claims. [D.E. 1]. MTS is seeking to obtain documents and to depose A.K. on issues related to irregularities in financial statements, payments of dividends, transfers of funds received from MTS to personal U.S. based accounts and reinvestment in U.S. businesses. [D.E. 3-2]. The subpoenas in this case specify the areas of questioning and list specific documents that have been requested.

         On June 6, 2017, after considering MTS Bank's application and being advised of the facts and issues presented, we granted the application and permitted MTS to conduct discovery. On June 16, 2017, A.K. filed a motion to quash the subpoenas directed at him. [D.E. 11]. On June 30, 2017, MTS Bank responded to the motion and presented unrebutted evidence of A.K.'s Florida's activities, including the following activities: ownership of Florida real estate, registration of two vehicles in Florida, and possession a Florida-based bank account. On July 25, 2017, the Court denied A.K.'s motion and directed compliance with the subpoenas within fourteen days of the Order. [D.E. 18].

         On August 4, 2017, A.K. filed an emergency motion to stay enforcement of the Order. [D.E. 20]. In connection with his emergency motion, A.K. filed his Objections and Appeal with the District Judge. [D.E. 21]. On August 8, 2017, MTS Bank filed a response to AK's emergency motion and the Court issued an order denying AK's emergency motion and adopting the undersigned's Order. [D.E. 23]. On August 14, 2017, Bank of America produced A.K.'s bank records, which reflect payments for Rio Poco Homeowners Association, Comcast Cable, Florida Power and Light bills and other local expenses. The complete records produced by Bank of America support the allegation that A.K. maintained and operated a Florida-based bank account making local payments throughout the time period requested by the subpoena from 2010 until the date of the service of the subpoena in June 2017. On February 23, 2018, A.K. filed his second motion to quash and a motion for protective order. [D.E. 35]. We denied both motions on March 16, 2018. [D.E. 38].

         On March 14, 2018, MTS entered into an agreement with Kara Burkut[2] to assign its right of recovery to a portion of the outstanding loan. On May 14, 2018, Kara Burkut filed its credit application for the assigned amount in the Russian bankruptcy case. Therefore, MTS seeks to join Kara Burkut as an applicant in this case with all rights to discovery that MTS has obtained thus far.

         II. ANALYSIS

         A. The Statutory Requirements of Section 1782

         The purpose of § 1782 is “to provide federal-court assistance in gathering evidence for use in foreign tribunals.” Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 247 (2004); see also In the Matter of Lancaster Factoring Co., Limited, 90 F.3d 38, 41 (2d Cir. 1996) (finding that the purposes of § 1782 are “equitable and efficacious procedures in United States courts for the benefit of tribunals and litigants involved in foreign litigation” and “to encourag[e] foreign countries by example to provide similar assistance to our courts.”) (internal citations omitted). The statute “is the product of congressional efforts, over the span of nearly 150 years, to provide federal-court assistance in gathering evidence for use in foreign tribunals.” Id. at 248.

         Pursuant to section 1782, a United States District Court, upon the application of an interested person, may order a person residing or found in the district to give testimony or produce documents for use in a foreign proceeding:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation. The order may be made pursuant to a letter rogatory issued, or request made, by a foreign or international tribunal or upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court. By virtue of his appointment, the person appointed has power to administer any necessary oath and take the testimony or statement. The order may prescribe the practice and procedure, which may be in whole or part the practice and procedure of the foreign country or the international tribunal, for taking the testimony or statement or ...

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