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Commercial Division Holds That Russian Law Restrictions on Document Discovery Do Not Absolve Russian Party From Responsibility to Produce Documents

The Commercial Division regularly hears suits involving foreign parties, in part because contract parties, anywhere in the world, can choose to have a dispute heard by the Commercial Division as long as the transaction at issue concerns $1 million or more.[i]  However, the Commercial Division’s rules sometimes provide for more extensive discovery than would be allowed in a foreign party’s home country.  And in some instances, the Commercial Division’s rules may even provide for discovery that would be illegal in the foreign party’s home country.  Justice Andrew Borrok’s recent decision in Starr Russia Investments III B.V. v. Deloitte Touche Tohmatsu Ltd.[ii] provides an illustration of how the Commercial Division may navigate this thorny issue.

In Starr, plaintiff Starr Russia brought suit against several entities associated with Deloitte.[iii]  Starr Russia alleged that, in reliance on Deloitte’s reputation, it invested approximately $110 million in Investment Trade Bank (ITB), a Russian joint stock company, and then chose not to exit its ITB investment due to reassurances from Deloitte.  When the Central Bank of Russia revealed that ITB was insolvent and ordered another Russian bank to take it over, Starr Russia lost the entire value of its investment, and thus Starr Russia sued Deloitte for fraud.[iv]

The case survived a motion to dismiss and proceeded to discovery.[v]  On October 23, 2019, the Commercial Division ruled on half a dozen pending discovery motions, one of which concerned Starr Russia’s motion for an order to show cause for an order compelling Deloitte-ZAO, a Russia-based Deloitte entity, to produce documents located in Russia pertaining to Deloitte-ZAO’s relationships with ITB, Starr Russia, and other Deloitte entities, as well as Deloitte-ZAO’s business activities.[vi]  While Deloitte-ZAO produced some of the requested documents, it asserted that it could not make further productions of responsive documents due to confidentiality restrictions imposed by Russia’s Auditing Law, Banking Law, and Personal Data Law.[vii]

In support of its position, Deloitte-ZAO proffered an affidavit from an expert on these Russian laws.  The expert explained that the Auditing Law restrictions likely did not apply because of an exception for disclosure attendant to court proceedings.  However, the Banking Law and Personal Data Law prohibited the disclosure of the documents and information sought unless it was produced with redactions required by Russian law, and certain documents about bank operations that had been provided to auditors could not be produced at all, even in redacted form.  Nevertheless, all of these documents could be produced with the consent of their custodians.

The Commercial Division ordered Deloitte-ZAO to (1) seek consent from ITB and other custodians to produce the documents, and (2) at the very least produce the documents with “appropriate redactions” as required by Russian law.[viii]  Thus, the Commercial Division would not require Deloitte-ZAO to violate Russian law by producing unredacted copies of the documents—but nor would it allow Deloitte-ZAO to escape its discovery obligations by asserting that Russian law placed certain restrictions on disclosure. 

Starr Russia is not the first case to address the effect of foreign law on discovery in U.S. litigation, but it does provide a good example of the Commercial Division threading the needle between the broad right to discovery under New York law and a narrower right to discovery under the laws of a foreign party’s home country.

By Benjamin F. Jackson and Muhammad U. Faridi

[i] See N.Y. Gen. Oblig. Law § 5-1402.

[ii] No. 652251/2017, 2019 BL 412459 (N.Y. Sup. Ct. Oct. 23, 2019).

[iii] These entities are collectively referred to in the post as Deloitte.

[iv] Starr, 2019 BL 412459, at *1.  Starr Russia also sued for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and negligent misrepresentation.

[v] Id. at *1-2.

[vi] Id. at *7.

[vii] Id. at *7-8.  These laws are “(i) Federal Law of the Russian Federal No. 307-FZ "On Auditing Activities," dated December 30, 2008 (as amended) (the Auditing Law), (ii) Federal Law of the Russian Federation No. 395 1 "On Banks and Banking Activities," dated December 2, 1990 (as amended) (the Banking Law), and (iii) Federal Law of the Russian Federation No. 152-FZ "On Personal Data," dated July 27, 2006 (as amended) (the Personal Data Law).”  Id. at *8.

[viii] Id. at *8.