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(Reuters) – A federal judge in Philadelphia ruled on Friday that British attorney-client privilege law cannot shield communications between lawyers from Dechert’s London office and two ex-clients accused of participating in a scheme to defraud a French and Kuwaiti joint venture of its $800 million investment in an Iraqi telecom.
Is your head spinning yet?
Welcome to Section 1782 litigation, in which parties involved in “a proceeding in a foreign or international tribunal” are entitled to ask U.S. courts to order discovery under Title 28 of the U.S. Code.
As you surely remember, federal appellate courts are divided on the question of whether Section 1782 encompasses private foreign arbitration. The U.S. Supreme Court was supposed to resolve that circuit split this term, but ended up dismissing its case when the dispute became moot. The justices will consider another petition asking the court to determine the reach of Section 1782 case at their Nov. 19 conference.
The Dechert privilege dispute is a good example of the breadth and complexity of the issues that U.S. courts confront in proceedings invoking Section 1782, which one of the lawyers in the Dechert case called “an all encompassing discovery vortex” and a “a court-endorsed sledgehammer.” (Mixed metaphors, but evocative.) If the Supreme Court ultimately blesses the use of 1782 by parties in private overseas arbitration, I expect U.S. judges will see more and more of these international brain teasers.
In the Dechert case, a joint venture of French telecom Orange SA and Kuwaiti logistics firm Agility Public Warehousing Co KSCP went to federal court in Philadelphia in 2019 to request a subpoena for Dechert documents allegedly relevant to the joint venture’s International Chamber of Commerce arbitration(and a contemplated UK action) against the directors of an Iraqi mobile telecommunications company, Korek Telecom Co LLC.
The joint venture, Iraqi Telecom, told the Philadelphia judge that Korek’s directors basically hijacked their money by bribing Iraqi officials to strip the joint venture of its investment in Korek, allowing those hundreds of millions of dollars to be redirected to the joint venture’s erstwhile partners in the mobile telecom business.
The joint venture’s lawyers at Quinn Emanuel Urquhart & Sullivan contended in the 2019 application for Section 1782 discovery that the bribery scheme included the purchase of two expensive houses in London, allegedly on behalf of corrupt Iraqi officials who aided Korek’s directors. Dechert’s London office represented the nominal purchasers of the London properties. Quinn Emanuel argued that the joint venture needed discovery from Dechert to investigate the alleged use of straw men buyers to hide the true beneficiaries of the real estate deals.
U.S. District Judge Barclay Surrick of Philadelphia granted the ex parte petition in December 2019. Quinn Emanuel then subpoenaed Dechert for the London client records. Neither Dechert nor its ex-clients in the London real estate transactions moved to quash the subpoena, even though the 3rd Circuit has not yet decided if 1782 encompasses private foreign arbitration. (The 4th and 6th Circuits have ruled that it does, splitting with the 2nd and 7th Circuits.) The ex-clients’ new counsel from Hangley Aronchick Segal Pudlin & Schiller turned over more than 700 documents to the joint venture’s lawyers.
But the ex-Dechert clients claimed that nearly 500 other documents were privileged – even though the clients themselves were the recipients of only three of the contested communications with Dechert. Many of the other exchanges involved an employee of the ZR Group SAL Holding, a Lebanese oil and gas conglomerate. Dechert’s ex-clients asserted that they had appointed the ZR Group employee as their representative in the real estate transactions. Her communications with Dechert, they said, were protected under the UK’s legal advice privilege, which covers counsel to clients’ agents.
Quinn Emanuel asked the Philadelphia judge last November to compel Dechert to turn over the documents, despite its former clients’ privilege claims. Quinn told Surrick that the evidence in hand already showed that the London house purchases were a sham. Why, Quinn asked, were senior Dechert partners and “a small army of other lawyers” involved in the deals? And why was ZR Group – which allegedly has ties to one of the Korek directors accused of misappropriating the joint venture’s investment – in the middle of the purchases?
The disputed documents, Quinn argued, didn’t involve legal advice to the nominal house purchasers, but business advice that served to enable fraud. Regardless of whether U.S. or UK privilege laws guide the analysis, Quinn said, the documents aren’t protected.
I should say here that I emailed Dechert spokespeople about the case but didn’t hear back, nor did I receive a response to email queries to Kristin Tahler of Quinn Emanuel, who represents the joint venture, or Robert Ebby of Hangley Aronchick, who is counsel to the ex-clients.
Ebby’s brief opposing Quinn’s motion to compel argued that U.S. courts simply have no connection to this dispute, which involves London lawyers, British clients and allegations of fraud involving an Iraqi telecom. “The breadth of Iraq Telecom’s view of this nearly unlimited power to compel discovery is extraordinary,” the brief said. “It encourages this court to construe Section 1782 … to compel any international law firm with a United States office to turn over the firm’s foreign offices’ client files and communications, without affording the foreign clients any right to object.”
Surrick, as I said, sided with the joint venture. Because the ex-clients failed to offer expert affidavits explaining British privilege law, he said, U.S. law applies – and under U.S. law, communications involving agents, surveyors and other third parties aren’t protected. Only the three direct communications between Dechert and the ex-clients, Surrick said, are privileged.
The judge said Dechert must turn over all of the other documents by Nov. 9. The ex-clients have filed an appeal at the 3rd Circuit.
The Supreme Court will someday decide if parties like the joint venture can use Section 1782 in private arbitration. But that answer is probably going to be too late for Dechert and its ex-clients.
Opinions expressed here are those of the author. Reuters News, under the Trust Principles, is committed to integrity, independence and freedom from bias.
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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